The “Opening Drive” Alert and how it can affect overall performance.
What is the “Opening Drive” Alert?
It’s when the opening bell rings and the market makes a significant “drive” in one direction for the first 10-20 minutes of trading. On the 5-minute chart, the first several price bars get extremely extended from the pre-market price area.
The “Opening Drive” Alert has a higher chance of hitting the full stop. This is because there’s already been a significant move in one direction and the market has a good chance of “reverting” or snapping-back.
In other words, when we see a BIG move in one direction right from the open, there’s a tendency for the price to reverse and move in the opposite direction to correct the (significantly) oversold / overbought condition.
Think of this as a sort of fake-out move in the market very early-on in the session. When the price gets extended in one direction in the first 10-20 minutes of the session, there’s a higher probability it will “snap-back” in the opposite direction.
Many market sessions it takes some time for the primary trend of the day to develop. We’ve considered “suppressing” Alerts that occur in the first 10-20 minutes of the session, but that would mean certain days we would miss a significant move. Suppressing these Alerts would result in “no trade” days and missed opportunities.
Here’s the most IMPORTANT POINT: “Opening Drive” Alerts where the 18.00 (ES) point “Fixed Maximum Stop” comes into play – are where you want to adjust your strategy.
Improve your odds by adjusting your strategy on “Opening Drive” Alerts.
Here’s one strategy: Skip the Opening Drive Alert – ONLY IF the 18 point max stop is in play.
In other words, be wary of Alerts that happen very early in the session when the market has already made a BIG move in one direction right from the open. These have a much higher chance of hitting the stop than Alerts that trigger after the market has had some time to let a trend develop.
Keep in mind that the 18 point Max Stop is important here too. Under normal circumstances we should rarely see the 18 point Max Stop kick in. A “normal” Trigger Range is typically 8-12 points. But in periods of high volatility the Trigger Range can be 15-20+ points, which likely brings the Max stop into play.
Under normal circumstances the “initial stop” always starts off 1-tick past the opposite side of the Range.
But when the range is extremely wide, and the Max stop is in play, you will see the initial (Max) stop is inside the Range. You can see in advance before an Alert triggers-in whether the Max Stop will come into play based on the Range and the Alert Price – in relation to the opposite side of the Range.
Here’s another strategy: Just trade 1 Micro Contract on an Opening Drive Alert when the Max stop is in effect
If you skip the Alert there’s a chance that you will miss out on one that goes on to hit both Targets. But the more likely outcome is that the price only makes it to Target 1 before “snapping-back” – since it’s extremely stretched in one direction. And an “Opening Drive” Alert that just hits Target 1 just puts a 2 Contract trade at breakeven.
So trading just 1 Contract and shooting for Target 1 improves the odds in this situation.
Keep in mind that days with an “Opening Drive” Alert tend to have multiple Alerts and you can scale up to a larger position size once the market has time to settle down and develop a trend.
The key point here is to adjust your strategy ONLY when the 18 point Max Stop is in play.
You can choose to skip the Alert altogether – or you can choose to trade just 1 Micro Contract.
To Summarize: Our observations over the years is that an Alert that triggers in the first 10-15 minutes of the session has a higher tendency of hitting the full stop. That’s normally not a big deal because subsequent alerts will make up for it. But during volatile conditions – when the Max Stop is in play, we can improve the results by avoiding “fake-outs” that frequently occur shortly after the open.