While many markets trade primarily electronically, some markets (such as the S&P 500 futures market) still are still trading the open in the pit.
What’s the pit you ask? Well, this is a specific area on the trading floor that is only for buying and selling specific securities using the open outcry system. Basically, what happens is that brokers shot and do hand signals to match customers’ buy and sell orders in the pit. Orders are displayed to all traders so that everyone can participate and essentially compete for prices.
For many e-mini S&P 500 futures traders, the pit session open can potentially be a useful tool in gauging market direction and sentiment.
The thought process behind this is ridiculously simple and there is no need for you to go out and try to reinvent the wheel. So here, it is, a simple trick to trading the open.
The rule is, if the market is trading above the pit open, look for longs. If the market is trading below the pit open, look for shorts. That’s it.
Let break it down further. If the S&P 500 futures pit session opens at 1980 and trade begins to take price higher to 1982, 83, 84 etc., then you’ll want to look to be a buyer. If the S&P 500 futures pit session opens at 1980 and trade begins to take price lower to 1978, 77, 76 etc., then you’ll want to look to be a seller.
The premise is simple: if the “big players” are buying, you want to be buying as well. If the “big players” are selling, you want to be selling as well.
While some might consider the open a difficult time to trade. It can provide some of the best trading opportunities of the day.
The big players in the market will show their cards at the open when they are most active. Learn to read their hands when trading the open and try to take advantage of it.