The last trading hour in the markets is like “The Hour of Power” television show. It matters! The last hour has a lot going for it. It is when the big institutions (a.k.a. the smart money) show their hand, so to speak, and individual investors are able to discern their true intentions. Volume accumulation analysis using minute-to-minute data makes it virtually impossible for them to hide from us.
Here’s why. Imagine that you are the lead trader at a firm we’ll call “FidVan Mutual Funds”. Before the markets open, one of your mutual fund portfolio managers informs you that he wants to accumulate 500,000 shares of Johnson & Johnson (JNJ) that day. Because you are a highly paid professional trader, you begin an accumulation campaign which might involve buying 30,000 shares and selling back 5,000 – 10,000 shares so as not to drive the price up too much. You’d also split up your purchase lots amongst various brokers so as to mask the fact that FidVan was accumulating JNJ. You finesse these traders all day until you’ve accumulated 300,000 shares.
Now, you only have less than one hour left and you still need to buy 200,000 shares of JNJ. Trying to explain to your portfolio manager that you failed to accumulate the full position is not an option. The gloves come off, the finesse is put on the back burner, and you start earnestly buying those last 200,000 shares.
With minute-to-minute charts, we individual investors now have what amounts to x-ray vision. We have tools that allow us to see explicitly whether JNJ is under accumulation or distribution. In fact, the Traders Almanac tells us that since 1987, half-hourly data shows that the market is up 53.6% of the time in the last half-hour (3:30 – 4:00 PM). Couple this with higher volumes which provide better liquidity and lower bid-ask spreads and you can see why individual investors should pay close attention to this time of the trading day. The benefits are real.
At this point, my desk is clean and only pertinent charts of imminent interest are in front of me. I have my routines, and both the bullish and bearish action plans for either scenario that I worked on in those calmer hours when the market was closed. I have multiple screens filed with appropriate brokerage accounts feeding me live data from the broker I expect to use. I tend to focus on a few select trades and I’m in either a buy mode or a sell mode – but seldom both – in the last hour. I am no longer the puppeteer. In the last hour, I am the puppet – trying to stay calm and cool while dancing to whatever music the market plays.
This final blog in the series “A Day in the Life of a Stock Market Trader” is less about the specifics of how I spend my time in the last hour before the markets close but more importantly to convince individual investors of the wisdom of paying close attention to their investments during the market’s “golden hour”. In this regard, I leave you with three caveats.
- Don’t let outside issues distract you during the last 60 minutes.
- Sketch out your action plans beforehand and visualize how you’ll execute them.
- Consciously focus on remaining calm and cool.
Trade well; trade with discipline!
-- Gatis Roze