Do you really need all these “bloody” indicators? I have been trading the markets for a few years and have noticed a very human pattern. After all the market is the combined thinking of price discovery of all the traders. Traders are human, they eat, sleep and get tired. They are also habitual creatures. Is it not logical that we should see patterns of a traders life style in market movements? So I have developed what I call the “Blue Market Feeling Strategy” to trade the markets. It has 7 points in the trading day that you can better time your trigger point entries – see the Thumbnail attachment for the general timings. I do not trade the Asian session, as this has another dynamic that I have neither studied or desire to trade – we need to have life as well. The following are these 7 points and a discussion what you can do at each point of the trading day (times are in European Standard Times and the chart discussed in the Thumbnail is a standard 10 minute):

1. The EARLY BIRD trade: Europe is just starting to wake up and you are having your first cup of coffee with your croissant – 7AM to 8AM. You notice that your order entry programme is starting to “bing” a couple of times slowly, telling you the market is finally starting to move (hitting a recent high or low) after chopping all last night (or the last 2 or 3 hours anyway) in a narrow range from the Asian session. On the first or second  ”bing” (or break out of a narrow trading band – swing indicator can help identify this) you immediately go with this tend with a stop just below recent lows. This is general good for 10 to 20 pips until the London Open at 9AM. You should take this profit quickly before the retest of the break may occur.

2. The DAILY DIRECTION trade: After the London open (9.30AMish), the market will try to pull back to near the break point of the London pre-market session and you re-enter the same trade as in step 1. See the note below because the real traders are now at their desks and they now will bring in the bigger money to either confirm the pre-market move or change the market direction. But be careful as this a potential reversal point – see note below. If it reverses here, take an early stop out and climb on board the reversal move.

3. The LONDON HAMMER trade: If you get on board the London move it generally accelerates into the 10.30AM to 11.30AM time period where it then exhausts as the traders go to the pub for lunch. If you did get on board you should close your position and go to lunch too. There is a potential counter trend trade at 11.30AM if the move spikes.

4. The PUB trade: After lunch you will notice that the market has backed and filled a bit (the junior traders are too scared to push it further) – perhaps to the 50MA and you should go in the direction again as in step 3. But at 14.30PM there is often data released in the USA that can cause a reversal – see note 2. So have a tight stop here as you go into step 5. If it does reverse prior to 14.30AM, take an early stop out and go with the reversal. Use a swing point or a MA violation to confirm this. If there is no significant data – the trend will gentle continue into the NY open.

5. The LUNCH CHOP SUEY trade: Step 4 and 5 are both a bit tricky as both can be potential reversal points. This is the most important time, as it sets the trend for the NY session. Americans get up early and the big money often place their bets prior to the NY open or at least set up their trading day early for the NY opening session. One of two possibilities happened in step 4: Option a) The market has been in a trend since the London session, or Option b) the market has started to reverse on fear of USA market data. So the result from step 5 can be either: 1) the entire daily trend is in tact (40% chance), 2) the reversal in step 4 is confirmed (40% chance) or 3) a double reversal in both step 4 and 5 (20% chance – ouch). So the safest play is to continue with the move from step 4 (whether it was a continuation or reversal move). So the 80% play is to go with the direction in step 4 unless its a really big US data day. Once the step 5 option (1, 2 or 3) results are confirmed the late NY premarket session (after 14.30PM) generally continues through the NY morning session, so stay with the trade from step 4 an/or 5. If all this sounds confusing, it is. For this reason many traders avoid the trading between London lunch until after 14.30AM (if major US data has been released).

6. The NY HAMMER trade: The trade continues from step 5 until the Americans stop for lunch and many of the futures traders from the commodities and Forex go home. So the move is finished and you should take profits as the market chops through the NY lunch (again the junior traders take over while the boss is at lunch and they are too afraid to do anything rash). There is about a 20% chance as well, that a reversal can happen 30 minutes into the NY opening session – so you always need to be on your toes. However the safest bet is to go with the initial NY premarket direction from steps 4 and 5.

7. The EXHAUSTION trade: After the NY lunch many of the futures pits are getting ready to close, so often the markets starts to chop. If there has been a big move in the day, there is a 50% chance a small re-tracement can occur and that can be played at 19PM. On a big move often the traders are shell shocked and the reversal will be a slow one. So before playing this move, ensure that a higher low/high has been put in to confirm a reversal. If the trade just continues from step 6, it will most likely close on the HOD/LOD. If it closes on the HOD/LOD slowly it will continue this move into tomorrow’s premarket. If it gets a spike at the end of the NY session you could take a counter trend trade for a few ticks over night.

Note: There are three critical times in the day trading day, where potential reversals come. They are at steps 2, 4 (some times step 5 as well on any significant data releases from the USA) and 7. This is because the bigger traders with the bigger money often make their move at these times. Either the market will confirm the prior move or will reverse. Normally 66% of the time it will be a confirmation move, unless the market has been over stretched in a particular direction – this often occurs in step 7. Markets tend to hold their daily direction 80% of the time.

Of course this a general trading strategy and there are market events that can change all this, so you use this in conjunction with other fundamental and technical analysis you may have. See if you see these similar feeling points in the markets as I do and let me know howthis works out for you.

To test this theory, I performed the following robo back tests for the London Hammer and London Pub trades. In both of these examples and results – I used the 10 minute charts, 20MA with a 30 tick profit / 30 tick stop loss. In addition all times mentioned are European Central Time.

London Hammer: At 9.45AM test the 20MA and perform a market order in the direction of the 20MA. Forward trend trade.

London Pub: At 11.30AM if the market is greater than 60 ticks (long or short) from where it was prior to this time 3 hours before, I would take a market order in the opposite direction. Counter trend trade.

The following were the win/loss results (win percentage) from data of 1-10-2010 to 21-01-2011:

Clearly there is some daily timing dynamics in the market going on here. With improved order management (better stop management and scale in/out techniques) and better entry triggers during these times (inverted hammer, bounce off a trend line/MA, BB extension, etc…), one could easily improve these results by 5 to 15%. More work needs to be done in this analysis.