Day Trading Strategy

At What Time of Day Does S&P 500 Set High And Low? (Day Trading Strategy)

SPY tends to set its daily high and low during the first and last trading hours, which only make up 31% of the trading day. This suggests traders might find good times to enter or exit positions then, especially since the market is more volatile at the open and the close.

The first trading hour is particularly volatile, possibly because the stock market fluctuates quickly. Understanding these patterns can help day traders make better decisions about when to trade.

Ever wondered about the best time to trade the SPY/S&P 500 as a day trader? Curious about when it tends to hit its highs and lows during the trading day? Let’s dig into some intraday backtests on the S&P 500 (SPY). This article will analyze data from various periods to uncover patterns and insights that can inform day trading strategies.

At what time of day does SPY/S&P 500 set high and low? How much does SPY move intraday? What is the best time to trade SPY for a day trader?
Let’s find out by doing some intraday backtests on the S&P500 (SPY).

This morning we looked at when SPY makes high and low during the trading day (intraday) (regular market hours from 0930 to 1600). We had no particular plan behind this,

We just wanted to know if we could draw some day trading ideas from it. The total sample is 650 days, from January 2010 until July 31st, 2012.

Here are the statistics from the intraday test in SPY:

 First hourLast hour
Todays High213 (33%)187 (29%)
Todays Low266 (41%)136 (21%)

As we can see, SPY sets a high 62% of the time in the first or the last hour, even though these two hours represent only 31% of the trading hours. The result is about the same for the low of the day. Interestingly, though, is that the first trading hour seems to be the most volatile.

Even though this was just a sample of 2.5 years, we are confident the same pattern holds today. We went backed and picked another period from the 24th of April 2007 until the 19th of November 2009 (we just picked some random dates, this is also 650 days):

 First hourLast hour
Todays High204 (31%)192 (30%)
Todays Low227 (35%)172 (26%)

We get the same results from other random periods of 650 days.

Also of interest is that the intraday low is more prevalent in the first hour than the day’s high. Why? We guess there are two reasons for that: First, the stock market has an upward bias, and second, the market usually drops faster than it rises. This seems to happen both in bear and bull markets.

Table of contents:

Intraday Highs and Lows Across Weekdays

Is the pattern different depending on weekdays?

This section looks into the variations of SPY’s performance across weekdays. By examining the number of highs and lows during the first and last hours of trading, we aim to uncover patterns that may be different from weekday to weekday. Let’s dive into the data to understand the weekday differences:

Here are the numbers from 2010 until summer of 2012 (and we believe the results are still valid today):

 #NumberHighLowHighLow
 of daysFirst hourFirst hourLast hourLast hour
Monday11944432929
Tuesday13537644529
Wednesday13338503529
Thursday13244504425
Friday13050593425

We see that high and low happen more frequently in the first hour on Fridays compared to the other days. Also noteworthy is that on Tuesdays, the high happens in the first hour 64% of the time.

S&P 500 Intraday High Strategy (Backtest, Returns, Performance)

Let’s end this article with a strategy that has a variable that depends in the intraday high. The S&P 500 Intraday High Strategy involves buying when specific conditions are met following a new high in the S&P 500 index.

The entry conditions include today’s intraday high surpassing the previous day’s high and the Internal Bar Strength (IBS) being lower than 0.15. Entry and exit decisions are made at the market’s closing time, with the market opening at 09:30 local NY time and closing 1600 local time.

We made the following trading rules strategy:

  1. Today’s intraday high must be higher than yesterday’s high.
  2. The IBS must be lower than 0.1.
  3. Exit after N-trading days.

The rules are simple, but they have proven to be effective. We believe in simplicity in trading.

If we backtest S&P 500 and its corresponding ETF with the ticker code SPY (dividends reinvested), we get the following results if we sell after N trading days:

At What Time of Day Does SP500 Set High And Low
At What Time of Day Does SP500 Set High And Low

The results are pretty good. If we sell after ten trading days we get the following equity curve:

SP500 Intraday High Strategy
SP500 Intraday High Strategy

The average gain is 0.8% since inception in February 1993, and the win rate is 66%. Max drawdown is only 14%. The strategy succeeds in taking advantage of the brief pullback when there is a longer bullish momentum. The strategy works much better for QQQ.

In addition to the findings related to SPY’s high and low patterns, it’s worth noting that these trends can provide valuable insights for traders. The statistics reveal that SPY tends to establish its high and low points during the first and last trading hours, which collectively account for only 31% of the trading day. This suggests that traders may find favorable opportunities to enter or exit positions during these hours, capitalizing on the market’s peak volatility.

Furthermore, the data indicates that the day’s low is more frequently established in the first trading hour than the day’s high. This occurrence may be attributed to the stock market’s inherent upward bias and the general tendency for markets to experience swifter declines than ascents. These insights can assist traders in making more informed decisions and optimizing their strategies in both bull and bear markets.

When does SPY tend to set its daily high and low?

SPY tends to establish its daily high and low during the first and last trading hours, which collectively make up only 31% of the trading day.

How much of the trading day do the first and last trading hours represent?

The first and last trading hours, where SPY sets its daily high and low, represent only 31% of the trading day.

Why might traders find it beneficial to enter or exit positions during the first and last trading hours?

Traders might find it advantageous to enter or exit positions during these hours because SPY tends to exhibit peak volatility, potentially offering favorable trading opportunities. Also, volume is higher around the open and the close compared to lunch “doldrums.”

What percentage of the time does SPY establish its high or low during the first or last hour of trading?

SPY sets its high or low about 62% of the time during the first or last hour of trading.

What makes the first trading hour particularly volatile for SPY?

The first trading hour is notably volatile for SPY due to the inherent upward bias of the stock market and the tendency for markets to experience quicker declines than rises. Moreover, news tends to get discounted early in the sessions, and the market requires time to find its equilibrium.

Why is the day’s low more frequently set in the first trading hour than the day’s high?

The day’s low is more commonly established in the first trading hour than the day’s high, possibly because of the stock market’s upward bias and the tendency for markets to drop faster than they rise.

How can understanding SPY’s daily high and low patterns benefit day traders?

Understanding SPY’s daily high and low patterns can help day traders identify potential entry and exit points, and when it’s best to enter or close positions.

What insights do SPY’s high and low patterns offer for traders?

SPY’s high and low patterns provide insights into when peak volatility occurs, potentially aiding traders in optimizing their strategies.

What are some potential entry and exit points for day traders based on SPY’s high and low patterns?

Day traders may consider entering or exiting positions during the first or last trading hours when SPY tends to establish its daily high and low.

How can traders optimize their strategies using SPY’s high and low patterns during the first and last trading hours?

Traders can potentially optimize their strategies by capitalizing on SPY’s peak volatility during the first and last trading hours, leveraging the insights provided by its high and low patterns.

What is the significance of understanding when SPY sets its daily high and low?

Understanding when SPY establishes its daily high and low can provide valuable insights for day traders, helping them identify potential entry and exit points.

Why is the first trading hour considered more volatile for SPY?

The first trading hour is often more volatile for SPY due to the inherent upward bias of the stock market and the tendency for markets to experience quicker declines than rises. Additionally, news tends to get disseminated early in the session.

How can day traders benefit from SPY’s high and low patterns during the first and last trading hours?

Day traders can potentially capitalize on SPY’s peak volatility by looking for favorable entry and exit opportunities during the first and last trading hours.

What is the strategy based on the S&P 500 making a new high?

The strategy mentioned in the content involves buying when specific conditions are met following a new high in the S&P 500. This approach aims to capitalize on upward momentum in the market.

What is the primary focus of the S&P 500 Intraday High Strategy?

The S&P 500 Intraday High Strategy focuses on buying opportunities triggered by new highs in the S&P 500 index.

What are the key conditions required for entry S&P 500 Intraday High Strategy?

The Entry conditions in S&P 500 Intraday High Strategy include today’s intraday high surpassing the previous day’s five-day high and the Internal Bar Strength (IBS) being lower than 0.15.

When does the S&P 500 Intraday High Strategy execute its entry and exit decisions?

For S&P 500 Intraday High Strategy both entry and exit decisions are made at the market’s closing time, which is at 15:00 Chicago time, following a straightforward approach to trading.

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