Wednesday, February 10, 2010

Why trading after 5pm is not that good idea?

Numerous followers of this blog asked me why we don’t take signals after 5:00pm and before 9:30am.

Market movement from 8:30am (ALSI open) to 9:00am (Top40 open) is very slow, with low volume and very often with very small range and, of course, gap. All those are pushed by “tape-readers” or traders who check US and Asian markets and then decided what to do. Probably more often than not they are wrong, trading without any kind of plan, basing their decisions on observations.

From 9:00-9:30am volatility increases with shares being traded and same process is repeated, this time with new observations when it comes to behavior of major indices on JSE. Traders and investors are keen to dump their shares or buy everything available because US last night was in red on green. Again, we have bunch of people making their decision based on emotions/observations, not on solid trading plan. In addition, during winter months in South Africa, European markets open at the same time as JSE, so that brings extra volatility into the mix.

So, I hope this explains why my system is not trading before 9:30am.

However, after 5:00pm all is completely different: US markets are open; volumes are high - so why not trade then?

I would refer you to two charts on the top. Those are equity curves for exactly same system based on end of the day data.

First equity curve represents system when signals are taken from ALSI chart and system is executed on ALSI. Trades are taken at 5:29pm if signals are given.

Second equity curve represents system when signals are taken from J200 chart and system is executed on ALSI. Trades are taken at 5:05pm if signals are given.

Just to remind all - Systems are exactly the same!

You can see vast difference between these equity curves. That is simply because trading ALSI after 5:00-5:05pm brings extra volatility to our market. Cash market is closed, so ALSI does not have to follow anything and big boys are moving contracts, pushing market up or down.

For swing systems this is no go zone and one can simply switch data feed off after 5:00pm if one does not have nerves to watch his positions.

However, I want to add that after 5:00pm conditions are ideal for scalping, because movements are usually very sharp, but that is not part of my trading tools, so I will leave scalping as subject to more proficient traders in that environment.

Trade with trend!


Shane said...

Thanks Igor, another good post!

Alsi Trader said...

Thank you Shane.
Glad you find it interesting.
Will try to keep it coming.

Greg said...

Hi Igor,

Thanks for the great posts - I really enjoy reading them.
With reference to your latest post, I note that your system only trades from 9:30am-5pm but your stop loss triggers include data from 8:30am-5:30pm. Is there any benefit in limiting the SL triggers to data falling in the 9:00am-5pm window only?

Alsi Trader said...

Hi Greg.

Thank you for the kind comment.

As an example:

We are Long and at 5:00pm system tells us to stay Long, but ALSI between 05:00-05:30PM makes new Low – We are going to enter that Short tomorrow if that level is breached (after 09:30am & if breached before 09:30am, we will trade at low of the day after 09:30am) - which means that we gave more than enough time to markets to sorts itself out – New Low given today which, if falls tomorrow (as described) means that we, probably, as per system’s uderstanding, have genuine effort for trend to change.

Hope this helps.

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