“Open Drive”, the Most Powerful Opening Type

“Open Drive”, the Most Powerful Opening Type

Read more about opening types in this postthis onethis one, and this one. In this post we focus on the Open Drive opening type pattern as described on page 63 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.

Open drive's are very initiative in nature and happen because longer time frame traders have made up their minds before the open and are generally biased in the same direction. The market is "one sided", meaning there is either very dominant buying or selling, but not both. The market quickly auctions in search of a price to draw in opposite response participants and find balance.

The strength of the open often sets the tone for the day.

By definition, open drive occurs when a market opens and immediately auctions in one direction and never returns and trades back through the opening range. The opening can serve as a solid reference point with this open type.

Open Drive (2)
Open Drive (2)

The market moves quickly and in one direction, so act quickly. Otherwise, the market will continue to run away from where you wanted to get in. With this open type, it is usually best to enter with market orders so you don't miss the opportunity to enter the market.

Often you will see this open type occur as a gap outside the priors days range, but it doesn't have to be that way. It can occur inside the prior days range.  The Market Profile® chart below show how corn gapped outside the prior 2 days consolidation and quickly auctioned higher.

6-10-16 Corn open drive market profile
6-10-16 Corn open drive market profile

Now look at the Footprint® chart of the same move. This is a 2 minute chart to show how quickly the move developed. The Footprint helps keep you on the right side of the trade.

6-10-16 Corn open drive footprint
6-10-16 Corn open drive footprint

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

  • If we are gapping open (outside prior days range) your radar should be up for a potential Open Drive event. Does initiative activity become evident on the open?  The Footprint makes this much easier to see because you can witness in real time what is happening.
  • Sometime it is not what you see, but what you don't see. Do you see aggressive sellers selling aggressively into the gap higher (see below)? No, they didn't show up. This can be a tell tale sign of the strength and the market will search higher prices until it encounters a big enough reaction to counter the initial move.
  • Watch the Footprint for immediate initiative behavior. Strong buying will be blue or green (typical colors) and strong selling will be red.
  • Use the Footprint to keep you in the trade longer. If you are fortunate enough to spot the move early and get in the market, let the Footprint tell you when the move in beginning to weaken or reverse.
Tips for Using Cumulative Delta to Confirm Price

Tips for Using Cumulative Delta to Confirm Price

Use the Footprint Chart On “Open Test Drive” Opening Type

Use the Footprint Chart On “Open Test Drive” Opening Type