One of the most popular books on Market Profile® is Mind Over Markets by Dalton. It's a great book for anyone looking to learn more about Market Profile®. In this post we want to show 2 examples of the "open drive" pattern as described on page 63 of the book. We'll also show how to use the Footprint to qualify the entry/exit and confirm the strength of the opening type. Use the Profile for market context and the Footprint to confirm and execute.
We are big proponents of identifying the opening type to help set some expectations of potential market direction. This in turn allows you to decide whether you should be looking for longs or shorts, breakouts or reversals, and identify levels to place trades.
These are the 4 primary open types. We will not be discussing variations of these in this post, but instead focus only on the Open Drive type. Other types will be discussed in other posts.
- Open Drive - Strongest type; market opens and auctions aggressively in one direction.
- Open Test Drive - Market opens, moves a short distance in one direction to test a known reference point, then reverses and auctions back through the open.
- Open Rejection Reverse - Market opens, trades in one direction before being met by strong activity to reverse direction and send it back through the opening range. This type happens when the initial buying/selling dries up and is overcome by an opposite response.
- Open Auction - There are 2 types of open auctions. In Range (OAIR), and Outside Range (OAOR). We'll discuss these in another post, but generally an open auction is when the market opens and appears to randomly auction above and below the opening range.
Open Drive Example 1 - Emini S&P 500 Profile
Open Drive Example 1 - Emini S&P 500 Footprint
The Footprint is helpful because it allows you to peer inside the profile chart and get a good read on volume and order flow. Once you have an idea of the opening type, in this case Opening Drive, use the Footprint to help you execute. The real opportunity here was between 2003.50 and 2004.50. After the initial surge price stagnated at this level, which also happened to be VWAP. Price paused and then finally the buy order flow began to enter again (as shown on the Footprint), pushing price to new highs.
One other important point to notice is the lack of selling that you should expect at highs. Higher prices from the initial surge failed to attract OTF (Other Time Frame) sellers. Because of this and the opening surge, the market continued higher in search of sellers.
Open Drive Example 2 - CL Profile
Same Profile as Above But Split
Open Drive Example 2 - Crude Oil Footprint
In this crude oil example the market opened out of range and experienced still further buying without much effort by sellers to auction price back into the previous days range. This pattern can often set up to be a trend day, so be careful trying to pick tops. OTF buyers are usually at work on these days.