Opening Types

Opening types

Market Profile and market auctions distinguish between four types of market opening. Determining the type of opening helps the trader to recognize early market sentiment and thus tailor expectations to the current session. 

The definition of the end of the market opening is not a question of time, but rather the relationship of the first swing created.

Open-drive (OD)

Open-drive is characterised by the fact that the price is aggressively released in one direction immediately after opening. The opening price may even be high or low. 

How to trade the Open-drive (OD): Normally it opens outside of value and does not test value, instead, it breaks either the OVNH or OVNL with increasing volume. It is best to trade the first LVN (Low Volume Node) as pullbacks tend to be very shallow.

Once opened, a trend day is often created as a result of the 'Open-drive'.

Open-test-drive (OTD)

Open-test-drive is a frequent type of opening that tests/breaks the OVNH/OVNL and rejects away from it after a short period of time spent trading around the level.

How to trade the Open-test-drive (OTD): Normally it tests and breaks the OVNH or OVNL and then moves back to value. Should the VAH or VAL continue to hold on tests, then it is best to buy the VAH or sell the VAL. As a guide on this opening type, it is allowed to break inside value but must reject the POC otherwise the opening type is most likely failing.

Usually, such an opening ends as Normal Variation Day or Trend Day.

Open-rejection-reverse (ORR)

This type of opening is very similar to the open-test-drive type. It is marked by opening in one direction, but the early arrival of the opposite activity comes in before a key reference area is hit, which will reverse the development of the direction.

(In some cases price may break key reference levels however if we see a 15m opening one-bar rejection going in the other direction this can still be classed as an ORR)

How to trade the Open-rejection-reverse (ORR): Normally opening outside of value but failing to break of hit the OVNH or OVNL as price approaches them, then reversing towards value with volume growing. The likelihood is for the market to rotate through the entire value area, so it's best to enter as near to the OVNH or OVNL as possible when it is clear that that market is not going to break them.

Some cases the ORR may break the OVNL/OVNH, however, if this happens on the first 15m bar of the session and instantly rejects closing the other way such as an aggressive looking pinbar or engulfing etc, it can still be classed as an ORR,

A normal day or normal variation of the normal day can be expected.

Chart (1) shows the variant of an Open Rejection Reversal with the either the OVNH/OVNL being punctured.

Chart (2) shows the most traditional/common type of Open Rejection Reversal

Open-auction (OAIR/OAOR)

This type of opening depends on the location of the opening price. 

If the price at the opening time is in the value area of the previous day and auctions/remains inside then this suggests a balanced day and an OAIR (Open Auction In Range).

Trading the VAH and VAL if staying inside of value or trading rejections from HVN's just outside of value back into value is the way to go.

If the price at opening time is outside yesterday's value area and yesterday's high/low range then this suggests an OAOR (Open Auction Out Of Range).

• The market can move EITHER SIDE
• If market enters yesterday range, or value area QUICKLY, it can trade to other ends of value area/range.
• If market FAILS to enter yesterday range, odds favour strong move opposite side. You can expect a directional move

DayTypes/Week Day

DAY TYPES 

Traditionally the day types are categorised as follows: Normal, Normal Variation, Trend and Neutral.

NORMAL DAY: When 85% or more of the range is defined in the Initial Balance period it is considered as a Normal Day.

NORMAL VARIATION DAY: In a Normal Variation Day, the maximum extension tends to be 2x Initial Balance and only breaks one side of Initial Balance

TREND DAY: A Trend day is defined when market participants extend the range beyond 2 x Initial Balance and only breaks one side of Initial Balance.

NEUTRAL DAY: In a Neutral Day, both Initial Balance Low & High are broken, in some cases it can turn into a Trend Variation ( Double or Triple Distribution).

Initial Balance

Typically the Initial Balance (IB) is defined by the High and Low set during the First Hour of trading during the Regular Trading Hours (RTH). For the FDAX we use the first 1hr and 15m of trading, or, the first 75 minutes of trading beginning at 0700 London time as during the first hour the cash market is closed, and volume during this hour tends to be below average. Previously I used the first 2 hours but my statistics have shown using the first 75 minutes is more optimal.

For the “IB Broken” Statistic, it is to be interpreted as either the Initial Balance High, Low or even both were broken during the Regular Trading Hours Session.