Initial emotions, craze of novice order is exhaused in first 10/15/30 mins and then professionals come in and market shows the real direction.
AW10
I often see people telling this. Is this based on some study? Or is it another myth taken as truth? When I see the volumes on the first five minute bar, it is difficult to believe that all that is created by amatuers, novices etc. If you look up the volumes on the day the top circuit filters were hit after the elections, all trading was over in the first minute or so and the bulk of it came from Institutional investors. Check the FII statistics for the day and compare it with the TO of the day. Everyday 5-10 lakh units of NF is traded in the first five minutes. Is all that from amateurs and novice traders reacting to overnight news?
TT, No I have not done any study on this but read about it at many places.
You are right that we see such a high volume on open and it can't be thru novice hence professionals are there. But haven't u seen large volume, breakout bars during the day, just to fail immediately on next bar. Many a times, Volume is used as tool to pull other players. And at opening, it is more likely that novice will be pulled in.
In my view, it is the trap that pros / market makers or operators create to invite free money/dumb money/novice traders. Most of the time, this is in the direction as novice traders will expect (i.e. +ive gap when there are +ive news and -ive when news is -ive) and hence it fuels the emotions of novice and give them feeling of being right in anticipating the gap and jumping into the trade immediately.
But this initial trend reverses very soon as pros start taking their profits (how many times we have seen gap up getting sold or gap down getting bought). Gaps push the price fast to demand/supply zones.. professionals know those zones and they react to it (many a time contrary to last 5 mins trend) whereas novice keeps following the last few bars and act on it cause by now all lagging indicators start supporting their decision.
Lack of Patience, reacting to media and newspaper etc are other factors that makes novice to jump in as soon as possible. .
In most of the days we will see the reversal or pause of opening trend in first 1 hr and then market participants make their mood about trend reversal, trend continuation or no trend i.e. sideway day.
It is also said that opening price action is mapped to novice and closing price action maps to smart money. That is one of the reason, why opening strategies (like gap fill strategy) have good success record.
As mentioned, above explanation is from my observations, readings, experience and the foundation of some of my system. So personally I do believe in what I wrote above and that's what I trade.
If you have some other view, additional material to read on this,..then I would love to retest my belief.
Hope this helpss. Happy Trading
