When to Trade What, Part 2 of 3

[PristineTrading 10]

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. That is the point of this article.

 

When to Trade What, Part 2 of 3

 

That was the opening paragraph last week in part one of this three part series. In the last letter we looked at some 'pre market' organization, and we discussed the first reversal time, 9:35 (all times are Eastern, New York, 'market' time). We then mentioned the next two reversal times, 10:00 and 10:30. This week, we will talk about those two key times, as well as the beginning of the 'lunch hour'. Next week we will conclude with part three.

 

There are 9 micro reversal times. 4-5 of them are major and critical. Also, understanding HOW to use them and HOW they interact is imperative. Let's look at the morning reversals, 10:00 and 10:30: There is also a minor reversal time at 11:15. It is simply amazing how many traders do not use the reversal times to their advantage. This probably spawns from the fact that many traders do not even know or understand them. If you are one of those traders, you are going to learn something that will change your trading career in the next couple of paragraphs. A picture says a thousand words, so look at the charts below.

 

 

 

 

These are the three five-minute charts of the QQQ from the last three days, period. We generally give the reversal times a window of 5-10 minutes on each side. The key is when the Pristine Buy or Sell setup occurs, at the approximate time. The yellow 'stars' show the two major reversal times we are discussing. They are all happening 'right on the money', though they do not need to in order to be effective. Note two things. First, the second chart is slightly off on the 10.30 reversal, but the 10.30 low was only pennies off the low of the day, and again, it is the buy setup that happens once in that area that matters. Second, these charts are simply that last three days. They are not the result of a special search. If you continue this exercise on your own, you will be astonished. Most other days are even more amazing.

 

Note, that the 10:00 and 10:30 major reversal times form a reversal, every time, and one of them usually sets the high or low for the day, or at least for the morning. This is typical of what you will find every day. Again, no effort was used to find these charts for this article. The only time this is not 'amazing' is when we have 'power trend' days that do not really reverse at all, and that is because the very definition of a power trend day is that the market carries a trend one way all day. Sometimes these days don not begin until the 10:00 reversal time puts in the first reversal, but these power trend days are rare; usually one every other month.

 

Don't believe it? No problem, go take a look for yourself. Go print out a bunch of five-minute charts. Print them from the market, the futures, or your favorite stocks. Print some from this week, some from a month ago, some from two months ago. It does not matter. Then go through and draw vertical lines at 10:00, and 10:30. You will be shocked and amazed that virtually every day, you have drawn lines though the high and low of the day, or at least the high, until much later in the day.

 

And you thought trading was tough.

 

The next time period to look at is the beginning and ending of lunch. These times can change a little depending on if the market is 'trending' or choppy. Generally, the last true move ends around 12:20. We often count lunch as starting at 12:00, but if there is a strong trend in place, it may follow through until 12:30. On strong trend days, the last reversal around 1:30 often sets the trend back in place. If it is a choppy market (80% of the time), lunch may stay choppy, until the 2:15 reversal time. This one is usually in stone, and the whole lunch concept, as well as the afternoon reversals, will be discussed next week.

 

Paul Lange

Vice President of Services

Pristine Capital Holdings, Inc.