How to trade the open

how would you like to learn how to take advantage of the most volatile trading period each day stick around for the video and I'll teach you how my name is Steve Spencer I've been a short-term trader for over 20 years I'm a partner at a proprietary trading firm in New York City where we teach traders from scratch how to trade stocks options futures if you're interested in a more in-depth instruction click on the link on this video and we'll take you to a two-hour free workshop how to learn these topics more in-depth the topic for today's video is how to trade the open this is a very volatile period and quite often you'll hear experienced traders say don't don't trade the open keep your hands on the keyboard things are too volatile things are too crazy you can't control your risk I am here to tell you having been trading now for over 20 years that I've seen dozens if not more traders successfully trade the open it requires a certain level of skill it requires a certain level of planning but it absolutely can be done and so let's go into some of the things that you need to do to successfully trade the open but before we discuss those things at first think we have to define what the open is sometimes when people talk about trading the open they mean the first 30 minutes or some traders mean the first 90 minutes for the purposes of today's lesson I'm talking about that first 15 to 20 minutes it's a period that I call price discovery in the first 50 first 20 minutes or so period of price discovery what do I mean I mean there really are no set trends you see a lot of up-and-down action not a lot of bids not a lot of offers and you see a lot of up-and-down up-and-down after 10 a.m. or so things start to settle in a little bit more and we start to see trends for the day develop now why is it that things are so up-and-down in that first 20 minutes well number one there's not as many market participants meaning people kind of step away from the market they want to see what things look like in the first twenty to thirty minutes and as they get a better idea if the morale gets going to be strong or the more it's going to be weak then they're willing to commit more capital and ranges will narrow trends will develop and so you'll see a lot of these stocks gyrating up and down without clear trends but at the same time you'll have some of the most opportunistic entries meaning you'll get the best opportunity to buy a stock that you're looking to get long or short a stock that you're looking to get short right in those first few minutes and we're gonna take a look at an example or two of that at the same time things are really dangerous you know they're dangerous because with less participants there's less liquidity you have to trade with less size and sometimes stocks will skip prices so you can't you know you're not going to have as well-defined small risk and you'll have to react more quickly make decisions more quickly and the other thing that really comes that can be important what we see from top traders honor tasks is tapereading is a very important skill in that first 20 minutes what does tapereading mean it means being able to watch the level to watch a stock trade watch the time in sales and even even on a very micro chart basis even on you know maybe a 15-second or so chart identify where the seller up where there's a large cellar where there's a large buyer and do that very quickly if you can develop that skill of tapereading in those first few minutes that's going to help you control your risk and put on put on some trades as well and then the final thing is what I would I say to young traders on the desk is automation is a must and why is it what amasian a must because you can only watch when things are moving up and down and you know there's a lot of action right on the open you can only follow at most two or three stocks very closely for myself personally I can follow one stock really closely and kind of at the corner of my eye maybe another stock in a way that I take advantage of the other things that are setting up really well is via automation and I'm going to give you an example of how I do that as well let's take a look at a couple of the criteria we're looking for on these trades right on the open number one I want to identify key prices right on the open I want to be able to quickly identify buyer's or seller's I want to compress my time frame what does that mean means that if a create isn't working right away I'm going to get out it means that if a stock moves quickly in my direction I'm going to take profits it means that I'm going to enter and exit several times in those first first few minutes if I'm going to get in the until the creators working or even taking profits so that's that's what it means to compress your time frame so here's an example of something I mentioned a few minutes ago the best entries so you're looking at stocks before the market opens in this particular chart right here you're looking at a stock that ran up before the market opened from 8 dollars all the way up to twelve thirteen dollars and then once it did that run up I identified where we're supporting in the pre market and my bias on this stock was short it was the second day in a row that it was had been up and butt for it to really come off it had to drop that pre market support and so this is a really good example of the best entry happened right on the open meaning the support level that was defined in the pre-market here that little band below 12 the comp the second the lower blue line is confirmation that the sellers are pushing it lower happens right at the open and what you can see is after five minutes it was four or five dollars lower so if you weren't ready to take that take that entry below the pre market support right on the right on the open you weren't going to get it again and that's kind of that's the flip side you know the more conservative trader is gonna wait for price confirmation at the open meaning they want to see that level that support fail from the pre market but if they're waiting for that and then they're weep a few minutes the stock is three dollars lower so then what are they gonna do they're gonna have to wait probably for another 20-30 minutes to for a consolidation period I want to give you an example of adjusting a game plan on the fly so this particular stock what we're looking at here is we are we're identifying important prices based on the price action rate on the open and so what you're seeing here is this is a 195 dollar stock and on this particular one I had my first resistance level was at 196 and I had and I had 190 195 as the inflection and and what does inflection mean the game plan notes inflection basically means if it's above a certain level it might go up to our first resistance if it's below a certain level it might go down to our first support and I'm going to look to treat it in the direction of where it is if it's below the inflection I'm gonna look for a spot to get short it if it's above the inflection I'm gonna potentially look for a spot to get long it now in this case I had an inflection level but I also had a bias where I was I was I was I was looking for a short opportunity and you notice the first big green bar it gets above this is where we're looking at a one minute chart we can see on the bottom left there it says one minute we're looking at the 1-minute chart and it quickly flashes above the inflection then it quickly flashes back down below the inflection and then it quickly flashes back above and so there's no clear direction it's not holding above the inflection or below the inflection and so what I'm gonna need to do is identify new prices when the market opens and you can see in the first two minutes I circled a spot for you there when I saw on the cape boys you can't see it in the chart but what I saw on the tape was there was a seller and 195 30 and it couldn't close above that level so I made a mental note if it pops back up to that level again where it couldn't hold above I'm going to short it there and my confirmation will be the support that I've highlighted with the blue line there right on the open the opening low and so it pops back up there again I short it it drops back down very quickly and it's right back down at the bottom blue line I'm covering most of my position the reason is we're compressing time on the open and we know that things go up and down up and down I didn't know at this point the first seven or eight minutes in that eventually that big red bar was going to happen a little bit further to the right where it broke cleanly below 194 or 50 and then at that point the short trade was confirmed for me and on the first to support level one the next example here is an example of there's a great opportunity but at the same time things are very dangerous so in this particular chart I've highlighted a few different things number one I highlighted the two support levels from the morning game playing notes 72 with support 170 was support cue in this case the stock was gapping up a lot I was ok with playing it as a short on the open if it started to move down very quickly but I did want to make a long play if it's supported at s1 or s2 and so let's look kind of drill down number one the reason why there's danger is the first thing that I circled that big red bar that's two and a half percent move in one minute so these are one-minute bars and then the stock has now moved net has moved over two percent in one minute and so if I'm looking for initially a failure at 75 right on the open and I'm looking to see if it will drop to s1 and potentially then looking to see if it's going to bounce and potentially they got the pre-market pretty more I get high I don't have a lot of times to make you know a lot of time to make a decision there in this case if I see you fail at 75 and it immediately you drop 74 I may enter there because there's still there's still two dollars of downside to the first support but at the same time if I haven't answered right there I'm probably not going to do anything I'm gonna wait to see if it supports at s1 and if it does look for a green bar and enter on the long side and so like look what happens when it comes back to s1 at 72 number one it immediately goes right through it and then comes back up when you see a stock get to a price level you're looking to see where there's gonna be buyers and when it first gets there and overshoots but on a low timeframe it very quickly gets back up to that level that means other people are looking at that level potentially a support and you can see I circled there's two one-minute bars there where it moves a little bit green or move sideways and then the next bar is a red bar and and at that point it's it's starting to fail and so I'm not gonna play it on the long side because it hasn't been able to move sideways for a few minutes at the further s1 but at the same time if it gets down to s2 that's where when I have something where I'm looking potentially and along I'm gonna quick pull back then they open I'm going to be more aggressive and in this case I actually was moving over I was creating a couple of other stocks and the way to take advantage of this if this is in your primary stock at s2 is with what we call a script on our desk and so we have our own proprietary trading platform you can pretty much do whatever you want you can have all sorts of scripts that plate trade off of price levels they can trade-off of V WAP they can create off of a moving average if you that's kind of your trading style there's other this trading platforms like create station you can do similar scripts to this but it's very important on the open when things are moving really quickly especially on a volatile day where you might have four or five six stocks that you've identified for a good risk reward that you develop a script so this to me it's you know it looks at it and there's a lot of entries there but it's not that complicated it's basically I'm keying off of I'm keying off of s2 and when the stock comes into s2 I'm starting to scale into the position 25% a little bit above as to get a little bit closer to a stew and then finally right at s2 I'm putting on half the position I'm putting in the stop and this again this is before I've even entered the position I know exactly how I want to scale in and in this case if it ends up supporting and it's - like it did I'll be in for my full position and when it starts to bounce above 71 you kind of see what my first target area was there it'll take off 25% of the position that's how I tend to trade I'll scale out 25% of the time holding the last 25% when it gets to my top target and then and go from there to see if it develops into a swing trade just to recap for you on the open market is very fast-moving so you're either gonna have to a have a very well-defined plan well-defined plan is an example of what I just showed you with that script understanding how I want it to scale in and it's - if you don't have a very well-defined plan if you're just playing the momentum off of levels you've identified in the pre market or the priority of support or resistance you have to have a very tight timeframe and tight risk meaning if you enter against the level it doesn't work right away you're out if you enter against the level and it moves a half of an ATR you very quickly you take profits technology assists that's just what I just showed you pre market prep that's one of the earlier charts where I showed you right here where you the best entry is we know that I was looking for this stock to come off quite a bit identify the support in the pre market and when it takes that that out that support I'm in right away and then finally those who can read the tape have the largest largest edge there's no point it's not a coincidence that the two most successful momentum directional traders on our desk in addition to many other skills that they have they learned how to read the tape in the first couple of years of their career and as they did that what it allowed them to do was kind of adjust their training plans on the fly it allowed them to put on very large size at prices where they identified large buyer's or seller's and it really allows you to rule control your risk on these very large positions meaning if you identify where there's a large buyer or seller and you're already in in a position you can scale up that position five or ten times bigger because you know if that buyer or seller disappears you can exit the majority of your position and so these are kind of the things that are important for learning and how to create right in the open and so this is my contact this is my Twitter this is our blog this is my email if you have a trading question it's a good question sometimes we'll actually put it up on the blog this concept and you know identifying the right stocks to create on the open identifying how to trade these things in detail go to the free trading workshop two hours of content myself mike bella fury it's free we go into very in-depth and if you're interested in this sort of thing it's a very good thing to check out I hope you learned something you [Music]

Channel: SMB Capital

Views: 85,001

Rating: 4.8774195 out of 5

Keywords: stock market, day trading, smb capital, trading, investing, markets, wall street, stock trading, options trading, options income, economics, finance, how to trade the open, steven specer

Id: iGab0nsrS10

Length: 14min 42sec (882 seconds)

Published: Fri Jul 06 2018