Using Market Tendencies to Your Advantage

I spent many years on trading floors, which led to lots of time in pubs and restaurants talking about markets with professional traders. In these post-market “meetings,” we discussed family, sports and other things, but most conversations focused on the day’s events and market tendencies. My friends and colleagues shared knowledge that shaped their trading style.

Our discussions frequently included favorite patterns, technical nuances and reactions to fundamental data. One friend liked to countertrade a market if it moved 50% of an average day from the opening price. Another trader bought or sold the 30-year bond whenever it hit the number 10 because the market often reversed when that price traded. 

Over the years I compiled a list of tendencies that are in my “Trader Toolbox.” Here are a few of my favorites:

  • The low or high of the day is made within the first hour of trading 70% of the time.
  • A first-hour range is frequently about 50% of an average day range.
  • If the first-hour range is below average after three to four days of below average day ranges, the odds significantly increase for an extreme vertical move.
  • An overbought/oversold situation arises when a market reaches an average week range in 48 hours.
  • When the speed of a move reaches overbought/sold, the next day range is often 75% of the norm.
  • A consolidation phase often begins after a six- to eight-day trend then thrusts twice the length of a standard day range. Some call this an exhaustion day.
  • Violent vertical moves are common after fundamental data are released. If the move is higher, a 50% retracement typically becomes a support area and if the move is lower, a 50% bounce frequently provides a resistance zone.

These axioms can enhance timing for entry and exit of positions whether speculating or setting longer-term positions. 

John Seguin, Market Taker Mentoring

Trader Education