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180 MARKETS IN PROFILE

G H
G H
F G H
F G
E F G
E F G
E F
B D E F
B C D E F
B C D
B C D
B C D
Z A B C D
Z A B
y Z A B
y Z A B
y Z A B
y Z A
y Z A
y Z
y Z
y Z
y Z
y
y
y
y
No subsequence time
period traded below
previous time period.

FIGURE 8.20 One-timeframing auction following an Open-Rejection-Reverse

opening, daily split profile.
Source: Copyright ľ 2006 CQG, Inc. All rights reserved worldwide. www.cqg.com.
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Day Trading Is for Everyone 181

Open-Auction
Open-Auction activity initially reflects a market with no conviction at all.
The market opens and appears to randomly auction above and below the
opening range. In reality, the conviction reflected by the Open-Auction
largely depends on where the market opens relative to the previous day.
An Open-Auction that occurs inside the previous day’s range, for example,
conveys a much different opinion regarding potential day-timeframe devel-
opment than an Open-Auction that occurs outside that range. In general,
if a market opens and auctions within the previous day’s value area and
range, then a nonconvictional day will usually develop. The same open-
ing occurring outside yesterday’s range, however, demonstrates a mar-
ket that is out of balance relative to the previous day, which greatly in-
creases the odds of a dramatic price move in either direction. If the market
quickly returns to the previous day’s range and reenters the value area, the
odds are good that the market will continue on to the opposite extreme of
that day’s range. Failure to return to yesterday’s range increases the odds
of a meaningful, directional move in the direction of the out-of-balance
opening.
Figure 8.21 demonstrates an Open-Auction, with price trading both
above and below the opening for each of the first five periods. When you
hear people talk about successful trading requiring patience, that principle
is never more applicable in the day timeframe than after an Open-Auction.
Whether the market is in or out of balance, there is no reason for a day-
timeframe trader to trade during the first five periods of an Open-Auction
day. When the market lacks conviction for that long, the odds favor limited
range development for the remainder of the day, which translates to lim-
ited opportunities. (Mind over Markets covers day-time directional devel-
opment relative to these openings in much greater detail than space allows
in this book.)
In sum, the lack of short-term conviction surrounding the opening
range suggests that day traders should wait patiently until the market ar-
rives at a directional consensus.

DAY TRADER’S CHECKLIST

As was stated earlier, every experienced trader has his or her own sys-
tem of checks and balances. The following checklist is designed to get
you further down the road to developing your own personal preparation
process.
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182 MARKETS IN PROFILE

P
N P
N P
N P
N P
N P
N P
N
First 5 periods N
continually above and N
below the opening L N
L N
L M N
I L M N
I L M N
D I L M
D I L M
D I K L M
D I K L M
C D H I K L M
B C D H I J K L M
B C D H I J K L
B C D E H I J K L
B C D E H I J K L
B C D E F H I J K L
Open B C D E F H I J K L
B C D E F H K
B C D E F H K
B C D E F H K
B C D E F H
B C D E F H
B C F G H
B C F G H
B C F G H
B C F G H
B C F G H
B F G H
F G H
F G H
G
G

FIGURE 8.21 Open-Auction type of opening.

Source: Copyright ľ 2006 CQG, Inc. All rights reserved worldwide. www.cqg.com.

✔ Review yesterday’s profile for clues as to what to expect today. Make

a note of possible trades, based on varying developments.
✔ Review the overnight markets for any unusual price movement or
early indications for the day.
✔ Compare the expected opening to the previous day. Is it within or out-
side the previous day’s range? Value area? To the upside or downside?
✔ Relative to the expected opening, identify three references points,
both above and below the expected opening. These could be the
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Day Trading Is for Everyone 183

previous day’s high and low, weekly high or low, the top and bottom
of the previous day’s value area, or the high or low of a recent trading
range. (There is no set answer—you should be guided by your past ob-
servations of where price slowed or accelerated, as well as past areas
of heavy or light volume.)
✔ Note what kind of opening is occurring, as well as what you’d want to
see in order to quickly judge the resulting directional confidence.
✔ Note whether or not there is clear attempted direction, and whether
that activity is supported by volume.
✔ Does the market appear to be within balance or out of balance?
✔ Visualize the remainder of the day. Will it look elongated, squat, fairly
normal like a bell-shaped curve, and the like. Note any unusual shapes
or patterns that may suggest something unexpected is happening.
✔ Estimate how much effort is being expended to move price direction-
ally, and note what that suggests about the inventory conditions of
your competitors—too long, too short, above water, below water, etc.
✔ If there is a major news announcement scheduled, be aware that there
could be unexpected volatility. Let the market provide short-term in-
terpretation of resulting activity by observing developing structure.
Unless the day-timeframe structure is extremely strong and unlikely
to be reversed by such an announcement, we recommend that day
traders be flat in front of significant numbers.

Let’s examine three different markets, beginning with the opening bell.
This discussion both summarizes and abbreviates this checklist.

Example 1
The first example (see Figure 8.22) enables us to view two high-confidence
openings occurring within different contexts—one takes price outside of
balance and one results in price maintaining equilibrium. To recap, when
price moves outside of balance, the odds are that there will be more volatil-
ity and a greater range than when price remains within balance. Here’s
another way to think about this: The status quo is maintained when the
market remains within balance, but the status quo has changed once the
market leaves balance, which generally results in additional timeframes
joining the fray.
We labeled the different types of openings to facilitate their descrip-
tion. But please remember that the labels are far less important than the
amount of confidence that is indicated by each opening. Day 1 shows high
confidence, selling from the opening bell with price rapidly auctioning be-
low both the value area and the range for the prior day. It doesn’t take long
for you to visualize lower value for Day 1; you should quickly short this
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184 MARKETS IN PROFILE

BH
BH
BGH
BGHI
BGHI
BGHI Merrill Lynch
BFGHI
BFGHI MER
BFGHI
BDFGIJ
BDFGIJ
BDEFGIJKLN
BCDEFIJKLN
BCDEFIJKLN Day 1 Day 2
Day 1 high BCDEFIJKLN
BCDEFIJKLN B first 6:30-minute
confidence BCDEJKLN B
periods
opening BCEKLMN
BCEKLMN
B
B
BCEKLMN B
CEKLMN B
ELMN B B
ELMN B B
M B B
M B B
M B B
B B
B B C F
BC B C F G
BC B C F G H
BC B C F G H
BC B C F G H
BC B C F G H
Out of balance BCD B C F G H
BCD B C F G H
go with BCD B C F G H
market BCD B C E F G
CD B C E F G
D
D
B
B
C E F
F
High-
C E
DG B C E F confidence
DGHN B C D E F opening
DGHN B C D E
DGHN B C D E
market
DGHN B C D within
b formation DEFGHIN
DEFGHIJMN
B
B
C D balance
C D
long liquidation DEFGHIJMN B C D
patient buyers EFGHIJMN B C D
EFIJKLMN B C D
EFIJKLMN C D
EFIJKLMN D
EFIJKLMN D
EFIJKLMN D
FIJKLMN
FLN
F

FIGURE 8.22 Example 1: Two high confidence openings occurring in different

contexts.
Source: Copyright ľ 2006 CQG, Inc. All rights reserved worldwide. www.cqg.com.

market—go with the open—once price moves below the previous day’s
range, with the expectation that value will be pulled down to price. You
should also track volume to assure yourself that lower prices are attract-
ing additional activity.
The b pattern begins to form in the fifth time period of Day 1, and con-
tinues to develop for the remainder of the day. The expected market struc-
ture for a day with early high confidence would be an elongated profile
shape; as soon as it becomes clear that the expected is not going to happen,
it’s time to exit a short position—even if the market continues lower, the
odds are building against you. Mechanically, this was a simple day trade,