Beyond The Bell.
Decoding The Market Open.
Gain a first move advantage by mastering the open.
If you trade the indices the open can be a good place to focus.
Why?
Well, all the options linked to the index start trading, and the underlying stocks officially ‘open’ bringing in much more liquidity than pre-market.
Basically, money starts flowing, and our job as traders is to take a piece and move on…
Time vs price sensitivity
One of the concepts I learned many years ago was the notion of time vs price sensitivity.
Think about it – you are either one or the other.
Time-sensitive = get me filled right now, I don’t care about the price.
Eg; Market orders, stop at market orders
Price sensitive = get me filled at this price or better, I’ll accept it may take me some time or I may not get filled at all.
Eg: Limit order
Time-sensitive orders move markets.
When you have volume coming in one way that says “get me in at any price, I just need to get filled” that causes momentum and price change.
Combine that sense of urgency with a ‘starting gun’ like the open and you have a recipe for some potential lucrative trading opportunity…
Open types:
There are a bunch of different open types, but let’s cover the opens that I think have more opportunities.
Opening Drive
The market goes bid (or offer) right from the open, price is pushing in one direction with very shallow pullbacks and short pauses.
Identify this quickly enough and you can join the momentum and ride the wave for a few candles.
Or structure a trade that works an order on a price pullback, looking for a potential extended move over several hours (or the whole day.)
An example here on the Nasdaq (I used QQQ to visualise the gap better.)
- Drive to the downside with shallow pullbacks.
- Followed by larger more structured pullback zones
- Contination until the gap fill (via a sneaky pop above the VWAP!)
Open drive reverse
Sometimes the opening drive is caused by short-term time-sensitive players and then is seen as an opportunity for the other side.
Price drives higher (or lower) very quickly runs out of steam and reverses sharply, usually taking out the most recent low.
This move tends to look the same as an opening drive initially, until flipping its character. (that’s why it’s super important to use stops, a great opening drive trade can turn quickly)
Nasdaq again here.
Looks like a nice opening drive to the high side after a gap-up.
- Same shallow pullbacks
- Reasonable buys at support triggered
- Reverses hard running stops through the low
Decent entry waiting for the flush, pause, retrace then continuation.
I believe the open is a great place to focus if you like to trade the indices.
You can become a specialist at all the opening variations and then build a game plan around each one.