Last Call/First Call

The Last-Hour Trading Technique

This trading strategy can be used to enter the market in the last day into the most active and profitable time periods and least
NADIR KIANERSI

hour of the trading day and exit in the first hour of the next. profitable and active time periods.
The AG last-hour technique is a Buy today, sell tomor-
by Ashwani Gujral row or Sell today, buy tomorrow daytrading strategy. This

T
can be used for entry in the last hour of the trading day and
hey say 95% of daytraders lose money, but thats not exiting in the first hour of the next trading day.
the case anymore if you are operating in the right time I have conducted real-time backtesting of the strategy in
zone of the day and in the right stocks. In fact, it is the last year. The strategy has a documented backtesting ac-
possible to daytrade the markets with 80% accuracy. curacy within given parameters of about 80% odds of getting
The overall volatility of markets seems to be increasing every 2% or better on a daily basis. The beauty of this strategy is
year, so the more time spent in markets leads to greater risks that you always have a play for the day, and you do not have
being taken. It has now become possible to slice the trading to watch a quote screen all day.
32 August 2012 Technical Analysis of Stocks & Commodities
 TRADING TECHNIQUES

Whats so special Narrow

Narrow Range
Narrow
RangeBreakout
NarrowRange
Range
Breakout
Breakout
Breakout
about it? The first and last
The first and last hours of any trading hours of any trading
day are the most active in terms of price day are the most
and volume. The activity in the last hour
happens because most large institutions active in terms of
operate in the postlunch session. There price and volume.
are also up and down swings during the
day, with the market revealing its hand
only in the final hour. select a particular stock:
The first hour of a trading day is also 1 A narrow range breakdown/break-
interesting and active but for a different out on larger than usual volume
reason, in that stocks that have closed (Figure 1). Narrow range breakouts
strong or weak in the previous ses- Figure 1: narrow range breakdown/breakout. and breakdowns give large moves
sion tend to open in that direction as These give large moves in a particular direction. in a particular direction. The move
well. This happens because technical is significant in the other direction
analysts, newsletter sellers, and retail Pivot Breakdown On Larger Than Normal Volume if a narrow range occurs after a
traders look at daily charts for break- significant move in one direction.
outs. Thus, a strategy can be created
where you buy and/or sell with the big 2 Breakout/breakdown of previous
institutions and book profits when the up/down pivot on larger than usual
rest of the market tries to get on the volume (Figure 2).
bandwagon.
The Indian markets open at 9:15 am and This is done by having a market
close at 3:30 pm local time. So the tech- watchlist that lists gains or losses in
niques described here are from that point various stocks according to minimum
of view, where the first hour is 9:1510:15 traded volume criteria. It takes about
am and the last hour is 2:303:30 pm. half an hour to scan through the 20 top
These principles can be applied across Figure 2: breakout/breakdown of previous losers or gainers on that list. I would
all markets and time zones. up/down pivot rather choose a high-beta stock than a
dead defensive. We only have a couple
The context of hours and we need to make the most of it. You can add
of the market your own high-probability setups.
Sitting out the market till the final hour allows you to be
absolutely clear about the trend for the day. By the last hour, For best results
you know which side you need to act on that is, which In order to come up with the best results in the tradables and the
side you need to look for shorting candidates or going long. situation at hand, you may want to consider these variables:
If the market is moving:
n All of the analysis here should be done with a view
n Higher throughout the day or keeping a positive bias, on the kind of market we are dealing with. Is it a bull
you look for stocks to buy market, a bear market, or a sideways market?
n Which groups or sectors are leading and which are
n Lower for the day or keeping a negative bias, you
lagging?
look for stocks to sell. If it is a narrow rangestyle
n Which stocks have been the best and worst performing?
day, reduce your volume to half.
n The breakout/breakdown bar should be at least 3% up
How do you select the right stocks? or down from the previous close.
By the last hour, it is clear which is the strongest or weakest n On the chart I usually have the 20- and 30-day simple
group, what stocks are breaking down or out on the daily moving average (SMA) to give me an idea of the loca-
charts, and on what kind of volume. A larger than usual tion of price on the chart.
volume means a volume bar that around the last hour is n A Donchian channel makes it easier to see whether a
greater than closing volumes of most days. The greater the pivot or a narrow range is getting broken on any time
volume, the better the move. I have found that it is possible frame. I use an ordinary 20-period channel.
to identify at least one idea that works because there is action n Try to get 7% to 8% on three to four days in a month,
somewhere in the market, and you only need one good idea although average profits will be 2% or more.
to work in the market everyday. I tend to use two setups to
August 2012 Technical Analysis of Stocks & Commodities 33
(JET AIRWAYS.EQ-NSE - JET AIRWAYS (INDIA) LTD.,D) Dynamic, 0:00-24:00

Stocks break down from narrow range

eSignal
FIGURE 3: JET AIRWAYS, DAILY. The stock breaks down from a narrow range on December 8, 2011. This is a signal to go short.

of variables to consider like this helps in choosing the best

This strategy sharpens your stocks to go short or long.
daytrading skills by keeping
you away from the choppiness. Examples
Figures 3 through 6 display examples of
how you can apply the last-hour trading
n Choose at least two stocks. If one of the two works, it to your own work. In Figure 3, which is a
will make your day. daily chart of Jet Airways, a leading player
n The technique fails 20% of the time, so get out fast in the Indian airline industry, you see that
when you realize something is not working. on December 8, 2011, you get a signal to
n All exits must occur in the first hour of the following go short after the stock breaks down from
trading day. a narrow range. If you look at the five-minute chart in Figure
4, you will see how the stock performed during the last hour
All of these variables are used as additional information, of trading and the first hour on the following trading day. At
which may or may not be used with a trigger. Having a set 2:30 pm on December 8, 2011, the sell signal was taken. There

(JETAIRWAYS.EQ-NSE - JET AIRWAYS (INDIA) LTD.,5) Dynamic, 0:00-24:00

At 2:30 the sell signal is taken, because

there is a narrow range breakdown on
the daily chart. Market context is weak and
so is the airline group. The next day in the
first hour, Jet Airways falls on large volume.

FIGURE 4: FIVE-MINUTE CHART OF JET AIRWAYS. At 2:30 pm on December 8, 2011, the sell signal was taken. During the first hour of trading on December 9, the price
of Jet Airways fell on large volume.

34 August 2012 Technical Analysis of Stocks & Commodities

(JUMBLFOOD.EQ-NSE - Jubilant Foodworks LTD.,D) Dynamic, 0:00-24:00

After four declining days, the stock takes

out the upside pivot, with good volume,
and hence comes on our list.

Larger than usual trading volume

FIGURE 5: JUBILANT FOODWORKS, DAILY. On December 15, 2011, the stock takes out the upside pivot with larger than usual trading volume.

was a narrow range breakdown on the daily chart, the market trading day. If nothing else, this strategy sharpens your day-
was in a downtrend, and the airline group was weak. During trading skills by keeping you away from the choppy period
the first hour of trading on December 9, 2011, the price fell on in the market and makes you a net profitable trader. It is most
large volume. profitable to participate in the market only during these two
If you look at Figure 5, the daily chart of Jubilant Food- hours. It is as if you were participating in a trending market
Works, a multinational food service that runs the Dominos in any other time frame.
Pizza chain in India, youll see that on December 15, 2011, the
stock takes out the upside pivot with larger than usual trading Ashwani Gujral is a trader, author, and commentator on
volume. The (long) trade was entered on the bar that surged on the Indian stock markets. He is an SEBI (Indian securities
high volume (Figure 6) and easily made the 2% gain within regulator) registered portfolio manager. He can be reached
the first 10 minutes of the following trading day. at [email protected].

All in two hours eSignal

Most daytraders lose money because they crave too much
action. Losing trades happen during the dull period of the

(JUMBLFOOD.EQ-NSE - Jubilant Foodworks LTD.,5) Dynamic, 0:00-24:00

Easily make the 2% in the first
10 minutes of the following day

Enter trade on this bar as stock

surges on heavy volume

FIGURE 6: FIVE-MINUTE CHART OF JUBILANT FOODWORKS. The long trade was entered after 2:30 pm on December 15 on the bar that surged on high volume.
A 2% gain was made within the first 10 minutes of trading on the following day.

August 2012 Technical Analysis of Stocks & Commodities 35