How To Make Money Day Trading The Open

My favorite way to make money daytrading is to trade the open. What I am looking to do is scalp, make a quick profit in a short amount of time, on gaps at the open. In order to do this you will need access to level 2 quotes or real time streaming quotes with direct access order entry. The open is unusual in that stocks can get marked up or down for no reason or for news that has no bearing on the particular stock you are considering to trade. For example, bad news might come out on Lehman Brothers (LEH) before the open and you will see stocks in the technology sector being dragged down in sympathy. This is what I am looking to exploit and to give me an advantage.

The set up that you are looking for to give you that advantage to make money daytrading is to look for stocks that closed weak the day before if I was looking to go short or to close strong if I was looking to go long. The stock should have closed on higher than average volume and no news or rumors in the stock or its sector. The stock should have closed near the high of the day for possible long trades or near the low of the day for short candidates. Lets use Citigroup (c) as an example. Yesterday Citi closed up 1 to 20 on a little higher than average volume. The high of the day was 20.25. There was no news or rumors in the stock or its sector, financials. After the close yesterday, Microsoft comes out with bad news. There new operating system has a major security breach, their stock is down 3 to 25 in premarket trading and the S&P futures are weak, down 9. You look at Citi and see it is trading at 19.20 in premarket trading at around 9:20am. All the variables are there to make Citi a good candidate to go long at the open. When the bell sounds, I will check my quotes to see were Citi is opening. If it is still around 19.20, I will place a limit order to buy below the current bid price, lets say 19.10. I usually put in a price below the bid to give me an extra margin of error. If my limit price is not hit by or around 9:40, I will cancel the order. If my order is executed I will look to get out at or near yesterdays closing price of 20. If my target closing price does not hit by 9:55, I like to close the position. A lot of days there is news that comes out at 10:00 which can move the markets. If after buying the stock, it goes down, I will look to sell it for a .30 cent loss. Some people like to average down, I am not one of them. Knowing what price to put a stop price at is tricky. You should take into account the volatility of the stock and the risk reward. In this example, Citi is not a volatile stock and I was expecting to make over .30 if I was correct.


Daytrading the open can be an overall profitable strategy if you find the correct set ups, you are disciplined, and practice good money management.

By: Steve Megna

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