Posted on October 20, 2010 by Rich Browne

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As the market opens there is a great deal of volatility – bulls and bears are fighting most fiercely during the first 15 to 30 minutes of the session! This means big volatility, less predictability! An inexperienced trader rushes to enter as soon as the bell rings, trying to catch tops and bottoms in a mad emotional frenzy! Now this is gambling! It is even worse than gambling since extreme market movements kick out participants on both sides! The chance to get alive in the first half an hour of the trading session is far less than 50/50! Of course, it is tempting to enter and catch the extremities but any outcome will depend more on luck and less on trading skills! The safe bet is to wait a couple of 5-minute time frames, see the bigger picture and hop on the trend! Less exciting but more dependable and profitable strategy.

Exits

As with the beginning of the session the final 30 or so minutes become more volatile than the rest of the session! Day traders are rushing to cover their positions and the market becomes restless! Also as a rule of thumb day traders do not leave open positions overnight – anything can happen until next day open, news may break meanwhile, disrupting the current trend, natural disasters may happen etc. (e.g. the famous Nick Leeson, responsible for the collapse of the Barrings bank, has left a huge long position in Nikkei futures overnight only to see the Kobe earthquake dragging the whole market down the next morning, afflicting losses to the long positions!) Make sure that the daily profits are taken or at least insured by tight stops as the market session nears its end!

Number Of Open Positions

Some traders may handle a lot of open positions in different stocks, commodities, currencies, etc. Every new position adds to the distraction and emotional pressure. So, traders who know themselves open the number of positions they can handle without losing focus or getting too emotional.

In conclusion, a good trading strategy should incorporate time-tested principles with the individual characteristics of a trader! Every trader has a unique approach toward the market and their strategies are also unique! As the saying goes – Making good decisions is a result of experience and experience is the result of making bad decisions, so is the adapting a trading strategy to the individual trader!