Video 48 A, B, C, D, E & F: Trading the Open Flashcards
3 parts of the Day (See Photo)
A strong trend day trades in one direction all day long without any significant Pullback (PB). How many days per month?
Only 2-3 days per month.
Only 10% of days are strong trend days.
Remember the market Cycle.
There are only 3 things the market can do.
They are:
Breakout and form a bear or bull trend
Channel
Trading range
Opening reversals. In the first hour or two, sometime in the first minute of the day the market begins a _______________. And there are setups that often tell traders that a ______________ is about to begin.
Swing Trade
Swing Trade
No matter how strong a breakout on the open is, there is an __% chance that there will be a minor reversal, and a __% chance that there will be a major reversal. In other words, a trend in the opposite direction. 20 bars or so.
80%
50%
__% of days with strong rally at open, have Major (swing) reversal down
50%
When you get the (Major Swing Reversal), you look to buy bull bars closing on their highs
4 Common outcomes when you have a big gap down
- Double Top near EMA
- Wedge Top near EMA
- Double Bottom
- Wedge Bottom
Big Gap Up: 4 Common Outcomes
- Double Bottom Near EMA
- Wedge Bottom Near EMA
- Double Top
$. Wedge Top
A Breakout on the Open has a __% chance to reverse, no matter how strong
50%
Very important problem for traders starting out. They will see a very strong breakout at the open and conclude that the had to be a ______________.
Trend
On the open, not matter how strong the sell-off or rally, there is a 50% chance it’s going to fail and reverse.
The opening reversal is often some type of pattern as well. And if often a _____ of support or resistance in the 1st hour or so.
Test
Some examples of tests are: Wedge bear Flag at EMA, Yesterday’s High/Low, Last week’s Low/High, Double-Bottom Bull Flag at E
When the market has an opening reversal, the size of the initial wrong move is significant. It determines what will happen next.
For example, if inital selloff is 25-50% of average day’s range, then often get a big bull trend after reversal. When you get a reversal from a sell-off that is not particularly big, the day can often be a very big trend.
A sell-off that is between 50-100% of an average days range. Whenever the inital sell-off is big, then you get a reversal…it doesn’t matter if it’s a reversal fro the open or it occurs later in the day…the reversal usually leads to a _____________. (Rather than a big Bull Trend)
Trading Range
A lot of times it will get near the high (or low) then just go sideways.
It can basically retrace the sell-off (or rally)
If the sell-off is very big, the reversal often will retrace the entire sell-off, but not go for a measured move up. It usually has a bard time going above the top of the bear (in this case) leg.
If initial rally is 25-50% of average range, then often get a big bear ______ after reversal.
Trend.
Once you get a reversal, it can lead to a very big trend day.
Whenever you have a very big rally at the open, then get a reversal, usually the market has a hard time falling much below the low of the day.
Rarely, it falls for a measured move down (as in photo).
Sometimes (1/5), it will fall for a measured move.
At the close of the first bar of the day, there is a __% chance that it is either the low or high of the day.
By the 7th bar, there is a __% chance the day has already made either the high or low of the day.
By the close the 1st hour (bar 12), there’s a __% chance the day has already made wither high or low
20%
50%
70%
By the 18th bar, there is a __% chance the day has already made either the high or low of the day.
90%
if it does break above/below, then it will most likely be a trend day.
Everyone should be looking for swing trades of 4 points or more (emini), it’s the easiest way to get consistently profitable. Traders should try very hard to find swing trades in the first __ hours of the day
2
Most traders avoid the middle of the day because it usually has Channels and Trading Ranges, and traders often have to enter with limit orders and scalp more.
Trading is more work in the middle of the day.
Some reliable open patterns are:
Parabolic Wedge Top
Sell Triangle at Moving Average
See Photo
Examples of How daily candles are formed (See Photo)
3 most common Patterns on the open:
- Trend from the Open
- Breakout Mode Open (BOM). Means two reversals in trading range. A new low of day that reverses up and new high of day that reverses down. Traders will buy top or sell bottom breakout.
- Opening reversal (OR). OR means reversal from support or resistance.
Bar Counting on the Open 48 B, Slide 6
See Photo
When tails are prominent, several bars overlap, and reversals come every 1-3 bars, most traders should _____________.
Wait
When there is a lot of overlap, and price spends a lot of time in tight trading ranges. Ans the entire chart is in a tight trading range.
Most important rule is: Be prepared for ___________, and don’t be surprised by _________!
Anything (Slide 12, this is very important and helpful. Video B)
Anything
The open often has surprising moves that seem too big or too irrational to beginners, but you have to remember what the market is doing. It’s trying to find out what it should do. It often has to test up or down once or twice or three times before traders become confident of the direction.
Never have an opinion what the market should do or should not do. Or cannot do.
Trade what is there, even if you do not understand why it is doing what it is doing.
On the open, context is slightly less important than other times of the day.
On the open, things that are low probability are higher probability than you think and vice-versa.
However, every reversal takes place at support or resistance that was created during prior days. Bars to the left.
Knowing where it is helps when looking for trades, but it is not necessary sicne the open has more to do with today than with prior days.
Look for the daily candles for clues about how the intraday chart may proceed.
For example, if most days on the daily chart were bull trend bars, probability is higher for today having an early low that creates a tail on bottom of bar on daily chart.
Tail on bottom of bar on daily chart is usually created by failed bear BO on the open of the 5-min chart.
Bulls will even buy a bull bear close because they see where the previous candles have closed.
Whenever there is a very strong bull trend yesterday, he calls it a buy climax, a tight bull channel.
A. There is a __% chance that the market will try to rally in the first 1-2 hours.
B. There’s a __% chance after the 2nd hour of sideways to down trading, either on the open or 1-2 hours of rally.
C. __% chance of an early reversal.
A. 50%. In other words, follow through buying.
B. 75%.
C. 25%
When the previous day ends with climactic selling, there is a:
A. ___% chance of follow through selling for the first 1-2 hours (on the Open).
B. ___% chance of 2 hours of sideways to up trading, either on the open or after a 1-2 hours of sell-off.
C. __% chance of early reversal
A. 50%
B. 75%
C. 25%
When you see consecutive bear bars after a big gap up or down, the day will probably be a bear trend or trading range day.
Likewise when you see big bull bars on the open whether it is a gap up or gap down day, the day probably won’t be a bear trend day. It will either be a trading range day or a bull trend day.
Consecutive bull bars so probably buyer below. Buy with limit order. Scale in lower if needed. Stop below.
When you have a big gap up, you can get a sell-off to the moving average,
Breakout Mode (BOM)
After the first 10 bars, Al wants to see a reversal down from a new high, or up from a new low.
If the pattern occurs with fewer than 10 bars, it is less reliable.
if the opening range is more than half the size of an average recent days range or less
At the close of the 18th bar, there is a __% chance that the market has either seen the high for the day or the low for the day.
Therefore traders look to trade the breakout of the range.
If the 18th bar has a breakout a few bars later that immediately reverses, then you have to think that the market may breakout below the opposite side of the range.
Sell failed BO and then sell bear BO of 18 bar range.
This is a good example of a Measured Move from Breakout Mode on the open.
After 1st bar, reversal down from new high, and up from new low.
Okay to buy early.
If price gets above the inside bull bar, 60% chance that will breakout of the high will succeed.
After the reversals, there’s a ___% chance that you will get a breakout up or down .
50%. (Breakout mode means equal probability of BO up or down)
Then, look for a Measured Move.
Buy above the H with stop at new L of day
Sell below the L with stop at new H of day.
Look for the 50% pullback from the entire move. 50% pullback is resistance.
When the opening range is small, a lot of traders think the range has to _____.
Grow.
When initial range is less than 10 bars, some computers will wait to see if bigger opening range forms, then sell the BO.
If the market breaks below the low of the 18th bar, the market will probably not get above the high of the day
If the market breaks above the high of the 18th bar, the market will probably not get below the low of the day
Buy above bull bar after failed BO below Low.
After BO to new H, 90% chance emini will stay above L of day.
Therefore either bull trend day or TR day.
If no clear Trend by bar 18, trend will probably start soon.
Look to trade breakout or reversal.
When the day before is a quite day (He means narrow range, not much direction), that today will be an outside day.
A Buy the Close finish has to start closer to __:30PM PST (__:30 EST), or it doesn’t have enough time to finish.
if it starts too early, it usually reverses
12:30PM PST (3:30 EST)
Yesterday’s High and Low are important support and resistance.
Gaps are ____________.
Magnets
Gap up creates support, which is a magnet
In general, the bigger the gap up, the more likely it will be a ____________ day.
Trend Day
The bigger the gap up, the more likelihood it will be a bull trend day.
50/50 chance of gap up success or failure
You can’t spend a lot of time looking at the gap and looking at the news and trying to analyze whether the news is really bullish and you’ll get a trend up, or … You can’t do that.
Just be ___________. If its a gap up and you get bear bars, you have to sell betting we get a reverse down.
If it’s a gap up and you get a bunch of bull bars, you have to buy betting it’s a bull trend.
Stupid
Trade like you are stupid.
Trade what is in front of you, even if you do not understand it.
Al says half the time is goes sideways, 25% of the time it trends in one direction.
When it’s sideways, it just keeps reversing.
