The 1090 Open
There is a saying that there are two sides to every coin. But in some instances you can better make heads or tails of a market by studying one side and coming to know the intricacies and statistical peculiarities which might lead to trading either just the long-side or short-side more profitably.
The 1090 Open method keys off statistical data, focusing on a market’s directional bias and behavior at the open to determine entry and risk. It is called the 1090 because it uses the 10-day moving average and the 90th percentile of certain statistical data at the opening to predetermine your risk.
One of the most elemental features of an upward trending market is that the opening price occurs near the low of the day and the closing price settles above the opening price. The reverse is true for downtrending markets: The opening price occurs near the high of the session and the closing price settles below the opening price. This feature of a trending market often results in there being a small distance between the opening price and the low in an up trending market, and the opening price and the high in a down trending market. Often this value is zero.
What a survey of recent and historical price action at the open shows is that many markets in an up period (defined by a close above the open) move and often move decisively in the direction of the underlying trend–and backtrack only a small distance–a high percentage of the time.
The 1090 Open exploits this feature of trending markets. An analysis of the difference between the opening price and the low is conducted for uptrending markets. Price relationships between the difference of opening price and the high for down trending markets are similarly scrutinized. For uptrending markets, the 1090 Open looks at the difference between the open and low and uses the 90th percentile of this difference as a sell stop-loss for longs. For down trending markets, it looks at the difference between the open and the high and uses the 90th percentile of this difference as a buy stop-loss for shorts. This means that, on up days, a market will not backtrack more than “X” number of ticks nine out of 10 times, providing a conservative and quantified risk and trade management strategy.
Although some markets have a high tick value between the open and the low (or high) and present greater risk, many markets have a low difference–meaning they do not backtrack, nor backtrack by very much, against the trend. The 1090 Open gives you a low-risk method to get in on markets that exhibit the tendency to move and move decisively on the open.
Let’s look at three markets that have a strong tendency to move and move decisively in the direction of the underlying trend and explain the numbers.
Statistically significant samples of up periods in sugar show the difference between the opening price and the low to be as follows:
Sugar Less than 12 ticks ($11.20 per tick) – 90%
Less than 6 ticks – 75%
Zero ticks – 30%
The data shows that if you buy on the open in an up period (above the 10-day MA) in sugar and place your protective stop 12 ticks below the open, you will be stopped out only one in 10 times at the 12-tick level. The additional statistics are provided to show that in three out of 10 up days, the market will move immediately to the up side without retracing (zero ticks) and that in three of the four instances when sugar moves down before closing positive, it will go against your (buy) position no more than six ticks from the opening price before resuming the direction of the underlying (up) trend and closing higher.
In another example, statistically significant samples of down periods in coffee show the difference between the opening price and the high to be as follows:
Coffee Less than 15 ticks (tick value = 5 points, $18.75 per tick) – 90%
Less than 10 ticks – 75%
Zero ticks – 21%
The data shows that if you sell on the open in a down period (below the 10-day MA) in coffee and place your protective stop 15 ticks above the open, you will be stopped out only one in 10 times at the 15-tick level. The additional statistics are provided to show that in two out of 10 down days, the market will move immediately to the down side without retracing (zero ticks) and in three of the four instances when coffee moves higher before finishing negative, it will go against you position no more than 10 ticks from the opening price before resuming the direction of the underlying (down) trend and closing lower.
In another example, statistically significant samples of down periods in soybean meal show the difference between the opening price and the high to be as follows:
Soybean Meal Less than 20 ticks ($10 per tick) – 90% Less than 10 ticks – 75%
Zero ticks – 33%
The data shows that if you sell on the open on a down day in a down period (below the 10-day MA) in soybean meal and place your protective stop 20 ticks above the open, you will be stopped out only one in 10 times at the 20-tick level. The additional statistics are provided to show that in one-third of the sessions, the market will move immediately to the downside without retracing (zero ticks) and in three of the four instances when soybean meal moves down before finishing negative, it will go against your position no more than 10 ticks from the opening price before resuming the direction of the underlying (down) trend and closing lower.
Many other markets possess similar tendencies which are beyond the scope of this lesson to detail. In summary, here are the rules for buys using The 1090 Open Method (sells are reversed).
1. Select a market that has an upside bias and one that is trading above its 10-day moving average. Markets with upside biases can be found by screening the Momentum-5 List, the New10-Day Highs List or the Futures Trend Matrix. (For down markets, use the New 10-Day Low List, the Implosion-5 List)
2. Determine the 90th percentile by compiling at least three months of data. Subtract the low from the open for each of the days in your population sample. Sort the statistics in descending order and determine the 90th percentile. This is your stop-loss.
3. Buy the market on open. Place you protective stop at the 90th percentile.
4. For daytrades, take profit at the futures’ average opening-to-high range (the average of the high minus the open for the past 50 days). For position trades, consider taking profit equivalent to your initial risk at this level, and if the trend persists to add to positions using this method on retouches of the 10-day moving average.