This is an important article from a few months ago that touches on several key principles. I would like you to read and consider applying them to your work.
In my experience reading the tape, I have noted that when distribution occurs, particularly in a sell-off or a bear market, indices and stocks often open higher and then sell off during the day. We frequently close in the bottom 5% of the day’s range.
To use this information practically:
if you are looking to reduce exposure, sell any "rips" at the open, as that is usually the best time to do so.
If you are looking to buy the dip, it often makes sense to wait until the end of the day because we will likely end near the session lows.
If a stock ends at its daily low on Friday, it may be worthwhile to leave room for a potential gap down on Monday.
While this is mostly anecdotal, the evidence supports it. Back testing shows approximately 35% to 40% of the time, we end in either the bottom 5% or the top 5% of the daily range. This is statistically significant.
To put this into practice, look at the price action of your own holdings today, as well as their behaviour throughout this week and last. You will se the pattern holds.
Below are some examples from today including a stock like MU which has not been following the indices:
While this practical tip may seem like it only moves the needle a small amount, but such adjustments can add up to several percentage points of performance over a period of time.
Thank you for reading and see you for the next one!
Open is more about price discovery amid thin ECN trading, while close is more about price acceptance. Plenty of inefficiencies in both, though😁