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Futures Trading: Automated Trading Systems and Technical

Analysis
ABC Futures - Learn To Trade Commodity Futures Using Technical Analysis
and Automated Futures Trading Systems
Recommended Readings about Futures Trading Chinese Impact on World Economies

Futures Trading Tip - The Opening Price

July 21, 2008 in Futures Trading Techniques | 3 comments

The Opening Price is often times near either the

high price or low price for a trading session
There are many price patterns or phenomenon that recur over and over in futures markets.
Once a pattern is identified, futures traders need to figure out how to trade that pattern or
profit from it. The easy part is identifying the pattern. The hard part is designing a profitable
trading methodology around it.

The pattern described below illustrates that a trading bars opening price is near that bars
extreme (the high or low of the bar) a very high percentage of the time. The preferred time
frame for assessing this technique is daily bars or 60-minute bars. You will undoubtedly
agree that the open price of a bar is near one of its bars extremes a high percentage of the
time. It is the futures traders job to profit from this recurring pattern.

Verify the recurring pattern:

Using your charting software, pick a futures market. It doesnt matter whether you choose a
market in grains, metals, energies, softs or currencies.

On each bar, locate the Opening Price and examine its proximity to either the high or low of
that bar.

Use your judgment - you will find that an usually high percentage of a bars open prices are
within close proximity to one of that bars extremes (the high or low of the bar).:

Things to consider:

1. Determine the threshold or level that qualifies an open price as being near one of the bars
extremes. For example, if a bar trades from a price of 1 to 100, and the open is at 80, then
you will need to decide if that bar qualifies as one that has an open price near one of the
bars extremes (in this case 80 is near the high). The only way to do this is to review many
bars (100 or more). You may find that 80 is not considered close enough to the extreme of
the bar, and that perhaps 85 to 90, or 10-15 are near the bars extremes (high or low,

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respectively). This is where your judgment comes into play.

2. One way to determine the level that qualifies the bar as having an open price as being near a
bars extreme (high or low) is to look at 100 bars or more, and use your judgment by simply
looking at the bar. Clearly, if the open price is in the middle of a bars trading range, then we
are not interested in reviewing that bar. We only care about bars whose open price is near
one of that bars extremes.
3. Use the concept of threshold. You must determine a threshold in order to translate this
technique into a profitable system. Think of the threshold as the distance between the bars
open price and one of the bars extremes.
4. To determine a threshold, examine bars whose open price is near that bars extreme (high or
low) and then determine how many points, cents, tics, etc the open is from the extreme of
the bar (high or low). Do this for as many bars as possible and find an average number to
use as the threshold.
5. Each market will be different, as the price formats and trading ranges differ across markets.
For example, T-Bond Futures may have a 3-5 tick extreme; E-Mini S&P Futures may have a 3
point extreme; Corn Futures may have a 2.5 cent extreme.
6. Once you determine the threshold from the open, you can devise a trading system based on
this concept - a high percentage of time, the open price for a bar is near either the high or
low price of that bar.

3 comments Comments feed for this article

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July 21, 2008 at 6:19 pm

Daryl Browdy

Please note that risk management is critical to making this technique work. One approach
may be to put a stop loss order on the opposite end of the threshold, should the trade not
work as expected.

July 23, 2008 at 3:48 pm

Daryl

I will discussing software programming and black box trading in a separate category on this
website. Note that this open range price technique is easy to test using common tools, such
as Microsoft Excel or Microsoft Visual Basic or Visual Basic For Applications.

July 25, 2008 at 11:14 pm

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Anonymous

FYI - this technique is currently working well in Crude Oil, Corn, Wheat and E-Mini S&P 500
markets.

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