I went back to the beginning of March (N = 33 trading days) and calculated the average volume for each 15-minute segment in the S&P emini futures market (ES). Here's how the data look (Eastern Time):
9:30 - 9:45 AM - 89,295
9:45 - 10:00 AM - 65,418
10:00 - 10:15 AM - 83,020
10:15 - 10:30 AM - 56,083
10:30 - 10:45 AM - 53,329
10:45 - 11:00 AM - 51,402
11:00 - 11:15 AM - 38,718
11:15 - 11:30 AM - 36,625
11:30 - 11:45 AM - 37,432
11:45 - 12:00 N - 36,176
12:00 - 12:15 PM - 35,816
12:15 - 12:30 PM - 32,387
12:30 - 12:45 PM - 28,597
12:45 - 1:00 PM - 22,768
1:00 - 1:15 PM - 26,359
1:15 - 1:30 PM - 25,091
1:30 - 1:45 PM - 33,799
1:45 - 2:00 PM - 27,099
2:00 - 2:15 PM - 37,832
2:15 - 2:30 PM - 40,125
2:30 - 2:45 PM - 38,464
2:45 - 3:00 PM - 32,324
3:00 - 3:15 PM - 35,541
3:15 - 3:30 PM - 34,831
3:30 - 3:45 PM - 37,462
3:45 - 4:00 PM - 59,943
4:00 - 4:15 PM - 62,491
You can clearly see the "smile" pattern of volume: highest at the beginning and at the end of the day. Recall that a relatively small proportion of trades account for a relatively large proportion of total volume due to the disproportionate influence of institutions and large locals in the electronic futures markets. What the above volume figures tell us is that these large participants are most active early and late in the day.
It is this participation of large traders that creates opportunity. When 15-minute volume has been above 150,000 contracts, the average high-low range in the ES futures has been .65%. When it has been between 100,000 and 150,000, the average range has been .41%. Between 75,000 and 100,000 contracts, we have a range of .31% and between 50 and 75 thousand, the range drops to .23%. At the lower end of volume, when we're between 25 and 50 thousand contracts, the average 15 minute range declines to .17%, and when we're less than 25 thousand, that average range contracts to .11%.
Indeed, the correlation between 15 minute volume and the price range of that same 15 minute period is a whopping .86. Volume brings volatility, which helps define the short-term trader's opportunity.
One of the great, unrecognized reasons so many daytraders fail is that they expect the same patterns and setups to produce the same results at different times of the day. Markets trade differently at different times of day, and they differ from day to day. The same profit targets and stops for a particular trade idea may lead to profit at one time of day and whipsaws at others. If you conduct your own performance review and notice significant P/L variation as a function of the time of day of your trades, this may well be a problem for you. You would need to either limit your trading to certain times of day (which is what I do) or adapt your setups to the anticipated volatility for the times that you are trading.
My hope is that you can print out the above breakdown of volume and use this as a guide to let you know when large traders are active and when markets are likely to be dead. Such volume information has kept me out of many bad trades and alerted me to promising breakout and trending moves.
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