When all trades were executed in pits at the exchanges, it was a clear advantage to be on a trading floor because we could see who was buying and selling and how much. When the institutional traders were bullish the market went higher, and if they were bearish it went lower. When professional traders move in groups, their bids and offers far outweigh those of short-term traders or speculators. They move markets.

My goal is to identify when and where professional traders are operating because doing so early increases the odds for catching the onset of a trend. Vital information from a trading floor is no longer available, so we need to find a method that will help identify which direction the pros favor.

Large trades tend to be entered when liquidity is at its highest. The first and last hour of regular trading are typically the high-volume periods of the day. On most days, the high or low is made within the first hour of trading. An early low and an extension higher after the first hour is a strong indication that professional traders are buying. Conversely, when the high of the day is made in the first hour of trade and the market extends below that first hour low, it indicates that sellers are in control of momentum and lower prices are likely over the next day or so. Another solid indicator for recognizing momentum is where the market closes in relation to the extension after the first hour of trade.

It is normally a very bullish sign when the low is made in the first hour with an extension higher later in the day, along with a close above the price where the extension higher began. Conversely, a high made early in the day with an extension lower and a close below the extension price is a strong signal that the pros are bearish.

Understanding the dynamics of short-term directional signals will enhance your timing for entering longer-term trends early in the cycle.

John Seguin, Market Taker Mentoring