Under what conditions do you trade in the first hour? How long do you give the market before you jump in if you trade in the first hour? ...if market is opening up?...if opening down?... Do you respond differently depending on the direction of the market? (December 19, 2001)

  One of the age old dilemmas. You see the market open and stocks are running early. Do you get in right away and risk a stock tanking on you or do you wait and potentially miss a good move? Basically, if an index jumps over resistance, tests it and then moves back up, we will start taking some positions. Same to the downside if we are looking for an overall down move. For individual stocks we look at the same type of situation: does it breakout of a pattern that we are looking at? If so, we will take some positions at that point, but not a full position. We then let the day develop more to see how it acts and whether we want to add to the position that session (e.g., volume is what we want and the move is still holding).

On those moves up early, we are always concerned about the higher open and the pullback. That is why we usually wait for that test of the early move before we get in. On softer opens we will also go ahead and make investments on stocks making good moves if the markets catch themselves, preferably at support, and then turn right back up.

One problem is gaps on good news. We want to make a short or long term play on the stock. It announces some good news or is upgraded and moves higher. Do we chase it? Sometimes depending upon the news. When a solid company comes out and raises its own earnings forecasts above expectations, we often buy right then with stock and options. Our goal is to take a quick gain on the options maybe that day. With the stock it could be the same, or we could hold on depending upon how the stock performs during the session. Playing a gap on good news may be a play where a stock breaks out of a pattern, or it may just be making a play on the news. If it is a catalyst to the breakout, we can let the positions continue to work for us as breakouts can run a quick 20%. If the news is not going to break it out of a pattern, we are more playing the news and looking for the quicker gain.

So, while we don't like to initiate trades in that first hour (half hour for sure), we will do it at times based on either the market action, individual news on a stock, or individual moves on a stock (breakout and test), or all three. It is hardly ever a full positions, however, unless we are making that quick play on news where we want to bank the gain that session.


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