For day traders, knowing the time of the day when the market sets the high of the day (HOD) or low of the day (LOD) is very important. This information can be very useful in many aspects. From knowing when we should be participating in HOD/LOD breakout trades to when we should be fading them. Additionally, we can also use this information for stop placement. For example, if we know that by 2PM, there is a 68% chance that we already seen the low of the day, then we can use the low of the day as our stop loss and expect that 2 out of 3 times, we won’t get stop out. Of course, using this information in live trading is much more complicated than that. Nevertheless, it’s still a very useful information that can improve our results.
Below is the time of the day the S&P 500 makes new high/low. The data is from 2000 to February 2022. This data is breakdown by 30 minutes windows.
As you can see from the graph above, the HOD and LOD is usually set from the first 30 minutes and the last 30 minutes of the trading day. Another key information is that we rarely made new HOD/LOD during mid-day (from 12 – 2 PM).
Here is the cumulative % that we had seen HOD or LOW by different time of the day. For example, at 2 PM, there is a 61.71% chance that we have already seen the HOD and 67.98% chance that we have already seen LOD.
So how should one use the information above to improve their trading? Well, since we mostly make new high and low during the first 30 minutes and the last 30 minutes, we should look to take breakout during that timeframe. Conversely, we should be fading these HOD/LOD breakouts during mid-day as the data shows that it is very rare for the S&P 500 to makes new high/low during that time.
Disclaimer: I am not a financial advisor. All information in this blog is for educational purposes only.
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A new blog must have at some point its very first commentary, so here it is. 🙂
Speaking of HOD/LOD I presume they are more important for day traders than for casual ‘swingers’. Simply because in swing trading usually the time horizon is more than one single day.
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Victor, thanks for your comment! I agree with you that HOD/LOD tendency is best for day traders. As swing traders, it’s less important but I do think that it is still useful information to keep in mind.
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Magnus, I have two quick questions about HOD/LOD, I’m thinking how to incorporate this idea in my own swing trading.
1. Is this tendency of HOD/LOD to be set in the first/last 30 minutes present in other markets? Other indices or even currencies? Because if it is so then even a humble swing trader like me can use this to have better entries. 🙂
2. Do you think this idea of HOD/LOD might be used for weekly as a HOW/LOW, too?
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Hi Victor,
1. The HOD/LOD’s tendency for indices are very similar across S&P, Russell, and Nasdaq. I’ve seen other articles that came to similar conclusions for other assets as well. However, the % can be slightly different. For example, 25% LOD in the 1st half an hour vs 23%. Perhaps, I might do a follow up article on this for currencies and commodities to confirm this belief.
2. I assume you mean which day during the week we’re most likely to make new high/low? That sounds interesting. However, my instincts tell me that it is not as reliable as HOD/LOD because the HOD/LOD’s tendency is possibly driven by the big volume in the first and last half an hour. Whereas for the week, each weekday has an equal amount of volume on average.
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