The Intra-day Pattern
The chart below reflects the average intra-day pattern of the market. This is an excellent starting point, but it gets even better as the data gets broken down on a day of the week basis. That is then re-assembled into a composite average week.
The chart is based on about 950 days of data from 12-2002 to 4-2007, Dow, 10-minute data.
Key Times / turning points during the Day
- Positive Opening action is more common
- 10:30 AM first hour low, but rally isn't really apparent until closer to 11:00
- 12:40 PM lunchtime high
- 2:30 PM low, but the rally doesn't really get going until about 2:45 to 3:00 PM
Knowing the natural rhythm of the day can be of assistance when establishing or closing positions regardless of duration. the best times to buy are 10:30 and 2:30 while the best times to sell are around 12:45 to 1:00 PM, and on the close.
Note: 14:30 = 2:30 PM
Taking it a step further:
Breaking it down by Weekday
This chart, based on the same data, breaks down the intra-day pattern by day of the week.
- Tuesdays & Wednesday seem most consistently higher after first hour cycle runs its course.
- Fridays tend to be weaker until the final hour of trading when prices come on the strongest.
- Thursday the 2:30 PM tends to get going sooner rather than later in the day.
- Wednesday is the lease likely to fall off to a first hour low.
Putting it all together into a one week time frame:
I was a little surprised surprised by the overall orderly shape of this one once fully assembled.
With this knowledge, we can refine the statement 10:30 AM is the best time to buy to: 10:30 on Tuesday is the best time of the week to do new buying. I find this remarkably interesting because the for some reason I deemed Tuesday as the best day to send out the PRS Weekly hot line updates, and now I know why.
Thursday afternoon or Friday afternoon is probably the best time to close positions.
Now for some extrapolation: If Tuesday's afternoon rally is unable to better Monday's mid-day highs, that is probably a sign of weakness, urging some caution over the balance of the week.
It is vital to understand the natural cycle of the markets, especially for very short-term traders. Simply knowing when the most likely time for a change to take place can help temper attitudes, especially in less frothy markets. At the same time, this is a composite average based on years of trading. More often than not, the price action will deviate from the average, but those key turning points, Monday PM low, Tuesday 10:30 AM low, Thursday closing high and Friday closing high are significant points for the the day's action.
Notes on the data used:
The data used spans from 12/17/2002 through April 2007, which works out to 966 days of 10-minute data. There are some half days and holidays included and when there was no price change the data is ignored. While the Dow, S&P 500, and NASD tend to move in varying degrees, when taken over such a long period of time, the laws of averaging tend to catch up. The point being, if you ran the same calculations based on S&P 500 data, the end result is expected to be virtually the same.
The Dow was 8607 on 12/17/02 and it was 12,550 in April. The average daily gain over the time period is: 0.0425%
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