Over these five lessons, we are going to give you five important, yet very simple concepts that should be a part of every trade you do. These are some of the very things we train our VCM traders to do, to increase the odds of every trade being successful…

If you trade intra day, and you are not aware of the nine intraday reversal times, you are operating at a huge disadvantage. All VCM traders are trained in strategies that revolve around, and maximize, reversal times. There are nine reversal times throughout the trading day.

Reversal Times are times during the trading day, when the market is likely to stall or reverse the most recent pattern. They can occur because of the way Wall Street functions, and Market Maker or Specialist activities. For example, at 3:00 PM EST, the bond market closes. The remaining hour of the stock market may take a direction based on the finality of having bonds closed.

Another example is during the first five minutes of the trading day, from 9:00-9:35 AM EST. During this time, the public’s orders to buy and sell ‘at market’ are being handled by Market Makers and Specialists. It is not unusual to see big swings in a stock’s price during the first 5 minutes. A high or low may be set in the stock’s price that lasts for most or even all of the trading day.

Another example is the beginning and ending of lunch. The reason is as simple as the fact that the Market Makers and Specialists go to lunch, leaving junior people in charge to watch things while they are gone. Not only does this lead to reversal times going into and out of lunch, but also a phenomenon known as the ‘doldrums’, where you will find on most days, break outs and break downs will fail during the lunch doldrums.

Some of the rationale above may or may not make sense to you. You may have heard some of this rationale disputed before. Here is the bottom line. We do not care about the reasons; the fact is that reversal times play significant roles in the movements of the market and individual stocks. Therefore, you need to be aware of them and trade them appropriately.

The chart below is a five minute chart of the NASDAQ 100 HOLDR (QQQQ). This can be considered, ‘the market’. It does not matter what you use, pick any stock or the S&P 500 and look for these times. While this chart was selected because it gave an excellent example of the concepts of this lesson, it was not hard to find. Look for yourself, and you will be amazed how charts respond to reversal times. It is very common that the morning reversal times will often set the high and low for the day, if not at least for the first half of the day, on a regular basis.

Here is a rundown of this chart and how moves can become almost predictable, when following the reversal times. The numbers below match the numbers on the chart. All times are ‘market time’, which is eastern time.

1. The 10:00 reversal time stops the morning decline with bottoming tails and a buy set up. VCM tip – this would be a great time to cover morning shorts, as this often can be the low for the day.

2. The 10:30 reversal time accentuates a sell set up that takes the market to a new low. While every day is different, it is unusual that 10:00 or 10:30 exactly did not set the high or low for the morning. You have to take the times as ‘approximate’, or within 5-10 minutes either way. Note that the sell set up takes the market to new lows minutes later, which did prove to be the low for the day. VCM tip – this action of setting a new low in this manner, right around 10:30 is very common, so use it to your advantage.

3. The beginning of lunch, the noon reversal time, sets the high for the lunch doldrums. VCM tip – this is an example of a short that is not a good setup, because the downtrend was broken, but works due to the lunchtime reversal.

4. The end of lunch, 1:30 reversal time. Note that this VCM buy set up takes the market to the new high on the day. VCM tip – note that any setup is more accurate when it aligns with a reversal time.

5. The 2:15 reversal time is always a big one. It sometimes reverses a ‘fake out move’, this chart shows how it accentuates another VCM buy set up. VCM tip – Always watch for a setup between 2:15 and 2:30, the result of that 15 minutes usually yields the true pattern for the afternoon.

6. The 3:30 reversal time puts an end to the extended rally. VCM tip – note, we always wait for the ‘setup’ that occurs around the reversal time. Here it is the VCM five minute sell setup.

The three other reversal times which are NOT in play on this chart are 9:35, 11:15, and 3:00. They are just as important, but they all don’t come into play everyday.

If the above price movement seems amazing to you, they are not amazing to VCM traders. Check for yourself. Look through your favorite stocks or charts of the market in general, and look for this response throughout the day. Naturally it is not the case that every stock will respond to every reversal time every day. The point is that when you have a strategy that is about to take place at a key reversal time, it enhances the strategy greatly.

We hope you are enjoying these lessons and that they add to your trading profitability. Next week, relative strength and weakness to increase your odds.