The Value Area represents the range of prices that contain 70% of a day’s trading activity. These are opening setups based on the prior day's value area and should be used after U.S. Opening (9:30 ET):
#1 Open Drive (OD)
A: When a market opens above the value area and then goes through the overnight high with volume at highs increasing, it's a bullish signal. Buy early nearest low volume node. Internals should be highly positive. The opening is dominated by initiative buying, do not trade against it.
B: When a market opens below the value area and then break through the overnight low with volume at lows increasing, it's a bearish signal. Sell early nearest low volume node. Internals should be well negative. The opening is dominated by initiative selling, do not trade against it.
#2 Open Test Drive (OTD)
A: When the market opens above the value area and remains above the value area high on the subsequent tests, it is a clearly bullish signal. Buy the high of value area. Internals should be positive. If the market begins to trade within the value area and volume increases at lows, it would be recommended to exit long positions.
B: When the market opens below the value area and remains below the value area low on the subsequent tests, it is a clearly bearish signal. Sell the low of value area. Internals should be negative. If the market begins to trade within the value area and volume increases at highs, it would be recommended to exit short positions.
#3 Open Rejection Reverse (ORR)
A: When a market opens above the value area but then fails to go through the overnight high and begins to trade back with volume at lows increasing, it is a signal of rejection. Sell the overnight high. Internals should be negative. There is a strong tendency to rotate all the way through the value area.
B: When a market opens below the value area but then fails to go through the overnight low and begins to trade back with volume at highs increasing, it is a signal of rejection. Buy the overnight low. Internals should be positive. There is a strong tendency to rotate all the way through the value area.
#4 Open Auction In/Out of Range (OAIR/OAOR)
When the market opens in/out of range within or near the value area it is showing signs of a balanced market. Trading from responsive versus initiative would be preferred. Fade the extremes of the value area. Internals should be neutral or not in trending mode.
Use market internals (ADSPD-VOLSP) to figure out strength or weakness.
Remember, don't try to use any setup as a rigid, systematic trading rule, blindly applied to all market conditions. Context is key.
