pre-market pre-open sessions (a)

the pre-market session is a preview of the day session

The open price is the most important price of the day.
What happens during the day is determined by the "open".

The pre-market sessions of both the SFE and the ASX are related. The open price, established by the pre-open auction, outlined below, is the most important price of the day. A research paper by University of Sydney discusses how the market-maker, operating in the capacity of "specialist", can observe the order book prior to setting the opening price, obtaining monopoly profits that are not possible during the rest of the day. What happens during the rest of the day is determined by the location of "open price", and how the "open price" is established.

ASX pre-market pre-open 7:00 am - 10:00 am

AM Pre-Open Phase:
Commences at 07:00 am and continues until 10:00 am.
Securities are not traded during the Pre-Open phase
Limit Orders can be entered and withdrawn at any time during the pre-open phase.
Bid and Offer prices can overlap in the Market Depth.
The area of overlap is called "the match area"
Only bids and offers inside the match area participate in the opening auction.
The ASX algorithm calculates a weighted "auction" price (match-price) based on the quantities on each side.
As orders are entered and withdrawn, the re-calculated match price is displayed progressively.

AM Opening Phase:
Commences at 10.00 am taking 10 minutes to complete.
Securities open in 5 groups in alphabetical order.
At the commencement of the opening phase, orders in the order book, in the match area, are transacted.
All "matched" orders transact at the same Auction Price.
The Final Auction Price becomes the Opening Price for the security.

PM Closing Phase:
known as the CSPA - closing single price auction, this period covers the following three phases:

Pre-Open Prior to Closing Phase:
Commences 04.00 pm. Concludes 04.09.59 pm.
Securities are not traded during the Pre-Open Prior to Closing Phase
Same process as the AM Pre-Open Phase.

Closing Price Auction:
Conducted at 04.10 pm.
Same algorithm auction price process as in AM phase above
All matching orders are transacted at the same Single Closing Price.

Closing Phase:
Commences 4.10.00.
Same process as the AM Opening Phase.
The Closing Auction Match is completed in 1 minute at 4:10.59 pm

SFE pre-market pre-open 9:40 am - 9:49 am

The day-time pre-open session begins at 09:40:00 am and concludes at 09:49:30 am.
The algorithm match procedures are the same as ASX above. Same match area.
During this period, traders who wish to, can enter orders "buy on open" or "sell on open"
It can also be o/s hedge funds who accumulate previous day, and "close on open" next day.
As orders are entered and withdrawn, the progress auction price is calculated and displayed.
The match-off occurs at 09:49:30 am. Trading begins 30 seconds later at 09:50:00 am.
The SFE auction is influenced by the cumulative effect of the ASX pre-open match.

how the match price is calculated

during the pre-open period orders are entered into the order book
As orders are entered into the order-book (during the pre-open phase), the exchange continuously re-calculates the match price using simple weighted-average-volume formula using "FIFO" (first-in-first-out) principles.
when the security opens the last match price becomes the open price.

examples below present 3 alternate scenarios at one moment in time
where
the sell price is lower than the buy price
the bid-ask prices remain the same
the only variable are the quantities.
only orders at prices between 4000 and 3000 will participate in the match-off.

Full ASX-ASE mathematical explanation how open and closing auction prices are calculated.
ASX-ASE open-closing auction prices

ASX - example of pre-open status of selected stocks at 09:47 am

ASX - example of pre-open status of selected stocks at 09:17 am on day of expiry of options, lepos, futures

match price

mechanics of the SFE pre-open auction.
AOP = anticipated open price = match price.
The pre-open auction period starts at 09:40:00 and concludes at 09:49:30

In the days of "floor" trading, buy and sell offers started far apart, and "auctioned" inward towards one another until they met in the middle, or one side capitulated. Trading began only when prices met. The "auction" process could be observed on "quote" screens, giving a sense of the initial market sentiment. Since October 1999, the electronic system changed this. Orders placed thru SFE Sycom Terminals from 9:40am onward, are queued electronically. Buy and sell offers start apart in the normal way with a positive spread, move inward toward one another, crossover, then move apart with a negative spread. Price inversion. Buyers above the offer, sellers below the bid. Wide spreads can occur. Sellers wishing to ensure they are filled on the open, place their order lower than the previous lowest offer. Buy orders are placed higher than the previous highest bid. A standard formula calculates the AOP for all orders inside the match. Broker terminals continuously display the AOP which is re-calculated every time a new order is entered inside the match. Traders can contact their broker at any time during the 10 minute pre-open session and obtain the AOP.

This price can alter rapidly during this period, based on the placement of orders. If each new order is placed at the front of the queue, whether on the buy or sell side, the expansion of the spread, or rise in order numbers at each extreme can be observed. It doesn't happen that way. That would be too easy. If a LARGE "participant" wants to place a substantial sell order, to be done on the open, Initial small offers are posted at extremes say 40 points apart. Orders can then be placed "opaquely", unobserved, at any price between the posted bids. They are unseen. A large opening spread of 90 - 100 points is indicative of a probable "known event". A tight spread of 8 points or less reflects uncertainty. Market depth shows only the lowest 5 asks and highest 5 bids. The weight of numbers between are invisible. Broker Systems can see the AOP. Many transmit it. Some display it numerically. None display it graphically. After 10:00am its gone. We keep it. Its important.

The Match Price (AOP) has been available since 1999. As of September 2004 a search of the web will demonstrate this site and resdat.com.au are the only 2 sites mentioning it. You read it here first. Now ask the question. Is it that nobody else (a) knows about it, or (b) knows about it but doesn't understand it, or (c) knows about it and don't want to broadcast it. see it in the free "action-replay download".

the pre-open session is a template for the day where the elephants show their hand.

pre-open - ASX200

As ASX orders are processed into the ITS System (previously SEATS) between 7:00am and 10:00am the consequential effect of those orders is shown as a synthetic pre-market index. This calculation is available on some trading platforms and is taken into account in the SFE pre-open. The SFE market-making robot is slaved to the ASX200 synthetic index. We know of one platform that provides the ASX.XJO preopen graphically from 7:00am. Very valuable. The same as the TAB. It shows where the weight of money is going before the "race" begins. Ask the right question. Why is this not disclosed. Not many (private traders) know about it. Not taught in other courses.

pre-market

As software specialists we have developed a number of online-realtime-unattended mechanical racing systems to specification for serious racing clients with heavy money. People not found at the TAB. So we make this comment with some authority. All the client-systems were based on the fluctuation of "odds" of each runner and the size of the "total pool" in each event. A standard formula calculates the total money on each runner. Measurements of the increase / decrease are taken at 1 minute intervals during the 15 minutes prior to "start" time. In our experience, with both racing and finance market systems, such detail is equivalent to the fluctuations of the XJO pre-market and SPI pre-market, which appears to be given low priority by traders. In our opinion the racing fraternity is streets ahead of the trading fraternity in knowledge of its industry.

solutions

another solution to a complex problem

how it can be used

Q89 live application runs from 07:00 am when the ASX pre-market session opens.
Customizable to the list of your choice
Observation of which provides you with a sense of

•   where the early pressure is, and
•   the general sentiment for the day.
•   the direction for the day

Observation of spi200 pre-market behaviour was first published in 2001. In the public domain. For the world to see. Seven years later no-one else mentions it. google.search "pre-open spi200". Camron clients have been using this know-how since 2001. One - a technician - achieves different results using "open" prices instead of "closing" prices. Remember - you read it here first.

Our client research papers on algorithms and index rebalancing describe :-
•   the significance of VWAP activity at the open and why and how it's done.
•   how to determine if index-fund-algorithms are in buy or sell mode
These can be found in the following section.

know where the market is going - before it opens

A graph of the pre-open match-price.

The 10 minute preopen phase of the SFE-SPI200
For 23/07/2008 printed a high of 5150 at 09:40am.
In an unexpectedly strong up day, the SPI200 opened at 5034.
Opening up 89 points from the close of the previous day.
Then continuing up a further 114 points. Total rise of 203 points.
The eventual high for the day of 5149 was reached at 1353 hours.
The one pre-open print at 09:40:00 am lasted 1 second.

pre-market pre-open sessions (b)

price targets - controlzone - boundaries

Daily targets and boundaries apply equally to both short-term and long-term trading.
Appropriate to intra-day trading, can be effective in managing/protecting position trading.
It is visual, it is simple. Once "seen" it's believable. Happens every day.

intra-day short-term trading
Intelligence coming out of USA has traders increasingly turning to trading more contracts for less points. Several times per day. Using online trading systems with low brokerage rates. They're finding it easier to make one or two points than get the big move. Each point is profitable. The same is happening in Australia. The front page display combines (a) targets together with (b) the preopen-high and preopen-low, and (c) pivots calculated on the pre-open session, demonstrating (d) the common use of R2-S2 pivots and (e) how all 3 can coincide. Point of coincidence is a strong boundary.

inter-day position trading
Position traders can enhance results by actively managing positions on a daily basis. The SPI is carefully managed. The trading area for the day is known before trading begins. When broker estimates coupled with pre-open boundaries, indicate a down day, it will be a down day. It makes little sense to hold long positions open and give away 15+ points, when positions can be closed inside the high boundary and re-opened inside the low boundary. At a better price.

common
Targets and boundaries will improve confidence in, where, and where not to trade, when to hold, and when to fold.

targets

Many brokers publish daily reports which include a series of support and resistance levels. The levels may be numerical or technical. A number of brokers go further and publish anticipated high and low estimates resulting in a daily range. The release of these reports start about 09:15 am. Generally the daily range estimates are reasonable with ranges averaging (in 2002) 17 to 26. Most estimates are uniformly alike. They not only define the size and shape of the playing field they also define the location of the field and set it in concrete. It is not as easy as that. Usually the range is about right. When the location is wrong, it's badly wrong. When one is wrong they're all wrong. Location methodology is invalid. The high and low of the pre-open session will confirm or deny these estimates.

Targeting is concerned with the range for the day resulting from a high and a low, not the final price.
The range can be achieved from any number of locations (ie permutations) of high and low.

Once the probable high is in place the probable low can be calculated. OR
Once the probable low is in place the probable high can be calculated.

Consider a marathon. The distance or range is predetermined at 42kms. Once the start location is established the finish point can be determined. Suppose the chosen location is flat terrain - a circle with a radius of 42 kms or a diameter of 84kms.
The race can be run in a straight line.
Straight out from centre to perimeter.
That's 360 possibilities with a fixed start location and fixed distance. If the course of the race is instead 22kms out and 20kms back in ("only 22 as the crow flies') that becomes 720 possibilities. Shift the start location 1 km and you have 1440 possible finish points. and so on. It is not possible to determine the maximum distance out ("as the crow flies') until the start point and course shape have been established.

As the SPI travels vertically, there is only 1 permutation, not 360. If the SPI was a marathon where 1 point = 1 kilometer, the number of possible locations is limited to 42.

The absolute range of the SPI is a straight line. up-down. ("as the crow flies") The distance is a semi-predetermined length which defines a number of high and low permutations. Not many. Broker projections and preopen range give plenty of warning what the distance will be. All that's left to work out is where the course will be. Much of the uncertainty can be removed. The pre-open (warm-up) session range, and course traversed, is a template for the day. The preopen range (or an iteration) is best used to establish where the SPI won't go rather than where it will go.

There are two separate races being run at the same time. The SPI and the CASH. Different courses. Different distances. Each has its own target distance. As the SPI covers its distance, it will stop the minute the cash reaches its finish line or target range. Never the other way round. If the SPI has not achieved its distance when the CASH stops after reaching or passing its target, it stops. If the cash covers extra distance extending its target range, the SPI will cover the extra ground, and extend its range by the same amount. Once "happy hour" arrives all connections with CASH are terminated.

pre-open pre-market pricing

It's all in the preopen premarket pricing
During the ten minute preopen (pre-market) session, the trajectory of the anticipated open price ("AOP"), or match price, establishes a preopen-high, and a preopen-low.

Two vital pieces of information.
The preopen-low is often the low for the morning session.
The preopen-high is often the high for the morning session.
The preopen-range is often the range of the morning session.

They confirm or deny expected points of support and resistance, or fore-warn a pending event. They also confirm or deny the validity of early morning broker-estimates. They define the size and shape of the playing field. They do not define the location of the playing field.

The range at the end of the day will be defined by one of the following

the default control zone, as defined below, or
the preopen range, or an iteration of it, or
the cash range for the day, or
an iteration of the root number for the SPI, as defined below.
otherwise
the high for the day will be the preopen high, or
the low for the day will be the preopen low.

The SFE system is closed between sessions, during which orders cannot be entered.

The SPI pre-open auction session begins at 09:40:00am
The SPI auction balance match-off occurs at 09:49:30am
Trading for the day session in the outright market begins at 09:50:00am

At the commencement 09:40, unfilled GTC orders in the system are exposed to view. An AOP cannot occur until the bid and ask cross over. As sellers offer prices lower than bid prices, or buyers bid prices higher than ask prices. As new orders are entered, the SFE preopen auction algorithm automatically re-calculates the AOP for those crossovers. During the next 9 minutes as new orders are entered, the AOP is automatically recalculated, fluctuating through a range. Usually sedate with a small to medium range the norm.

The pre-open session is usually indicative of the behaviour for the day. Periodically the sedation wears off and the "extreme sports" department takes over. A larger than normal range occurs. Care should be exercised. The range can explode on one rogue order which is immediately withdrawn. Withdrawal of a large order which causes a preopen high, does not negate the preopen high, which stands as a high. Such is identified by 'aop' changing 10 points in a single move then immediately reversing 10 points in the following move. A single change of 10 points or more indicates the entry of a large order. A delayed reversal of the move indicates a change of heart or the entry of a compensating order.

Large orders front running the queue. Infrequent. Shows extreme confidence or fear. If the range is large. Not withdrawn. It can be considered valid. A large SELL order front running the queue, will abnormally depress the open. A single large order in the middle of the queue will change the 'aop' 10 points in one move. Open will be low, with a momentary reaction to the upside as price seeks to return to a normal equilibrium. (vice versa for BUY)
Technicians would expect the price to fill the gap left behind. True if the open is depressed by a single large front running order. Doubtful if a low open is due to a number of medium sized orders rather than one single large order.

control zone

Targets are based on a control zone. It marches to an invisible drum.
Evidence of the operation of a control zone is absolute.
The SPI is driven by a root number Rn. It is a fixed number. It is not a Fibonacci number.
The default control number Cn is an iteration of its root Rn.

The cash is driven by a root number and its control number is also an iteration of its root.
The cash root and its iterations, are different to the SPI. Neither are Fibonacci numbers.
There are 3 possible explanations consistent with the behaviour.
Explanations 2 and 3 require the concept of two types of day.
(a) natural day where the required range occurs naturally as a result of action in the physical cash market.
(b) artificial day where action is light, and required range is not achieved naturally.

(•) most large range days are natural days.
(•) ½ small range days are natural days.
(•) ½ small range days are artificial days.
(•) most days are small range days.
(•) most broker estimates reflect small range days.
The controlzone operates independent of any other process.
It is applicable only to intra-day operations.
It is a mathematical function of controlled behaviour. It is not technical.

The three probable causes listed below are now obsolete. It's retained for historical purposes.
Written in 2002 before the broking industry consolidated and before the transition of the majors from execution-broking to prime-broking, and the disappearance of "locals".

possibility 1 - natural mathematical force

Possibly the control number is a Benoit Mandelbrot chaos theory fractal.
The iteration characteristic of the control number is consistent with fractal theory.
Fractal theory does not claim that there is a constant pattern in nature.

Possibly the control number is consistent with the Fibonacci sequence.

While there are some Mandelbrot characteristics ..... the incidence of the control zone is too consistent to be random. (Like, exactly the default control zone achieved 4 days in a row. Not random. And the way it gets there). This explanation is inconsistent with the behaviour displayed in the samples below.

probability assessment - low.

possibility 2 - the dominant institution

The control number may be a fixed pre-determined number defining the area within which a single institution accepts a fixed tolerance level in its daily trading range. e.g.. the institution wishes to buy 3000 contracts within plus or minus x points of y. The repetition is consistent with the controlled behaviour of one institution. Its fixed because their actuaries have established the limits of risk within it. That institution, acting independantly would be overwhelmingly dominant to achieve the level required. It would also require the passive willingness of other institutions to take the other side. An alternative explanation would have the one institution buying through one broker and selling through another broker. Does not make sense. Nothing is achieved. Alternatively 2 institutions acting in collusion. Again nothing is achieved. This explanation is inconsistent with the behaviour displayed in the samples below.

probability assessment - low.

possibility 3 - the rabbit run

2011
This possibility is now obsolete - the 3 major competing futures brokers have been absorbed into one.

1995 - 2004
The rabbit is the mechanical rabbit used at greyhound tracks.

If you are familiar with the insurance industry you will know it operates what is called a knock-for-knock system. A client of company A has an accident with a client of company B, both companies just repair the damage, debit the cost to the knock-for-knock account, and get on with business. If company A client was at fault, company B knows that at some time in the future one of their clients will be at fault. It all balances out and keeps the legal costs down. This is just a general principle, and disregards the fact that where possible insurance companies will try and recover the cost from the insurer of the party at fault. More so with un-insured parties.

Exchanges make money from exchange fees. Brokers make money from brokerage. Both parties need action and turnover in order to make money. To facilitate action, the NYSE has market makers in most stocks, to ensure there is always a buyer or seller willing to take the opposite side of a trade for a private individual. Official Market makers exist in the Australian Options Market and The ASX warrants market. In the days of the floor, locals acted as market makers, and still do, although not obligated to do so. Deutsche Bank have undertaken to make a market in $AUD futures.

Large buyers and sellers will be found at the base Cn boundary because it is known it just doesn't go past it, mainly because the brokers are too familiar with the Cn control zone. (behaviour, behaviour, behaviour. familiarity breeds contempt). Why change it. Just watch the market depth at the Cn point boundaries for yourself. Doesnt mean it cant go past it. It can. To the next iteration. Just not often.

The control zone has validity as an activity target at cn points. It's consistent repetitive behaviour would indicate a process where brokers undertake to ensure the SPI trades in a reasonable range each day, using a roster system. The rabbit run occurs late. By 15:30 if the SPI has moved X points, and X is less than Cn, the rostered broker has the honour of achieving the targeted range. Often the target is hit right at the closing bell. Nearly always after 1600. Sure it costs him. But he will be the seller next time when it is the next guys turn to perform the task. It all washes out in the end. (knock for knock). They look after one another. Why Cn points?. Dont know. It may change one day. The period after 16:00 is known as "happy hour" for obvious reasons. An example of "happy hour" is shown in the data extract below for the time period 15:50 through 16:30

On artificial days a rostered broker steps in.
probability assessment - high.