With the equity markets trading at four-year highs, one would
assume the volume would also be keeping up. However, that is not
the case as depleting volumes are trading at five year lows.
In Part I of Gaming HFTs
, I pointed out that computer driven algorithm and high frequency
trading programs account for upwards of 70% of the actual daily
market volume. These programs strike in spurts at specific price
levels to magnify price movement at the least cost. This has
resulted in a market environment that sees massive volume in
compressed periods of time before returning back to light volume.
In essence, this market produces thunderous volume generating
fast momentum, which then falls off a cliff to tumbleweeds.
Thunder and tumbleweeds is the new market environment.
The major pitfall of this environment is stepping into that
riptide of volume by chasing price and then getting trapped in a
position, when the volume and liquidity dry up. Chasing thunder
and getting trapped in the tumbleweeds is the common pitfall in
The trick to is to exit into the thunder before the
tumbleweeds set in and then stay out of the tumbleweeds. While
thunder can strike on any given stock at any given moment during
the trading day, the market in general tends to have one single
constant specific period of thunderous volume daily, that is the
The first 45 minutes of the market open from 9:30-10:15am get the
most volume of the day consistently, with the exceptions of FOMC
rate decision days. It's the first opportunity for the general
public to react to news and developments. Many key economic
reports like ISM, CPI and Michigan Sentiment get released in that
time period. The volume tends to peak and then get second wind up
after the initial period from 10:15am to 11:00am. That first 90
minutes is where the thunder forms and turns to tumbleweeds. This
is where the biggest windows of opportunity exist to make profits
and quickly. More importantly, this period also allows for
opportunities to recover losses just as fast, if one is assertive
enough. When one mousetrap fails, another one can be utilized
during this window.
After the 11am hour, the opportunities fade as the volume and
liquidity fades. This doesn't means prices don't move, they just
don't move in a trade-able way as choppiness and wiggles tend to
overwhelm on light liquidity. Although volume tends to pick up in
the last hour, much of the transparency in the markets has
already been generated so the price movement can be just as
Hours and even days worth of price movement can be found
during this period and that's where traders should focus on. In
this market environment, when you trade is even more important
than how or what you trade. A day's worth of gains can be made in
a 10-20 minute time span, which frees up the rest of the day to
pursue other activities. That's something everyone can
appreciate. Tip the odds in your favor and stick to the thunder
periods (9:30-11am) and avoid the tumbleweeds.
(c) 2012 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.