Today is Thursday, March 4th and the markets were contained as they closed slightly higher +4 points on the S&P.

I had thought that we would see what I call a containment day or you can say, “an inside day“. What that means is, the market traded inside of yesterdays trading range. This is what I said was likely to happen for today and a general containment inside the Wedge Formation shown from yesterdays Dow chart.

One thing that I am not seeing right now is volume. That can be a little worrisome for the bulls out there. As we rally on light volume, it shows a lack of conviction to buy stock.

Trading volume for a day trader is very important, without it, you get little movement and limited opportunity. With it, and you have the market swings that can take your account equity up quickly. Often times, it takes a catalyst to drive the market, good news or bad. So, what is a trader to do as he looks for opportunities and how should he approach the day.

Let me give you one idea to think about, in trying to decide what kind of day we are going to have. If you take the average trading volume of contracts traded for the first 15 minutes on the S&P Emini futures over a set period of time, say one month or better and come up with a volume figure. Then going forward, compare that average opening volume to the past average volume and you will see it in one of three ways. It will be above the average, below the average, or the same as the average.

If it is above the average, most likely the days trading range will be greater than if it was not. The same is true in reverse. If the trading volume is lighter during the first 15 minutes of trading, it is likely that the trading range will be somewhat contained. You don’t have to make a science out of it, but if you can observe that the volume is very heavy on the open, it is likely you will see a lot of opportunities to trade for larger point returns going forward for the rest of the day.

If you take today as an example, you will see that the contract trading volume for the S&P 500 emini futures was very light during this first 15 minutes of the day. That helped then to set the precedent for the rest of the session. The trading opportunities were very limited and the range was very narrow. This is just something to keep in mind going forward, as it may give clues and bring perspective to your expectations of the day.

Trading volatility means opportunity, with low volatility, you get reduced opportunity. If you are approaching the market with high expectations of a big day and they don’t happen you are out of sync with the market. Day traders observe the price action, or that is what I feel they are supposed to do and trade accordingly.

If you are positioned to take 3 or 4 points out of the market, but you only see three or 4 ticks instead, you have only a few options.

1) Don’t trade at all and just wait. That used to be a good strategy, going into the afternoon session but the volume cannot be counted on to come back. We are to often seeing only modestly light volume increase after lunch period.

2) Bring your expectation down so that you can take advantage of what the market will safely give you. If it safely can give you 1 point, can you take it?

I know everyone has there own style to trade and that may not be your thing, but I have no problem with it, only because I can trade with a small stop and do it successfully. Many cannot do that so, they are left to be much more selective and wait a lot longer for the trades.

That is fine, if you can do that. Many traders can not and end up taking  non method trades for the sake of trading while they wait. This creates over-trading and can be defined as putting on a trade without having the trading edge. Taking 10 trades or more in a day is not a problem, if you have the trading edge present in those trades. When you lose the edge, Get Out. Don’t wait to be stopped out, protect yourself and your equity.

With all of that said, I hit my trading goal today fairly easily, but I did have challenges. The challenge was to start trading during the slow New York lunch period. I know this is not the best time to trade, but getting prepared for the market open is difficult as I live on the West Coast. To properly prepare, I would need to get up a 5 am. That has been my weak spot, because I am a night person, whats a trader to do? Well, I guess I am doing it.

There are dangers in trading during this slow period, but they can be overcome with precision entries and modest expectations. My first two trades had no follow through to them, so I quickly lowered my expectations and took the very modest moves the market gave me. You need good timing and you need to know how to trade in this environment. (Sniper Day Trading)

My first two trades were the only loses I had each for -1 tick. After that I had several small gains which added up nicely for the session.

Related posts:

1. Trading with Time, Tick, Volume or Range Charts, which is better!
2. Light volume around the Holidays
3. 44 to 1 Up-Volume to Down-Volume Day for Stock Market
4. Big News Week Ahead, Volitility to Increase!
5. Very light volume ahead of Presidential election

Tags: low volatility, precision entries, Price Action, trading range, trading volatility