I was reading an interesting book today, 'Muscular Portfolios' by Brian Livingston. There are some good points in this book, but then I came across something that blind-sighted me. The topic was about a phenomenon called 'Amateur hour'. This occurs from 9:30 eastern to 10:30 am. The belief is that trading on the first hour of markets is to be avoided due to exploits market-makers abuse in filling orders. Apparently the spreads are much wider which leads to only amateurs trading at this time and getting poor fills. Seriously? After reading literally HUNDREDS of books on trading/investing this is the FIRST time I recall coming across something like this. How could I have been so stupid as to not know this? Well let's just look at some supposedly reported facts that are mentioned: Example: At 9:45am Vanguard's 30-year Treasury ETF (EDV) has an average spread of about 0.32% By 10:30 am, that drops to about 0.20% and remains low the rest of the day. Well holy shit, does this really affect the retailer anyway? Seems Michael Murphy a hedge fund manager with Rosecliff Capital is also touting this stuff. "Smart money trades later in the day. Risk is definitely to the upside here."?
I've always heard the saying that "the retailers open the market and the pro's close it". I think there are two issues contributing here. Retailers are less likely to trade in the extended hour sessions. They've been pouring over their voodoo overnight and are anxious to get their trades on so there are proportionately more retail trades early. I've also read and heard that lots of institutions and bigger players wait to see how the day is going to shake out and if there's going to be a direction or theme to the day before plowing in huge amounts of cash. The latter probably contributes more to the wider spreads. Having said that, for most markets you are not getting taken advantage of (early in the day) provided you use limit orders and have some patience while understanding your product and pricing. Of course some of the super thinly traded bond markets are always going to have wide spreads and be perilous for the retailer in terms of getting a decent fill.
Enjoyed reading your assessment, especially concerning the comment above in quotes. They really don't know what they're missing. Between 2am to 7am price action for both nasdaq and the s&p futures trend very well without volatile swings. Not to mention they always move in symmetry like clockwork.
As a retail trader, you have control over the time you will enter or exit any positions including, choosing the price you are willing to pay to enter any trade. Use a limit order. If you are so inclined to get into a position, use a limit order and match the bid price. 99% of the time, you will get executed at that exact price.
ALL HOGWASH! Don't make it more difficult. Learn "Price TA".. You'll know when "they are buying/selling"... doesn't matter who is doing it or why (there's always a "reason behind it", but you won't get to know it "if EVER", let alone in time enough to do you any good).. it or how big/small/stupid you presume they are. EVERYTHING everyone knows, hopes, fears, anticipates (rightly or wrongly) is reflected in price and displayed on the chart. That's "Price TA"... KISS, BABY!
ALL HOGWASH! Kinda what I figured. I did a quick search, and while I found many people supporting this rule, I also read from an x-floor-trader @ seeking-alpha that it's dubious at best. Anyhow, here's a further excerpt from the book giving an explanation into the higher spreads in the first hour: "Market makers are allowed to charge unlimited spreads to match up any imbalance of buy-and-sell orders that arrived prior to 9:30 am. Some slick traders profit off novices in the first hour, but don't assume you can play this game and win."