The market open can be volatile and erratic. Many traders recommend staying away from trading the open, or around the market open.
However, the open may be able to provide powerful moves and possible trade opportunities with favorable risk-versus-reward ratios.
While many markets are now open nearly 24 hours and day during the trading week, the day session open is when the larger market players may tip their hand.
The open may also provide clues about the day’s market direction.
For example, stock ABC closed yesterday at $40 per share. The stock is set to open the following day’s session at $40.50 per share. If that stock opens at $40.50 and begins to push higher, there may be underlying strength and the price may continue to rise.
In contrast, if the stock opens at $40.50 and immediately begins to trade below the open price, the stock may have some underlying weakness and may look to fill the gap left from yesterday’s close.
If a market is trading above its opening price, it may be more profitable to look for long trades. If a market is trading below its opening price, it may be a better idea to look for shorts.
The market open and where price is in relation to it may be able to provide traders with clues as to sentiment and market direction. Using the open, traders may also be able to look for long or short trades with favorable risk/reward ratios. The key is to observe carefully and take immediate action when you see them. Of course, this all takes time and practice, so don’t feel too bad if you need more time to get the hang of it.
While trading the open can be volatile and erratic, it may also provide some of the best trade set-ups for the day.
Good luck, and happy trading!