This is a daytrading strategy that enables you to capitalize
on emotional overreactions on the opening due to S&P and NASDAQ futures having a gap trade and individual issue upgrades/downgrades by Wall Street Analysts. The openings in the kind of the market we have had for quite some time are a goldmine for OTC market makers and NYSE specialists. The openings are strongly influenced by the S&P and NASDAQ futures Globex trading, the large retail order flow and some of the big players that insist on participating in the opening even though they are most of the time reaching for price without volume.
By using key volatility bands, you can enter these opening trades on the same side of the market as the professionals for a high-probability trade. As volatility reverts to its mean, the exchange professionals will maximize the opening prices because they must risk their capital to fill the order. It is a very high probability that, in Gap Up, prices will trade below (above, in the case of Gap Down) the exaggerated price as the professionals liquidate their early morning positions.
On many of these head fake trades, you can often be out within 15 minute or sooner.
For this strategy, it is better to use big-cap, higher priced NYSE stocks with good average daily range and NASDAQ 100 stocks. You can also utilize Instinet after you become familiar with the strategy.
The NYSE stocks are good for this strategy because the NYSE has set guidelines on the dissemination of indications, which are mandatory for an opening if it will result in a significant price change from the previous close. You can also get the feel of how a specialist sets prices on these emotional openings and relate the price to the kind of volume and volatility bands.