Last Updated on June 19, 2022 by Quantified Trading
What is the return during the last hour of trading? A search on the internet reveals that traders should beware the last hour of trading and that volatility picks up. Let’s do some simple “fact-checking” on the S&P 500 and find out the return during the last hour of trading. Based on the results you might even manage to develop a last hour trading strategy.
The return during the last hour is slightly negative but seems very much like a random walk. However, the returns are slightly tilted towards the direction of the trend from the opening price of the day. If the price one hour before the close is higher than the open, the returns during the last hour of trading increase (and vice versa).
The return during the last hour of trading – S&P 500
We measure the return during the last hour of trading by looking at the futures data in the S&P 500 (ticker code ES) from 2011 until today. We buy (go long) at 1400 local Chicago time and we exit at the close at 1500. This is the equity curve:
However, the return during the last hour of trading is very much a continuation pattern. If the price at 1400 is higher than the opening price of the day, the return is positive, and negative if the price is lower than the opening. This is the equity curve when the price at 1400 is lower than the opening price of the day:
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The returns during the last hour of trading – conclusion:
The poor returns during the last hour of trading are expected. The fact is that the stock market “works” during the day, but stocks love the night: Practically all returns come when we are sleeping, exercising, or watching TV. Overnight trading involves substantially better odds of success.
Is it possible to develop a last hour trading strategy? Yes, if add one or more variables you can improve the average gain substantially.