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The Short Term Income Window

You have likely heard it before: “Don’t trade the open, it’s too risky.” When I say “open” I am talking about the NY open at 9:30 EST. Many people suggest not trading before, during, or just after the open. They further suggest that you should let the market settle down and then start trading. Great advice if you don’t know what you’re doing. But if you do, I would strongly suggest that trading around the open is the very best time to trade for the short term active income trader.

I started on the institutional side of the business and from my experience, understand that at and around the open of trading in a market is when prices are at levels where supply and demand are out of balance much of the time. If you can see this on a price chart, predicting price movement during this fast paced time is not that difficult. Let’s take a look at a couple examples from a live trading session (Extended Learning Track: XLT) we shared with our students at Online Trading Academy.

XLT Prep Screen 1 – Sep. 18, 2013

sseiden 20130924 - xlt-prep

Every XLT income or wealth trading session begins with the screen you see above. We lay out the supply and demand levels for the major markets we will be trading that morning. During this session, an opportunity that was close to entry was a small time frame short setup in the QQQ (Nasdaq).

XLT Prep Screen 2 – Sep. 18, 2013

sseiden 20130924 - xlt-prep2

The second XLT prep screen contains some trading opportunities we lay out for our students. During this trading session, the QQQ and 10 Year Note (TY) were pre planned trading opportunities that met entry for our group that morning. Keep in mind, this was a short term income session that typically starts 1 hour before the 9:30 EST NY open. We start this session at that time for two reasons. First, we want to pre-plan everything we do. Second, we want to make sure we can take advantage of the supply/demand imbalance that exists at and around the open of trading. So let’s look at the activity in the TY on this day.

10 Year (TY) The Setup – Sep. 18, 2013

sseiden 20130924 - 10yr-ty-setup

A bit earlier in our session, the 10 Year Note was rallying back to our pre – determined supply level for a short entry. The red line above the supply level is where our protective buy stop was. Again, notice the time of day this trade is setting up and meeting entry, right inside our window. If you want a specific window of time, I would suggest 8:00 – 10:30 am EST.

10 Year (TY) Result – Sep. 18, 2013

sseiden 20130924 - 10yr-ty-results

Shortly after reaching supply, the 10 Year Note declined to our profit target area (blue line). Again, at and around the open of trading in a market is typically when prices are at levels where supply and demand are most out of balance. This is no coincidence… Consider when most of the market news and reports are released. The major ones are released at 8:30 am EST. So, when a number comes out and it’s a good number, most retail traders and investors will want to buy. This demand will cause price to rise in the pre – market because there is more demand at current price (or the prior days close)  than there is available supply to fill all the new buy orders (demand) coming into the market. It’s not like someone is deciding where the market will open or where price will go, it’s a simple supply/demand numbers game. So, the only thing that will stop this rise in price is a price level where supply is either equal to or greater than demand. In other words, one of our supply levels. Next, once the last new buy order is filled at a price level where supply exceeds demand, the next move in price has to be lower like in the live trade example above.

As I said earlier, if you are new to trading or don’t know what you’re doing, it is best to stay away from the open and actually don’t trade at all until you know what you’re doing. Why risk any money until you have a profitable edge? However, if you understand how to properly quantify supply and demand, I would suggest your best trading opportunities will be found at or around the open.

Hope this was helpful, have a great day.

Sam Seiden


DISCLAIMER This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.

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