As an educator I have made assumptions that new traders already have a good understanding of market fundamentals. The more I teach, the more I realize most traders have not experienced trading pits and the valuable lessons we were privy to in that environment. Looking back, it was a privilege to watch the auction process in its most basic form, a trading pit.

When I started my career at the Chicago Board of Trade, my title was “runner.” Basically, I did whatever the rich guys told me to do. Getting lunch, buying an anniversary card for someone’s wife and appearing in court for someone were just a few of the chores. When it came to my actual job, maybe the most valuable task I had was to fill out a “players card.”  

When I think back, I was a spy. To fill out a players card required me to get info from the broker’s assistants of the top 10 Wall Street firms and then ask them to reveal who was buying and selling and how many contracts were involved. After computing the total buys and sells, I would report the findings to the boss. It seemed inane to me at the time. But, in fact, my job was to gather this intel and report to my superiors, who would relay these data to traders around the globe.

They were seeking an edge. An edge could be gained simply by knowing what direction the big money was favoring. If the order flow showed that bids or buy orders were coming from top 10 firms, positive momentum would be revealed early. On the other hand, if sell orders outweighed bids, lower prices were probable.

A trained eye could gather a wealth of information from a trading pit, but that info is no longer available. Therefore, we must find a way to get that real-time info using charts to gain that edge.

One way to find the players who move markets is to track the most liquid times of day. Large orders to buy and sell are usually executed in the first and last hour of the regular trading day. These are the most liquid periods because volume peaks around those hours.

When the high for the session is made in the first hour and the low occurs late in the day, chances are the market will continue lower during the next session. And if the low is made early in the session and the high late, higher prices are apt the next day.

As traders we all seek an edge and endeavor to catch trends early. If we are aware of when the market movers are trading and what they are doing it should allow us to enter trends early and exit them late.

John Seguin, Market Taker Mentoring