When to Trade What

Successful traders know that understanding the market dynamics during various times of the day is a very important component of profitable trading, which Paul Lange of Pristine Capital Holdings, Inc. discusses in detail here.

The market's first reversal time is 9:35 (all times are Eastern, New York market time). The next two reversal times, 10:00 and 10:30, are two key times that we will talk about here, as well as the beginning of the 'lunch hour.'

There are nine micro reversal times. Four-five 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.

Click to Enlarge

Click to Enlarge

Click to Enlarge

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 five-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 everyday. 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 do 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 through 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.

Traders who do not have clearly defined trading plans will not make it in this business; it is that simple. All plans should pay close attention to WHEN trades are being taken and factor in the power of reversal times.