JUNO Interview: An Alternative to Entering at ORHs

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What do you not like about trading the first 30–60 minutes?

The first 30–45 minutes are characterised by high volatility and less predictability. That’s when market participants react to overnight developments and contribute significantly to the volatility.

Prices can move rapidly to find equilibrium if there are major order imbalances at the market open. That’s why that first half hour — ‘price discovery’, as I call it — is often employed by day traders to capture short-term momentum.

But this volatility makes it difficult to discern a clear trend — a clear direction — for stocks, especially longer term.

If you avoid entering close to market open, does that negatively impact your risk–reward?

Waiting for the first intraday range to form between 9:30–11:00* does mean giving up some intraday gains on the first day of a multi-day move.

But I’m not scouting for trades that are ‘day one and done’. I’m looking for multi-day trenders, where the ‘meat’ of the move isn’t gifted to you in the first 60 minutes.

When I studied the best opportunities in multi-day trenders, I learnt that your exact entry on day one isn’t that important. Significantly more important is entering on that first day at all, with meaningful exposure.

Swing traders tend to focus too much on entry specifics. They’d be better off focusing on getting in on the right day, with the right size, then getting out of their own way after placing the trade. I’ve seen way more trading breakthroughs come from that change in mindset than from fine-tuning entries.

[*Post-interview, JUNO clarified that he breaks a trading day into three segments: 9:30–11:00, 11:00–14:30 and 14:30–16:00. Each has characteristics and patterns typically unique to that segment.]

Many Qullamaggie students trade the ORH on time frames as low as the 5- or even 1-minute. Do you ever trade that way?

Every entry tactic works — but not all the time. In fact, you don’t want an edge to work all the time. Because if it did, it’d be arbitraged out.

I prefer to wait for the morning structure [price discovery] to complete itself first, but will enter at ORHs in markets where ‘gap and go’ is the dominant theme — where we’re seeing many strong opens that lead to strong trends throughout the day.

Situational awareness and adapting to the market play huge roles in trading. So, if I can see that ‘gap and go’ is abundant — and providing consistent, reliable entries — I’d adapt, and more frequently enter positions within the first 30 minutes of the open.

That aside, there are times when you shouldn’t wait. The paradox of waiting for too much confirmation is that you need to take the risk when it’s most uncertain, because that’s when you’re actually safest.

Suppose, for example, that the market has been declining for months on poor CPI [Consumer Price Index] figures. Then, one day, it reaches its worst-ever reading and the market gaps down, but goes green in the first 15 minutes. When you have a news failure event like that, you don’t wait.

When else might you trade in the opening half hour or hour?

If I’ve prepared a plan and setup the day before. Usually a mean reversion or parabolic setup I’ve been stalking for a while, and that strongly feels like it’s ready for the first red day.

In the opening hour, I also lock in profits from the prior days, to reduce risk.

For breakouts, if you’re not entering at ORHs, how do you enter instead?

Again, I want to emphasise that ORH entries aren’t a bad thing, but they are an inherently aggressive entry tactic. I prefer to wait for the morning structure to complete itself.

In any case, the opening range isn’t the last and only signal traders can use to take a position. It’s just another data point — one more piece of information we can use to determine our bias for that specific day.

I’ll generally lean bullish for that day when price is above ORH, and lean bearish for that day when price is below ORH.

But volatility is at its highest around the open. A stock’s true colours are only revealed in the midday session and, in particular, at the close.

I want that early structure to complete itself first, so I can determine the stock’s midday bias. Are we looking at a consolidation or a trend day?

That way, I can define my risk more clearly. Plus, I can put on way more size than if I’d entered at the most volatile time of day. I’ll also make better decisions because things are calmer.

Presumably, you’d only enter on clear trend days? Based on the information you have by 10:30, at least?

Yes. Watching the tape for an hour allows you to determine whether the ‘tug of war’ has a clear winner — a clear favourite going into the second hour of trading [10:30–11:30]. Though it can take more than an hour for a clear winner to emerge.

To get into stocks that can make a multi-day move, the winner in the first half hour of trading is meaningless for midday bias, never mind day two and beyond.

I avoid stocks that have equal pull in both directions or a slight favourite. I want to enter at the start of a potentially bigger and longer move — not have my capital tied up in a stock not going anywhere.

How do you know when the morning structure has completed itself?

The stock will be spending time near a pivot point, volatility will have contracted, and it’ll have built a tight range intraday.

I try to be patient until I have an intraday structure to work from — sometimes, that’s until late morning or even midday. Which does mean some stocks take off without me, but it also keeps me out of trouble.

As with anything else, it’s a trade-off — everyone has to figure out what works best for them. But it’s not just about personality — it’s very much about situational awareness, too. Adopt the tactic that’s working best in the current market environment.

Context matters. Is the overall market trending lower or range-bound? And even if the setup on the daily is proper for a breakout, is the stock on the third or fourth leg, and already up 500% in the last 2–3 months?

In a situation like that, I’d lean bearish and short into the ORH breakout. Because these breakouts are more prone to failure. And I’m gifted the opportunity to express the trade with positioning in my favour, since there’s less crowding of shorts and more trapped longs.

Without momentum, your results trading ORBs [opening range breakouts] won’t be pretty. Again, ORBs are inherently aggressive — even on the slower 15–30-minute time frames.

One trader once explained to me that they were reluctant to give up ORBs on the 5 minute because they got into all their biggest winners using that entry tactic.

Yeah, no s**t. When you get a breakout trending all day from 9:31–16:00, obviously the most aggressive entry will produce the most potential.

But that doesn’t tell you anything about your average outcome over time. Casinos are far more concerned about maintaining their statistical edges than the gains or losses of any single gambler.

Focus on your averages.

Which intraday chart or charts do you use?

Intraday, I mostly spend time on the 30-minute chart, but zoom in on the 3-minute chart when I think it’s almost time to go. I also use the 3-minute for screenshots, so I can review the detail later as part of my post-analysis.

[Interviewer note: JUNO discussed in his first interview how to review your trades.]

But I can’t emphasise enough that you need to combine any intraday setups — whether that’s entering at the ORH, a VWAP reclaim, or any other setup — with a proper daily setup.

The daily chart is what I look at to identify potential trade candidates. But the intraday structure is what gives me permission to attempt the trade.

If someone prioritises the intraday over the daily charts, what problems might they run into?

Basically, your stock selection is poor. If the daily structure is weak or flawed, and you’re not a scalper, the breakout will probably fail — even if the intraday entry might seem low-risk.

For a swing trader, a proper structure on the daily chart is non-negotiable. Check that:

• The bigger stage 2 uptrend hasn’t already seen many legs higher;
• You’ve got sufficient volume on the day of the breakout;
• The length of the consolidation is long enough; and
• The consolidation is tight enough.

If you’re having issues with frontside shorts that keep grinding against you, the daily structure just isn’t ready yet. The stock likely hasn’t capitulated yet, and you’re just fighting the trend. Disagreeing for the sake of disagreeing is pig-headed. Be a contrarian when the crowd has pushed price and sentiment to unsustainable extremes.

It always comes back to the bigger picture — the daily chart. I cannot emphasize this enough. You must patiently wait for the daily chart to set up properly before you look for intraday setups, or your expectancy will be negative [unless you’re scalping].

This is a really common issue I see with traders. They get too wrapped up in these meaningless intraday patterns that produce no edge. It’s just random noise designed to have you react emotionally and lose the forest for the trees.

Where do you place your stop loss, and what’s your batting average?

I normally use time stops. But if I can’t watch a trade, I’ll put in a hard stop.

HOD and LOD [high and low of day] levels are good places to start. The key is to never allow a trade to trend against me on the bigger picture. If you get emotional over short-term price action breaching your stop for a few minutes, you’ve sized too big.

As for my batting average, it depends on the playbook setup and market. Breakouts average around 38%. Mean reversions — where I get in on the first red day — have a much higher batting average, around the mid-60s [%].

How do you adapt to trickier market environments?

‘Colder’ market cycles, characterised by sideways or choppy trading, can last up to 12 weeks. You have to adjust your expectations during those periods:

• Don’t expect clean breakouts with nice follow-through — most stocks will revert to previous levels after breakouts. And they’ll often take challenging and annoying paths from point A to point B.
• Only a few stocks will trend well — typically those with fresh catalysts — and will trend for shorter periods only.
• Stocks may remain range-bound for longer than you’d expect.

With this in mind, I’ll be pickier about my stocks. For example, I’ll avoid stocks that lack fresh catalysts and belong to a previously hot theme. And I’ll favour in-play charts that haven’t completely failed, but have taken out a few intraday stops, shaking out the weak hands.

In short, I’ll not just look for a good chart. I’ll also look for a reason — the “fuel”, as Qullamaggie likes to say — for the stock to both go and remain higher.

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