Key Times of the Day

The trading day can be divided into three periods, and although the same price action principles apply throughout the day, there are some generalizations about each period that are useful for traders. Any type of price action can happen at any time of the day, but there is a tendency for the first hour or two to be the most likely time of the day to find a trade where you can make two to three times your risk. This is the most important time of the day, and for most traders it is the easiest time to make money (and the easiest to lose money, if a trader is not careful). In general, most traders should work very hard to take trades in the first hour or two because those trades have the best trader’s equation combination of reward, risk, and probability. Because of its importance, the chapters in Part III discuss it in detail. There are often reports at 7:00 a.m. PST, and they commonly lead to the trend of the day. Computers have a clear edge in speed of analysis and order placement, and they are your competitors. When your competition has a big advantage, don’t compete. Wait for their edge to disappear, and trade when speed is no longer important. Once the always-in direction has been established, then look to take the trend trade. Even though you might miss the first bar or two, if the trend is strong, there will be plenty of points left in the trade.

On the daily chart, there is often a small tail below strong bull trend bars and above strong bear ...

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