econintersect.com
       
  

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.



posted on 22 April 2016

The Opening Gap

by Sam Seiden, Online Trading Academy

Online Trading Academy Article of the Week

Over my more than 20 years of experience trading the financial markets, I have learned many things. One big one has to do with trading around the market open. Some say this is high risk and others say it's the best opportunity of a trading day. I would suggest they are both right.

Someone always says: "I was told we are not supposed to trade the open because it is not for the novice trader." That is not exactly what we say at Online Trading Academy. What we say is that the open is not for the novice trader. It is, however, a fantastic opportunity for the astute trader who knows how to identify a key supply and demand imbalance in the markets and how to identify novice buying and selling. Most of the time, our entry is within seconds to minutes of the opening bell. There is a reason for this...

Why do prices gap up? They gap up because there are more willing buyers at the market open than there is available supply at the prior day's closing price. They gap down because there is more willing supply at the market open than willing demand at the prior day's close. Therefore, market prices are almost always at price levels where there is a supply and demand imbalance (opportunity) at the open.

Never forget, the successful market speculator simply finds a market where price is at levels where supply and demand are out of balance and trades them back to price levels where supply and demand is in relative balance.

I started in this business on the floor of the Chicago Mercantile Exchange, handling institution and retail order flow. Watching that order flow made it easy to see where prices were going to turn. For example, if we had 1000 to buy and 200 to sell at a price level, as soon as the first 200 were filled, price had to rise. Having the orders in your hand makes this easy to see, which is why it was illegal for me to trade my own account. Knowing exactly what this picture looks like on a price chart makes it even easier.

The Supply / Demand grid that you see below catches these opportunities as it focused on price levels with significant Supply / Demand imbalances. Over time, nothing changes as order flow works the same way it did 100 years ago and as it will 100 years from now. Second, novice traders are always present and are only growing in numbers. Here is how it all works...

Below we have a chart of the XLE (Energy Sector ETF). Notice the Supply level in the yellow box. We know this because price could not stay at that level; it had to fall because there was more supply than demand at that level. Next, notice how price gaps into the (supply) level at the market open. Here, the novice trader buys and the astute trader sells to that buyer.

Remember, a supply level is a price level where there is more willing supply than demand. The last thing you want to do is buy at that price level, but that is exactly what the novice trader did that morning on the market open. We want to focus on selling to that buyer, this is what we teach in class and focus on with our trading and investing tools and services. We know this is a novice buyer because only a novice trader would buy a gap up after a rally in price and into an objective supply level.

Supply/Demand Grid 12/11/16 - XLE Supply Level

Proven strategy for trading the market open.

The key is to not look at candles on your screen as red and green pictures and patterns. You must understand what is happening behind the scenes. Whether you're trading Stocks, Futures, Options or Forex, the logic and rules never change.

Again, the market imbalances are typically greatest at or near the open of trading in all markets. By the end of the first hour of trading each day, a large amount of novice trading capital is simply transferred into the accounts of the astute trader. If you can't see the novice trader in markets, be careful, the novice trader is likely you.

Hope this was helpful, have a good day.

>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical Investing Post Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.



You can also comment using Facebook directly using he comment block below.





Econintersect Investing


search_box

Print this page or create a PDF file of this page
Print Friendly and PDF


The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.


Take a look at what is going on inside of Econintersect.com
Main Home
Analysis Blog
The Problem With Obamacare Is That It Did Little To Reduce Overall Healthcare Spending
Joan Robinson’s Critique of Marginal Utility Theory
News Blog
Early Headlines: New Oil Pact, Facebook Should Crush Fake News, Trump Vs CIA, Dow 20,000?, Twin Bombings In Turkey, India Currrency SNAFU, New Charges In So. Korea, US-China Trade War? And More
Free Autographed Copies Of Frank Li's New Book Available - If You Act Fast
Most Women Inventors Come From America
Earnings And Economic Reports: Week Starting 12 December 2016
The U.S. Is Home To The Most Unicorns
Why Britain's Public Finances Will Suffer If Brexit Reduces Migration
Working From Home Is Still Rare In The United States
What We Read Today 10 December 2016
The Last Bucket Catch
Joe Sixpack's Situation in 3Q2016: The Average Joe Is Better Off
Why Are Some People More Delinquent On Loans Than Others? - Part 1
Gravity Returns To San Francisco Housing Market
Violent Bond Selloff: An Eye-Opening Perspective
Investing Blog
The Week Ahead: Dow 20,000 Just Ahead?
Natural Gas Prices Are Headed Higher In 2017
Opinion Blog
Is Commercial Real Estate Facing A Day Of Reckoning?
The US Has A Regime-Uncertainty Problem
Precious Metals Blog
Silver Prices Rebounded Today: Where They Are Headed
Live Markets
09Dec2016 Market Close: Wall Street Closes On A New High, Trump Sugar High, Crude Prices Testing Resistance, US Dollar Melts Higher
Amazon Books & More






.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government



Crowdfunding ....






























 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2016 Econintersect LLC - all rights reserved