I knew an S&P 500 pit trader, Greg R, who was arguably the fastest person in that pit and he made a lot of money because of it. He was very proud of the fact that only worked 1 hour per day - the final trading hour of the day. He was a big believer in the old Wall Street adage: "Amateurs trade the opening, and pros trade the close". How he made his money made intuitive sense to me because I was experienced at trading using volume and time distribution. After studying MarketProfile for only a short period of time I learned that later in the session was better because by virtue of time you have more definition to work with. After several hours into the session it's much easy to see how that day's trade is shaping up because you can see which structure - support or resistance -- price is respecting, which levels are building value and gauge price behavior relative to the current and previous patterns. Another advantage of avoiding trading in the first half of the day is you avoid most of the news releases. If you trade through a news release your risk increases.

(click to enlarge)Figure 1. Best Times to Day Trade

I thought of Greg the S&P pit trader, and that old market adage about pro's trading later in the day after completing a study over the past year on what were the best times to take signals for the benchmark method we use. The results consistently showed that it was better to be taking signals several hours after the market had opened. For U.S. stock indices the most optimal times to be taking signals (the method is based on selling rallies in downtrends, or buying dips in uptrends) was after 1 PM EDT - the S&P 500 also showed a tendency toward giving favorable signals right around 11 AM EDT. Likewise in taking signals in the Yen the best times were after 10 PM EDT, which again was well after the Tokyo opening. And in the Euro it was the same thing. While just after the London open was not a bad time to trade, we were presented with trade set-ups and signals with more favorable risk rewards after 6 PM EDT which is a full 3 hours after the London opening. That lower risk per trade also showed up consistently when taking trades several hours after the market's open. The graph in Figure 1 highlights those time periods with X's when we saw the most favorable results for buying dips in uptrends and selling rallies in downtrends.

Something else we found out which is counter- intuitive is the majority of our winning trades were taken during low volume periods. When volume is low it means trade is not being facilitated which means price is not being accepted at those levels which is a harbinger of a market reversal, which is what we are looking for. The study is just another reminder of the importance of education and patience when it comes to trading.

Jay Norris the author of The Secret to Trading: Risk Tolerance Threshold Theory. To see Jay highlight trade set-ups and signal in live markets go to: Live Market Analysis.

Trading involves risk of loss and is not suitable for all investors.