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At The Open Trade

Copyright 2007 Daytradetowin.com

Copyright 2007, DayTradetoWin.com All rights reserved. No part of this work may be reported or Transmitted, in any form or by any means, electronic, mechanical, Photocopying, recording, or otherwise, without the prior written Permission of the publisher and author.

Printed in the United States of America. Published by DayTradetoWin.com 2007

The Charts used in this Book were created by using www.Ninjatrader.com

Disclaimer

The methods described in this book are for educational purposes only. Past results are not necessarily indicative of future results. The author and the publisher assume no responsibility for your trading results. Trading involves a high degree of risk. No recommendation is being made to buy any stock, commodity, option or other financial Instrument. Consult your financial advisor before starting any investment system.

U.S. Government Required Disclaimer - Commodity Futures Trading Commission.*Futures, options, and spot currency trading have large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don't trade with money you can't afford to lose. This website is neither a solicitation nor an offer to Buy/Sell futures or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this website. The past performance of any trading system or methodology is not necessarily indicative of future results. CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.

AT THE OPEN TRADE

Lets start with a great idea. How can we use price to tell us where price will be? How do we trade using opening price? How do we take over night Data and use it to our advantage? Well, easier said then done. There are many aspects to what happens in the market. We look for price patterns to substantiate our methods. Price goes up; price goes down, where should we get in? Where should we get out? Are we late, are we early, timing is key to getting in and out profitably. We have found that some if not most price action is random, but not all. If we could capitalize on trading correctly from the beginning of the day, and using what happens in the first minutes of trading to know what price will do, or how price will react, do we then have a huge advantage over others, -- you bet!! The method is not hard to calculate or hard to understand. The hard part is understanding why and getting in and getting out profitably! When we look at overnight data, what is over night? Where does it start? Where does it end? What are the high, and the low, and how do we use it? Well Im going to show you some examples using ninja charting software and hopefully you will have a better understanding on how we trade the open and why we do it. Our philosophy is simple. Lets trade the morning and be done by noon. 2 to 4 points daily, if all our setups and triggers are hit. No over trading, and no staring at the screen all day. Lets make our money early and enjoy what life has to offer.

When I refer to the opening price or Opening I want you all to think 9:30 am Eastern Standard time. That is very important because the opening price 9:30 am is the time when price is so erratic so unpredictable that you would be crazy to trade during that time. Wouldnt you agree? Think about how many people, and the type of people, organizations, banks, Funds, Hedgers, and so on are placing orders. Orders are placed with brokers to Buy at the open from the day before, and others have sell at the Open orders as well: These trades are put on for various reasons. Some are to get out of a losing position, or to get out of a winning position. As well as entering positions for various reasons, adding positions, systems that tell them to get in or get out and so on. Therefore we can infer a few things about 9:30 AM ET the Opening:

1. Price is uncontrollable, and unpredictable due to the various traders and various organizations trading 2. The reasons for trading the 9:30 AM ET Opening are many, and irrational. 3. News and reports almost never come out at the open, News maybe questionable, but not reports, therefore we can not say the government reports have a push on the price action concerning the Opening price fluctuations. 4. Certainly the agenda of price manipulation is unknown, of certain authorities.

Now that we have a bit of understanding about the Opening Price and why people stay away from it, or why people trade, it more importantly, lets look at some charts that show this unpredictability in action. How many people, brokers and fellow traders have told you, dont trade the open? The reasons given are known, no-one has a clue about whats going to happen, But if you think about it, wouldnt you say that phrase for any time period in the market after the open. How do you know at 10:00 AM where price will go or be? You dont!

Take a look at the following charts indicating opening price Action The Opening Price 9:30 AM is unpredictable, it goes up then goes down. Why? Why did it go up? Why did it go down? Im not here to tell you that I know those answers, but I will tell you that we need to use this data to our advantage.

The vertical line you see on the chart to the left is our representation of over night. Overnight can be different things to different traders. For example if you ask traders when overnight data begins and end you will surly get a few different answers. Some would be right, and some would be wrong according to the financial records, but the truth is that traders dont define overnight the same.

For our purposes and for our methods we will use overnight Data as beginning at midnight, when a new day begins. 12:00 AM ET When the date changes to the following day.
Not to be confused as 4:30 PM ET. Which means that when the market closes at 4:15 PM ET New Trading Begins at 4:30 PM and many traders and financial institutions label this as overnight Data and new Session Data and After Market Data, or After Hours Trading. This is all true,

But we do not use this data. We will only use overnight Data and After Market data beginning at 12:00AM ET

So from now on when I refer to Overnight session we will only refer to the data between 12:00 AM and 9:20 AM ET. I am going to explain the reasoning: Overnight data has very little volume compared to the day session. The Day session begins promptly at 9:30 AM ET and ends at 4:15 PM ET. Most of the moves are intra-day and that is where most of the market makes its moves. But we are in a World Economy. In this Economy we now watch Asia, Europe and other Financial instruments to determine how the U.S. Economy will function. A meltdown in Germany will impact the markets in the United States. Asian markets in the past have recently become so strong that we here in the U.S. are impacted on what happens during their trading days, and vice versa. Now that we know there is a relation lets understand that the world operates in different Time Zones. Our Day session in the U.S. Is the night session or overnight trading session in Europe and Asia. And conversely the night session, (Overnight Data and after hours session in the U.S. Markets) is actually occurring during the peak trading times of these other Countries at their most volatile times. So to piece it together while we sleep in the U.S. other countries and their financial instruments are moving the world. And we know that these moves affect the prices of the U.S. Markets while we sleep. 7

Therefore using this analogy and looking for price action in the process, we noticed that the e-mini S&P and other U.S. markets are most volatile in overnight trading during the times that these other world power economies are Trading their Day Sessions: 12:00 AM to 9:20 AM ET The 12:00 AM ET to 9:20 AM ET is the time frame we look at during overnight trading hours for the E-mini S&P because during these hours the markets in other countries are most Volatile, which creates the highs and lows of our overnight Time Frame. This is very important to understand. Some Examples of overnight session and what it looks like on the chart. Left vertical line is the beginning of our overnight session and the right vertical bar is the beginning of the day session.

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Now that we under stand what we mean by over night data, lets continue with time frame and chart setup. The time frame you should set up your charts is 10 minutes. Apart from any other methods we teach, the At the Open Trade is to be used with 10 Minute charts. The settings should be 24 hours or globex mixed with day session or continuous data. Trading charts and software differ from vendor to vendor, but all work the same. The charts should be setup like the ones you see in the examples. 24 hour continuous data for the contract month you are trading in. In Ninja trader we can have vertical lines automatically placed where we want; the short cut key is F7. Please check your other charting software for this feature. One line is placed at 12:00 AM ET, the start of a new day, when the date changes and the 2nd vertical line is placed on the 9:30 Bar. These vertical lines give great visuals on the chart to show where the trading day begins and ends and also when overnight trading begins and ends and marks the spot on the chart for us to reference. Now the 9:30Bar explained. This vertical bar you place at the 9:30 AM ET., is a ten minute bar. The Bars Open is actually at 9:20AM ET. And the bars close is at 9:30 AM ET. The candle Stick Bar opens at 9:20 AM ET. And Closes at 9:30 AM ET. This is very important to understand because we are using this bar 9:20 to 9:30 AM as our first Bar of the day. The day meaning day session or Pit session. This bar for our terms will be Opening Bar. Whatever software you use make sure you setup your charts in this fashion. Opening bar for our trading methods is open at 9:20 AM ET. and ending at 9:30 Am ET. On Ninja trader the time frame printed on the bottom of the chart when using the crosshairs and when you place the cross hairs over the bar it shows 9:30 AM, but the bar Actually opens at 9:20 and closes at 9:30. The time frame showing is a close price, not an opening bar price. This is Very important to understand.

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An Example:

Another Example:

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Now that we have an understanding of the first bar which I will refer to as the 9:30 bar, all future charts for the AT THE OPEN TRADE need to be setup in this manner as shown above. 13

Every morning we place a vertical line at this 9:30 bar, the close at which is 9:30AM ET. When this bar closes the rest of the trading community begins trading the day session. Remember that we are starting with the 9:20 Am to 9:30 Am bar as our first bar of the trading day for this method, but the rest of the Traders are actually trading, or putting on trades on the next bar. That bar being 9:30 open to 9:40 close. Now our charts are setup in this manner: we have a 10min chart, with a vertical line on our first bar. The Bar that opens at 9:20 and closes at 9:30.

The next part of the At the Open Method

We will wait until 2 more 10-minute bars post. This means we are using a total of 3, 10-minute bars to open and close for our method. 1. The first beginning at 9:20 open to 9:30 Close, 2. Then 2nd bar is : 9:30 open, closing at 9:40 3. The third and final bar opens at 9:40 and closes at 9:50

We are using these 3 10- minute bars as our price action analysis. These 3 10-minute bars will give us enough information to allow us to determine how price will react in the near future. We now place a second vertical line on the 3rd 10min bar. Please set up you charts exactly like this. We use these 2 vertical lines as references to the next steps. Some examples:

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More examples of these 3 ten minute bars:

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First 3 10min bars example:

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Hopefully you have the idea of plotting these 3 bars as important, placing vertical lines on them , the 1st and 3rd ;and using these vertical lines as references to these 3 very important first 10min bars of the day. We are isolating these 3 bars

Now the next step is to outline the highest high and lowest low of these 3, 10min bars. We use horizontal lines; you can use any type of horizontal line. Remember only the highest high and lowest low of these 3 bars will be outlined as this is the reference point we need to calculate the entry to our trades. Please see examples below

More examples of the plotting of the high low: 18

More examples of the high low plot of the 3 10min bars. 19

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Now we have the 3 bars outlined. We also have the highest high and lowest low of these 3 bars outlined to show a range in which we will use to setup our trades.

What we need to do next is wait until the 3rd bar closes, and posts. Once we have this information, highest high, lowest low of these 3, 10min bars we are ready to proceed for our setup. The setup comes when the range of the highest high and lowest low is penetrated and the 10min bar closes above or below that range. Example: For a buy setup: On the 4th bar, price penetrates the high of the highest high, and the closing price is above the highest high of the 3, 10-Min bars we are isolating, then we have a setup. If the 4th bar doesnt give us a setup, say price penetrated above and closed back down within the range of the highest high and lowest low of the 3, 10min bars, we have no setup. Now we are on the consecutive 10Min bar (5th bar) Price action still needs to show us that it closes above or below the initial range we have outlined. A short setup is exactly the opposite: Price needs to penetrate, the lowest low of the 3, 10min bar range and close below it. The closing price of the subsequent bar, whether it be the 4th, 5th or 9th 10min bar, must have a closing price below the lowest low of the range. We wait for the following 10 min bar. Always referencing the highest high and lowest low ranges of the first 3 ten minute bars.

Remember that the setup can be any 10min bar after we have our range determined. We try not to trade this method after 12 noon and only do so to recover losses. This is only a setup, not a trigger to enter a trade. We are not going long or short based on this penetration alone.

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Lets see some examples of this on the long Side

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An Example of a Short Setup: Remember - this is not a trigger to take the trade, this is only a setup which will lead to entering short the trade. Price closed below the lowest low of our range. We have a short Setup to short the market, but no trigger to enter the trade short - that is yet to come..

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A long setup, Penetration of the range on the long side, the 4th 10min bar closed above the range. Remember that it doesnt have to be the 4th bar; it could be any bar after the initial 3 bar range.

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A short Setup, price penetrated the range on the short side, and closed below it.

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The Blue dot on the chart is shown to mark the bar in which it penetrated, thats all. It is only for visual reference. Another short setup example:

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Hopefully these examples are good visuals to show you the methodology of going short and going long. We have picked charts that are consecutive days, they are not cherry picked to show you only days when these breakouts occur. These breakouts occur daily, and are expected. Note that these setups are only part of the AT THE OPEN METHOD. We are not blindly going short or blindly going long on these setups alone, the next step is very important --- Entering the Trade.

Long setup example:

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A short Setup that took a little longer. Notice how many times price penetrated and closed back into the range. These were all false breakouts and we need to see a close below the range for the setup to become valid. That is Price Action at its best.

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Long setups with false breakouts preceding our setup.

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Please be aware that on some days the setups are not hit. Price will bounce back and forth and will not close above or below the highest high or lowest low. That is fine; it would otherwise keep us out of losing trades. This is a good thing. These days do not happen often, but when they do we are glad we werent in a trade being whipsawed back and forth.

The Trigger to enter Short or enter Long

Once our setup has been validated we know the direction we want to go. If its a long setup we go long, and if its a short Setup we go short. The question is where, and at what price? Most people would go short or long at the breakout, thinking price is going to continue up or down. They are wrong. Price never follows a vertical line up or down. It Ranges, and obviously Im not saying breakouts are invalid, but trading them alone has not been validated as a true profitable method. How many times have you traded thinking that price would continue in a direction to basically come right back down and stop you out? It happens to everyone, so why trade that way?

Most people would also have you believe that trading breakouts and having them close above the range as does our setup examples is the way to go. They are also wrong. Price does sometimes continue further up or down, but for the most part it retraces, it breathes and likes to go where its been.

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Enter the At the Open Trade

We will go long or short based on the setup of the range being penetrated and price closing above or below it, But at a much better price. The price where the

professional traders and their patience enter.

The Range that we created, (the highest high and lowest low) of the first 3 bars is very important. It acts not like support and resistance but as a fulcrum. Price Travels to where it has been, where it is comfortable with. Why go long at the highs or go short at the lows? This is disaster, uncharted territory and with volatility the way it is, crazy, there is no way to trade profitably in uncharted territory. Lets be smart, lets be patient. Trades are available every day; choose the ones that will give the highest percentage of accuracy. Trade with the pros, not with the

heard of cows.

The Trigger
If we have a long setup, price penetrates the highest high, stays there and closes above it, we will go long at the highest high range which was just penetrated. So all the lines you placed on your chart, vertical, and horizontal are to provide not just visual reference but the horizontal line acts as a buy and you would go long on a long setup at that same price. After price penetrates and closes above the 3 bar highest high range, that same highest high range, (horizontal line plotted already) that price will be our Buy trigger. Price needs to retrace to that level after closing above it. Wherever the setup occurs is irrelevant. Price needs to retrace to wherever the highest high range is -- that is your long entry and trigger.

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Lets see some long examples. We are entering long at the red line, (highest high plotted) and waiting for price to retrace back to it.

In this example we went long, after price validated our setup. 32

You would have gone long at the 10:50 AM bar (9th bar) and pulled anywhere from 3-6 points. Notice the price action. Price immediately comes back down after the setup was validated. The Long trigger was hit at 1356, and profits were immediately taken. This type of price action is very common. This is how the pros trade, fast in and out.

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In this long example our setup was hit on the 5th bar, and on the next bar (6th bar ) price came down, filled us long and away we went for instant profits.

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Keep in mind that sometimes price does not retrace. That is ok. We didnt miss anything because we didnt lose anything. Price action may not come back or not pull back far enough. This occurs once in a while, dont push a trade, tomorrow is another day. If we have a short setup, price penetrates the lowest low, stays there and closes below it, we will go short at the lowest low range which was just penetrated. Short example where price never retraced:

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A short side example where entry trigger was valid.

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It doesnt matter how far price is from setup to trigger. Follow the rules. Price can retrace 10 points, these are volatile times, dont enter early, enter right. The setup was valid and the trigger price to sell short was hit. Profits were taken a few bars later. The goal is to done trading by noon. A short example below.

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The next example happens to be the following day after the example above 6/17/2008 -- and below is 6/18/08 -- They are almost identical in how the trades played out! A great short trade once again. And done by noon

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Again let me remind you that some days the trigger is never hit. This is to be expected especially during days of reports and news events that create unprecedented volume.

A long example that worked

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Some Rules to Trade by.. Follow these Rules******

1. Done by noon, the way we think. Morning trades are best. Our intent is to catch the morning move for 2 to 4 Points and be finished trading. A great rule to remember.
If the trade does not trigger or a setup does not occur by 12:00Pm NOON, Lunch Time, we are finished for the day. The longer it takes for a retracement to occur, the worst the chances are the trade will work positively.

The At the Open Trade is very profitable. The entries are precise. There is very little question weather or not to enter the trade. Most trading methodologies have a variant, and they are Subjective. It looks like, or maybe its not right because Of this other thing happening. Not the At the Open Trade. If the setup is valid, Place a limit order where the trigger is, and in the direction of the breakout. There is very little discretion about entering the position correctly.

2. What time frames to use. 5 Min or 10 Min?

I have been using the 5 min charts. Using the 5 min charts and 10 min charts as I have shown in the examples above really have no difference in the way they are traded. Sometimes they both give the same signal. I prefer the 5 min charts, although the shorter the time frame the more possibilities for false breakouts. The 5 Min. Chart works in the same manner as the 10 Min. Chart for entries. The setups are the same. Remember that we still have to wait for the 9:20 until 9:50 time frames high low to finish setting up. This would mean a total of 6 bars in the 5 min time frame as opposed to 3 10 min bars, to calculate the high/low segments.

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3.

Handleing Losses - What to do if you get stopped out.

Face it, you are going to get stopped out, it is inevitable. How we manage the Trade is what will constitute your success in using this method. You need to take the next trade. If the time frame you are using is 10 min, then take the following 10 min trade in the opposite direction or in the same direction of the loss.

If you are trading using the 5 Min. Chart then take the opposite signal in the 5 min chart. And only take the signal in the same direction that stopped you out on the 10 Min. Chart. The reason being is that we want to avoid false breakouts in the 5 min chart since this occurred already.
Wait for the setup and trigger. This can occur any time, even after 12 PM Noon, EST., but not after 3:45 PM. EST. Sometimes the market just pulls back to far. Thats reality. Take the next setup and trade regardless of what you may think. You can recover at least half of your stoppage points this way. Manage your trades wisely in this way.

4. The stops need to be at least 5 to 6 points. I use 6 point stops.

Stops are also very important. Can you trade with a one point stop, frankly NO! Those Gurus who point you in that direction are killing your account with a million cuts. Im not suggesting losing all your money on one trade, but what I am suggesting is your stop needs to fit your trading and account size, and lots traded. We recommend trading the stops as large as you can handle. Not 20 points obviously, But not 1.5 points either. It doesnt work. Have you noticed how volatile the markets have become? The market Is volatile and it needs to breathe. With the current volatility the way it is a 6 point stop needs to be used. Some clients use a parabolic indicator as a stop, I think that is a very good idea. The inputs would be a little different. They are: Parabolic SAR (0.02,0.3,0.07) these have worked best and we use them too. Every charting software has a parabolic indicator; you should be able to use it for stops if you feel comfortable with this method. 41

5. The exit strategy -- Taking profits

The discretion is on the exits.

I say this because we use this trade to be done by lunch time. No one wants to stare at the screen and be in a losing trade all day. Thats not what trading is about. The Exits are as important as the entries; after all we want to take our profits. I will provide 2 exit strategies that have worked well. I would like everyone to explore an exit strategy that makes you feel comfortable. After teaching many traders this method, we came to the conclusion that traders are all looking for different things. One thing is certain, they want to know how to get in and be profitable, but the level of risk and profits go hand and hand. Most of the traders we work with are happy with 2 points, in and out and done. No mess and no damage control. Other traders see opportunities and want to take more out of the market. They see the potential for 4 points daily and want more than just 2 points. I am happy with 2 points daily and done by noon, lunch time, and the rest of my day is mine. So to summarize what Im trying to say. Enter a 2 Point profit target once youre in a trade. Ninja Trader can automate this very easily as do other platforms. If youre happy with 2 points daily, then youre done. If you want more let me suggest a method where you still have 2 points of profit on half of you position and the other half of your position is peeled off at 4 points. This gives you a little more action for the money, but is not as conservative. What do you do if your 2 points are hit on half, and the remaining half goes against you? One method is to place a stop at entry so you dont lose what youve gained, or place a stop on the remainder of your position 2 points below your initial entry. If stopped this will give you $0 profits for the day and $0 losses, essentially a scratch trade. This does give the market more wiggle room to move up and hit your 4 points.

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Another Rule to remember.. Never let a profit slip away.

What I mean is that if your 2 Point profit is tagged, or 1.75 Pts is tagged and price action just keeps on hitting more than once or twice and you are not getting filled, this is an indication of the Price Action not having enough power to bust through and fill us. This does occur, and once you see price action acting this way you will realize that the Push Is not there to fill our profits. In my experience I have seen this all to many times and I have decided to include this commentary in the course. I do not want to see any trader fail; actually my goal is to see average traders succeed in this crazy venture of daytrading. When this occurs and you see that you are not getting filled, by one tic away or tagging your profit and bouncing off it, my advice is to get out at market. You will be glad you did because if the method is to work it will work, but If it lacks that extra push to get you filled by 1 tic, I say leave the tic on the table. Take your profits at 1.75. Trust me on this, I have seen this occur and instead of taking the money and moving on to the next trade, the trade turns into a loser. This is something I wish on no one. If you see price action behaving in this fashion do yourself a favor and leave the tic alone. My advice comes with a history of experiencing this Price Action first hand!

We know where to enter, and we know that we are correct a very high percentage of the time as far as market direction. Most of the time the market gives our profit within the next 5 or 10 min bar. Sometimes it takes longer as the market makes its way into our profit. Experiment on your own. Keep the stops wide, at least 6 points. Stops are rarely hit.

Take your 2 points and be done, the less you trade the better, Clients have been trading the At the Open trade for some time now and are very happy. The direction is right and they are not greedy. Some clients have reversal stops and some clients have 6 point stops. Use your risk tolerance to determine what you can lose per trade. 43

I invite all feedback to support@daytradetowin.com Any questions please email us and we will respond in a timely manner. Good trading. www.daytradetowin.com
U.S. Government Required Disclaimer - Commodity Futures Trading Commission.*Futures, options, and spot currency trading have large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don't trade with money you can't afford to lose. This website is neither a solicitation nor an offer to Buy/Sell futures or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this website. The past performance of any trading system or methodology is not necessarily indicative of future results. CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.

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