Open Price: at 12:01AM when the futures open we have the price marked as the open of the day. Futures are based on quarterly contracts and if you break down the idea of that then in theory all lower denominations of time frames should also be affected. This means we need to keep an eye on the Open Price (Quarter) Open Price (Month) Open Price (Week) Open Price (Day)
Reversals are based on the Open Price (Day) since we are daytraders. When I go short above the open price that is a reversal trade and vice versa for the long side under open price. Anytime I go long above the OP then I am doing Continuation trading and vice versa for short below OP. This is as simple and basic as you can define a strategy.
When are reversals bad?
- Strong trending environments
- When you are also doing a reversal on the other Open Prices such as Weekly, Monthly, Quarterly. Ex. If you are doing an intraday reversal but you are also reversing the weekly price, your probability of that trade working may decrease. Same goes with Intraday reversal but also Monthly OP reversal. Again since we are daytraders this matters slightly less than the weekly OP. Monthly OP and Quarterly OP are only simply a proxy to see if we have serious room to go AFTER the reversal. Once the reversal occurs and we are also reversing the Weekly OP, then you should not expect an outsized move.
When are reversals Good?
- Ranging or weak trend environments
- When you are not reversing the HTF Open Prices. Ex. Intraday Reversal and Weekly Continuation. Intraday Reversal and Monthly Continuation etc. Again these are much better because you are reversing the intraday price action which is somewhat likely to happen on a daily basis BUT you are trend following in the higher time frames. This is the bread and butter of high probability reversal trading. When you are trend following on HTF but reversing on Intraday.
High Probability Reversal Examples
- See how we are holding below the OP(W) on Tuesday. After this break down we are looking for areas to go Short Intraday so that we can do Continuation on the OP(W). When we short these pullups, we are fighting the intraday trend yes, but we are not fighting the weekly trend. As you can see the small green upward moves compare none to the acceleration of the downward moves. Albeit, this is also just the nature of shorting because of fear but these are all high probability setups IF you have the patience and the experience to catch them.
