Trading is an art that requires a variety of skills to master. A deep understanding of market open types and identifying them quickly is crucial, especially when learning Market Profile basics. We have explained different day types and how to handle them, drawing primarily from our own observations. It’s important to take the context of any study and build on it with your experience to gain an edge over others. Remember, this list is just a starting point; you should add your observations to refine your strategies. Use the context to guide your personal adjustments and improvements.
Listed below are the open types in the order of conviction high to low:
Open drive (OD)
Open Test drive (OTD)
Open Rejection Reverse (ORR)
Open Auction out of the Range (OAOR)
Open Auction in the Range (OAIR)
Most convictional open type is Open drive and let’s start with that.
Open Drive (OD):
Context:
An Open Drive indicates strong market participants entering decisively right at the open, pushing the price quickly in one direction.
Confirmation Measures:
- A strong tail of at least 20% of the average day range (about 20 points in NF at the open).
- High volume, about 10% of daily average (at least 10-15 lakh in the first 15 minutes for NF).
- The drive originates from specific points like POC, VAH, or PDH of the previous day.
- Continuation from a strong close the previous day (e.g., a spike or rally).
- Often begins in a newly formed range or associated with gap.
Expectations and Trading Strategy:
- Aggressive traders can enter right at open if pre-open analysis aligns with criteria like c), d), and e).
- Conservative traders should wait 15 minutes for confirmation of initial conditions, adjusting risk as needed.
- The initial balance (IB) extreme can hold throughout the day i.e bullish open drive = IBL holds all session and bearish open drive = IBH holds all session.
- The day might turn into a Trend day or a Normal variation day.
- IB extension is often successful.
- Pullbacks are opportunities to buy in line with the drive.
- A good target is 1 ATR or the previous day’s range, whichever is smaller.
Invalidation Criteria:
- The price shouldn’t revisit the open once the drive is established.
- VWAP, plus a filter, shouldn’t break early in session i.e right after IB formation once drive is established well.
- There should be clear follow-through, like clean extensions after the first swing high/low; lack of follow-through suggests reevaluation.
Open Test Drive (OTD):
Context:
An Open Test Drive occurs when strong market players face equally strong opposition at the open, reversing the initial price movement swiftly. The key is the quick reversal indicating a two-way auction right from the start.
Confirmation Measures:
- The initial drive tests known reference points (e.g., PDH, VAH, recent range highs) but fails to sustain beyond them, quickly reversing direction.
- A subtle confirmation involves watching if the open drive surpasses known references; if it’s swiftly rejected, an OTD is likely.
- The price returns to the open, and accelerates in opposite direction with volume
Expectations and Trading Strategy:
- Once OTD is confirmed, it is unlikely for the price to move back in the initial drive’s direction. For example, if an open drive fails above PDH and reverses down, it’s unlikely to rise again soon. Plan trades and stops with this in mind.
- OTD usually occurs around significant visual references, increasing the chance of a continuation in the opposite direction, allowing for potential trend or normal variation days.
- The IB extreme opposite the failed drive typically holds throughout the day.
- Target 1 ATR or the previous day’s range, whichever is smaller.
Invalidation Criteria:
- If the price rises, hits a known resistance, fails, and then drops, the OTD is confirmed. Stops should be set with a filter above the high/low of the initial failed drive.
- Consider using IB extreme plus filters for added precaution.
Open Rejection Reverse (ORR):
Context:
An ORR occurs when a lack of conviction at the open is met by responsive players who reverse the ongoing auction. For example, if the market initially moves upwards but then stalls due to retail buyers losing demand, sellers recognize the opportunity and enter the market, leading to a downward reversal.
Confirmation Measures:
- Observe a lack of momentum when the price reaches key reference zones like PDH, VAH, or recent range highs.
- Following exhaustion at known references, the price will oscillate around the open price or range.
- A battle ensues between initial buyers and late responsive sellers, resulting in no clear direction.
- A range extension occurs once one side shows signs of giving up.
Expectations and Trading Strategy:
- After confirming a winning ORR down, traders can enter short positions during pullbacks near responsive seller zones, such as the dVAH.
- Since ORR indicates a struggle for fair value, a quick, significant price movement (like a Double Distribution day) may follow.
- Possible outcomes include Normal, Normal Variation, or Double Distribution days.
- ORR days around bracket lows or gap days can yield good returns as initial moves may trap traders expecting a breakout, eventually leading to a significant move as weak hands are cleared.
Invalidation Criteria:
- Price fails to maintain the initial balance extension.
- Price fails to hold VWAP filters, particularly when there’s significant range extension. Use VWAP cautiously if the range is small, as it may fluctuate before a decisive move.
- A price recovery above the morning rejection levels signals potential invalidation.
Open Auction Out of the Range (OAOR):
Context:
An OAOR occurs when the price opens outside the previous day’s range, oscillating up and down while seeking fair value, either above or near the prior range without entering it.
Confirmation Measures:
- There’s minimal effort to extend beyond the initial 30-60 minute range.
- Low trading volume is present with more of two way auction swiping VWAP/dPOC either side.
- No attempts are made to extend the initial balance range.
Expectations and Trading Strategy:
- OAOR suggests a potential for significant movement later in the day, as one group may yield to another.
- Once it’s clear that OAOR is driving a move by overcoming one side, targeting 1 ATR or the previous day’s range can be beneficial.
- Exercise patience in initiating trades until one side demonstrates clear dominance in the auction, using pullbacks as entry points.
- The first meaningful price extension is often successful.
- Follow directional moves with consecutive 30-minute periods of higher highs or lower lows, especially post mid session i.e post G period.
Invalidation Criteria:
- For breakout trades, the low of the breakout candle serves as a reliable invalidation point, or use the previous candle’s low depending on the ranges.
- In a trending market, an OAOR should not revert to the previous day’s value or range after a clear extension; if it does, it should only briefly hold before being rejected.
Open Auction in the Range (OAIR):
Context:
An Open Auction in the Range occurs when the price opens within a range or value, moving up and down in a narrow range with low conviction to extend significantly beyond the initial range. This indicates a higher likelihood of a rotational market, at least for the first session.
Confirmation Measures:
- Price struggles to sustain above dVAH/dVAL or VAH/VAL, showing signs of exhaustion.
- Low volume and narrow two-way auctions are evident.
- There’s no significant range extension during the first two hours.
- No attempts to extend and maintain the initial balance range.
Expectations and Trading Strategy:
- Consider fading developing value, previous day value, or when near the previous day’s extremes.
- VWAP often acts as a flip zone during the first session, with breakout traders giving up around this level.
- Avoid making extension trades at the established extremes of the range.
- Exercise patience until about the European open unless you are a scalper or aggressive trader.
- The first meaningful extension is likely to fail.
- Scalpers can make small profits with increased size, as risk is clearly defined on OAIR days.
- Expect a Normal or Neutral day with potential swings around IB extremes.
- Avoid fading when consecutive 30-minute periods show directional movement (higher highs or lower lows).
- Opening inside value is preferable; if opening within the range but outside of value, wait for a fair auction before executing fading trades.
Invalidation Criteria:
- When fading extremes, keep invalidation levels slightly above the extremes (e.g., 1/3 to 1/4 ATR points above VAH), adjusting based on the developing value range—narrower ranges suggest smaller invalidations.
- Watch for 2-3 consecutive directional 30-minute periods as indicators of trend strength.
Final Thoughts:
While this framework may seem straightforward and actionable, executing it in live markets can be challenging. You’ll encounter many uncertainties and require the conviction that comes from experience. We recommend absorbing this information and closely observing market behavior to develop your approach—for knowing what to act on, when, and how to manage trades.
Failures will occur, but by practicing observation, you can increase your winning trades and avoid falling into price traps. Learning from contextual failures provides valuable insights for future successes.
Happy trading!