market is moving and when it’s snoozing.
BY THOM HARTLE
the trading day exhibit noticeable volatility characteristics by analyzing 10-minute price bars in the S&P 500 E-Mini futures (ES) between 8:30 a.m. and 3:10 p.m. CT, from Jan. 2 to March 31, 2003. This daily trading period coincides with normal market hours at the New York Stock Exchange (NYSE) plus 10 minutes (we will see if anything intere s t-ing occurs in the futures after the NYSE closes). The total historical analysis peri-od encompassed uptrends, downtre n d s and sideways price movement.
The total number of price bars over these 61 trading days is 2,440 — forty 10-minute bars per day. The narrowest price-bar range was .50 points and the largest was 15.00 points. (We are not concerned with direction, just the ranges of the 10-minute bars throughout the trading day.)
Intraday time patterns
Figure 1 (opposite page) shows the aver-age ranges for each 10-minute trading period in the trading day, beginning with the bar that opens at 8:30 a.m. and the final bar that opens at 3 p.m. The most volatile time of the day is the first hour of trading, when the 10-minute average ranges noticeably exceed those during the rest of the day as traders dis-count overnight events.
Table 1 (top) lists the average values for the first hour, and shows the largest average 10-minute range (4.46 points) is the period beginning at 9 a.m., which is likely because so many economic reports are released at that time.
Referring back to Figure 1, the average ranges taper down to less than 2 points at 12:10 p.m., climb again as the market nears the close, and finally drop off in the final few bars. It is safe to assume the combination of a lack of news and the lunch hour plays a role in the declining volatility during the middle of the trad-ing day in Chicago.
This initial analysis suggests the best trade opportunities are early in the trad-ing day. After all, markets are all about continued on p. 51
10.00 9.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00
Here the 2:20 period (plotted as a line) is compared to the 12:20 period (plotted as a histogram). The 12:20 range was larger than the 2:20 range 15 times (25 percent of all occurrences) the same day.
FIGURE 3 2:20 PERIOD VS. THE 12:20 PERIOD
Source: Excel; data from CQGNet 8.00
7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00
The 9:20 periods are plotted as a line and the 12:20 periods are plotted as a histogram. There were only six times (less than 10 percent of all occurrences) that the 12:20 period had a larger range than the 9:20 period the same day.
FIGURE 2 9:20 PERIOD VS. THE 12:20 PERIOD
Source: Excel; data from CQGNet
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The largest average 10-minute range (4.46 points) was the 9 a.m. period, which corresponds to when many economic reports are released.
TABLE 1 AVERAGE RANGES: FIRST HOUR OF TRADING
Time 8:30 8:40 8:50 9:00 9:10 9:20
Average range 3.62 3.68 3.60 4.46 3.54 3.32
Day
Day
price discovery, and the process is in full force as traders adjust to the release of economic numbers and individual sto-ries driving particular companies and market groups. As the trading passes the mid-point of the session, traders who may have held onto losing posi-tions likely will be forced out when volatility increases as the market nears the close, while traders on the right side of the day’s trend may see better profits with a little patience.
For a more direct comparison of high-volatility and low-high-volatility periods, Figure 2 (p. 50) shows the 10-minute ranges for all the 9:20 a.m. periods (the blue line) and the 10-minute ranges for all the 12:20 p.m. periods (the his-togram) over the 61-day analysis period.
There were only six times (just less than 10 percent) that a 12:20 p.m. 10-minute range was larger than the 9:20 a.m. peri-od 10-minute range for the same day.
The average range for the 12:20 p.m.
period was 1.99, and the number of times the range was 2 points or larger was 32 (52 percent). The 9:20 a.m. period was 2 points or larger 55 times (90 per-cent).
Figure 3 (p. 50) compares the 2:20 p.m. periods (the blue line) to the 12:20 p.m. periods (the histogram). The 12:20 p.m. range was larger than the 2:20 p.m.
range on only 15 days, or 25 percent of the time. However, the range of the 2:20 bar was 2 points or greater 48 times (79 percent).
Figure 3 also shows that one 2.20 p.m.
bar had a range of 9 points. Because of its abnormally high range, this repre-sents an “outlier” — a statistical anom-a l y. To counter the dispro p o r t i o n anom-a t e effect an outlier can have when calculat-ing an average, some statisticians use the median value instead. The median is the center point, or middle, observation in a data set, with the data arranged from the lowest to the highest value.
Because there are 61 observations (trad-ing days) in the analysis period, the median will be the value 30 places below the maximum range and 30 places above the minimum range for any of the 10-minute periods.
16.00 14.00 12.00 10.00 8.00 6.00 4.00 2.00 0.00
This chart shows both time and size of 10-minute ranges that were 6.25 points or more. Twenty-three of the 32 occurrences, or 72 percent, occurred before 10 a.m., with nine occurring during the 9 a.m. bar.
FIGURE 6 LARGEST RANGES
Source: Excel; data from CQGNet 0.60
0.50 0.40 0.30 0.20 0.10 0.00 -0.10
The difference between the average and median ranges shows almost all of the values are positive, indicating there is a positive skew to the data.
FIGURE 4 AVERAGE RANGES MINUS MEDIAN RANGES
350 300 250 200 150 100 50 0
The ranges span 0.50 to 14.75. The most common range value is 2.00, with 313 occurrences. The number of occurrences of 2.00 or larger is 1,702, or 69.8 p e r c e n t .
FIGURE 5 RANKING THE RANGES
Range Time
Time Source: Excel; data from CQGNet
Source: Excel; data from CQGNet
51 www.activetradermag.com • August 2003 • ACTIVE TRADER
Figure 4 (opposite page, top) charts the difference between the median and average values for all the 10-minute periods. Almost all the values are posi-tive, indicating there is a positive skew to the data — which means the ranges tend to be larger than the median range.
Interestingly, the 12:20 p.m. and 12:30 p.m. periods have negative values, again highlighting how the market slows down during the noon hour. (The 2:40 p.m. hour has a negative difference, as well.)
How common is a 9-point range for a 10-minute bar? Figure 5 (opposite page, middle) sorts the ranges by size, from the smallest (.50) to the largest (14.75) and the number of occurrences. The most common range is 2 points (313 occurrences). The number of ranges 2 points or larger is 1,702 (69.8 percent).
There were only two 10-minute ranges of 9 points.
Figure 6 (opposite page, bottom) plots the time and size of 10-minute ranges that were 6.25 points or larger (there were 32 such occurrences). Twenty-three (72 percent) occurred before 10 a.m., with the most (nine) occurring during the 9 a.m. bar.
Analyzing a second market: QQQ
Let’s review the same period for the
Nasdaq 100 index-tracking stock (QQQ).
The narrowest range was 3 cents, and the largest was 63 cents. Figure 7 (top) shows the average ranges for each 10-minute period throughout the trading day.
As was the case with the S&P E-Mini futures, the most volatile time of the day is the first hour of trading, during which
the average ranges exceeded those of the remainder of the day. Table 2 (middle) lists the average values for each 10-minute period in the first hour.
F i g u re 8 (bottom) plots the diff e re n c e between the average ranges and the median ranges for each 10-minute period.
Again, almost all the diff e rences are
posi-ACTIVE TRADER • August 2003 • www.activetradermag.com 52
continued on p. 53 0.25
0.20
0.15
0.10
0.05
0.00
Here are the average ranges for each 10-minute period, beginning with the bar that opens at 8:30 a.m. and the final bar that opens at 3 p.m. Again, the best trade opportunities are in the morning when volatility is the highest.
FIGURE 7 AVERAGE 10-MINUTE RANGES, QQQ
Source: Excel; data from CQGNet
0.0300 0.0250 0.0200 0.0150 0.0100 0.0050 0.0000 -0.0050 -0.0100
Most of the differences between the averages and the medians are positive indicating a tendency for the ranges to be larger than the mid-point of the data.
FIGURE 8 AVERAGE MINUS THE MEDIAN, QQQ
Source: Excel; data from CQGNet
In QQQ, the opening 10-minute bar and the 9 a.m. bar had average ranges of 19 cents.
TABLE 2 FIRST HOUR OF TRADING, QQQ
Time 8:30 8:40 8:50 9:00 9:10 9:20
Average range 0.19 0.18 0.17 0.19 0.17 0.15