Brett Steenbarger Ph.D., is Associate Clinical Professor of Psychiatry and Behavioral Sciences at SUNY Upstate Medical University in Syracuse, NY and author of The Psychology of Trading (Wiley, 2003). He writes alot about statistical behavior and interesting tendencies in the markets and the perils of not knowing them. More of his bio appears below.
The article - while worth the read - can be boiled down to the falling observation and conclusion. The observation is based on studying 36 days of stock price behavior in which he notes that
"the daily high occurred during the first or last hour 28 out of 36 times--over 75% of the time."
"When prices make early highs or lows and cannot move beyond these in early trading, I label those extremes 'candidate daily highs' or 'candidate daily lows'. And when prices make new daily highs or lows in the midday period, I entertain the hypothesis that the ultimate daily highs or lows have not yet been put into place."
Bingo. That's something that can be modeled in Trade-Ideas. Inspired by his idea of the highs and lows made during the session probabilistically may signal more to come, I decided to create a scan that would find such candidates. I added a few requirements to make sure my results were stacked more towards the desired outcome. I started with a strategy called, “Highs Yet to Arrive.”
How It's Modeled:
The basic filters were:
1. stocks must be at least $5
2. daily average volume of at least 400,000/shares/day
3. reasonable maximum spread of 10 pennies
Some additional filters to increase probabilities of a trend were:
4. stocks had to be up 2 days in a row prior to today
5. the minimum current (i.e., relative) volume (as an index) must be at least 1
With these filters defining my universe I selected the two alerts that would tell me my candidate stocks broke out of the early hour trading ranges (and thus maybe headed to a high during the last hour of the session):
The 30 and 60 minute opening range breakouts (http://www.trade-ideas.com/Help.html#ORU30).
Who Could Benefit:
I think intraday traders will benefit the most from this strategy. If a stock alerts to a 60 minute opening range breakout during the session, the strategy suggests entering a position with the intent of leaving it sometime during the last hour of the day. Remember that these set-ups are sketches meant to give you an idea how to model your own trading plan. Use this 'as is' or modify it to your own liking as many others do.
Here is the full bio on Brett Steenbarger Ph.D.:
Brett N. Steenbarger, Ph.D. is Associate Clinical Professor of Psychiatry and Behavioral Sciences at SUNY Upstate Medical University in Syracuse, NY and author of The Psychology of Trading (Wiley, 2003). As Director of Trader Development for Kingstree Trading, LLC in Chicago, he has mentored numerous professional traders and coordinated a training program for traders. An active trader of the stock indexes, Brett utilizes statistically-based pattern recognition for intraday trading. Brett does not offer commercial services to traders, but maintains an archive of articles and a trading blog at www.brettsteenbarger.com.
Here is his review of Trade-Ideas