If you have missed part 1, read here.
What this means is that the market is getting ready to open for trading at a price that is lower than it opened. This is known as a gap (a space between the previous day’s closing price and the next day’s opening price).
On average 70% of all gaps will be “faded” or closed in the same day and the highest probability is that it will occur between 10:30AM EST and 11:30AM ET. Remember that I said 70% which means that not all stocks and/or indices will close their gaps the same day.
If I am in a bullish position and it is time to exit the trade and I see that the market is getting ready to open almost 200-points to the downside do not panic.
You can actually wait until 10:30AM EST (no later than 11:30AM EST) to see if the stock can close its gap (unless of course the Stop Loss was triggered at the open
The Trading Session
As you can see on the following chart the SPY opened lower (as we knew they would) however you can see something pretty amazing! That by 10:30AM EST to 11:30AM EST it was trading positively from where it had closed the previous day (gap was closed). That is the opportunity to close out the bullish position.
The S&P future were negative 26-points so that would mean that at some point during the trading session the SPY would trade down 2.60. It had closed at almost 165.80 so a 2.60 move down would be 163.20 and it took the whole day to get there.
That is why people can’t believe that the market can be so positive one minute and then be so negative by the end of the day – they don’t understand the correlation between the market and the futures. Obviously when the futures are positive or negative by very small amounts this can happen at the open very quickly and it is almost unnoticeable.
The New Media
I talked extensively about the role of the news media and now you know what to expect. I think that this was a hard one for me to conquer however once I began to see the news media for what it was I felt completely liberated and free to make up my own mind as to how price and time are the only true indicators of what is happening in any market.