You may have heard about a simple trading setup used by millions of day traders called “the day opening range”, when traders watch the first 30 min or 60 min of a new trading day and then go long or short in direction of a move breaking out of that range. Swing traders may apply the same principle to make a directional trade based on a trading range formed during the first three trading days of a new month.
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Let’s look at 15 min chart of ES-mini futures in June 2022:
On the chart above you can see the Month Opening Range formed during the first three trading days of April (that three day period has a blue background).
The red line is the Monthly Resistance, the highest price recorded during the first three trading days of a month.
The green line is the Monthly Support, the lowest price recorded during the first three trading days of a month.
There are several ways how a trader can benefit from using the Month Opening range:
(1) Trend Confirmation.
The first three days of a month tends to bring volatile trading. The market sets boundaries for the following four trading weeks.
Once the range has been set, swing traders may wait for the market to break out of the range and consider that breakout or breakdown as confirmation of the prevailing trend direction.
On the April chart shown above you can see that ES-mini broke under the Monthly Support and started a very strong trending move down.
Therefore, the first practical implication of using the Month Opening Range is to trade breakout / breakdown setups.
Note on the chart below a clean breakout setup triggered by ES-mini in August 2022:
Now I will point your attention to another repeating pattern you can note on those two charts.
Quite often a strong move during the first three trading days gets completely erased during the following several days without breaking out of the Month Opening Range.
Look at the October chart of ES-mini:
A very strong rally during the first three trading days (action with the blue background) got completely erased By October 11.
Note that a very strong decline during the first three trading days of November got completely erased by November 9th.
Another common pattern is
After price breaks over a Monthly Resistance or breaks under a Monthly Support a trending move starts that often gets exhausted by mid-month.
Note that repeating pattern on the charts posted above:
- ES-mini broke under the Monthly Support and kept going down until it made a double bottom on June 16 and June 17,
- a rally that followed a breakout over the Monthly Resistance topped on August 16,
- price broke under the Monthly Support but almost immediately bottomed on October 13,
- a rally that followed a broke out over the Monthly Resistance topped on November 15.
Quite often when price moves in a down or an up trending move that triggered by a breakdown or a breakout of the Month Opening Range that move gets reversed in the middle of the month. And then price tends to come back to the Monthly Opening Range and retest the broken support or resistance.
Note how ES-mini topped on November 15 and then turned down and came back to re-test the broken monthly resistance from above.
Note how in August 2022 (see the chart 2 above) ES-mini topped on August 16 and then came back down inside the Month Opening Range during the second part of the month.
Note how in April 2022 ES-mini broke under teh Monthly support, then bottomed on April 17, turned up and then rallied back up to re-test the Month Opening Range from below:
My most favorite trading setups you can find with the help of the Month Opening Range are
- Failed attempt to break out over the Monthly Resistance,
- Failed attempt to break under a Monthly Support,
- Failed attempt to reclaim a broken Monthly Support,
- Failed attempt to break back under a broken Monthly Resistance.
On the chart 5 above you can see that two failed attempts of bulls to reclaim the broken support were followed by strong declines.
Remember the rule:
In a Down trending market once price breaks under the Month Opening Range, the Monthly Support level tends to work as a resistance.
On the chart 4 above you can see how bulls pushed ES-mini over the Monthly Resistance but then got tired in the middle of November 2022. Bears stepped in and pushed ES-min back down towards the broken-resistance-turned-support. Note that bears tried to push price under the red line four times during the second part of November 2022 but every attempt failed and every failed attempt to break under support was followed by a strong tradeable bounce!
Remember the rule:
In an Up-trending market once price breaks out of the Month Opening Range, the Monthly Resistance level tends to work as a support.
Now let’s look at a fresh example of price interacting with the Month Opening Range in January 2023:
Note how bears failed to break under the Month Support on the forth and fifth day of a month. That failure immediately attracted fresh buyer who quickly pushed price to the Monthly Resistance (the red line).
Note that the first attractive setup was to go long on retest of the broken resistance from above:
The next trading setup was defined by this rule: “Quite often when price moves in a down or an up trending move that triggered by a breakdown or a breakout of the Month Opening Range that move gets reversed in the middle of the month.”
Note that the trending move that got triggered by (i) breakout of the month range and (ii) successful retest of the broken resistance-turned-support run out of steam in the middle of January. Then price turned down and the natural target for that move down was that same red Monthly Resistance level:
I published a simple indicator for TradingView that allows you to add to your trading toolbox the Month Opening Range concept:
You can look through a list of my proprietary indicators for TradingView available for subscribers here.
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Read about much more powerful trading indicators for TradingView:
- how the Cycle Trader Indicator identifies an underlying cycle and prints support, resistance and trading signals; and
- how the Multi timeframe version of the Cycle Trader indicator identifies cycles on four different timeframes and finds points where all four cycles make important tops and bottoms; and
- watch a video showing how the Gann’s Levels indicator provides you with price and time targets and levels of important support and resistance weeks in advance;
- watch a video where I explain how you can convert levels of support and resistance drawn by the Cycle Trader indicator into winning trading setups.
- Follow me on twitter: @MonkeyMakesSSS
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