Trend Trading on the Opening Bell

Trend Trading on the Opening Bell

“The Trend is Your Friend (until it ends)”. This is a common piece of trading advice taught by many trading educators. This is sound sound advice, but sometimes it’s much easier said than done.

Trend Trading on the Opening Bell
Trend Trading on the Opening Bell Getty Images

Trying to “guess” at a reversal against a strong uptrend or downtrend can be disastrous. What looks like a reversal could simply be a pull back, before trend continuation.

How can you be certain you’re on the right side of a trend and how strong is the trend? Here are a couple of pointers:

Take a Look at the Larger Time Frames – If you are day trading, what are you see on the daily charts, the 4 hour charts, the hourly charts and 15 minute charts? Is the market trending up, down, or is it chopping sideways?

How Steep is the Trend? – Is it it 45 degrees or better? Generally speaking, the greater the slope, the stronger the trend.

Moving Average Confirmation – Is the market traveling above the major moving averages (200, 50, 20)? If so, you are on an uptrend. If the markets are traveling below these averages, you are on a downtrend.

And Finally, Always Check the News Before You Trade – Check the Economic calendar to check for the release of High Impact Economic News. If you trade into a high impact news report without knowing it, the results can be disastrous.

Let’s take a look at a trend trade that was taken on Monday, October 10 on the US Tech 100 Index ( based on NASDAQ Futures):

Trend Trading on the Opening Bell

On this 15 minute chart, it’s plain to see that the US Tech Index was on a sustained uptrend since 4:00am EDT. Going into the Opening Bell, there was a clear bias to the upside.

Going into the 9:30 EDT Opening Bell, with a bias to the upside, it was time to look for a BUY opportunity, and hopefully on a pullback or a “Head Fake”. It’s not uncommon to see a quick move against the trend on the Opening Bell, before Trend continuation resumes.

Trend Trading on the Opening Bell

At 9:30 am, it was time to dial down to the 1 Minute charts to look for a BUY entry opportunity. Sure enough a counter-trend “Head Fake” occurred at 9:31.

For a brief moment, this opened up an opportunity for an OTM  BUY Contract in the direction of the pre-established trend. The following trade was taken:

BUY US Tech 100 >4887 (10am) $37 – Maximum Risk $37, Maximum Reward $63, per contract traded

The thinking behind this trade was to let the profitable trades run if the uptrend continued, and to exit for a 50% loss ($19) if possible, if the market decided to reverse on the opening bell.

With 28 minutes left until expiry, here’s how the trade played out:

Trend Trading on the Opening Bell

This trade was never threatened, and it settled In-The-Money for the maximum reward of $63 per contract traded, for a 170% return on capital risked (exchange fees not included).

By staying on the side of the trend, and taking advantage of a flash pullback (head fake) it was possible to take advantage of trend continuation with a much better risk-to-reward ratio.

Note exchange fees not included in calculations

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