Leave it to Dr. Brett Steenbarger to inspire another Strategy Session from the valuable insights on his blog, TraderFeed.

Brett’s observation relates to how the market action in the first half-hour of the market can be a predictor for the rest of the day’s activity. In his own words he summarizes:

A slow half-hour appears to be a warning sign of low volatility for the remainder of the day.

The Strategy: Volatile First Half Hour Trading Range Breakouts and Breakdowns

Let’s create a Trade-Ideas strategy that looks for volatile stocks and ones that are breaking out or down from the range established within the first half-hour of the market. According to Brett’s findings this strategy creates a pool of stocks that should be volatile the rest of the day and be candidates for above average gains. We will therefore add a requirement that the stocks to be considered must have closed near their open. This is based on the findings from Brett’s follow-up article on volatility:

When the [overall] market [as measured by the SPY] was volatile but closed near its open, the next three days averaged a gain of .56%. When the market was nonvolatile and closed near its open, the next three days averaged a gain of only .09%.

How It’s Modeled:

The set-up includes these filtering conditions:

• Minimum Volatility exhibited by a stock must be a rate of 20 cents every 15 minutes
• Stock must be no higher than 0.3% from its opening price

The alerts selected will trigger whenever the stock breaks above or below the trading range established during the first 30 minutes of the market.

Note: Brett’s follow-up article regarding volatile stocks closing near their open means that the 30 minute breakout alerts are strong candidates for further gains. Be careful and know that Brett does not suggest the opposite is true for 30 minute breakdowns. We just include them in this strategy for you to judge.

Who Could Benefit:
Those who don’t use Trade-Ideas can (and should) fairly conclude from Brett’s articles that on low market volatility days, its best for the P/L to take it easy or go for a walk. Those who use Trade-Ideas, however, know that beneath the overall market activity exists plenty of opportunity among stocks and derivatives that buck the trend.

This strategy will appeal to those readers who enjoyed this previous Strategy Session, Predicting Strong Closes. They are both similair animals.

Footnotes:

• Link to Brett’s article, First Half Hour as a Volatility Indicator
• Link to Brett’s follow-up article, When Days Are Flat: What Comes Next?
• Configure this strategy for your own use here.
• Link to other Strategy Sessions here.
• Remember that these set-ups are sketches meant to give you an idea how to model your own trading plan. Use this ‘as is’ or modify it to your own liking as many others do. Know, however, that Trade-Ideas.com and all individuals affiliated with this site assume no responsibilities for your trading and investment results. The indicators, alerts and all other features are for research purposes only and should not be construed as investment advice.
• June Seminar Footnote – To gain a full understanding of how this strategy and others can help you in your trading plan, we suggest you attend our training seminar in June. There we will focus on all the advanced aspects of our software needed to give you an edge against larger, more capitalized participants. We just opened the sign up page so that you can officially pay for and reserve your spot (conference limited to 100 existing subscribers). https://trade-ideas.54solutions.com/Seminar/