The Midday Setup is a period typically from 12:00 PM to 1:30 PM ET where sentiment, flows, and trading activity often shift due to the European session closing and the return of New York traders from lunch. This period can present good entry points to take advantage of afternoon price action, whether the market is trending or mean-reverting.
Understanding the Midday Setup
The Euro Session Close: Around 12:00 PM ET (various per exchange), the European trading session wraps up. As European traders exit the market, there is often a reduction in liquidity and a potential shift in market dynamics, often leading to changes in sentiment and flows.
New York Traders Return from Lunch: New York traders return from their lunch break around 1:00 PM ET. This return generally marks a pickup in trading activity, and any prevailing trends or shifts in sentiment can become more pronounced.
The Midday Setup: Trending vs. Mean Reversion Days
Understanding whether the market is trending or mean-reverting is essential for capitalizing on the midday setup.
Trending Days: On trending days, the market follows a clear directional trend established in the morning session. During the midday window, traders should look for cycle lows or highs that can serve as entry points to join the trend established in the first half of the day. If the market has been trending upward, a cycle low may present an opportunity to go long, expecting the trend to continue. Conversely, a cycle high in a downtrend may signal an opportunity to short if the trend is down.
First Target – High/Low of Day: The initial price target on a trending day is the high of the day (for an uptrend) or the low of the day (for a downtrend).
Second Target – Gamma Level: A break of the high or low implies trend continuation, the next target is often identified by the next gamma level.
Mean Reversion Days: On mean reversion days, the market tends to oscillate around a central value, reverting to a mean or median price. During a mean-reversion day, cycle lows and highs offer potential entry points to play the move back toward the middle of the range or the other side of the range.
First Target – Mean: The middle of the range is generally the first profit target.
Second Target – Lower/Upper Bound: Beyond the mean, the next target is often identified as the lower or upper bound established in the early morning.
Third Target – Range Break: In the event of an afternoon range break, the next target would be the next gamma support or resistance level.
While cycle lows and highs during the Midday Setup can offer valuable entry points, they should not be used in isolation. It’s important to use them in tandem with gamma levels to accurately identify potential turning points.
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