Trading Mistakes to Avoid – Trading the Open

It’s 9:28am EST and you can’t wait to trade. You know that feeling. You’ve gone over your charts, drawn your support and resistance levels, reviewed whatever you usually review and developed a few trade ideas on tickers you’ve been stalking. The premarket action is looking extremely bullish and you definitely don’t want to miss out on a nice price surge higher. The bell rings, you see a nice green candle forming, you let out a YESSSSSS and hit the buy button to open a heavily sized position. The candle pushes higher and higher on heavy volume, and then starts heading lower and lower and lower, until it turns left leaving a massive upside wick and starts moving south with speed and volume. A string of expletives exits your mouth as a stare at your P&L turning redder by the second. You hit the sell button at 9:33am to cut your loss. By 9:45am the ticker has reversed and is back in the green, without you.

What did you do wrong?

As exciting and volatile as it might seem, trading the open is one of the riskiest things you can do as a trader. Unless you’re highly experienced and have a well-tested strategy for the opening minutes, it’s best to stay clear of it.

At the market open, a flood of orders from overnight traders, institutions, and retail investors hits the market simultaneously. This creates wild, unpredictable price swings. That green candle you bought into? It was likely the result of premarket momentum spilling over, only to be followed by institutional selling or profit-taking. Without understanding the forces driving the move, jumping in blindly often leads to losses.

Smart money traders want you to trade the open. They know how eager retail traders are to chase those first big candles and use this enthusiasm to their advantage. They push the price higher to trigger buy orders, then reverse it, leaving early buyers stuck with losses—just like in the example. Another common scenario is when futures are deep in the red, and the market opens lower, enticing retail traders to jump in short. Within minutes, the market violently reverses, heading higher and leaving those shorts holding big red bags.

Another problem with trading the open is the lack of price action to work with. Chart patterns haven’t had time to form, and if you’re trying to trade a breakout, trend, or reversal, you’re highly susceptible to being faked out. Jumping into a trade based on just a few candles often leads to impulsive decisions and preventable losses.

The best way to avoid getting burned at the open? Sit on your hands. Watch and wait for the first 10 to 15 minutes. Let the initial chaos settle and the price action begin to paint a clearer picture. If you feel you must trade, do so with a very small position size. You can always add to the position later once you have more confirmation and the risk is lower.