Types of Market Open

A Comprehensive Overview

Different Market Opens

The open can be a great time to trade IF you have a roadmap in place.

Otherwise, it can be a perfect place to get chopped up and start the day on the back foot.

Not what we want…

So how can we build a decent roadmap?

First is to identify the open type:

1 – Open drive
2 – Open test drive
3 – Open auction
4 – Open rejection reverse

#1 Open drive

The opening drive is a one-way street.

  1. The market opens
  2. Then drives in one direction relentlessly

If we get one of these, our job is to jump on this move asap and ride it.

#2 Open test drive

Price probes briefly in one direction before reversing sharply and moving strongly in that direction.

These can catch a trader out, but if identified early can be a good momentum play.

#3 Open auction

An open auction is where price is testing higher and lower in a rhythmical auction process.

  1. Price moves higher, runs out of demand, and sellers step in
  2. Price moves lower, runs out of demand, and buyers step in
  3. Repeat until volatility shrinks!

#4 Open rejection reverse (boomerang)

Price pushes in one direction and fails to follow through before reversing back the other way (more defined moves than the open auction)

(DOW screenshot from Trading Plan Pro)

Obviously, hindsight is a magical thing, we can all pinpoint places on a chart we ‘would have’ got long or short.

But in the real world when we are at the hard right of the chart, things are tougher to decipher.

So we need as many clues as possible to categorise that open asap so we can position correctly.

Here are some metrics I’ve found useful

Daily Chart – Is there a strong underlying trend or are we in a range?

‘Overnight’ range – A wide overnight range might suggest some follow-through at the open.

Gap expectations – Larger gaps (today’s open vs y close) often lead to more volatile opens.

The point here is to try and get a grip on the open type before it happens.

Then observe price during the first few minutes to add weight to your thesis or not…

Eg 1: Strong daily uptrend, small gap lower = possible open rejection reverse. A trader might wait for any early sellers to dry up before looking for longs.

Eg 2: Shallow downtrend on the daily, catalyst and large gap higher = possible opening drive caused by a change in sentiment.

You get the idea

  1. Frame the day
  2. Categorise the open
  3. Position

Phew! Today was a long one. Hope you got some value…

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Scalping The Open

I hosted a webinar called “Scalping the open” where I dug into different open types. Check it out here if you want to go deeper on this topic. (I nicked the slides from it!)