Anyone using the Opening Price Principle?

T

travisdu

Im curious if anyone here is using the opening price principle in their trading?

Opening Price Principle - A stocks high or low for the day is within 20% of the open 70-75% of the time.

This principle necessitates that the safest trades have to be long above the open and short below it.

If anyone is id like to ask how its working for you and what pitfalls are you running into with it. Also what you may be using to refine it.

One idea ive had is to combine it with with other confirming patterns like previous bullish or bearish candlesticks. For instance pick a bulllish candle formation (past couple days) and play them long if they gap up slightly, fill the gap to the previous days high or close then break over the open. This gives you confirmation that the candle pattern is strong and if market confirms and you are over high of day you also are using the opening price principle. Same thing could be done short.

Or for more playable trades you could just use 2day high or low and go long say over the 2day high if they are not to far from the open. In other words if the ATR is 3 points then it might not be wise to go long a day that it opens below 25% of the previous days high even if it breaks to new ground and is over the open.

Larger gappers that fill but cant make new ground might be good for this as a buy or sell when they approach the open agian.

Just some ideas.....let me know what u think.

Travis.
 
The opening price principle operates on the premise the the opening price is within 20% of the hi or lo a large percentage of the time. Have you checked this out to any extent? I did not find it to be true on the charts I scanned.
 
heard of many other traders trying that and they all said, that it is worthless, pure gambling. It is like flipping a coin or going in the casino and bet on black or red. If trading would be that easy, everybody out there would be already a millionaire and nobody would be working anymore.
 
Ok well thanks for the relpies, surprised more people dont have more to say on the subject.

Decided to pull up some charts and take a look myself, so I picked six stocks fairly at random. Mostly was looking for stuff that had good range just to make it easier on myself to disern if the principle was working.

Of the six stocks I looked at the months April to August, which is 107 trading days. Here is what i found:

PLXS 73/107 68%

EBAY 64/107 60%

SWBD 80/107 75%

VRTX 68/107 63%

GILD 76/107 71%

SWBT 75/107 70%

Now its not 75% but it certainly aint no coin toss either.
I dont have Tradestation or one of the other programs that could check this with more precision but I was rather conservative i think when I was looking at the charts, I think that you could probably add another 3% to the above numbers and be closer to the actual numbers.

Even being conservative it looks promising to me. Some stocks like GILD for the most part open and go in one direction. Could make alot of money with this principle just on this stock alone.

The difficulty is the stocks that wiggle near the open before they decide their direction and if you want to follow the principle finding an entry.

Any thoughts on the numbers or anyone else taken a look at some charts and run the numbers?

Any ideas for good entry using this principle?

Trav
 
The system you posted will work but only in a trending market.

In a sideways market you will be whipsawwed to death



Actually the opening price is one of my key entries.

I tend to go long stocks that have been heavily beaten up. They have usually dropped hard from a base and have had an increase in volatility and no up days.

When the stock can go above the previous closing price it's time for me to get long. I usually trade NYSE and he will probably have a major long position in a stock that has dropped that many days. He will try to gun the stock and get some shorts to cover so he can recoup his losses.


I also will short stocks that have risen for 6 days or had a huge % gains for a few days in a row. I won't get short till the stock can go below the previous day. The specialist is usually heavily short a stock that has risen high like this. He will try to get some longs to take profits so he can recoup his losses.

It does work with my type of trading. Long only stocks that are above previous closing price when general market going up

and short stocks that go below previous closing price when general market crashing.


I also play gaps and don't pay attention to this rule for my gap systems.

rtharp
 
When I was fooling around with stocks, I only long above open and short below. This has been talked about in Josh Lukeman's "Market Maker's Edge".

It helped me to stay on the right side of the market.
 
Do you go long above yesterdays close even if current price is below the open?

Trav

p.s. Do you know any software that will alert to "potential" candlestick patterns before they have fully formed. For instance i think a good setup would be getttingh into hammers then holding overnight and selling into the open. Problem is most software screeners only alert after the pattern is formed.
 
Originally posted by travisdu

p.s. Do you know any software that will alert to "potential" candlestick patterns before they have fully formed. For instance i think a good setup would be getttingh into hammers then holding overnight and selling into the open. Problem is most software screeners only alert after the pattern is formed.
More...

I know that Ravenquote lets you create these alerts in quotesheets for any time frame and I'm sure other programs also let you. There is no macro/plugin for this so you have to manually create the parameters for each particular formation.
 
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