High Probability Trading Strategies

Today many markets besides Forex trade 24 hours. Almost all traders chart the 24 hour data.

Let’s use the ES for an example. The futures market closes at 4:15 PM, EST, 15 minutes after the NY stock exchange closes. The Globex futures reopens at 4:30PM, EST. But, there is very little volume. Most days, volume drops overnight to 5% or less of the volume during the day. In some cases on an hour by hour basis, the volume overnight is only about 1% of the day volume. Should the overnight trading be charted if the volume is dramatically lower than during the “pit” session hours? A better question might be should you chart data only for the pit session hours and ignore the overnight session data as irrelevant?

The answers from my point of view are Yes and Yes. Chart both the 24 hour data and the “pit” session hours data separately. Each will provide useful information.

Interestingly, momentum cycles usually continue at about the same cycle length and intensity though the night even though the volume and range of the trading drops off significantly. So, you definitely want to consider the 24-hour data if doing momentum cycle analysis. Probably the most important reason to chart the “pit” session only hours data is if you consider pattern such as Elliot wave patterns as part of your analysis. The ID patterns are usually much more evident on the “pit” hours data only than if the overnight data is included which includes all the “noise” of the low volume, low range overnight trading.

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Here is a question I often get: “Today’s low on my daily data is different from today’s low on my ID data. What’s up with that?”

Everyone should know how their data supplier constructs the daily bar for “24 hour” electronic market data. Here is how eSignal does it and I suspect most other data suppliers.

24-hour market Daily Bar using the ES as an example: ES trading is halted from 4:15-4:30 EST for a maintenance period. The daily bar open is when the electronic market reopens at 4:30 EST. The daily bar close is 4:15 EST. The daily bar high and low is the high and low from 4:30PM ti 4:15PM the following day. Since part of the daily bar represents trading from 4:30PM the prior day through mid-night the prior day, what is shown as the high or low of the day may actually have been made the previous day.

If we look at the ID data, the time and price of the high or low will represent the actual day it was made which may be different from the day of the “daily” bar if the high or low was made between 4:30-midnight the prior day.

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Move your mouse away from the controls so the bottom part of the chart is visible during the video. I’ll figure out next time why it is shaded. Probably have to resize the produced video.

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“Any man who thinks he can be happy and prosperous by letting the government take care of him, better take a closer look at the American Indian.” — Henry Ford

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