What a Wild Ride!

Since you watch the market a lot you must have some ideas about times of day that certain types of trading tends to develop. I hear a lot of recommendations like fade the opening half hour, market runs counter the day trend in the second last hour of trading, in the last hour the market trades with the day trend, etc. Also I would think you have some ideas where the market might reverse course course on a short term basis. Sounds like a lot of fun and I like your idea of trading 1 contract breaking in.


.. It’s almost like the locals are expecting the news that is coming, good or bad, and trade ahead of everyone else—then they fade the move. It takes balls, but that’s how it looks to me. ..


They probably hedge somehow I would think but it does seem like you should be able to think of some way to bet on volatility when the news hits.

The afternoon stretch is rather long. This makes buyers you are front-running tough to pin down to a time. So if 10 traders are front-running 10 buyers, it is very easy for those ten traders to all get out and back in, by self-triggering, before the buyers show, which of course adds new buyers at the low on the traders' way out.


If there have been exacerbated selloffs towards the close a few times in the last couple weeks, a slight down blip may be all the justification buyers need to postpone their orders the whole way to the close. This leaves trend traders flailing in the vacuum, which just reinforces the buyers' arbitrary decision to postpone.


As such, when real sellers show up out of the middle of nowhere, mid-afternoon on an up-day, it's a very tough read. The best way I have discovered to make this read is to watch for where the buyers who missed earlier in the day might be getting filled.


In other words, if the downtrend is being exacerbated by their postponement, there shouldn't be a lot of "two-way" on the way down. If there is two-way, and the lower price holds or resumes, that means the buyers got filled. And you can either choose to assume there are still more sellers, or that it will be chop.


So far as the opening range, or half hour or hour, that is a constantly-changing beast. As fashions in trend trading change, the popular way to interpret the first hour, and therefore the correct contrarian way to interpret the first hour, vary. In general, the pockets of underlying buyers and sellers in the first hour are huge, so you can't not scalp them, just because everyone else does.


If any of you have ever raced sailboats, the first hour is a lot like the starting line, a congested madhouse, but worth the effort. Where I start to look at it is the morning tail. Meaning on a day that goes anywhere at the open, eventually the number of traders riding it may shake itself down to a final, sort of longer-term number by mid morning. And then I like to see if the price goes sideways and they either stay in or get filled before lunch or, if they end up marking it down on themselves.


So far as how to "trade volatility" when news hits, most of the time the reaction is about right-sized, and it can't be done. I think it is only when the news is really surprising that a fast-trading opportunity presents itself. I generally am so terrible at trading news, to where my final conclusion is almost to just do the opposite of what I normally do when news hits.


The most reliable way to predict major turning points is by major turns. This may sound silly, but often the best way to call the end of a trend is by the size and speed of the pullback relative to prior pullbacks in the same trend. Meaning, your signal is so expensive in terms of the amount you have to give back to get it, a lot of people are reluctant to take it, when only a moment before they could have done so much better.


eLROY