“The early bird gets the worm, but the second mouse gets the cheese.”
– Willie Nelson
You need not watch too many trading sessions before noticing that trending is least likely to occur during the noon hour. And why not. The noon hour is unlikely to trend since that is when many market participants are simultaneously distracted from the market. Intraday volume is slowest then, so fluctuations are least relevant.
The noon hour, quite simply, is a “timing window.” It is but one that appears every day.
Timing windows define a common motivation among market participants. To be sure, there is a wide-ranging myriad of motivations operating at every moment of every day. But some motivations are more likely to be exercised during a specific period. The major timing windows are the most obvious: the open, the noon hour and the close. Their basic principles are instructive to understanding all timing windows.
When a singular motivation among market participants saturates a specific period, we can use this as a premise to compare against that period’s actual price action. This comparison can then help to predict specific future price action.
For example, a timing window that is more vulnerable to extending a trend, but fails an attempt to do so, would suggest that the trend is preparing to reverse direction. So, if an unfavorable headline were to cause price to react down, and if this were to occur during a timing window that is likelier to extend an existing uptrend, then we know price is likely to rebound. That doesn’t mean there will be a decline, only that we can be more confident to fade it. The initial “knee-jerk” reaction can be taken as a buying opportunity, likely to succeed, managing the risk that it does not.
The noon hour’s window offers an example of how the motivations among participants at that time can help to predict the market’s actions, and its reactions. During the noon hour, “satiating hunger” tends to be a greater motivation than “tweaking positions,” or “seeking opportunities.” So, our premise during the noon hour timing window is that traders are pushing and pulling much less on price, and also that price is pushing and pulling much less on traders.
Now we are prepared during the noon hour’s timing window to compare actual price action as it unfolds in real-time against this premise. Most often, the comparison is simple, because there is nothing to compare – the noon hour is unlikely to trend, because it rarely does. If price were to fall enough to test a support level below, then it would be unlikely to continue falling, and more likely to reverse direction back up. A long-entry may be considered.
It is important to note that the timing window’s premise is not exclusively a sufficient basis for a decision. Other indicators and analysis should be monitored and reviewed. But when considered in the context of a timing window’s premise, other indicators and analysis can be clearer, more actionable, and acted upon with greater confidence.
Comparing actual price action against the timing window’s premise is simple. That’s the point of identifying the timing window’s premise – to operate more efficiently in real-time, so decisions can be made faster. Determining that premise is a little more complex. This requires being aware of recent specific prices, such as the prior timing window’s range (high and low) and where it was exited. The current timing window will be compared to these price points. Similar observations are made of that prior timing window’s interaction with its own prior timing window.
The session’s open is dominated by an obvious singular motivation, as is the session’s close. The former is largely establishing risk exposure, while the latter is reducing it. This does not suggest the same action will be taken by all market participants during a specific timing window. But it does mean the variety of actions is limited, or at least dominated by a limited array. And this array of dominant actions can become even more limited in specific situations – e.g., gapping up above prior highs, closing under the noon hour’s lows, exiting the noon hour above its entry after probing fresh trend lows in the interim.
The following graph highlights the three major timing windows. Each is an hour, and is highlighted in the accompanying chart as green (open), yellow (noon hour) and rose (close). Also identified is each window is its entry price (circle) and its exit (square). Some of the observations to make of a timing window include:
- Whether it was entered higher or lower than the immediate prior timing window’s exit.
Whether it was exited higher or lower than it was entered.
Whether it was exited higher or lower than the immediate prior timing window’s range.
And if exited within the prior timing window’s range, whether one end of it tested.
Some of these window’s main influences that affect their premises are:
Open
- Mutual fund orders and other retail orders are often placed overnight as “market” orders, that expect to be filled at the open.
- Option expiration creates very real buying and selling pressures, albeit very temporary. Regardless, price action is influenced, often by trending being inhibited.
- “Facilitators” include specialists and market makers. Their stated objective is to keep price action orderly. The open’s sudden influx of orders makes this a more difficult task during this timing window. So, they enlist the help of market participants by lulling them unwittingly into adopting a specific sentiment. In case of an exuberant reaction to news that is being overwhelmed by buyers, for example, dropping bids can encourage an influx of sells that creates a vacuum above the market.
Noon hour
Thinner volume among participants is a double-edged sword. Its effect is usually most notable for having no noticeable effect. Trending is produced by there being a common perception of a higher or lower future value, but that perception has no effect if not acted upon – trees can’t grow in the forest if no one can hear them. Or, something like that.
The other edge of thinner volume’s sword is its susceptibility to wide-ranging, directionless volatility. A mildly surprising headline or sizable order can suddenly trigger a steeper surge or deeper dip, which the market would have easily prevented otherwise. With rigid risk control tactics, such noon hour volatility often retraces its noise, relatively quickly.
The double-edged sword’s third edge is its occasional actual breakout. Valid trending can begin during the noon hour’s timing window. A trending attempt that lasts longer than several minutes while probing beyond a prior price extreme may be the beginning of a more substantial afternoon move.
Close
Risk exposure is welcomed as the other side of the reward coin. However much it can be managed intraday, risk is much less manageable overnight. The session’s final hour is not entirely motivated by this consideration, but the final hour is where much of this potential overnight exposure is considered.
“Unfinished business” is often satisfied during the session’s final hour. Whether it is a target that was triggered earlier and never invalidated, or a technical requirement that remains outstanding, the final hour may be attracted to the price level that would fulfill unfinished business.
Every minute of the day is the property of one timing window or another. Some belong to multiple overlapping timing windows. Some windows exist only in certain environments like trending or ranging. Other windows exist only during certain periods like heading into an option expiration close, or coming out of a three-day weekend. Still more exist intraday, created “on-the-fly- by an earlier window behaving in a specific way. Each timing window has its own nuances. But the general principles of the Open, Noon hour and Close are instructive to navigating other timing windows.
