If you have studied the price action tendencies at the open of any market for a consistent period of time, you should be well aware of the fact that there is a regular tendency or bias that occurs often. This is common knowledge for most experienced day traders, but a single questions still remains. Is the market open Important to price action traders? You might get different responses from many different traders, but the fact is that you do not necessarily have to trade the opening to make money, but because there are certain factors that tend to happen at the open on a consistent basis, if you are aware of these factors and understand them, you can use them to capitalize on and make money on a consistent basis. Our overall opinion is that the open is very important, but you don’t have to trade it alone to make money.
In fact, until you understand the opening market bias and what is transpiring, we suggest that you stay out of the market for the first 15 to 20 minutes after the open. Without a proper understanding of what is going on, you will probably lose more money trading at the open that by simply stepping aside until the emotions of the opening have subsided and the market has found it’s proper direction. We are going to use the rest of this post to try and educate you to exactly what happens and the open and why we think it is so important for you to understand as well. If you are interested in learning about the opening market bias and how to use it to your advantage, you should continue reading this post. Remember, this bias is universal to almost any market, so it doesn’t matter which one you trade. While every market has a slightly different personality, the price action is the same and it works the same in every market.
We found a recent article that we thought explained the opening of the markets rather well. The article is actually about a professional trader that used the opening of the market to make over 100 million dollars. We aren’t suggestion his strategy and we aren’t encouraging you to read this information because of his trading claim either. We are only going to quote a small excerpt from his article because it does a great job of explaining why the market open is so important and it explains what is actually going on at the market open very well also.
Below the a small excerpt from that discusses what is going on at the market open. Here is what the article that was posted at www.guerillastocktrading.com had to say.
An opening price reflects the influx of overnight orders. Opening prices reflect opinions of less informed market participants.
If market makers see more buy orders coming in, they open the market higher, forcing outsiders to overpay.
If market makers see more sell orders coming in, they open the market very low. You need to buy these stocks on the cheap, so that the slightest bounce earns you short-term profits.
You need to pay attention to the opening range – the high and the low of the first 15 to 30 minutes of trading. Most opening ranges are followed by breakouts, which are important because they show who is taking control of the market. You want to trade with these opening range breakouts.
One of the best opportunities to enter a trade occurs when the market gaps at the open in the direction opposite your intended trade. Suppose you analyze a market at night and your system tells you to buy a stock. A piece of bad news hits the market overnight, sell orders come in, and that stock opens sharply lower. Once prices stabilize within the opening range, if you are still bullish and that range is above your planned stop-loss point, place your buy order a few ticks above the high of the opening range, with a stop below, so you can ride the opening range breakout move.
he waves of buying and selling by amateurs that hit the market at the opening usually subside as the day goes on. Near closing time the market is dominated by professional traders. It is easier to make money trading against amateur traders than professionals. This means that most of your gains will come within the first 2 hours of trading. As the day goes on, your odds of making money go down.
Closing prices reflect the opinions of professionals. Look at any chart, and you’ll see how often the opening and closing ticks are at the opposite ends of a price bar. This is because amateurs and professionals tend to be on the opposite sides of trades. You can read the entire original article here.
If you follow our daily posts and watch our price action videos, then you should be familiar with the fact that we prefer trading the morning sessions and prefer to have our trading goals for the day met prior to the afternoons. One of the reasons is because it is much more difficult to trade profitably in the afternoons due to the fact that there are fewer weak handed traders and more professionals trading at that time, making it much more difficult to make money. We couldn’t have explained it any better than the above article, thus our desire to share it with you.
If you are going to trade the opening of the regular markets each day, it’s important that you understand the dynamics of what is going on and not get caught up in the emotional moves that are dominated by weak handed players. Go study some opens of some of your favorite markets and see if you don’t see that the opening moves are normally traps that suck weak handed traders in on emotions and not based on sound price action trading reasons. You don’t want to trade on emotions, and instead you should be entering only on logical reasons.
If anyone should now ask you the question is the market open important to price action traders, then you should certainly understand that the open is very important to any trading strategy. Until you learn to understand what is going on at the open, simply stand aside and you will be better off. However, if you can learn how to properly judge what is going on at the open, you can use that knowledge to your advantage and capitalize on the emotions of the weak traders that get caught up in opening market moves that usually are not sound moves based on market valuation. On the other hand, be careful about trading near the close of the markets, because the closes are dominated by professional traders that do not make emotional trade decisions, so it will be much harder to beat them at their own game.