Several trading programs for sale online propose to identify market patterns that emerge for a short period after the market opens and precede a short period of upward volatility. Traders have also researched potentially profitable trading patterns in the overnight market -- the two trading periods preceding and following the standard market day. For several reasons, it seems unlikely that an individual investor can make money using this information.
Hourly Trading Strategies
Numerous day-trading strategies for sale online depend upon identifying upward-trending price patterns during certain trading hours that allow the trader to make more than ordinary profits with rapid in-and-out trades. These strategies have intriguing names: "flip tops," "trap doors" and "the never before revealed Opening Gap Pullback Strategy!" The general import of this and similar online advertisements for trading strategies is that an expert will fill you in on easily executed tricks of the trade that will make you a mint with little expense of time or effort.
No Evidence of a Pattern
Despite all the hype about rapid-trading schemes, a thorough online search of the academic literature on stock trading does not reveal any academic studies pointing to hourly stock market trading strategies that produce more than ordinary profits. The pressure by universities on academic economists to produce publishable research assures that every facet of market behavior has its own article -- and for important topics and insights, often several thousand of them. Confirmation of hourly trading patterns would be an important finding. The absence of any published research on hourly trading strategies implies that no economist has been able to verify the utility of any of these advertised hourly trading methods.
In the absence of rigorous academic research identifying potentially profitable hourly stock market patterns, traders' blogs covering daily trading patterns provide some interesting data-based insights. One interesting online article by Eric Falkenstein observes S&P 500 daily opening and closing prices in both the intraday and overnight markets from 1993 through 2011 and notes that almost all gains over that period occurred in overnight trading. The intraday gains were essentially flat.
Pattern vs. Convention
Other traders have confirmed Falkenstein's data, which suggests that you might trade profitably by buying a broad market index at the after-market open and selling shortly before the pre-market close. A Bespoke Investment Group article published in June 2011, however, compared the intraday and overnight trading results over the previous 12 months and determined that in that period market gains of 16.2 percent were distributed evenly over the intraday and overnight trading periods. Moreover, during March 2011, losses were in the overnight market and gains were intraday. This points to another problem with pattern identification as a basis for trading: It's comparatively easy to discover trading patterns after they've occurred but difficult to identify them in time to profitably trade on the information.
Video of the Day
- TradingMarkets: Many Professional Traders Consistently Make Money During the First Hour of Trading … and So Can You!
- Falkenblog: Another Overnight Return Puzzle
- EliteTrader: What Percentage of the Market's Historical Gains Are Made Intraday?
- Bespoke Investment Group: Overnight vs. Intraday Market Returns
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