This article is a summary on how I approach a trading session Open

according to principles introduced by James Dalton in his book "Mind

Over Markets".

Introduction

I have spent part of last year doing statistical work on Open Ranges. It is
quite an interesting subject. It is far from being perfect science,
however, there are interesting opportunities - Edges - that present
themselves during market Openings.

My first encounter with the subject Market Opening was 7 years ago
when I was reading for the N-th time the book "Street Smarts" from Larry
Connors and Linda Bradford Raschke.

I was studying Range Contraction and expansion = Volatility at the time,

therefore trying to get my hands on EVERYTHING I could possibly find on
the subject. The reason behin d it was the fact that volatility could be
easier "Predicted or Estimated" than prices. I wasn't studying
Openings/Open Ranges at that time.

On chapter of 19 Street Smarts, they discussed Volatility + Open Range

principles presented by Toby Crabel. The fac ts and data presented was
very interesting. I ran to the store the next day and bought a copy of
Toby Crabel's book, " Day Trading with Short Term Price Patterns and
Opening Range Breakout". It was an exciting discovery - for me at least.
I wasn't interested in day trading at the time, therefore I didn't know
that The Open Range was one of the most Important Factors for Intraday
Trading. Once that became clear, the next interesting factor was the fact
that It seemed to be statistical measurable and could provide an edge.

I wasn't aware of the significant edge that could be gained from

identifying and recognizing the various market open types that unfold on
a daily basis. As statistics and real market conditions often rule, it is rare
to find two days are exactly identical. We can find strong similarities but
rarely perfect matches.

From Mr. Crabel, It became clear that for SHORT TERM TRADE, it is
extremely important to JUMP EARLY in the MOVING TRAIN. The Earlier
the Entry the better the chances for success! IMPERATIVE and Clear.
Principally in the TREND DAYS. We all hope to catch those, don't we?

Works from other Authors- i.e Mark Fischer, Linda Bradford, Connors -
pointed to the same conclusions.
Having that background information, in 2009 when I was studyi ng Market
profile and came across the open types chapters, I found it very
interesting the structure presented.

Peter Steidlmayer had categorized into four principal types. Identifying

these opens can give invaluable clues for how the day would be expected
to develop and more importantly, which trades should be avoided and
which trades present the higher probability opportunity. Recognizing
these open variations also give early indications as to which market
participants are present or entering / exiting th e market.

I believe that from all types, the Open -Drive and Open-Test Drive are the
easier to spot. Study of the overnight session or "GLOBEX/E.T.H
"(Electronic Trading Hours) session is essential to providing the clues to
the likelihood of an Open-Drive or Open-Test Drive.

Short term trade professionals place great emphasis on the Overnight

High and Low prices. These are important areas and give clues regarding
Inventory for the incoming Day Session. Preparation along with
experience and awareness can aler t proficient traders to prepare
themselves for the possibility of such market opens and profiting
opportunities before they occur.

Mind Over Markets Market Profile Open Types

In Mind Over Markets, Mr. Dalton, Mr. Dalton described open and Open
Types as Follows.

Early Market Information that can give clues to Market Direction and
Confidence:

 1) Opening Price Inside or Outside Yesterday's Value/Range

 2) Trading Day Extreme
 3) Opening Type
 4) Price Acceptance Inside or Outside Yesterday's Value/Range

Opening Price Inside or Outside Yesterday's Value/Range

 1) If opening price is within yesterday's Value/Range, there are

higher odds of a more rotational/balancing day with a smaller range.
 2) If opening price is outside yesterday's Value/Range, there are
higher odds of a more directional/trending day with a larger range.

Trading Day Extreme

 1) The High or Low of the Day occurs in first 30 minutes around 50%
of the time.
 2) The High or Low of the Day occurs in first 60 minutes around 75%
of the time.

Opening Type

1) Open-Drive: Is the highest confidence opening which is generally

caused by OTF participants who have made their trade decisions before
the opening bell. The market opens and aggressively auctions in one
direction. Price does not return back through the opening range and
leaves the most reliable extreme.
2) Open-Test-Drive: Is the next highest confidence opening which
generally opens and tests beyond a known reference to make sure there
is no new business to be done in that direction. The market then reve rses
and auctions aggressively back through the open. This opening type
leaves the second most reliable extreme.
3) Open-Rejection-Reverse: Is characterized by a market that opens,
trades in one direction, and then meets opposite activity strong enough
to reverse price and return it back through the opening range. Lower
confidence opening where initial extremes only hold about half the time.
4) Open-Auction (Inside Value/Range): Market opens, auctions in one
direction until activity slows, then auctions in the other direction.
Neither, the OTF buyer or OTF seller is present with any level of
confidence. Any extremes established early on, have a low probability of
holding for the entire day.
5) Open-Auction (Outside Value/Range): Opens outside Value/Range and
auctions around open. Higher odds of directional conviction developing
because of open outside Value/Range.
The type of opening sets the tone for the day and has a lot to do with the
type of day that develops. The higher confidence opens tend to evolve
into more directional/trending days and the lower confidence opens tend
to evolve into more rotational/balancing days. The chart below shows the
relationship between opening types and day types as well as market
profiles.
Price Acceptance Inside or Outside Yesterday's Value/Range

 1) If there is price acceptance within yesterday's Value/Range, there

are higher odds of a more rotational/balancing day with a smaller
range.
 2) If there is price acceptance outside yesterday's Value/Range, there
are higher odds of a more directional/trending day with a larger
range.

Open Types Practical Applications and Open Range Strategies

I admire and respect the work from Mr. Dalton. His books and lectures
are excellent. Up to this day I think his books, principally the first on e
"Mind over markets", should be read by any trader, even those not
applying the concepts of market profile. Interesting and highly
informative.

However, as I previously mentioned, Market Profile is far from being the

One stop shop solution to trading or i nvesting. Market Profile is a
fantastic structure tool. But Market Profile can't provide traders nor
investors with the type of answers that every single trader or investor
had once in his lifetime looked for: Where to get in or to get out!

In fact I can't really seem to be able to READ the Open Type with Market
Profile type Charts - Neither VOLUME Profile nor TPO CHARTS; , It may be
due to my lack of Skills or Degrading Eyesight with age, but I fail to
Decipher it!

Recently I came across a seminar in which someone claimed to have

developed a software program that can pinpoint - Predict with high
degree of precision - the Open type ahead of time. All I can say
is...WOW! If true, that's simply amazing! However, Skeptical as I am, I
stuck with my common sense and chose to incorporate the Open Range
Breakout Strategy to help me to position myself instead. The choice
process is described below:

My initial reaction when I started to explore Intraday trade and market

opened was:

 Market opened… What Now?

With Market Profile concepts in mind, it became:

 What is the market trying to do?

 What type of day will it be?
 What comes next?
 Gap? How Big? Will the Gap be filled? Are Gap Rules in Play?
I was uncertain Still! I decided to put an end on my guess work!

Today, I feel comfortable trading the open. Many people don't. It is boils
down to personality or simply CHOICE! The simple answer as to whether
someone should trade them or not, really comes down to trying the
strategy out and seeing what feels right for you.

If you need to stand aside for the first 10, 30, 60 or 120 minutes to let
the market show it's bias, then by all means do so. There are thousand
ways to trade; none is the PERFECT WAY!

There are some clues that can alert you to a potential bias as previously
mentioned. For example the pre -session trend (if the market offers 24
hour action), relevance of current price location to prior day's session (is
it a gap open?!!!) or Prior Week/Month area or an area that is
IMPORTANT according to your analysis. Whateve r the reason may be,
write down, highlight the areas on your charts or DOM, and act according
to your plan or Bias.

Please, remember that the open can completely change the sentiment in
the market! Markets are DYNAMIC not STATIC! And, it often does in
radical ways.

Bias are GOOD, but we should not look at them as FACTS but rather as
PROBABILITIES. Developing Hypothesis or scenarios, having them in mind,
help tremendously here. Markets do whatever the Heck participants
decide at that moment. Markets change rapidly!

The most useful tool I have found for establishing a quick bias beyond
the open is via the use of Opening Range Theory. It has very clear cut
rules and is very objective. There are variations in regards to periods and
ranges, with none being the p erfect answer. My personal choice was
based upon statistical studies I have done for the markets I trade. I use
time as primary factor and the Tick Range as secondary. It varies from
person to person.

Typically the Open Range Strategy is based on the first five minute
candle's high and low price. But the same concept can be applied at
smaller or larger time frames. For example, the opening 1, 5 or 15 -min
candle can provide a temporary Open Range bias well before the close of
the first 30 or 60 minute bar. P rice above the 1, 5 or 15-min Open Range
constitutes a bullish bias, price below is bearish.

Watch for false breaks though! Sometimes you'll get trapped.

Really the key is in learning to feel the sentiment as price breaks these
key levels… 5 min Open Range bar high or low… 15 min Open Range high
or low… or swing highs or lows. Is price accepting these areas, or is it
stalling and rejecting them?

What Happens if We Miss the Open?

What Happens if We Miss the Open?

If you miss an open drive… LET IT GO.

You don't need to catch EVERY move. Nobody Needs or Does!

Keep your focus ahead of price.

 If your read of price was correct, where should/could it go next? Next

Destination?
 Where will the next trade opportunity be (if at all)?
 What price movement will be requ ired to validate that assessment?
 What price movement will invalidate it, requiring reassessment?
Remain focused. There is further opportunity ahead and it will require a
clear and objective mind.

REMEMBER: We don't need to (Nor Can !)catch EVERY move.

And Finally...

Hypothesis or Scenarios - "IF ...THEN!"

When trading I try to

 Keep awareness ahead of price with a clear idea of expectations and a

plan of action for whatever eventuates.
In conducting my analysis, I think several steps ahead - Chess Playing
mentality:
 Where is price going?
 How is it likely to act? Why?
 Will that provide a trade opportunity? What will it look like if my
analysis is correct?
 What will price look like if I'm wrong? What else could it do?
This is not prediction. This is simply forward planning… developing "IF -
THEN" scenarios based upon ones assessment of the likely future price
action / development.

If one's "read" of price movement proves correct, one will have a trade
opportunity. If it proves incorrect, it is time to stand aside and reassess
priorities!

I hope the article helps!

Cheers!

Carlos