Benefits Futures Traders Can Take From Watching The Market Open

This article on Futures Traders and Market Open is the opinion of Optimus Futures.

While the futures market is virtually open 24 hours/6 days a week…

…most people consider the start of market trading to be 9:30 AM EDT, when the NYSE and Nasdaq stock exchanges begin trading.

The first hour of the trading day can often be the most volatile, information rich, and telling of the day. That’s why it’s so important futures traders pay attention to it

There are three immediate benefits futures traders can take from watching the market open.

Below you’ll discover what they are, and how they can help you become a better futures trader.

Understand News Flow and Sentiment Better

Donald Trump shocked the world in November of 2016 when it was announced he won the presidential election. In response, stock futures tumbled by 5%.

However, when the stock market opened at 9:30 AM ET, the weakness from the futures wore off, and eventually, the major indices closed the day higher.

While the futures market gives traders the opportunity to take advantage of news catalysts during all hours, the bulk of the trading volume will be during the U.S. stock market hours (9:30 AM ET to 4 PM ET).

That’s why it’s so important to pay attention to the first hour of trading, to see if any of the overnight news sticks, and what emerging trends and storylines are driving the market.

You see, there are several exchange-traded funds (ETF) that are tied to commodities and futures. While most mutual funds won’t invest in futures, they have no problem in investing large sums into commodity related ETFs. That first hour of action could dictate how the futures trade that day.

During the market open, you also get a look into the initial positioning of traders across various asset classes.

Many institutions will have orders that execute at the market open. The difference between the buy and sell orders is known as the market imbalance. This can move individual stocks and indexes in the first few minutes of the trading day.

Additionally, individual stocks with news or earnings look for price equilibrium in the opening minutes as traders assess their fair value. Larger stocks like Amazon and Apple make up a significant part of the Nasdaq 100 and S&P 500 and their movements can dictate the daily market trend alone.

Identifying The Trend

One of the most visible immediate benefits futures traders can take from watching the market open is establishing the daily trend.

For the most part, markets trend. They are either trending upwards or downwards and sometimes sideways. This can be said on a big picture and small picture horizon.

And when it comes to day trading futures, oftentimes, the trend for the day is discovered within the first hour of the session. If you can identify it quickly, then you might be able to exploit some trading opportunities.

Paying close attention to the market open can be important when you’re trying to catch market reversals.

One of the best places to find this is in the opening range which is typically defined by the first 30 minutes of trading between 9:30 – 10:00 AM EST.

Traders use this range to define the trend for the day.

For example. If the market closes substantially higher than the open, a second close above that would signal a bullish intent for the market throughout the rest of the day.

Conversely, an opening range with a wide range and narrow body might signal choppy action that moves sideways throughout the trading day.

Traders can also look to related markets to gain clues to similar ones.

Quite often, S&P 500 futures traders will look at the relative strength of the transports, semiconductors, small caps, and bonds to get a sense of how these correlated markets stack up to the S&P 500.

Watch Out For The Options Market

Options are derivatives of futures contracts. But most recently, some traders have been asking, does the tail wag the dog?

Ever since GameStop (GME) had its massive short squeeze in 2021, more and more traders are watching the options market for potential “gamma squeeze” trades.

Whether you trade the strategy or not, it’s critical you’re aware of how the players in the options market are positioned. To do that, you’ll have to pay close attention to the market open. .

What should you be looking at? Here are some questions to check out:

The type of options traded. Are they near-dated contracts or further out?
What are traders doing? Are they buying calls? Selling them? Or are they trading mainly puts?
Is implied volatility high in the options? Are traders expecting a lot of movement?
Is open interest and volume higher than normal?
Are bets being made on OTM options or ATM?

The clues we get from the options market could give us a better idea of how the futures market action will play out.

Traders will often look to where heavy there are large amounts of open interest as potential points of support and resistance for the market.

On the flip side, if markets push past these points, then traders might assume market makers will be forced to increase their positions to offset the additional deltas they’ve acquired.

Traders can gain immediate benefits from futures traders by watching the market open and by understanding where the market opens and trades early on relative to the options market.

In Summary

The beauty of trading futures is that you can trade them virtually anytime. However, that doesn’t mean the market is always liquid. That’s why it’s so important to pay attention to the U.S. stock market and how it opens.

Moreover, it is when we’ll see the greatest volatility and opportunity in the futures market. Make sure you’re watching how the news flow plays out, what trends are emerging, and how the options market is positioning itself to get a better feel for the day.

Optimus Futures carries a wide array of tools and indicators that all come with their flagship Optimus Flow platform. Users will find the platform intuitive and easy to navigate, with a host of analytical options including footprint charts, depth of market, and more.

Plus, traders can customize their data feeds to maximize their strategies’ potential.

And our boutique customer service experience aims to get you up and keep you up and running.

See what futures trading has in store for you.

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Disclaimer: There is a substantial risk of loss in futures trading. Past performance is not indicative of future results.