Name: Open Rejection Reverse Open
Summary: This play can start out opening in or out of the previous days range though you usually prefer for it to open around the previous days high/low. The play is characterized by a market that opens, trades in one direction, & then meets opposite activity strong enough to reverse price and return it back through the opening range. The initial extreme is made when buying or selling in one direction dies out, the auction stalls, & opposite activity begins to auction price in the other direction. The chances for a trend day are lower because there is less initial directional conviction & these usually develop into a Normal Variation day.
Risk Management: The tip off for me when I think that this opening type is in play is when we trade back through the open & are either holding the open, the opening swing high/low, both, or another reference point that is INSIDE the opening swing (today that was Fridays high of the day). In a perfect world there will be a visible support/resistance spot where the initial rejection took place that you can use as your last line of defense.
(Orange/yellow line is prev days high, green line is open, red line is opening swing high)
This is a really nice example of an open rejection reverse open on 4/29 in the /ES futures. So we opened just above the previous days high telling us that we were set to open out of balance. After the 1st candle was in we had auctioned straight back into the previous days range & I was looking to get short w/ the open & the previous days highs as my reference points that the market should now hold under if we were going to continue lower w/ the previous days close as my 1st main target (got short at 1581, ended up eating 3 ticks on it the 1st time we traded back through the open) . But as you can see we just couldnt move away from the previous days high & ended up trading back through the previous days high & todays open signaling that the short was wrong & that an open rejection reverse was now in play (two other clues where we had an ok buying tail at 1579.5 & had a bigger up rotation then down rotation. I ended up getting long at 1581.50 at 9:56 w/ the previous days high & the opening swing low as my reference points (under 1579.5 the open rejection reverse would have been wrong). We ended up getting a clean break through the opening swing high the following candle & after the clean break above the o/s high we knew we were in business. FYI this also could have been played as a clean break/single prints play above the o/s high (1 tick of single print at 1583.75). The main target was a test of the most recent swing high of 1593.
