When buying the dip in day trading, many people make decisions based solely on the shape of the chart. The criteria is: if it rises, pulls back, and stops near the recent low, buy it. Judging by shape alone is not necessarily bad. However, even with the same shape, the underlying content is vastly different between a pattern that appears at 9:05 and one that appears at 10:30.
Even if the shape is the same, the number of participants, the momentum of buying and selling, the depth of the order book, and the speed of price movement in the background are different. If you ignore this and use the same strategy, you will likely find that it works well during certain times of the day but leads to repeated stop-losses during others.
If you feel that your results from buying the dip are inconsistent, one of the reasons may be that you are not taking the time of day into account.
In this article, aimed at intermediate traders, I will compare dips at 9:05 and 10:30, and explain why you should change your approach even for the same pattern, incorporating insights from the order book and time and sales data.
Chapter 1: Even with the Same Shape, the Content Differs by Time of Day
First, let’s confirm the state of the market at different times of the day.
The first half of the 9 o’clock hour, immediately after the market opens, is the time of day with the most participants and the most active trading. Orders placed from the previous night, orders reacting to news, and orders from participants who watched the pre-market quotes all move at once.
Because of this, price ranges are wide and movements are fast. Both rises and falls are sharp, and dips are often deep and short-lived. The numbers in the order book also change rapidly, making it easy for the appearance to diverge from the reality.
On the other hand, 10:30 is a time when the confusion of the market open has settled and the number of participants begins to decrease. Trading becomes calmer, and price ranges tend to become smaller. Dips may become shallower or form more slowly.
As you can see, even with the same “dip” shape, a fast and deep dip has different characteristics than a slow and shallow one. If the characteristics are different, the entry timing, stop-loss width, position size, and profit-taking targets should also change.
Also, as the day progresses, the market’s direction for the day becomes clearer. Even if the direction is uncertain in the morning, by 10:30, the trend of whether it is a strong or weak day is often visible. This point also relates to the reliability of the dip.
Just by adding the axis of time, what you see will change.
This concludes the free portion of the article. From here on, I will look in detail at the characteristics and strategies for 9:05 dips, the characteristics and strategies for 10:30 dips, the differences in stop-losses and position sizing, and specific scenarios, chapter by chapter.
