When is the Best Time to Trade the ES | Optimus Futures

When is the Best Time to Trade the ES

 

This article on the Best Time to Trade the ES is the opinion of Optimus Futures.

When is the Best Time to Trade the ES

This article is the opinion of Optimus Futures, LLC.

When it comes to trading the markets, timing is a critical component. Timing is often understood as the capacity to promptly perceive and expediently exploit a fleeting market opportunity. But timing can also refer to the general time at which you choose to trade the markets, from seasons to months to weeks to days, all the way down to the hour

Each market pulsates in its own unique way. And all markets differ.

If you’re a day trader, you probably trade the ES, as it’s one of the most liquid futures contracts on the market, and one of the most efficient markets in the global economy. If you do trade the ES, you’re probably wondering if there is an optimal time to trade the ES, and if so, when.

There are two answers to this question, depending on how you understand (or how well you understand) the question. One’s more obvious while the other is a bit nuanced, pragmatically-oriented, perhaps even smarter.

But there’s a big difference between the two: the easier and more obvious answer happens to be the more dangerous of the two. Because the answer it provides, however clear, can come at the expense of a penetrating and “fragilizing” blindness. And the easier answer is what you’re likely to find if you Google the question.

Let’s explore each set of answers.

THE OBVIOUS ANSWER is to trade during the hours of highest volume.

  • Between 9:30 am to 11am ET, two things are happening: the U.S. stock market officially opens to the trading public (those who don’t trade pre- or post-market) and the last hour and a half of European trading is taking place (European markets close around 11:30 am ET)
  • Between 2:00 pm and 4:00 pm ET, institutional trading increases while investors are looking to finalize their positions, whether buying or selling, prior to the stock market close at 4:00 pm ET.

Note that we’re simply following the busiest parts of the NYSE trading hours, the morning half being the most liquid part of the day as it also coincides with the last leg of trading in Europe.

Also, if you don’t already know this, the ES practically trades on a 24-hour basis save a trading halt and a short closing period. Check out our ES trading hours if you need more info.

Here’s a graphic representation of a 30-minute chart with a 6-bar ATR (average true range). This measures the average range of a 3-hour period (since each bar is 30 minutes long, a 6-bar ATR measures six 30-minute bars, equivalent to three hours).

ES continuous contract 30-minute chart from Feb 24 to March 18, 2019

trade the ES

Check out the ATR peaks highlighted within the squares. Most of the action takes place in the morning session, averaging a little under 5 points, sometimes as high as 8 to 10 points on a three-hour average basis.

If what you are looking for is to simply trade the most liquid periods of the ES session, trading the opening bell (NYSE) may be a prime time to trade, while the last two hours before the closing bell might be a preferable secondary time window.

However, such generalizations can never be that simple. These may be the most liquid periods of the trading day, but they aren’t necessarily the “best” times to trade.

THE LESS-OBVIOUS ANSWER treats the initial question in a more particular fashion, asking us to re-examine what we really mean when seeking the optimal time for trading the E-Mini S&P 500.

Let’s break this down and get a bit smarter and practical with regard to our inquiry. Let’s restate the question:

When is the best TIME to TRADE the ES?

TIME: when we talk about “time,” we’re not just referring to trading hours, we’re talking about all of the events that shape what goes on within those hours. And those events are constantly changing. Some of those events are scheduled, some are not.

Example: The stock market open at 9:30 am ET may not hold as much significance for ES trading if market-moving reports such as Jobless Claims or the Philadelphia Fed Business Outlook get released at 8:30 am ET, or if a Federal Reserve official speaks well after market hours, say 9:00 pm ET. What if a geopolitical market driver such as an ECB (European Central Bank) is scheduled to be released during early European trading hours?

Takeaway: In such cases, trading hours are secondary to the events that drive activity during and beyond those hours.

TRADE: When you think about “trading,” hopefully you’re not thinking about the act of buying and selling, but rather, how you exploit market opportunities which may or may not end with an actual trade.

What difference does it make? Night and day.

A scalper may have a different approach from that of a swing trader; a news trader may or may not see the markets quite the same way as a fundamental position trader; a trend trader may avoid opportunities that a counter-trend trader seeks; an option trader seeking volatile directional movement may have different goals from an option trader who seeks “income” via low-volatility ranging movement.

  • If you trade the news, then the best time to trade the ES might be centered around the type of news event you are looking to trade.
  • If you trade the opening range of the market, then you will want to be ready for the 9:30 am ET open, given the caveat that no major announcement prior to the open had already moved the market.
  • If you trade intraday momentum, then you might want to stick to the most liquid hours during the morning and afternoon, keeping in mind any major economic announcements (such as FOMC announcements) that can sideswipe you.
  • If you prefer to trade intraday ranges, then trading the quiet hours between 11am – 2pm ET might be to your advantage; again, it depends.
  • If you hold swing trade positions beyond the close, then the NYSE trading hours may be of secondary importance to your entries and exits which can happen any time within the 24-hour trading period.
  • If you’re a position trader, then the only time-related factors that might matter are contract expirations and rollover periods.

Takeaway: Instead of basing your trades around a given “time,” it may be wiser to select your time according to the way you trade.

ES: The ES is a derivative of the underlying S&P 500 index. More importantly, however, this index represents a large slice of the broader U.S. stock market. The U.S. stock market is a major global economic driver. It influences and is influenced by global markets and geopolitical events. The S&P 500 is sensitive to monetary policy intervention in the U.S., but it can also be directly or indirectly sensitive to central bank policies stemming anywhere from emerging markets to other first world economies.

If this is the case, it may be important to monitor economic announcements from countries that may influence the broader U.S. market. These announcements may take place during “off-hours.” Yet the timing of the announcements, whenever they take place, may be critical to what goes on with the ES from the moment of release to the following (regular) U.S. trading day.

If you need a better way to stay on top of the financial markets across multiple countries with real-time, relevant analysis of key economic events, check out our free trading news platform for customers – Optimus News. The platform provides an easy way to access all Economic Events and Announcements around the world that may affect the markets you trade.

Takeaway: consider paying attention to scheduled events across the globe that may influence the broader U.S. markets, particularly if the timing of these events don’t coincide with the ES’ most liquid hours.

The Best Time versus the Wrong Time to Trade the ES

So, is there such thing as a “best time” to trade the ES? Well, if there is, it certainly doesn’t work for every trader. And if it doesn’t work for every trader, like a clean cookie-cutter timing solution, then you can toss the superlative description “best” out the window.

In other words, it’s a bad question.

A better question would be “what might be a favorable time to trade the ES based on my particularly trading approach?”.

Perhaps the smartest question would be “when shouldn’t I trade the ES based on my particular trading approach?”

Whereas there may not be a “best” time, there is likely to be a wrong time to trade the ES:

This is when the day trader expecting breakouts mid-day encounters a sideways market, when a counter-trend trader expecting to fade highs and lows trades a directionally-biased open or close, when traders of all types expecting a “normal” market fail to take into account fundamental pre-market, mid-day, or after-hours announcements such as the Jobs Report, FOMC announcement, or an evening speech by Federal Reserve Chairman Jerome Powell.

Similar to the parable of Procrustes’ Bed, you don’t fit the person to the bed (by sawing off limbs for person who is too tall, or stretching a person on a rack if he or she is too short), you fit the bed to the person.

The same principle applies to trading times. You don’t trade according to the time, you choose your time according to the trade. Choosing your “time” has everything to do with your strategy and the market dynamics (most often driven by fundamentals) surrounding your trading context.

And if you can’t see the difference, then no matter what time you trade, or how well you time the markets, you cannot say that you truly know what time it is when it comes to your own trading.

There is a substantial risk of loss in futures trading. Past performance is not indicative of future results. 

Notable Replies

  1. Great report Matt, it is worth noting perhaps that in addition to the time the strength of the price expansion is worth paying attention to as well.

    //Below code for use with Multi Charts

    { Comments: If the current TrueRange expands twice the AverageTrueRange length of six then a significant move is happening. The Input Spike can be optimized and seems to work best between the settings of one and three. }

    Input:Spike(2);

    If TrueRange>AvgTrueRange( 6 ) * Spike then Plot2 (AvgTrueRange( 6 ),“ATR_Spike”) ;

  2. That’s pretty cool thanks man will this work on Sierra or just Multi Charts ?

  3. I never used Sierra but it will work with TS and MC. Mark

  4. For automation or codes, TradeStation and Multicharts use almost identical languages. We have both platforms available to our customers.
    If you are a Sierra user we can try to ask one of our community users to translate this code.

    Thanks,
    Matt Z
    Optimus Futures
    www.optimusFutures.com

  5. That would be awesome Ive only been trading for a few years and Sierra was the most comfortable platform for me I run the TPO charts and have started to build foot print charts as well on there so I’m a little worried to change now that I’m getting more comfortable with Sierra

Continue the discussion at community.optimusfutures.com

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