This strategy can allow traders to better navigate the often volatile first 15 minutes after the market open, and while it isn’t without risk, it can help to identify and follow the dominant trend for that day.
There is a saying, "Amateurs open the markets while professionals close them." That saying refers to the flood of orders that brokers receive from their clients who could not wait to enter or exit the markets based on the news they heard or watched the evening before.
Many people are working throughout the day and digest their financial news in small portions in the evening. The resulting order flow will be executed the following morning when the traders and brokers open for business.
However, once that order flow has been completed and the commissions tallied, the true trend of the markets is often found, and the professionals will trade according to the business of the day.
When we are waiting for our intraday trading signals, it can often be beneficial to be patient. The fervor of the opening rush and the morning reversals are well known to Online Trading Academy graduates. We have rule-based strategies to deal with trading that time. We can also look at the aftermath to see where we should focus our trading energy afterwards.
New traders often struggle with overtrading and trying to find the dominant trend of the market or a stock intraday. I have seen many try to go long and short in the same stock in the same day, often within minutes. A guideline I have often used to help determine whether I should be going long or short is to look at the price action following the first 15 minutes of trading.
After the amateurs are in or out and the market makers have squared their offsetting positions, the markets will often take the direction in which they will continue for the rest of the trading day.
This is not a perfect technique given the high volatility we have been experiencing lately; the markets can and will reverse intraday. However, we can increase our odds for success by trading with the trend, and this technique may help us do just that.
The rules are simple. I use a 15-minute chart and look to see if we break the price action of the first 15-minute candle. If we break it upwards, the trend is usually bullish and I will look for long positions on that security.
Should price break the bottom of the first 15-minute candle, I will be bearish on the security and look to take short trades when available.
I can even use this on the markets themselves and trade stocks that are moving in the same direction for more potential profits.
Again, this is not a perfect strategy, but it can offer a bit of guidance for traders who need it to find the probable trend for the day. Always protect yourself with stops and follow your rules for trading.
By Brandon Wendell, instructor, Online Trading Academy