Trading in the morning

Although many people seem to like trading right at the open I find it to be the most tricky by a factor of ten. The old axiom that more money is made and lost in the first 30 minutes may be true but my job as a trader is to consistently make winning trades not necessarily to try and make the maximal amount of money every time out. That kind of thinking leads to bad trades because you will be tempted to enter trades where the risk/reward is no longer on your side.

Let's look at my ABK trade on Friday as to my thinking about how to assess the risk/reward. Here is the 5 minute chart:

The first rule for me is to give the stock 5 minutes to decide which direction it is going to go. From the first 5 minute candle on ABK we know there is trouble. ABK can't hold its early high of 5.45 and comes back down immediately to the 5.30 range. Whatever fueled the interest in ABK and caused the gap up from the previous day and the strong volume at the open, those orders are now filled. That's all I needed to see and was short ABK at 5.35 by 9:35. The second 5 minute candle confirms the loss of interest and the 3rd and 4th candle don't move out of the 5.30 range. There was a brief period where it looked like I was wrong but ABK quickly fell back to 5.35 and from there is was straight down to 5. 

What does a stock strong at the open look like? Here's NOBL recently:

A clean breakout from the open with no hesitation.

Likewise MTG from a few weeks back:

A buy after the opening 5 minutes on either of these stocks was a great trade- I see no reason to buy right at the open. Both of these stocks were premarket leaders because of news also. Stocks that are premarket leaders based on gap ups that aren't news based still may be strong plays but should be watched more carefully. Once they sputter they are usually done.

Another thing worth noting is that all of these plays were successful shorts and perhaps that is the safest play rather than the long.