Responses to "Will 23/5 Trading Break Your Strategy?"
By Dave Mabe
Several traders responded to my email asking if you think 23/5 trading will erode your trading strategies.
Here are the responses (all used with permission, summarized for brevity):
Chris M:
For the big liquid stocks that everyone in the world thinks about, this new market structure could cause certain reference points to be more important (Asian mkts open/close, Europe open/close). The big market players need liquidity to execute, and those stocks may see more execution volume at those times. A corollary to this is that there could be more intraday volatility in the US session for those stocks if those reference points become more important. This could open up new trading opportunities. This is similar to what happens with the ES/NQ futures today. It could be that some US big players take advantage of some of that aftermarket liquidity and this could affect the trendiness of some of the liquid market stocks for the US intraday session.
Dan_Trend:
I don't think it will affect things that much. Just looks like Blue Ocean (IBKR MM) overnight trading is changing to centralised exchange trading, with no change to opening and closing auctions.
RTH session still the most liquid and price-setting period.
Earnings, etc already happen in the existing pre or post-market, which does not change.
If they made it all one session like futures and "the open" moved to the prior evening, then that would be a big change.
Dan P:
The open and the close won’t have such a dramatic effect anymore. Sure, institutions will still use it for liquidity purposes, but it’s going to dampen the effect, imo
So using the open and the close as a reference won’t be as vital going forward; I think we’ll have to adopt and come up with plenty of other reference points.
But like anything, it’s going to take time to play out. I don’t see much effect happening for a while until it becomes more liquid, pre/post are already tradable, and volume is picking up but still relatively week to normal hours. I know one thing: it’s going to create some interesting opportunities.
Mykael W:
I have three strategies with positive backtests now in forward paper testing: an opening-drive strategy, a short-duration scalping strategy, and an ORB breakout strategy. I think 23/5 trading could affect the opening-drive and ORB strategies most by shifting some price discovery earlier and reducing the momentum and dislocations currently concentrated around the open. On the other hand, greater overnight liquidity could make premarket pivots and overnight levels more significant. I’m not particularly worried, though. Similar breakout and momentum concepts continue to work in futures, and as long as institutional liquidity and activity remain concentrated around the regular-session open, I expect it to continue creating distinct opportunities. Ultimately, I see 23/5 as another market-structure change that needs to be measured rather than predicted.
KSA Aaron:
Limited liquidity in these extended hours, much like PM1 currently.
I do not expect these changes to impact my current strategies.
Excellent responses - thanks to all who replied!
-Dave
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