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110

for cattle. The left scale of the chart shows the ftequencj of occurrences and the bottom shows the time of day. A hne appearing in the top half of the chart indicates price movement in the direction of the opening price (from the prior close); the lower half shows a reversal trend. Measurements were first taken every 5 minutes and later everj" 15 minutes, due to a more variable price direction near the open.

TABLE15-1 MerriUs Hourly Stock Market Pattems iStinn ffodin Scssjqti

1962 1963 I9M 1965

Figure 15-2 shows that follow-through in the direction of the opening price slows down immediately and by 9:30, 25 minutes after the open, the price direction has usually reversed. There is a subsequent steady change in direction back and forth throughout the day. This pattem is remarkably similar to Merrills stock maiket obsen-ations.

By showing two consecutive dajs of cattle price movement. Table 15-2 demonstrates how the data was accumulated. Although the table actually used 5-minute intervals fi-om 9:00 to 10: 15 and then 15minute intenals fi-om 10: 15 imtil the close at 12:45, Table 15-2 is summarized in half-hour increments. If Fridays closing price was 45.00, Mondays open of 45.15 was indicated by a "+" for absolute direction and an 0 for opening direction. Any half-hour interval showing a price rise was marked with the relational sj-mbol 0 and a reversal with an X. Tuesday opened lower, but the opening direction is stiU given as an 0. Every inten-al that followed with lower prices is in the opening direction and is marked 0. Adding the 76 test days together resulted in the scores shown in Table 15-3.

Knowing the direction of the price movement does not mean that trading these inter\als will be profitable. To e\aluate the potential, it is necessarj to know the approximate size of the price move; the inten-al can then be selected with the greatest potential for movement in the direction of the timeof-day pattem. By obser\ing Figure 15-2, the inten-als to study can be picked fi-om the tops and bottoms of the cjcles:

SelsaedTime Intervals

a. Opening to 9:20

b. 9;20 to 10:00

c. 10:00 to

d. 9-20 to II 0

e. 9:20 to 11-00

f. 12 0 to closing

FIGURE 15-2 Intraday time pattems, June 75 cattie.



TABLE 15-2 Accumulating Time-of-Day Data

Oireciion

Direction

Time

Price

framtost

framOpen

MomJoy

9:05

45-15

9;30

45.25

10:00

4510

10:30

45 05

11:00

45.20

»

11:30

45 30

12:00

45.40

12:30

4530

Tuesday

9:05

45.25

9:30

(10)

4SJ5

10:00

(II)

45.45

10:30

(12)

45.40

11:00

(13)

4SS0

11:30

45.40

12:00

(15)

45.20

12:30

(16)

4505

For each mter\al, the average range from high to low (volatility) and the net result of this span (additive bias) were measured without considering the relative direction that was used to create the cur\e of time pattems. The results, shown in Table 15-4, indicate that the narrowest ranges, (b) and (c), were eady in the day moving only a total of 14 points. The combined period (d) was 21.7 points, 50"o greater than the individual periods (b) and (c). Figure 15-3 describes the hkely combination of the intervals

The results show a midmoming drift that nets a total of 4.6 points in the direction of the opening price, and a maximimi potential profit of 21 points by entering a position between 9:20 and 10:00 and then liquidating between 10:00 and 11:00. During the test period, the magnitude of the cattiemove did not appear worth the risk, but the same pattem might be profitably nded in a maricet with higher value per point.

When trjing to find other maricet pattems, it might be best to observe only stronger or weaker openings. For example, a gap open of 5 to 20 points in cattle would indicate a potentially more volatile day allowing greater price reactions. More imiform results can be expected as seen in both the reversal pattems and gap analjsis, which appear later in this

TABLE 15-3 Tune Reversal Pattems*



9:35

10:05

11:15

9;10

9:40

10:10

11:30

9:45

10:15

11:45

9:50

10:30

12.1

9:55

10.45

12:15

9:30

10:00

12:30

Close

re « 1 look >t June 1976 catd* thowed v«ry timikir rciula.

FIGURE 15-3 Caffle price ranges, 9:20-11:00 A.M.

qes (b) ») Icl

-1-r~

chapter. Restricting trading to dajs of higher volatility will reduce the trading opportunities but improve results.

Trading the Early Pattems

The best opportunity for trading against the tiend would be 5 minutes after the open. The opening momentum that carries prices fiirther in the opening direction can be used to ad\antage without waiting After 20 or 30 minutes, the opening reversal should have occurred, and a trade may be entered in the same direction as the opening but at a more favorable price.

Relating the OpeningTrade to the Prior Day

Another analjsis performed on the time pattem chart was a correlation to determine whether the period fi-om market open to 9:20 (15 minutes), related to the prior days direction, could help predict the direction of the tides during the current day. The I5minute interval was chosen as sufficient time to react to results and place an order. The two situations distinguished were the relationship of the first trade to the prior dajs direction and the direction of the early trading, using the first 15 minutes. Because the same 76

TABLE 15-4 Summarized Time Data

rtme

Averaise Additive Points Move<S in VWoi% Bias DireaionofOpen

a. Open-9:20 17.3

b. 9:20- 14.3

c. - 14.2 d 9 0-11 0 21.7

e. 9-20-12:1X1 25.8

f. I2:00-Close 19.6

44.9 +44

+1.5 +.6

+3.7 +3.9

+5.3 +4.6

+7.2 +3.3

+3.2 -1.2



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