Recognizing Day Open Types | Market Profile® Trading | Order Flow | Auction Market Theory | Value Trading

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      Recognizing Day Open Types

                                                                                                         by Rodney Lalgie


Early out in my trading career I used to sit in front of my screens at the close, calculator out, pondering - if only I could have caught that high to low price move of the day, look how much money I could have made! On others days it was simply, buy or sell the open and look how many points you would, could or should have made if I held into the close.


I was unaware of the significant edge that can be gained from identifying and recognizing the various market open types that unfold on a daily basis. Though real market conditions dictate no two days are exactly identical. The various open types can be categorized into four principal types. Identifying these opens can give invaluable clues for how the day would be expected to develop and more importantly, which trades should be avoided and which trades present the higher probability opportunity. Recognizing these open variations also give early indications as to which market participants are present or entering / exiting the market.


I will briefly outline some characteristics of the two easier opens to identify, the Open-Drive and Open-Test Drive. Study of the overnight or ETH (Electronic Trading Hours) session is essential to providing the clues to the likelihood of an Open-Drive or Open-Test Drive. This is why we place much emphasis on our Pre-Market Prep that is broadcast real time in our Live Call Trading Room and supported by our Pre Market Prep Sheet. This preparation along with experience and awareness can alert proficient traders to prepare themselves for these market opens and profit propelling opportunities before they occur.

                     


                          



STRAIGHT OUT THE BLOCKS

The most powerful of these open types is referred to as an Open-Drive. On open, the market will auction (often aggressively) in one direction and never trade back through the opening range. Fig 1:10/10/2011 illustrates.


The previous day’s price action had seen value migrating higher. At the opening bell on the 10/10 the market had a ‘gap-up’ open. Responsive buyers then entered the market significantly confident enough to auction price in one direction.  Open-Drive opens if not identified in advance, therefore gaining the most favorable trade location, can still provide opportunities for astute traders. As what you expect is a particular type of market development to unfold. On these days traders would be advised to either buy the pullbacks or sell the rallies. 


                             

Figure 1: YM 30 min 10/10/11




DIP YOUR TOES IN FIRST

The Open Test Drive is similar to the Open Drive but lacks the same initial conviction and energy. Market participants require convincing before they bid up the market, or auction prices lower. Buyers or sellers check that there is no additional trade to be facilitated by returning to a recent significant price level. This could be a previous day’s high, low, close or open. If responsive activity ensues, the market will reverse and auction back through the opening range. Fig 2:12/10/11 illustrates an example of an open test drive. Open Test Drives often occur after periods of market balance. The test is a result of the emotion of uncertainty. The longer time frame traders require confirmation before they can confidently auction price higher or lower. An astute trader will look for entry location as close to the tested level that failed in the direction of the driving activity. You can expect a trend day to develop and trades in the direction of the drive would present the higher probability opportunities.


      Figure 2: YM 30min 12/10/11

    

In the example fig 2, above, the market had hit a stopping price which was tested on three occasions between the 10/10 and 10/11. An imbalanced open ensued at the opening bell but the buying did not get aggressive until price returned to retest the stopping price as support and then responsive buying occurred.



For information on the more complicated opens, eg: open auction and open rejection reverse. Contact us at info@iTradePod.com. Or join us in our Live Call Trading Room during US market session hours.

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