Overview
The first hour of RTH trading generally has the most opportunities for an intraday trader. It is also the time of day that is most likely to have fake outs and extremely violent moves. Taking that into consideration, we need a proper methodology so that we don’t get caught significantly off sides right at the open.
In the preparation section we discussed the importance of having proper expectations for the upcoming session. When we put in the time to work on our preparation and go through that routine each morning, we will consistently come into the open knowing what to expect and have all of our key areas marked.
The Opening Range
We all know that the official opening range of the CME is the 30 Second OR. Many traders utilize this as their over under area looking for breakouts from that range. We have long been proponents of a similar strategy, but have recently (over the past 6 months) experimented with longer duration ranges (1min, 5min or 30min). There are many opportunities during the open and there is nothing wrong with slowing things down to get a proper read of the auction before engaging.
One trade that we will look for is an Opening Range Rebid or Reoffer. This is a slightly different variation of the traditional 30 Second OR breakout trade. What we look for in this sequence is for price to breakout of the OR, and then look for that OR to be retested and trade it as a rebid or reoffer. This is just one example of a setup I use from the opening range and it occurs across multiple time frames. If you want to trade the open, I would encourage you to look at different ranges and see what patterns you can find.
Open Types
Open Drive
- Market opens and drives in a single direction.
- These do not occur frequently, but generally involve violent moves in a single direction with very shallow pullbacks and no regard for levels or other MGI reference points.
Open Test Drive
- Market opens and drives to a reference point, usually overnight high/low or prior day close, gap fills and then reverses.
- These occur more often than the open drive and provide significant opportunity when recognized to trade with the reversal.
Open Auction
- Market opens and uses multiple reference points to trade around, many will call this “chop”.
- These occur more frequently then the prior 2 and will often provide more opportunity for intraday traders because there are multiple rotations to trade with in both directions.
The work we put into our preparation can help us anticipate what open type we might have. Are we expecting big news soon in the next few days? Do we have multiple days of overlapping value and RVOL is in the 90s? Perhaps we will want to plan for an open auction trade and look for a mean reverting balance day. Did we open in a small gap down? Perhaps we will look for an open test drive where we fill the gap and reverse to test some levels lower.
There are many scenarios and puzzle pieces that we can put together to develop an idea of what might happen in the market once the bell rings. Instead of flooding ourselves with bias, we look at the market objectively and plan for all scenarios. This allows us to have an action plan regardless of where the market decides to go, and we are ready to capitalize on whatever ends up playing out.
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