First 30 minutes of the Open

I wanted to discuss my observations of what I witness on the DOM when I trade FESX and ES right at the open for both products. I was hoping someone else with more experience could tell me whether my interpretation of this type of price action represents an actionable edge, or whether I am seeing a false pattern within the noise.

By the way, I treat the 2nd hour of FESX as the open just because that’s when the cash market opens and there is so much more volume.

Here is an example of what I see:

The market opens, you see a flood of orders hit the bids and offers and the market goes up and down a couple of ticks and oscillates within this 3-5 tick range. However, the offers start getting lifted, the market approaches this intraday high, huge volume hits the bid and . . . it holds. At this point, I am thinking if the buyers start hitting the offer and it pulls, this thing is going to go.

Conversely, if the market started ticking down to the intraday low, and you see buyers hit the offer but it doesn’t budge, I am thinking if the sellers hit the bid hard and the bids pull, this thing will sell off.

I have always read “don’t trade the open, it is noise,” or “wait for the opening range to develop,” but traders/robots trading in this environment don’t just make arbitrary decisions, no one is careless in this profession. Every tick has a reason or purpose behind it and this can’t just be noise.

Going back to the first example, I am assuming you’ve got 2 institutions just battling it out, one guy is sitting on the offer, the other guy absorbing everything on the bid and whoever wins, the loser is going to cover and send the market rocketing into the opposite direction.

It’s hard to see this type of price action in the afternoon or late morning because there is less volume and the market is too thin. I see someone (or a bunch of people) hit the bid in the ES for 300 contracts and he/they clear out 3 prices. I am assuming the bids underneath pulled, but this is crazy. That type of nonsense makes me reluctant to trade in the afternoon. I can’t take profits on a winner and I can’t get out of a loser when it is that thin.

I actually believe the first 30 minutes might offer more opportunity than the rest of the day.

I simply wanted to know if others trade this time frame with any degree of success and whether reading the order flow in this fashion is an edge.

Thanks.

Obviously, I am going to forward test and trade what I see and discover for myself if I have an edge but I wanted to pick the brains of others on this forum.

 

The ES is a derivative of an index of individual stocks. That index and the underlying components are being traded across multiple exchanges and redundant products. Plus the index is heavily arbed and hedged all day long. Watching the DOM is a waste of time IMO. Watching the NYSE and Nasdaq TICK in a small timeframe versus the ES is productive.

Typically the cash market is stretched at the open and the ES has to realign with the SPX as everything opens. The order flow tends to settle after ten or 15 minutes and the first informative initiative presents into the 30 minute mark. Watch the TICKs for days on end and this should become clear.

 

very well said, and insightful

 

The ES system my people trade generally make a goal of 2-4 points in first 40 minutes after the open and resumes trading again at 1:15CDT. The DOM is only readable to me in the afternoon session and best starting at 2:30. You watch anything long enough, you will find patterns. I have never found a tradable pattern in first 30 minutes.

 

Are you saying there is too much chop between 9:20 and 1:15?

 

I mean 9:10

 

Certainly can't do enough volume and the risk is too high to boot. I don't want them to be risking 8 ticks to make 3-4 ticks.

If you backtest your method well enough, it will tell you when best times to trade. It might also they you when not to trade the afternoon session based on the morning session as well. If the system makes 12 points based on a one lot in 40 minutes, system does not trade in afternoon.

 

It's very simple...backtest your strategies along with documenting stats (simulator and real money trading) to determine if you're methods are more profitable in the first 30 minutes versus any other time period of the trading day.

Some methods are more profitable in the first 30 minutes of trading and other methods are not. Thus, its not uncommon to see the few profitable traders out there to be only trading a specific duration of the trading day because they know when their strategies and their own trading experiences tend to be more profitable.

Listen to you strategies...they speak louder than any anonymous online poster giving advice.

 

good thoughts thanks for the advice

 

Can't agree more! It might be possible to trade in the opening, but my current strategy tells me I should AVOID it...as you said, only back testing can tell...