this week's lesson.
At the beginning of my career, I found it incredibly useful to break down the market into three time zones that allowed me to see how they react and which patterns best fit each zone.
The first zone, and what I consider the most profitable, will be from 9 am to 11 am when intra-day trades are at the highest. Intra-day trades are made up of shorting into a bounce short, buying into a pullback, and multi-day breakouts. From 11 am to 2 pm, we have the mid-day zone that doesn’t see the same action because trades during this time aren’t consistently profitable and tend to work seasonally. And finally, late-day trades make up the 2 pm to 4 pm time zone when traders find more consistency than before, depending on the pattern they use.
The patterns that build ideal late-day trades are momentum shift, swing trade, first red day, and buyer insufficiency. However, my ideal time to trade is between 10:30 am, and 10:45 am because I want the chart to start forming a pattern I can recognize. Many beginners make the same mistake I did at the start of my career, which is letting your eagerness rush you into a trade. When you don’t know the volatility or potential spiking percentage of a stock and trade as the market opens anyway, it’s easy to take a loss. We also want time to see if the stock is trading sufficient volume.
If we see a stock trading millions in volume after opening but wasn’t trading volume in the pre-market, there’s not enough of a reference to estimate the day’s total volume.
90% of the time, we can calculate how much volume will trade throughout the entire day and also know whether a stock is crowded or not.
Identifying that a stock is crowded means you’ll have a difficult entry. It pays off to wait an average of 30 minutes to see where potential consolidations develop because that’s where you want to size in and take a shorting position. If you want to go long, it’s still appropriate to wait because when people chase into the morning breakout, the stock forces them to sell into the dip, and that’s your opportunity to size into a potential breakout.