Is the Globex Session Worth Trading? Yes!
Is the Globex Session Worth Trading? Yes!
In an effort to give some perspective to the often asked question of whether to look at the overnight price chart (otherwise known as Globex), or stick to viewing only the day session information, in this piece, I'm going to show the different ways to look at both sets of data. In addition, we'll assess which information is most relevant in putting together a sound trading strategy for overnight trading.
For those of you who are just familiarizing yourselves with the futures market, understanding that unlike equities, which are confined to a set, daily schedule ñ the futures markets trade pretty much 24 hours a day, 5 days a week. There are two small breaks following the close of the New York Stock Exchange, but these are more or less inconsequential as they occur when activity is minimal. This is important to understand because in the futures arena, opportunity is not limited to the standard 9:30 to 4:00 EST time frame to which most stock traders are accustomed.
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Being mindful of this expanded schedule and knowing all the variables (positives and negatives) that accompany trading, the overnight markets can open new possibilities (if you're willing to work harder) for low risk, high reward trades that the majority will often miss.
An important aspect of trading in the Globex (overnight) market is the lighter volume. One can look at this from both sides of the spectrum. On one hand, some would say the lesser volume heightens the possibility of market manipulation. Spreads can sometimes become wide and if you're trading large contract size, it may be difficult to negotiate in and out of positions. All this is true; however, one must also look at the positives - those being that the markets tend to have more sustained moves with the least amount of participants on board. In other words, the night sessions are often trendier, particularly when the Frankfurt and London exchanges open for trading at midnight on the West Coast.
Let's look at a visual representation of both day and Globex sessions. The chart below is a 120-minute intraday of the TF (E-mini Russell 2k). In it, I've highlighted the open gaps, which can only be viewed on the chart as it specifically plots the data from 9:30 am to 4:15 pm EST. As I have stated in previous newsletters, open gaps are very important buy and sell zones, so it's important to spot these. Therefore, the intraday view is a must in any trading strategy, whether intraday or swing methods are involved.
Figure 1
The second chart below plots 24 hours of data; note the different structure of the chart. Some folks neglect looking at these patterns altogether, dismissing them because of the lack of volume.
Figure 2
I would say that since the overnight session is less trafficked, the support and resistance areas created during the overnight session should carry a lesser weighting than those levels formed in the high volume day session. This however, shouldn't preclude us from using the night session chart to find low risk entries.
In terms of overnight strategy, rather than look at the Globex high and lows as buy or sell zones, I want to identify those aforementioned important day pivot levels to enter low risk trades. I do this by placing a limit order near the level - along with a stop a small distance away. The stop doesn't have to be big because if this area were unable to hold, the market would probably break hard anyway.
Below are two recent examples:
Figure 3
Figure 4
In conclusion, the Globex session in the stock index futures is very important so it is imperative that we view all the data and plan accordingly. How many times have you seen a huge gap opening only to see the market trade in a tight range for the entire day session? That's to say, the bulk of the movement happened overnight. For those of us on the West Coast, trying to capture some of these moves means very early mornings, and sometimes, sleepless nights. Whether the opportunity presents itself at 9:00 a.m. or 4:00 a.m., the time becomes irrelevant. After all, trading futures is a global business and as such, you have to be prepared and ready any time of the day or night. Oh, and by the way, if you're good at it, the pay isn't too bad.
Until next time, I hope everyone has a profitable week.
- Gabe Velazquez
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About Gabe Velazquez
Gabe got his start in the markets as a broker trainee for Paine Webber, a mere 3 months before the market crash of 1987. That experience brought to light the importance risk management plays in trading and investing. In fact, it's greatly influenced the way he trades today. He spent 15 years as a stock and commodities broker, conducting technical analysis seminars through-out Southern California. After many years of managing other people's money, Gabe now concentrates full time on trading his own portfolio and teaching. He currently holds a series 7, 63, 9 and 10 (securities and options principals license.)
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