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We know day traders who found success by concentrating their
attention only on the final 60 minutes or so of each market session.
Essentially, they pick out their target stocks early in the day and
casually monitor them from 9:30 a.m. until around 3 p.m. ET. Then
they really go to work in that final hour and pocket the same
profits that other day traders did in 6-1/2 hours–sometimes more.
They like the final hour because the market tends to make strong
moves heading into the close, and they profitably follow the trend.
They prefer the final hour to the opening hour which also produces
many strong moves but is so busy and so potentially volatile that
the risks are too high for their level of tolerance. Anyone who has
been caught in a "gap and trap" between 9:30 and 10 understands.
There are serious swings during the final hour, but they tend not be
as violent as they are at the open. Most important, there are plenty
of opportunities to trade.
Why? It can be as simple as workers going to lunch on the West
Coast. Remember that 3 p.m. on Wall Street is noon in Los Angeles,
San Francisco and Seattle. With a three-hour time delay, people who
are just hitting lunch time often run to their telephones and
computers to make trades. If you watch the "tape" at that time slot,
you will see an increase in activity.
The last half hour of the trading day is the time when the market
pros do
their best work. Funds that want to buy generally do it during that
time slot,
and last-minute buy/sell imbalances are straightened out. A
significant number of program trades also kick in.
During a down session, there is often a temporary rally when short
sellers buy stock to cover their profitable positions. The rally can
last until the final bell if the short sellers quickly "flip" to
long positions to take advantage of the upward momentum. On up days
there tends to be a stretch of weakness when long players sell stock
and take profits. In most cases it's a momentary decline and the
indexes head back up.
As the market ran toward DOW 10,000 in 2003, we experienced many
sessions when the indexes appeared ready to collapse into a long-
overdue correction. But in the final hour the unseen hand of the
government's "plunge protection team" apparently appeared to buy
boatloads of futures, leading to a surprisingly positive close.
And there are folks like us adding to the momentum. Quite a few
traders make their day trades based on only the last 20 minutes. If
the market is running into the close, for example, it is a very good
bet that the leaders will gap a bit the next morning. Late-day
traders buy or go short in the final 20 minutes and sell or cover
into that gap with a nice little profit shortly after the opening
bell.
During the session, there are signs that point to the direction of
the final hour. Market breadth is important. If advancing stocks are
far ahead of decliners and many issues are hitting new highs,
there's a good chance that any rally will continue into the close.
Also important is the put-call ratio. For example, if traders are
loading up on call options that increase in value when the
underlying stock rises, you can be confident that many individual
stocks and the indexes will run in the last 60 minutes.
Keep in mind that final-hour trading is effective during typical
market sessions that are dominated by economic reports and the
collective action of institutions and individual investors. An
outside event like a terrorist threat or natural disaster will roil
the markets and make the closing action quite unpredictable.
For more nightly trading tips:
http://clix.to/wallmann
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