There's no better word to describe the current market than volatility with a capital "V." With rising oil prices, the possibility of an increase in interest rates, global political unrest, and a pending Presidential election year in the US, there's just too much uncertainty in the markets. Significant, negative news can send the markets plunging. The following day, a technology bellwether may announce positive earnings, resulting in a strong rally for the markets -- but then sending them back to where they started by the end of the day. This makes it difficult to get any sense of market direction, and needless to say, that makes it impossible to get a good night's sleep if you have open positions. As a rule of thumb, at such times it's best to close all positions by the end of the trading day. But with electronic trading becoming so popular, markets are trading even after they are officially closed.
Although the trading environment is less active after the close, it is possible to take advantage of the activity that occurs in the markets while they are not open. You might never have thought of opening a position at the close and offsetting it at the open. But after reading the article "Overnight Trading" by Anthony Trongone, starting on page 14, you may think it's not a bad idea. You'll find out what you need to be aware of to create a trading strategy or plan that will allow you to make profits in these overnight markets.
The premarket hours are another time to keep an eye on. When you turn on CNBC before the markets open, you'll see the futures quoted together with the mention of fair value. Each of these plays a role in determining which way the market will open and where. "Where Will The Market Open?" by Ihor Vysotskyy, starting on page 42, discusses the calculation of fair value, which might just help you answer that question.
Once you know where the markets will open, your next step is to set a strategy for trading during the day. Will the markets head in the direction of the major or minor trend, or are they going to go against it? The STOCKS & COMMODITIES interview subject this month, Toni Turner, likes to stay with the trend, but she also looks at several other indicators and patterns. Read what she has to say in the interview that starts on page 74.
In such volatile times, I have always preferred to close all positions prior to the closing bell, but paper-trading strategies during overnight hours do sound tempting. Will I be able to get a good night's sleep, not knowing what the markets are doing? We'll just have to find out.
Originally published in the July 2004 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2004, Technical Analysis, Inc.
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