Why You Should Trade the First Hour

By Charles Holt, CTA

Statistics tell us that the great majority of the time, one end of the daily price range of the S&P 500 occurs within the first hour of trading! Consequently, if we can place a winning trade in the first hour of trading, we'll have terrific trade placement. If one of those 2000+ point trending days occurs, we'll have a big payday.

On days that persistently trend 1200+ points, it's critical to get aboard the move early. Why? Well, after the market has trended 800+ points, most traders are anticipating the reversal and are very reluctant to go with the trend.

By trading the first hour, I usually do not mean the first 25 minutes or so; this period's bid-ask spread (also known as the opening bulge and amateur hour) is too great and price frequently reverses around the 9:00 Central Time Cycle Timing point. We should therefore usually not enter before 9:00. Sometimes, there may be compelling reasons to enter earlier but this is usually a mistake.

Market Turning Points - Price Action

There are certain price patterns that can substantially help us determine market reversals. Observing these potential reversal points in conjunction with the Cycle Turning Points and the Support/Resistance Tables found in the Overnight Update can substantially increase our profitability. Some of these price actions indicating reversals are:

A doji at an intermediate high or low associated with a sharp rise in volume. (See Candlestick Patterns - an Overview for further information on Doji)
A one, two, or three tick new high or new low.
A sharp rise in volume.
A penetration of a Bollinger Band.
A quick market move up or down with little or no follow through.

I strongly suggest that all traders consider the above factors prior to trade entry.

Additionally, statistics suggest that there are two periods during the day in which the occurrence of trends is most likely. These trending periods are 8:30 to 10:30 and 12:00 to 3:15 CST.

Also, be very aware that the market is fueled by volume. The market seeks out price levels where volume is greatest; i.e. where the stops are located. Where are the stops located? At the intraday highs and lows.

About the Author:

Charles Holt
Daytrader's Bulletin
http://www.daytradersbulletin.com
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