Why Time Is Important in Trading
01/23/2015 6:00 am EST
Austin Passamonte of Coiled Markets highlights the various (pre-market and market) trading time periods from a statistical viewpoint to aid traders—specifically, crude oil futures traders—who wish to improve focus and better structure workdays in favor of highest probable odds for success.
Over the past 250+ trading sessions for crude oil futures, most directional moves in the overnight session were triggered between 4:00AM and 5:00AM EST. The next best pre-market slot was 8:00AM through 9:00AM EST into the opening bell. I found that surprising…but it’s statistically true. Most likely due to the frequency of 8:30AM EST economic news reports.
The time frame between 6:00AM and 8:00AM EST generated, on average, slightly less than two directional price swings per calendar week. In other words, six or seven price oscillations per calendar month, on average. This means crude oil traders who start their day near the 6:00AM EST mark will sit through three–four pre-market sessions with nothing to do, for the chance of opportunity inside the remaining one–two sessions of action.
That describes the pre-market segment of trading, ranked like this in order of relative directional price movement…
Crude oil traders intent on working inside the most optimal pre-market time frames would target 4:00AM EST start onward, or midnight through 6:00AM EST for an entire stretch of high-odds trading potential. Again, these statistics are based on an entire calendar year of the most recent crude oil futures price movement behavior.
In The Pits
Once the opening bell for pit session trading rings, the following time slots are listed most to least for frequency of directional price moves…
Once again, a few things stand out from this study. Most of the real, true directional moves happened between the end of regularly scheduled economic reports in the morning and again into the final 30 minutes of pit session trading to square up positions. Overall, the 2.5 hour collective time from 10:00AM to Noon and then 2:00PM–2:30PM EST had far and away the vast majority of directional price movement. All other hours combined, from midnight onward may have (at best) equaled these 2.5 hours of predictably concentrated movement.
Between the end of major econ reports and noon, then final minutes into the close of pit session trading. Where the majority of trading volume = directional price movement occurs. As you might expect, afternoon sessions are most active when the morning stretch has been muted and congestive in range. When morning periods are expansive, afternoons generally tend to be muted. Not always, there are sessions where mornings and afternoons are highly active. But again, that’s a minority of times, statistically.
Of course, it is true that anything can happen at any time in any financial market. I think that fact was emphasized last Thursday pre-market when the Swiss National Bank (SNB) made their historical franc currency decision without warning. But we cannot build entire trading careers around such outliers of action. We build careers structured around statistical odds of probability that place optimal conditions in our favor.
It’s common for newer traders—who are still fascinated by the whole trading = markets concept—to desire sitting through every possible waking hour of market movement. The human logic is, sit through it all and miss nothing. Well, after a few years (or months?) of that, traders realize for themselves the fact that long-term idleness, boredom, and unproductive actions degrades overall trading performance.
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No lasting benefit comes from sitting through long periods of sideways chop and erratic spikes in price movement, in order to be there when infrequent price moves actually unfold. I won’t bother preaching to the choir on this fact because you’ve either learned this already for yourself, or you are in the process of learning it now. Either way, we will all agree on that same fact, eventually.
So, with this statistical information in hand, I will structure my workday in favor of highest probable odds for success. Actively trading CL between the hours of 8:00AM and Noon EST, then again (if necessary) from 1:00PM through 2:30PM EST will be my own work schedule. Please feel free to structure your own active trading day as you see fit. If that includes an earlier start, later start, or both…great. Mine will be adjusted according to lifestyle demands first and potential price behavior second (in order of importance) going forward.
Above all else, my daily trading goal is +50 cents/ticks of greater (per single CL contract) and everything else is immaterial to that. Again, you are free to structure your own business plan and goals as you see fit. If my objectives are met in the first few minutes of a given session, great. If that completes prior to 9:00AM EST, great. If it takes until noon to happen, fine. If it takes the afternoon stretch right to the 2:30PM close for daily process to complete, that’s okay with me, too.
Trading to trade well or trading all day to see how many bazillion ticks profit can be made have no place at all inside my personal trading plan. I am totally seeking +50 cents/ticks ($500 per contract) daily and done as the personal trading goal.
Some days, that will not happen. I will finish with less than that, up to and including a -50 cents/ticks max capped loss. Other days will exceed +50 cents by various margins. The remaining days will wrap near +50 as successfully complete. Overall, if ten sessions out of each twenty per calendar month average +50 ticks, while the other ten sessions wash one another of losses and gains, that results in +500 cents/ticks compiled per month. I’ll personally settle for half that or even less, gladly. Who wouldn’t?
Part of the Plan
And last but not least…part of my trading operations plan is to grow, foster, and create a premiere crude-oil trader’s educational program. I have no idea what’s out there in the public realm now available to traders, but I believe we do offer a premium program now and that will continue to develop in the days and weeks ahead.
That age-old saying about doors closing and others opening is timeless and true. Recent changes in the FX market, if indeed there really will be a spot FX market at all going forward, along with utter collapse in Russell 2000 liquidity has guided me to a central focus of attention. For sure there are many other tradable instruments out there and quite frankly our CM Patterns method excels in any of them where you can actually get filled. By no means do I suggest that everyone in the world needs to trade any certain thing. But for our daily live program here, it will be crude oil trading until otherwise noted.
By Austin Passamonte of Coiled Markets