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Good Morning All: If the title sounds a little confusing, it was meant to. The issue to be discussed today is not just 'when' to trade. There are trades that can be done any time the market is trading. That does not mean that you should be trading all day long, it just means that the times you pick to trade can be any time, IF you know what to trade. These next three articles will discuss this issue, and are geared toward the 'intraday trader', not the swing trader. When to Trade What, Part 1 of 3 The comment above said that trades can be done any time of the day, does that mean even lunch? Yes. While it is often much discussed 'not' to trade lunch, part of that statement is left off. Do not trade lunch, unless you know how to trade it. Lunch is the time when many traders get into trouble, because they do not realize that many things will not act the same during lunch as they do during 'non-lunch' times. The first issue to consider is the volatility and target expectations. If you could give a 'volatility rating' to the market, or stocks in general, it would look like this. If things move '1' during lunch, they move '3' between 2:15 and close, and move '5' between open and noon. If you do not realize this, targets will be unrealistic and lead to frustration. Before Open: So how do you focus your time? For many people, the time spent between 8:30 and 9:30 may be the most productive (all times are Eastern, New York, market time). Preparing your watchlist, forming a gap list, and starting a market bias can be key to how your day goes. Get ready for the open by picking the best of your favorite stocks, the best of your daily watchlist, and the best of your gapping stocks and know how you will play them, if at all, before the market opens. The First Five and Thirty Minutes: Very few traders realize the power of reversal times, or the power of having the knowledge of how to trade each part of the day. Most traders, who play trends and breakouts, should not even be playing the first thirty minutes of the day. Look at your records. The chances are that you have a very low batting average for trades taken during the first thirty minutes. The only trades that should be taken during the first thirty minutes are based on gaps or other very special strategies. The 9:35 reversal time is one of the most reliable, yet few traders realize its power. Many get stopped out of plays, rather than profiting from, the 9:35 reversal. The above chart shows an example of a price pattern that gapped bearishly, sold off hard for less than two minutes, and turned around so quickly, most traders who mistakenly tried to short the move down suffered losses. Knowing that this flurry move down offers a buying opportunity on a regular basis when played on the right stock can turn potential losers into big winners. Once the five-minute reversals are over, many stocks have solid moves into the 10:00 reversal time. This reversal time can run anywhere from 9:50 - 10:10, but the power move usually comes closer to 10:10. Trends between 9:35 and 10:00 are usually very reliable, if backed by a strategy. However, 10:00 or 10:30 are the reversal times that often set highs or lows for the day. Stocks that do not reverse at these key times may go on to be 'power trends'. Paul Lange Vice President of Services Pristine Capital Holdings, Inc.
In this Chart of the Week (COTW), I want to show why one trader who is focused on swing-trading would never consider buying and another that is focused on intra-day trading would. However, both traders would initially view the chart as bearish and both may have it on their watch list for a short sale the next day. In the above daily chart, we see a stock that has broken down under Major Support (MS), the 20-MA and the 200-MA. While the stock did form a Bottom Tail (BT) on the break lower, it never was able to trade above that high for several days. Over those days of basing, the stock formed two Topping Tails (TT) as buyers tried to get the stock above the 200-MA. With the formation of the last TT the price action did suggest that the stock would move lower and possibly the next trading day. For that reason, both the swing-trader and the intra-day trader would have a bearish view. Based on what had occurred at this point, the swing-trader would never consider buying stock with a chart like this the next day regardless of what it did at the open. However, the intraday trader having an understanding of gaps, multiple time frames as well as how bearish traders have become trapped would be willing to buy the stock in the short-term under the right conditions. Let's look at what it at the open and did happen. Rather than move lower at the open, the stock gapped up a small amount, rallied and closed above prior resistance and the daily TTs. To the intra-day trader this is a clear breakout with a Tradable Void above. It's a great long setup for that trader! The next step for the intra-day trader is to find an entry, which could be a Pristine Buy Setup (PBS) a Pristine Breakout (PBO) or any bullish pattern confirming the bullish breakout and signal of higher prices that should come. A textbook PBS formed at the 10 o'clock reversal period signaling that buyers did in fact step up on the pull back and prices were ready to move higher. While we cannot know for sure that prices would move as high as they did, there was the tradable void, so there was nothing to stop that from happening. Once the gap was filled, the odds increased that the stock would retrace then. Above is the completed daily chart of Altera Corp. (ALTR) as of the close on Friday February 1st. It's still not attractive for a swing trade, and at this point it's not of any interest to an intra-day trader either. It had a good day on Friday, but now the current pattern does not suggest good odds in either direction for either trader since the prior bearish daily price action has been neutralized and the gap filled. All the best, Greg Capra President & CEO Pristine Capital Holdings, Inc.