What is the Market Open & Close and Why Do They Matter to TradersSep 03, 2021
Not all times in the market are created equally. For example, the market open starts the action for the regular session (also called core or day session) with a bang! This bang follows the pre-market session bringing together the opinions and sentiment of bulls and bears into a liquid auction. Traders can use specific order types for the open such as Market on Open (MOO) or Limit on Open (LOO) on some platforms indicated as Opening only Order (OPG). The Limit order designation for the open cancels if it is not filled so this is a nice feature in that you can get on to your other trades without having to fuss about moving or cancelling these orders. An order for the open can be placed many hours ahead of time or up until 9:28am ET (the cutoff time), and still be included in the auction. Limit orders are filled at the price you have set or better, meaning that you would get price improvement as the Market Center Open Price is the final auction price…and established as the Open Price for stocks and ETFs.
Due to the liquidity available, the Open is a great time for traders to participate, provided they have a game plan and know why they want to be involved and at what price. I always recommend choosing the price at which you are willing to participate. Some traders are holding overnight and taking positions off at the next day's Open, while others are establishing new positions at the Open for the day. There is no HFT and algorithms dominating the auction, so you won’t have predatory practices, slippage or algorithms ruling the price action. You either get filled or you don’t but again, you receive your price or better with a LOO order.
The main price points used from each day are Open, High, Low, Close (OHLC) and the Close is the most important price stamp followed by the Open price. I also use the Pivot which is calculated from the previous day (High+Low+Close)/3. This helps frame each day and can be used for seeing volatility shift and provide a “fence” for trading an instrument. Example:
Now to the Closing price, which is again is an even more important marker. This is the closing auction of the Day Session and market participants can utilize it to close positions or establish new ones. It is an important marker for mutual funds, investors, financial information providers and the most widely reported on. It is also used for calculating many indicators and moving averages.
As with participating in the Open Auction, you can place orders for the Close. The choices are Market on Close (MOC) or Limit on Close (LOC). There are a variety of rules related to placement or cancellation of these orders and they are different for the NYSE than for the Nasdaq market centers. For NYSE stocks the most important to remember is that you can place your orders anytime during the day up to 3:50pm ET. Be aware that stocks can move significantly in the last 30 minutes of the day due to many fundamental reasons.
Opening and Closing orders are strategic tools in the traders toolbox. Armed with predictive analytics that utilize these prices to provide subsequent behavior and average performances after these prices are stamped can be a winning formula for traders and investors alike.
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