Trading Open, is bit complex and complete system in itself, just summarizing the thought process I follow to trade Open, and this is system neutral, in respective on trading style or system on follow. As few of you aware my trading style is entirely based on Al Brooks, and what I trade and sharing below are based on that.
In Open there are primarily three kind of setup & every setup is based on below three Parameter, and these parameters are universal in respective of the trading style one follow.
First is the Context. This is supreme, unless we read the context right, we can’t trade right. First thing here is Directional Correctness, followed by Market structure and then the setup.
Second is Location, the trade has to be at some obvious support either at Trend Line or Ema, or whatever way one can define S/R . Advantages of good Location we mostly get Low risk Setup, and most bigger swing move comes from these Location itself. so Location is the key for Setup and Stop.
And third one is strong Signal bar, Advantage of strong signal bar, even if setups fail it gives ample time to scratch. I use simple rule here, if the setup I enter on strong signal bar and entry bar is weak, I just look to bail, as if my read is right then it should be strong entry bar, if anything else means I am wrong with my read and if wrong then no point to wait for stop to hit. Strong signal bars enhance the Probability.
With experience quality of signal bar can be bit laxed provided overall context & Location in place.
So Once I read the context Right, and define Proper Location & Signal bar, following Setups usually I trade.
First one is First pullback(1Pb) after trend, this is best setup, There too first Deep Pullback, ( first 2-3 Leg Pullback after Trend), having around more than 70% probability. So if one need to focus & master then this is The SETUP. in fact, this one setup if one master one doesn’t need any other thing…more than enough for living. Great Math in terms of Probability & R:R
Second one is First Reversal, or Opening Reversal : (1 Rev) A strong reversal from High, Low or Previous close, or reversal from weak trend move in the Open, easy to read and trade again…. And if works goes big.
Point to note here, in Open be ready for Multiple reversals as how strong the move may appear there are more than 50% of Probability of at least 1-2 Reversals. Second Important point for Reversals, once you read that market is reversed, then look for pullback setups in the new direction only, as Pullbacks are the setups in the direction of trend.
Also, only trend can reverse, so no reversal setups in Trading Ranges.
Third one Is Failed Breakout,(Fbo) either failed break out of High-low or Swings on Trading Range days, here second failed Break out attempt will mostly be swing trade. This setup only in Trading Range Price Action.
Apart from the Setups I Guess couple of things if one follow and do religiously it should work wonder in respective of the system. First having the habit of drawing Trend Lines, and base most of the trading decision at Trendline, this itself will enhance Probability, as Trend Line to my understanding is most dynamic, easy and potent trading tool in respective of trading Style. Second counting the Legs, Either in Trend or Trading Range… Counting Legs, and anchoring trades based on it will solve dual purpose , First it will provide best setups to trade, along with work as filter to avoid many bad trades For example to avoid fresh entries or tightening the stop after 3-4 Legs in the given move.
Last the setups should to easy to read and trade in real time , as What I have experienced most big trades comes from most simple setups, and I use simple heuristic here, if any setup that needed effort to read, will not work or not go big. Best Setups mostly present itself. So just focus on couple of Pet Setups ,that should be easy to read real time, and just trade those only to start with. Idea is to have minimal moving parts or discretion, or friction real time. And once in trade, trade management should be mechanical based on the pre defined math and no discretion here, let the math works, in respective of the outcome on individual trades. Though easier said than done, but slowly mind will accept it.
I guess above mention points are central for any trading system.
Below is the Generic Market structure for Trading Open.
1. The opening bar
2. The opening range
3. Breakout and possible reversal of the opening range
4. The AM trend
5. Lunch consolidation
6. Breakout from lunch consolidation
7. The PM trend
All the Best.
