Anomalies for Building Very Short-term Trades?

A reader asked: “I am interested in finding a strategy to day-trade around the opening of trading. I would prefer the first half hour but would not be opposed to looking at strategies holding until the close or even the next day. With the high-frequency traders becoming the new liquidity providers, day traders like me aren’t left with much of an edge. I think the first half hour may still hold some opportunity. Do you know of any first half hour plays that I might start to build from?”

The most relevant research at CXOadvisory.com is:

“A Few Notes on Day Trading Options” …traders may find Day Trading Options an interesting exploration of potential short-term options pricing inefficiencies and of approaches to exploiting such anomalies. However, the book presents no associated model of reasonably sustainable portfolio-level returns.

“Abnormal Returns from Providing Liquidity After Hours?” …evidence indicates that traders can reliably earn a material premium by providing liquidity for after-hours trading of U.S. stocks and closing these trades at the next market open, so long as the after-hours trading in the stocks is not abnormally active.

“Intraday/Daily Stock Return Patterns” …traders may be able to shave a few basis points off trading costs by timing buys (sells) based on a tendency for exact daily recurrence of recent intraday lows (highs).

“Buy at the Close and Sell at the Open?” …both individual stocks and broad funds have, on average, appreciated overnight and stalled or declined during the trading day over the past 14 years. The first hour of trading may be the worst hour.

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