As an educator I have made assumptions that new traders already have a good understanding of technicals and 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. In addition, I learned many lessons in fundamentals by watching the impact economic reports had on price action.

Looking back, it was a privilege to participate in the auction process in its most basic form, a trading pit. Professional traders tend to execute large trades during the highest volume periods. Generally, liquidity is highest near the open and close of a trading day. Thus, the strongest directional signals come in the first hour and the last 30 minutes of the trading session. The direction the market moves during those times reveals which direction the professional traders favor.  

Players Card

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

To fill out a players card required me to walk around the circumference of the pit and gather intelligence from the broker’s assistants of the top Wall Street firms. The task was to find out who was buying and selling and how many contracts were involved. After computing the total buys versus sells I reported the findings to the rest of the team. It seemed inane at the time. But in fact my job was to gather this intel and report to my superiors, who would relay these messages to professional traders around the globe. Sometimes the players card would sway a trader to enter, exit or add to a current position.

Chart Techniques to Gain an Edge

A trained eye could gather a wealth of information from a trading pit, but that info is no longer available since most trades are executed electronically and the futures pits of Chicago are vacant. Therefore, we must find a way to get that real-time info using charts to gain an edge.

In my career as a broker my biggest orders were executed in the first and last half hour of the regular trading day. For over three decades my preferred timeframe to track markets has been a 30-minute candlestick chart. I believe it is the tool that best depicts what happens in a trading pit.

On days when the high for the session is made in the first hour and the low late in the day, chances are the market will continue lower during the next session. If you viewed a candlestick chart, it would show a daily candle that has small wicks and large bodies. If the low is made in the first 60 minutes of the session, the market extends higher after that hour and the high is made in the last 30 minutes, higher prices are probable the next session. Conversely, bears are in charge when the high prints in the first hour, there is an extension lower after that hour and the low for the session comes in the last 30 minutes. In this case lower prices are probable for the next session.

As traders we all seek an edge and endeavor to catch trends early. If you are aware of when the market movers are trading it many enhance your timing for early entry in a trend and exit when the trend reaches exhaustion.

John Seguin, Market Taker Mentoring