Opening Range (Educational)

Founders-

As part of the educational series, I want to share some thoughts on how I view the opening range. Opening Range is the first hour of the open and I often denote this as the Initial Balance or simply the IB. On the internet, there are various flavors of this, anywhere from the first 5 minutes to the first half an hour. However, personally, I find the first 60 minutes as the most useful. The opening range can often offer insights into what type of day it may turn out to be - trending or balanced etc.

This is neither the first nor the last educational post for Founders. There will be many more to follow. However, note that I am not shooting for this to be magazine-quality illustrations or filled with theory. My main objective is to be most efficient with the time, both for the reader and for myself, and to deliver as much practical information as I can in the shortest format possible. This is a little bit in a conversational format, this is how I myself view the opening, every single day and I am happy to be able to share this with folks.

The audience intended for this is more of the intraday crowd but there is no reason why these same concepts can not apply to longer time frames, all the way from weekly to yearly and monthly. This is not a trading strategy but I can see how several different strategies can be created out of this concept.

Let us drill down from the largest time frames into the shortest time frames.

The Day

The session highs and lows are extremely important reference points. All levels at the end of the day are reference points. What a Day’s high means there was not a single trader who was willing to hit a single offer above the day’s high. Not one!

Similarly, the day’s low means there was not a single person in the whole world who was interested in hitting the bid right below the day’s low.

These are so important that a lot of traders and a million algos watch this.

So far so good?

The opening range

Now, the following day’s opening range or the IB can do one of the below 4 things -

1. It can be completely above the prior day’s high.

2. It can be completely below the prior day’s low.

3. It can be completely within prior day’s high and low.

4. It can be partially within the prior day’s high and low.

A. In general, an IB that is completely within the prior day’s range is not a great sign of confidence and can indicate more balancing.

B. Furthermore, an IB that is not only within the prior day’ range but also within the prior day’s IB or slightly overlapping it is an even less confident opening. If the market did not lack confidence, we will have opened the session above (or below) prior reference points. In such case, the market is saying look I need someone stronger and with bigger pockets to show me the way! Is that you?

C. In general, I will think of a range-bound market when I see IB formations within the prior day’s session. In this case, the prior day’s IB high or the prior day’s high can be resistance. Conversely, the prior day’s low or the prior day’s IB low can be supported.

D. A market that then opens above or below the prior IB or prior day’s range can theoretically lead to a trend day which can be validated with few other tools described below.

The Delta or Cumulative Delta

Cumulative Delta is simply the difference between at-ask trades minus at-bid trades.

If the buyers are more aggressive, they will be in a hurry to hit the offers. This will create a situation where at-ask trades exceed those at-bid trades. This means the Delta will be positive.

I do not want to ignore very high delta values (in excess of 10000) or very negative values ( less than -10000). Note these are for S&P500 emini but every market has its own relevant delta. For example for CL and NQ, a delta of 2000 may be considered high.

One way to use Delta may be to see its deviation from the price.

For example, if the market makes a new high today but the delta does not make a new high. Or worst, it makes a low. In these instances, I will think the recent lows may be visited again.

Delta really in my opinion is useful for very short time frames like seconds to minutes and I will not use it on anything higher than a minute personally.