The principle behind the importance of the opening price probably stems from the fact that the markets are open only six and half hours a day. That leaves 18 hours for decision making to occur.
It is my opinion that decisions are made during the 18 hours that affect the opening of our market. I realize that most of the volume is not done on the opening— it is done during the complete day. However, to explain how the opening price is so significant, one must remember that these people have been making thought decisions and analytical decisions during the past 18 hours in order to come up with strategies for the following days
The Opening Price Principle is this: the opening price will be at or near the high or low of that day 85-90 percent of the time. In other words, the price at the opening will be either within 10 percent either the high or the low of the day on that particular day.
How to use in Intraday
Using an intraday chart, mark the opening price and draw a line across the time zone for the rest of the day~a horizontal line where the opening price is indicated. You’ll be surprised how often prices meander around that opening price whether it is the high or the low of the day. Even when it’s not the high or the low of the day, the opening price seems to be some kind of harmonic or equilibrium price that the market bounces against several times during the day. Armed with this information, a day trader and, actually, a position trader can enter the market to his advantage with probabilities on his side.
How to use in Swing Trading
Using an Monthly chart, mark the opening price of the Month and draw a line across the time zone for the rest of the day~a horizontal line where the opening price is indicated. Explained in below video
Keep in mind that this technique does not work all of the time, but that it does put probability in your favor a great deal of the time.
There is an important concept here to remember: forget about the closing price of yesterday. It means absolutely nothing when you’re dealing with the opening price concept. Whether the price gaps up or the price gaps down is of no consequence to you when you are using the opening price to enter a market. You must forget the closing price of the previous day; the opening price is your focus, especially when day trading. You must remember not to use yesterday’s closing price when using the opening price principle.
Advantage is Trader is trading in the direction of the opening price. It meanders in the direction the trend is going to be in. It will be in his favor seven or eight times out often.
Secondly, he’s trading in the direction of the trend and selling into a rally at a very strong mathematical point where the risk is quantified because, if the market continues to go up, it will be stopped out with a very small
loss. The probabilities of these particular patterns working are better than seven out of 10.
To Learn more please read this book The Importance of the Opening Price by Earl Haddady
Below are the List of all FNO Stocks for March Month based on Quaterly Open. Levels are valid till 30-Sep-2022.