Jun

15

At what point in the day do stocks reverse direction? The Chair mentioned after lunch. In theory it should be when there are more buyers than sellers, or the momentum of buying over whelms the downward pressure of sellers. Traders, like many other organisms, tend to move in herds, or try to follow. Whether it follows through to a reversal, like just now, or whether it is a head fake prelude to further drops is important to distinguish within one's time frame. It is important to catch the turn at the cusp rather than after confirmation when it is probably too late to capitalize efficiently. The data can signal those points in real time but there seem to be about 3 or 4 things or more going on at once in terms of forces at work or data streams to consider and factor in. It seems also to be a computational capacity problem and data flow issue. That's why I've always thought a 3 dimensional approach would be helpful.

The other big problem is to weed out the big trend days and not get caught under the falling knife. One thing I use to try weed out those trend days are the 10:1 updn signals that Marty Zweig talks about as signals, but not in the same way.

Kurt Sprecht writes: 

Untested on my part, but if the morning has been somewhat variable (i.e., no large increase or decrease at the open which holds in a tight range), there often is a reversal during the Eastern time zone lunch hour. My apologies for lack of specificity or corroborating data. 

Paul Marino writes:

My insomniac tendencies have noticed liquidity changes at the 3am euro open for S&P globex. Really starts at 1 am but by 3 is when it gets over 5k volume per 5 minute bars as Europe opens. An anonymous smart speclister had mentioned a couple months back the different openings in the FX throughout the day. I concur and see it in the S&P too. 1 am, 2:30 am, 3 am, 8 am, 9:30 am, 11:00 am, 1:30 pm, 3:50 pm, 4:05 pm, 8:00pm.

Paolo Pezzutti writes:

I find Paul's observation very relevant and I have noticed that at least some of these time of discontinuity have regularities. The activity picks up some minutes before. There may be predictive value in it but likely very short term.

anonymous writes: 

In response to "traders move in herds": You have the herd, yes, but then you have the cliff. More and more "optimal execution" algos for firms running large money are actually designed to spot the short term herd and use that to get into positions in the opposite direction. I'm under the impression that this has become extremely prevalent in equities, and is the main cause of much of the new normal price movement characterized by many traders as having "lack of follow through". I've recently used the understanding of this characteristic in my own design of algos with good success. (I am a discretionary, short-term hedge fund trader and newly turned quant).

anonymous writes: 

There is a lot of variation between markets. As we know, futures and equities are very different beasts. Even between equities there are large distinctions. In the less liquid stocks I like to accumulate intermediate to long term positions in, I have found that the algorithms that exist to exploit small orders (what appears to be Market makers blocking competing orders) and accumulate position algorithms are extraordinarily stupid. The only issue for the trader is, if you note this and take advantage of it systematically, it is almost certain to be some form of criminal act. As we have seen, the manual trader is not allowed to exploit or beat the dumb algos of big firms. One other thing I have found is on certain days it seems that relatively small aggressive orders can change the trend of the day as (it seems) some algos look for others to establish a bottom level that amazingly they then seem to defend and even accumulate from. Note this is not really short term trading stuff, more notes I've made when buying my list of stocks. 

anonymous writes: 

This trader has the questionable habit of buying at the highs and selling at the lows to see what kind of (paper) is around. I've never been able to follow the herd, instead I try to re-direct it in my market.
 


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