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Wednesday, June 13, 2012

Issue 41

Wednesday, August 8, 2012

Intraday Time Analysis


Erik Skyba, CMT
Senior Quantitative Analyst
TSLabs@TradeStation.com

Features
Focus: Technical

Studies/Files Included:
Workspaces

Markets: Equities, Futures

Time Perspective: Short-term

Indicator

Summary
Active traders make their livelihood in the charts of the intraday session, scanning the markets for
recognizable patterns that that are persistent and profitable over time. However, the intraday session is
influenced by numerous factors. For example, trading activity has been known to increase prior to and after
economic and earnings announcements. Developments in technical analysis can also influence price
momentum, market swings and trend continuation. And then, of course, theres always the completely
unforeseen event that throws the market completely out of whack. While a certain degree of price movement
will always be random, these and countless other factors come together to create observable trading biases.
In this paper, we will focus on trends and reversal points in the intraday session, with the goal of identifying
bullish and bearish biases that active traders can put to use in their trading.

Introduction
Double bottoms, triple tops, head and shoulders you often hear these chart patterns mentioned by traders.
But in the world of technical analysis, these classic chart patterns are only the tip of the iceberg.
The study of patterns during the intraday trading session is another type of pattern analysis. This kind of
analysis examines the consistency of positive and negative returns, on average, during the intraday session.
This analysis is analogous to analysis of the longer-term seasonality of a security.
Dominant intraday patterns should be distinguishable and repetitive over time, authenticating their reliability.
Additionally, a pattern in the intraday session that reiterates over a years time should be corroborated with
possible new developments in monthly and quarterly intraday trends. When these intraday trends are
contrasted, changes in the dominant longer-term intraday trends and current dominant patterns are more
discernible.
This paper will analyze the intraday patterns of the S&P 500 Index. The primary focus is trends and reversal
points in the intraday session, with the goal of identifying bullish and bearish biases that active traders can
put to use in their trading. TradeStation indicators are used to examine the intraday session and these tools
are available for download with this paper.

Intraday Time Analysis

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The Intraday Bias Indicator


The Intraday Bias Indicator is constructed from 30-minute intraday data and measures the historical intraday
trend of a security. The default method of calculation for this indicator accumulates and averages the returns
of each 30-minute interval until they are reset. The EasyLanguage used to construct the average returns of
the indicator is an hourly calculation. The indicators inputs determine when the average returns are reset.
The indicator is then displaced forward 13 periods into the future as shown in figure 1. (Thirteen periods is
equal to one trading session.) Based on historical price action, a trader then has reasonable expectations of
future trends. A secondary method accumulates the point changes for each 30-minute intraday interval.
Figure 1: Intraday Bias Indicator (red) and SPY (green)

There are six inputs that control the indicator. The first input, TimeReset, allows the indicators
accumulated returns or points to be reset to zero on a monthly, quarterly or annual basis. The user can also
choose NoReset for the indicator not to reset. The second input, MACrossReset, allows the indicators
accumulated returns or points to be reset to zero when two weekly moving averages cross. This reset will
occur when the shorter-length moving average crosses either above or below the longer moving average.
Type True to turn the MACrossReset indicator on and False to turn it off. By setting the MACrossReset
input to False, the indicator will be unaffected. In Table 1, the input for the indicators calculation is called
PointOrPercent. If this calculation is derived from points, then type Point in the input box; if the calculation
is derived from percentages, type Percent in the input box. Inputs 4 and 5 control the moving average
length. Input 4, FastLength, is set to 10 by default and input 5, SlowLength, is set to 50 by default. Input 6
determines how far forward into the future the indicator should be displaced past the current data. The
default value for this input is set to 13 periods, representing one trading session into the future (using a
30-minute bar interval on a 390-minute regular session for stocks), as shown in figure 1.

Intraday Time Analysis

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Table 1: Indicator inputs


Input
TimeReset

Default
"Annually"

MACrossReset

"False"

PointOrPercent

"Percent"

Description
Cumulative returns or points can be reset to zero on an annual, quarterly or
monthly interval
Cumulative returns or points can be reset to zero after a moving average cross
Indicators method of calculation; can be derived from percentages or points

FastLength

10

Length of fast moving average

SlowLength

50

Length of slow moving average

FutureDisplace

-13

Indicator is displaced 13 periods forward into the future (one trading session)

Intraday Bias Indicator - Examples


The Intraday Bias Indicator is not perfect by any means. But at the very least, it will allow a trader to be
conscious of intraday trading biases. Simple data observation reveals biases that are consistent over time
and others that are caused by random price movement. Figure 2 demonstrates how the price action can
closely resemble the future expectations of the indicator. The red and blue arrows illustrate how the
directional movements in the indicator are followed by the S&P 500 Index, as the historical bias translates
into future price movement.
Figure 2: Intraday Bias Indicator (red/blue dots) and SPY (green)

Figure 3 presents an imperfect example of periods when price action does not resemble the future
expectations of the indicator, as indicated by the black and red arrows. Since the indicator is an average of
historical return data, it lags behind and needs some time to converge with the current intraday price trends
of the security.

Intraday Time Analysis

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Figure 3: Intraday Bias Indicator (red/blue dots) and SPY (green)

Intraday Bias Studies


In this section of the paper, intraday price trends of the S&P 500 Index are spotlighted using data as far back
as 1987. Some of this information was conveyed in the March 8, 2011 Analysis Concepts paper, Mapping
the Intraday Price Movement in the S&P 500 Index (http://www.tradestation.com/education/labs/analysisconcepts/mapping-intraday-price-movement-p1). In this paper, a similar study is constructed from a finer
interval resolution (60 minute increments) with a variation in the construction of return calculations. Another
difference is that basic plus (+) and minus (-) signs are used to depict whether the hour was positive or
negative in percentage terms. This creates a clearer visual representation of the hourly trends that makes
them easier to identify. All results are created from average returns; these average returns are calculated on
an hourly interval but are generated from 30-minute bars between 10 a.m. and 4 p.m., which includes preand post-market trading (price changes from the 4 p.m. bar to the 10 a.m. bar).
At first glance in Table 2, what stands out is the number of positive periods at the 10 oclock hour and in the
4 p.m. hour, with the bulk of the returns from the 10 a.m. hour coming from the pre market session. The
actual return from 9:30 a.m. to 10 a.m. is positive, though Table 2 also shows a bullish bias in the 4 p.m.
hour as stocks make their way to the close. Going back to 1987, 21 of 25 occurrences had average returns
that were positive for the 4 p.m. interval. Also of interest is the weakness that typically occurs in the 11 a.m.
hour (10 a.m. to 11 a.m.). Again, for data going back to 1987, there were 18 occurrences where returns
were negative for this interval. The market seems, on average, to take a breather in the 11 a.m. hour after its
initial morning run-up. Another interesting statistic is that if stocks close higher on average into the 3 p.m.
hour, their probability of moving higher into the 4 p.m. close is 70%.

Intraday Time Analysis

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Table 2: Intraday Bias Study 1 (1987-2011)

1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011

10:00

11:00

12:00

1:00

2:00

3:00

4:00

+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+

+
+
+
+
+
+
+
-

+
+
+
+
+
+
+
+
+
+
+
+

+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+

+
+
+
+
+
+
+
+
+
+
+
+
+
-

+
+
+
+
+
+
+
+
+
+
+
+
+
+
-

+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+

Next, going back to September 11, 1984, trading biases in the S&P 500 Index intraday session are analyzed
during longer-term bullish and bearish market cycles. As mentioned earlier, what really stands out in the
data is a positive bias in the 4 p.m. hour of each bullish and bearish market cycle. Also, notice the positive
and negative biases in the 10 a.m. hour, correlated to each bull and bear market cycle. Additionally, note
that three of four bear market cycles had a negative bias on average from the 10 a.m. hour into the 2 p.m.
hour.
Table 3: Intraday Bias Study 2 (9/11/1984-Present)
Date

Cyclical Phase

9/11/1984

8/21/1987

Bull Market

8/21/1987

12/4/1987

Bear Market

12/4/1987

3/24/2000

Bull Market

3/24/2000

9/21/2001

Bear Market

9/21/2001

1/4/2002

Bull Market

1/4/2002

10/4/2002

Bear Market

10/4/2002

10/12/2007

Bull Market

10/12/2007

3/6/2009

Bear Market

3/6/2009

Present

Bull Market

9/11/1984

Present

Intraday Time Analysis

10:00

11:00

12:00

1:00

2:00

3:00

4:00

+
+
+
+
+
+

+
+
+
-

+
+
-

+
+
+
+
+

+
+
+
+
-

+
+
+
+
+
+

+
+
+
+
+
+
+
+

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Conclusion
Although traders may pay particular attention to a set of primary indicators, they should also be aware of
what might be considered secondary indicators.
In this paper, the Intraday Bias Indicator is presented as a secondary indicator. In applying it to 30-minute
S&P 500 Index data, the indicator is calculated by taking the average historical returns of the index and then
projecting them forward by one trading day. The objective of this tool is to provide the trader with an
awareness of the recent intraday trading bias. In practical application, this indicator could be used in
conjunction with a primary set of signal indicators to fine-tune trade entry and exit points.
The intraday bias indicator allows the trader to be cognizant of the directional biases of the intraday session.
This indicator is available for download at the end of this paper.

To use the files provided with this issue of Analysis Concepts:

Files with extension .eld These contain EasyLanguage documents: analysis techniques and
strategies. Double-clicking on this file will start the Easy Language Import Wizard. Follow the prompts to
completion. The analysis techniques or strategies will automatically be placed in the correct locations for
your use in TradeStation. This should be done before opening any workspaces provided.
Files with extension .tsw These are TradeStation workspaces. These may be stored in any folder
where you choose to save TradeStation workspaces.
Files with extension .txt These are text versions of the EasyLanguage documents and are generally
used only by advanced EasyLanguage users.
Other supporting documents or files may also be attached to the report.

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Intraday Time Analysis

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