Monday, August 25, 2008

Open call and the dominant flow

In an earlier post, we looked @ the dominant flow during the initial balance. On large majority of days the dominant flow occurs during the initial balance (meaning A, B or in some cases C period). It generally sets the tone of the day and the trades following the dominant flow can be analyzed to see whether there is likelihood of single or multiple participants during the day. More importantly whether it keeps price in balance or takes it out of balance ( a temporary excess) until value migrates to a new accepted level.

The price behavior in the first 1/2 hour before the market open is generally referred to as the open call. Thats an old term when the commercials call their floor brokers for their balance of orders that need to be executed. It is not always evident but sometimes you can read them. The dominant order flow that occurs during the open call can often be a prelude to what might happen when market opens during the IB and the subsequent periods. It rare that a dominant flow occurs with enough conviction premarket because liquidity is not in the favor of the executing broker. However, when it does, it often indicates the urgency in their positions. Today's open call for the S&P 500 had rare but strong dominant flow @ the 5:55 bar.

The significance of dominant flow also depends on where it occurs with respect to the value.

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