Trading Environment ZT

One of the worst problems with traders is over-trading a tight range and light volume market period. Perhaps, since the action seems so slow, traders tend to believe it is less risky. The reality is that most of this time period is nothing more than noise that will at best chop you around for small gains and usually losses and at worst squeeze you or lean against you when the break forms on volume. Remember that the majority of the market day is comprised of noise. Traders need to realize this fact and get into a mindset of filtering through that noise to be able to find and play the sweet spots.

Odds are most favorable in the opening hour-- it is your best chance for volume, momentum and channels. This is from 9:45 to 10:45am EST and has the most consistency as far as volume, momentum and tradeable channels. The first 15 minutes is for the more experienced traders as it can be very choppy. From 9:45 am to 10:45 am is very fertile time frame for action. Odds are more favorable for active traders. Just like when you play Blackjack and the shoe is full of face cards, that’s when you want to be playing. A fertile environment may be a faster market because of the volume and momentum but it is much more forgiving than many traders think because when you are wrong, there is enough action to be able to reverse the trade and still make gains.

Many traders make the mistake of waiting until all the action slows down before making their first trade, usually in that dead zone, from 11:30 am to 2 pm -- this is a big mistake. When you have volume and momentum, you can easily reverse the trade if the premises reverse and not only make back losses but profit even more. However, in a dead zone period, you may end up taking a stop only to reverse at an exhaustion level with no more up-side. In other words, you don’t get the opportunity to make back losses in slow periods. Dead zone is also notorious for consolidations and tight channels with light volume. This results in a lot of false break attempts that are guaranteed to chop most traders right out.

(Excerpts from Interview With Jea Yu)