The monthly S&P500 Emini futures candlestick chart has not had a pullback in 14 months. This has...
The Best (and Worst) Times to Trade
09/05/2011 8:30 am EST
Fausto Pugliese tells the specific times of the day that he has found to be the best windows for trading, the times when he sits idle, and also what types of trade set-ups he favors.
Traders feel like they have to be trading if they’re in front of the computer, especially if they’re full-time traders. Our guest today is Fausto Pugliese. He’s going to talk about whether that is the best thing for your trading account, and when to trade and when not to trade.
So Fausto, when’s the best time of day, first of all, to be a trader?
Well, the best time to trade is…you’re not supposed to trade every day. Trading, if it’s not there, the best trade is not to trade.
You only trade when the market obviously has some volatility in it, and then basically just capitalize on those movements.
I know a lot of traders who are very successful trade maybe just the first hour and the last hour; what about that strategy?
You know, it’s funny, I actually designed a clock that shows you the best times and the worst times to trade.
When I trade, I only trade within the first hour of the morning; sometimes within the first 30 minutes, because that’s where you make most of your moves. The stocks have most of their action, and then more or less right in the last 30 minutes of the close; sometimes even in the last 15 minutes.
You have to understand that when the market opens up, there’s a lot of orders from the day before—pre-market orders out there—and they can’t get filled until the market opens up, so you have a big influx of orders coming in, so it’s a lot easier to follow that wave.
Once that wave starts to settle down, obviously, the markets are slowing down, so you’ve got to be really careful trading, specifically in those lunch-time time frames.
Some people would say that a newer trader should actually avoid that first 30 minutes because it is so volatile. What are your thoughts there?
That’s not true. The reason people would say that is because maybe they’re trading a different way or they haven’t been taught a way to trade the market.
For example, if you’re a swing trader, I totally agree. You shouldn’t be trading (the first 30 minutes) because maybe you’re dealing with technical analysis, and obviously, by the time those things kick in, you can’t really evaluate what the direction is and you’re kind of chasing it.
But when you’re a momentum trader or you’re a daytrader, those are the only specific times that you realistically need to trade.
NEXT: How to Effectively Trade the First and Last Hour
Now, in that first hour or last hour, or anytime during the day, actually, I know that you look at support and resistance.
What’s a good level for you? Is it the previous day’s high or close, or something along those lines? What is your favorite thing?
Well, I mean, you’re basically looking for heads and shoulders. You’re looking for the majority of those heads and shoulders, and then what you try to do is you kind of look at the Total View (software) and see where you see those big support and resistance levels.
See related: Chart Patterns Every Trader Should Know
See if there are any big buyers and sellers that have those limit orders out there, because they will have limit orders out there, and by seeing that, that’s where, pretty much, it will give you a game plan for where to get in and where to get out.
All right, so if you see a support level that is a previous day’s high and you also see a big block of shares in Total View that people are coming in at that level, that’s a good indication that you want to step in front of that?
That’s exactly right, and then sometimes you might even…some of these stocks gap down so much, I mean, you see some stocks up 30%, 50%, 40%, or down the same amount in a day.
Sometimes those previous days don’t work; you have to sometimes go back in history and go back sometimes two or three years. I mean, for example, General Motors (GM), we had to go back 60 years to find support levels at $1—which it had—and it bounced there.
So sometimes you’ve got to go back as far as you can, especially with these big stocks that gap up and gap down.
Finally, on the percentage gainers and losers, which I know you like to use as well, you may have a $5 stock that’s up $1 and it makes it to that list, but because of the price share and the volume, would you ignore that or would you actually take the trade?
No, I absolutely listen. The less expensive the stock, the less risk for you.
I personally like to trade less-expensive stocks. Those stocks are known to be less risky because they’re less volatile.
Listen, if you deal with a $50 stock, the chances are a $50 stock will still go down 50 or more points, and not only that, we deal with better and more experienced traders, and you need more capital.
So if your goal is to make a day’s pay, if you’re looking to make, for example, $0.20 a day, if a $5 stock moves $0.20 or if a $50 stock does it, it’s still the same $200. The big difference is cost and risk capital.
Related Articles on STRATEGIES
Matthew Kerkhoff, options expert and editor of Dow Theory Letters, continues his 14-part educational...
Profit from a market by capturing a trend. Money management is key. The battle is often from within,...
Has Mr. Market (S&P 500/Equities) priced into too much positivity, while inflation remains at ba...