Use the Footprint Chart On “Open Rejection Reverse” Opening Type

Use the Footprint Chart On “Open Rejection Reverse” Opening Type

Read more about opening types in this post and this one. In this post we focus on the Open Rejection Reverse opening type pattern as described on page 68 of Mind Over Markets. The primary benefit of identifying the opening type is to evaluate potential market conviction early in the day. We then use the Footprint chart to qualify the trading opportunities that present themselves by gauging market conviction in real time.

RULE OF THUMB: Use the open type for market context and the Footprint to confirm and execute your ideas.

By definition, open rejection reverse occurs when a market opens, trades in one direction, and is then met with an opposite response strong enough to auction back through the opening range (first few minutes of trading). The open rejection reverse does not exhibit as strong of conviction as other opens (open drive and open test drive), but the reversal often happens quickly.

Open Rejection Reverse
Open Rejection Reverse

While the initial rejection can turn into something more, don't be fooled into thinking the market has found its direction for the day. The initial extreme holds less than half the time. So it is vital to watch the Footprint for shifts in conviction AND keep the bigger picture in mind.

Here is what you want to look for on a Market Profile®

  • Market opens and initially trades in one direction.
  • Met with an opposite response and is rejected.
  • Market reverses and trades back through the opening range.

In the Market Profile® charts below, the market opened, traded slightly lower, met rejection, then reversed and traded 10 points higher. The primary reference points for the remainder of the trading day will be the 2 extremes (low and high). Fading (being responsive versus initiative) tests of the extremes would be the right approach until proven wrong. This is easier to see in the split profile.

Open Rejection Reverse Market Profile
Open Rejection Reverse Market Profile
Open Rejection Reverse Split Market Profile
Open Rejection Reverse Split Market Profile

Here is what you want to look for on the Footprint® Chart.

  • The initial buying or selling begins to end. The Footprint makes this much easier to see because you can witness in real time the initial conviction ending.
  • Watch the Footprint for the "rejection" and play the reversal for a trade back to the opening range (at least).
  • After the market has established its range, use the Footprint to qualify trades at the extremes. See examples below.
Footprint Friday Open Rejection Reverse 5-13-16
Footprint Friday Open Rejection Reverse 5-13-16

Here the initial move was lower and didn't last very long before being met with buyers near overnight lows, a natural support level. The Footprint confirmed this by showing buyers with conviction (green footprints).

Re-Test of High after Open Rejection Reverse

With this type of open, the probability of a trend day is low. So as a trader, we would posture ourselves to fade moves that test extremes. Here the Footprint is pierced the high of the day by a few ticks (just enough to trigger stops), then was met with responsive sellers. The Footprint shows this with red Footprints.

Footprint Friday Open Rejection Reverse Test high 5-13-16
Footprint Friday Open Rejection Reverse Test high 5-13-16

A similar pattern occurred on a retest of the low the same day. The chart shows how the low was pierced by a point or so (just enough to trigger sell stops) and then responsive buyers stepped in. See the green Footprints? They tell you everything!  We are showing the Market Profile® overlaid for context.

Footprint Friday Open Rejection Reverse Test Low 5-13-16
Footprint Friday Open Rejection Reverse Test Low 5-13-16
Using Thin Spots to Identify Trade Location

Using Thin Spots to Identify Trade Location

Use the Footprint Chart to Qualify the "Open Auction" Opening Type