Monitoring Trading Momentum to Gauge Trends

When prices severely overlap over a few sessions and the day ranges are below average, odds favor a breakout. When a direction is established we can monitor the strength and likely continuation of a trend using a couple of short-term indicators. One of the most reliable direction indicators requires watching the highest volume time of day. Consistently, the first hour of regular trading hours provides the most liquidity. It is during this time that institutional traders typically execute orders. After all, they are the force that moves markets.

In the chart below, the first hour of trading is displayed using yellow boxes. Note that during the trend higher the low for the day was made in the first hour of trading. When a market opens above a previous day’s value area (colored rectangles) and makes a low in the first hour, it signifies that buyers are in control and the rally typically extends.

Another indicator that signifies whether a trend will continue is how the market closes out the day in relation to the fair or high-volume price. The macrograph below shows the same copper chart as above only using bell curves or profiles instead of bars. These charts display time at price and reveal where buyers and sellers have transacted most often. In other words, each profile shows the high-volume or fair price.

Notice during the rally that the closes (the second most liquid time of day) are above the high-volume price of the day (HVP). The combination of a low made in the first hour and a settle above the fair price is a sign that a rally will extend.  On the other hand, when a high is made in the first hour and the close is below the high-volume price, a decline in price frequently ensues.

John Seguin, Market Taker Mentoring

Trader Education