2025 Lecture Series - SMC Opening Range Gaps

Summary

This video delves into the Smart Money concept, focusing on the opening range gap in trading. It explains how to identify and use the premium and discount opening range gaps, and how to apply Fibonacci retracements to predict market movement. Key points include the importance of using regular trading hours (RTH) for accurate gap analysis, with detailed steps on drawing Fibonacci from previous settlement prices to the next day's opening. The video also covers strategies for trading gaps based on market behavior, economic reports, and other factors, emphasizing efficient market movement and gap rebalancing.

Takeaways

• 😀 Regular trading hours (RTH) should always be used to analyze opening range gaps, not electronic trading hours (ETH).
• 😀 The opening range gap is the difference between the previous day's regular trading hour settlement and the next day's opening price at 9:30 AM Eastern time.
• 😀 A premium opening range gap occurs when the market opens higher than the previous day's settlement price, typically indicating a potential continuation of the upward trend.
• 😀 A discount opening range gap happens when the market opens lower than the previous day's settlement price, signaling a potential downward move.
• 😀 A 120-handle or larger gap may remain unfilled, but will likely eventually fill over time, possibly at a later session or in the same week.
• 😀 The Fibonacci retracement tool is essential to determine the target levels for the opening range gap by anchoring it to the previous settlement price and the next opening price.
• 😀 When trading an opening range gap, the 25% level of the gap is commonly targeted, especially in cases where the gap is large.
• 😀 During pre-market trading hours (6:00 AM to 9:30 AM Eastern), price action should be monitored to identify significant highs or lows, which could influence the direction once the market opens.
• 😀 Liquidity voids occur in gaps where no trading happened between regular trading hours and the new market opening, which the market will later aim to 'fill.'
• 😀 The classification of the gap (premium or discount) is crucial for determining how to apply Fibonacci levels for potential trading strategies and targets.

Q & A

What is an opening range gap and why is it important in trading?

An opening range gap refers to the difference between the previous day's settlement price and the new day's opening price during regular trading hours. It is important because it indicates market sentiment and can help predict the market's movement. A premium gap suggests an upward trend, while a discount gap suggests a downward trend.

How do you identify a premium opening range gap?

A premium opening range gap is identified when the new day's opening price is higher than the previous day's settlement price. To verify, you should check if the chart is showing regular trading hours (RTH) and if the time zone is set to New York, with the gap exceeding 120 handles.

What role does Fibonacci play in analyzing an opening range gap?

Fibonacci is used to measure the potential levels of a gap's correction. The Fibonacci retracement tool is anchored from the previous day's settlement price to the new opening price. This helps to identify key levels, such as the upper quadrant or middle of the gap, where the price might retrace.

What happens if a gap is not filled after a premium opening range gap?

If the gap is not filled, it may indicate that the market will continue moving in the direction of the gap. Typically, if the market does not retrace to the lower portion of the gap, it might eventually come back to fill it later, but this may take time.

What is meant by the term 'liquidity void' in the context of gaps?

A liquidity void refers to a price range where no trading activity occurred between the previous day's settlement price and the new day's opening price. This gap is considered a void because there is no market participation in this range, and price might return to fill this void over time.

What distinguishes a discount opening range gap from a premium one?

A discount opening range gap occurs when the new day's opening price is lower than the previous day's settlement price. This is in contrast to a premium gap, where the opening price is higher. The discount gap typically indicates a bearish market sentiment, while a premium gap suggests a bullish outlook.

How do you handle a gap between 75 and 120 handles?

When the gap is between 75 and 120 handles, the market can move in either direction, so the trader must rely on additional analysis, such as economic calendar events, seasonal tendencies, and market structure, to determine the likely direction. This range requires more flexibility and caution.

What does 'consequent encroachment' refer to in gap analysis?

Consequent encroachment refers to the price movement that occurs when the market trades into the gap's middle or upper quadrant. This is often seen as an opportunity to take a trade as the market corrects towards the unfilled portion of the gap.

What is the significance of the 25% level of a gap?

The 25% level of a gap is typically the first target zone where price is likely to trade back into. It represents the upper quadrant of the gap, and if the price reaches this point, it may reverse or consolidate before making further moves.

Why is it important to monitor the pre-market session when analyzing opening range gaps?

Monitoring the pre-market session is important because it helps identify significant price levels, such as overnight highs or lows, that can provide insight into the market's direction when regular trading hours begin. These levels can also indicate areas where the price might pause or reverse.