Taking Turns: Money for Nothing, Reversals for Free

Ok, I admit it. The title’s a riff on a lyric from the old Dire Straits song Money for Nothing. You’ve probably heard it, or maybe you wish you hadn’t. Either way, it’s relevant because I often see traders talking about “the 12:00 turn”, or “the 9:00 turn” or a reversal that’s supposed to magically materialize at specific times of trading day. Of course, the implication here’s that if you only knew about it ahead of time you could place (or close) your trade and rake in the coin. You know… money for nothing, chicks for free.

So I decided to ask and answer the questions. Can you get money for nothing? Are chicks really free?

Methodology

For this study I took the last 90 days of 1 minute data from each of the instruments in below, used the Acme Zig Zag to export the swing data then graphed it in Excel. The only real variable in each of the instruments is the setting for the minimum swing size. I wanted to filter out the itty-bitty ones and still end up with sample size (aka “the N”) that could product statistically significant results.  So I experimented a little with each instrument until I came up with a minimum swing that produced somewhere between 1000-2000 swings over that 90 day period. The specifics are in each section below.

All times are Pacific/UTC-8.

 

CL – West Texas Intermediate Crude Oil

  • Minimum Swing Size: .2 point
  • Sample Size: 1706

CL definitely has a tendency to reverse in the 8:00-8:20 window, as well as the 11:00-11:30 window. Some other notables are the long poles near the half hours between 6:00-7:30… the first 90 minutes of the session.

 

ZB – US Treasury Bond

  • Minimum Swing Size: .1 point
  • Sample Size: 1961

ZB has several common reversal times, the 5:30-5:40 window being the most prominent with other notables around 6:00, 7:00 and 11:45 – 12:00.

ES – S & P 500 Index

  • Minimum Swing Size: 5 points
  • Sample Size: 1762

Because the US equity indexes have the most significant cash-versus-futures session of all the instruments in this study it’s not really surprising that the most prominent reversal times are the open and close of the cash session. But it’s worth calling out the cluster of times from 9:00-9:15 AM as well as 11:15-11:40. There are some other long poles in there that tend to coincide with clock times,but honestly, they’re probably not frequent enough to call an edge. One thing I can say, though, is that ES operates on a rhythm not really apparent in the other instruments.

NQ – NASDAQ 100 Index

  • Minimum Swing Size: 15 points
  • Sample Size: 2501

NQ’s the rowdy kid. It starts the cash session kicking and screaming, then settles down considerably. As with ES, there’s a cluster of regularity around 9:00 and then another 11:15-11:30. This shouldn’t be too surprising –  there’re a number of stocks in common with these two indices.

 

RTY – Russel 2000 Index

  • Minimum Swing Size: 3 points
  • Sample Size: 2057

Like NQ, RTY’s also a pretty violent out of the session gate. Many of the names in this index are not particularly liquid, so it’s not really a shock that this thing is basically a mosh pit that settles down after not too long. After the initial herks and jerks, the 6:50-7:05 and 7:30-8:15 windows yield a lot of swings, though I’d be hard pressed to say this is specific enough to trade with or against. Like the other stock indices, that 11:15-11:40 window has something to it. Buy and sell programs are tending to start up in this window once Wall Street gets back from their 3 Martini lunches.

Conclusion

Money for nothing? Chicks for free?  Probably not, sadly. But is there enough regularity in these instruments that you should be paying attention and be ready to act during significant time windows? Absolutely.

 

Until the next time… trade ’em well.

Come and Get It

The compilers are still smoking hot, but we’ve dabbed enough sweat off our brows to release an update to the Acme 8 suite. This is a pretty big one… it includes lots of new features, a couple small fixes, two brand spanking new products and one mega package:

  • The Balance Zone is a new and simple way to view and trade balance areas and profiles
  • The Volume Zone is a simple and very handy way to analyze volume and watch it become support and resistance
  • By popular request we’ve released a new Ultimate package, which is pretty much the whole Acme 8 product enchilada

As always the low-down on this update is in the Change Log.

The Summer Savings Event Is On

Summer only comes once a year (sadly) and so it is with our dog-days savings event. But both are here now… use coupon code SUMMERSAVE18 at checkout and enjoy sweet savings of 20% before the popsicle melts away on August 17th 2018!

Ding Ding! Order Up!

Ok, today we’re once again done slinging bit hash (for now)! We’ve released an update to the Acme 8 suite that includes several enhancements, some minor bug fixes as well as 3 (mostly) brand-spanking new products:

  • The Value Candles are back (see the Acme 7 Volume Profile VPOC). We think the new name’s a lot catcher.
  • The Zig Zag is back too!
  • Last but not least, we’ve released our first-ever custom bar type. Many of you have seen me use the Acme Range-Rebound bars on my charts and asked how you can get your mitts on some. Well, the wait is over.

The full low-down on this update is in the Change Log. Check it out, if you’re into reading that kind of stuff.

Until the next time… trade ’em well, amigos!

Acme 7 Maintenance Release

Today we released a suite-wide update which included several minor fixes and security standards upgrades. Get it here.

Another Order Up!

We did it one more time… probably the last suite update of 2017! This round includes a bunch of new features across the suite as well as a few minor fixes. Check out the product pages for some new bullets chart pics and, as always, the down-low on the update’s in the change log.

2 New Instrument Spotlights Added

Just like the title says, we added spotlights for West Texas Intermediate (WTI) Crude Oil Futures contract and the (nearly) new E-mini Russell 2000 Index Futures contract. Check ’em out…

 

Order Flow: A Crash Course – Part 2

Every now and then I see a comment or quip where it seems pretty clear that a trader might not really get it. By it, I mean liquidity… aka order flow. Not being judgmental here, the term itself is confusing. I mean there’re a couple very different aspects to order flow and that’s really the cause of the muddle.

Active vs Passive Order Flow

There’s “active” order flow and then there’s “passive” order flow. Active order flow’s the volume that’s actually traded. Traded volume can be called active because it requires a market order (a willingness to pay the spread) in order for a limit order on the other side to be matched and traded out of the order book. The source of the market order can be considered an aggressor. And then there’s passive order flow – passive because it’s basically an advertisement for business. It’s telling the world I have x number contracts or shares to buy or sell at a given price. These orders are telling the world come and get me… if you’re willing to pay the spread.

So this confusion’s understandable. I like to call the active variety of order flow traded volume or tick analysis and call the ebb and flow of orders in the market depth book what it is… order flow proper.

Key Questions

To that end, in Part 2 (click here for Part 1) I want to show a good example from today in NQ of a counter intuitive order flow concept: liquidity attracts price.  You can use this concept to help you answer (at least) three fundamental, objective questions:

  1. Are buyers/sellers responding to available liquidity?
  2. What’s the potential for price continuing to move in the same direction?
  3. What’s the potential for price to stop or reverse?

An Example

Below we have a chart series spanning 2 hours from about 7:45AM PDT to 9:45 AM PDT, and it pretty clearly shows how order flow can reveal to you what’s about to happen.

1. Just before 8:00 significant bid liquidity steps into the market and sellers begin responding. Bids are added, sellers continue to eagerly respond and drive down through the bids:

 

2. As price moves down, bid liquidity notably dries up around 6215. Offers also dry up very briefly at the same time. This can be an important clue for a cessation of hostilities, or a turn in a swing with power. Astute readers will notice what develops as price bounces from 16ish…

 

3. This move has passed 25 handles in just a few minutes. Some late sellers decide they want in (or out, we don’t really care which), but buyers aren’t reacting. Sellers now start to move at market and press price down another 20 handles in 15 minutes.

4. Notice the difference between the first leg of the move (above) and this one? Yeah, the bids are LESS and the offers are MORE. This liquidity imbalance is a clue that something is likely to happen. You guessed it. It’s about to attract price, but the other way round.

5. After a brief liquidity drought (get it?) new bids step in near 6200 and then begin using market orders to lift the offers for a fast 15 handle rotation the other way.

 

That’s it for this installment – hopefully it’ll be less than a year until my next installment. In the meantime… trade ’em well.

New Feature – Market Spotlights

OK, I’ll be setting out new trays of delicious data snacks over the next few weeks covering a wide range of instruments. I did a series of instrument studies a over the years that were quite popular (archived)… but they were incredibly time consuming to create, so I didn’t do a lot of ’em. Well fast forward to the widespread adoption of HTML 5 and all kinds of new doors suddenly open. One of these newly opened doors is the easy-to-make fancy graph, and so naturally I sauntered right through. These graphs It made these spotlights much more realistic to create, share and keep up to date.

The first spotlights are shining brightly on 4 popular futures instruments:

Hopefully these are both illuminating and enjoyable. Until next time, trade ’em well…