Here’s why the early part of the trading day is so important

“Why am I bothering to trade this market?” It’s a refrain
I’ve heard from many traders, frustrated by the loss
of volatility in the S&P 500 Index
and the poor
trending action
. This has particularly been the case for the afternoon
trade, which tends to offer less movement per unit of time than the
morning. Going back to the beginning of 2005 (N = 314 trading days), for
example, the average range for 2-1/2 hours of trade in the S&P futures (9:30
AM – 12 Noon EST) has been .57%. Over the next four hours of the
afternoon, the average range has been .69%. One reason for this is that
the average five-minute volume in the mornings has been 11,398 contracts.
In the afternoon, it has been 7979 contracts. Less business means less
movement–and for short-term traders that generally means less opportunity.

But, as Randy Jackson would say, check this out, dawg:

  • Early morning volatility signals opportunity later in the day
    – When the range of the first 45 minutes of trading is greater than .45% (N
    = 63), the range for the remainder of the morning averages .50% (almost
    6-1/2 points). When the first 45 minute range is less than .25% (N =
    66), the range for the remainder of the morning averages .37% (almost 5
    points). When we have the larger 45-minute range, the average range in
    the afternoon is .81% (about 10.5 points). When the range is small for
    the first 45 minutes, the average afternoon range is .57% (about 7-1/2

  • Total morning volume signals opportunity in the afternoon
    When the average five-minute volume in the morning is greater than 13,000 (N
    = 87), the average afternoon range is .84% (almost 11 ES points). When
    the average five-minute volume in the morning is less than 10,000 (N = 110),
    the average afternoon range is .57% (almost 7-1/2 points). Why is this
    the case? When the morning five-minute volume averages more than
    13,000, five-minute volume in the afternoon averages 9820. When volume
    in the morning averages less than 10,000 per five-minute bar, the afternoon
    five-minute volume averages 6565. Volume and volatility are closely

What does this tell us? The past is not a perfect predictor of the
future, but it’s the best we’ve got. Current volume and volatility are
correlated with future movement. A volatile early morning, on average,
leads to more movement in the late morning and later in the day. A
busy morning yields greater movement in the afternoon.

Think of it this way: If the market is a rocket ship, volume is its
fuel. A low amount of fuel will only power a short journey. When
there’s lots of fuel, we can truly blast off. Many sound trading
practices–from the identification of profit targets to the estimation of the
likelihood of breakout moves–follow from this simple idea.

Brett N. Steenbarger, Ph.D.
is Associate Clinical Professor of Psychiatry and Behavioral Sciences at




in Syracuse, w:st=”on”>

and author of
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
and a blog of market analytics at
His book on trader development, Enhancing Trader Performance, is
scheduled for publication in Fall, 2006 (Wiley).