All Times of Day Are Not Created Equal

Brett Steenbarger

On Monday, as the market traded in a relatively narrow range during the afternoon, my first thought was to stay with a long bias. The specific thought that crossed my mind was that the NYSE TICK was displaying net buying interest and price extremes--highs and lows for the day--tend to occur early and late in the day.

As it turned out, that is exactly what happened as we closed near the day's highs.

In his excellent book The Logical Trader, Mark Fisher notes that the high and low prices for the day are not evenly distributed as one might expect if price changes were entirely random. Rather, days tend to see their high and low prices toward the beginning and ending periods of the day. These are the times that also tend to be most volatile and that show the greatest volume, owing to higher participation by large traders.

I took a look at the last 36 days of trading, going back to the beginning of September. We made the day's high price during the first half hour on 12 of the 36 occasions (33%), even though the first 30 minutes of trade comprise less than 10% of the time in a trading day. We registered the day's high price during the first hour of trading on 19 of the 36 occasions--a bit over half--even though that only represents about 15% of the trading day.

During the same 36 trading sessions, we made high prices for the day during the final hour of trading on 9 occasions (25%), which means that the daily high occurred during the first or last hour 28 out of 36 times--over 75% of the time.

How about daily lows? These occurred during the first hour of trading on 7 occasions and during the last hour 14 times. This means that 21 out of 36 times--almost 60% of the time--the low for the day fell during the first or last hour of the day.

Of course, September and much of October saw falling stock prices, so it is not too surprising that we more often saw daily highs early in sessions and daily lows late in trading. Indeed, one definition of a trending market might be the tendency for daily price highs and lows to cluster early or late in trading. If we can use indicators, such as the NYSE TICK, to identify trending environments, knowing the odds of making daily highs or lows late in the day can be quite useful in holding positions. That's what happened on Monday.

And how about the midday hours? We made daily price highs during the 11:30 AM - 1:15 PM ET time frame only one time in those 36 sessions. Daily price lows occurred six times during that same period. Thus, even though the midday hours comprise 33% of the trading day, less than 10% of price extremes occurred over that period.

When prices make early highs or lows and cannot move beyond these in early trading, I label those extremes "candidate daily highs" or "candidate daily lows". And when prices make new daily highs or lows in the midday period, I entertain the hypothesis that the ultimate daily highs or lows have not yet been put into place. That worked on Monday and, if Mark Fisher is right, might be worth keeping in mind going forward.

Bio:

Brett N. Steenbarger, Ph.D. is Associate Clinical Professor of Psychiatry and Behavioral Sciences at SUNYUpstateMedicalUniversity in Syracuse, NY and author of The Psychology of Trading (Wiley, 2003). As Director of Trader Development for Kingstree Trading, LLC in Chicago, he has mentored numerous professional traders and coordinated a training program for traders. An active trader of the stock indexes, Brett utilizes statistically-based pattern recognition for intraday trading. Brett does not offer commercial services to traders, but maintains an archive of articles and a trading blog at