What Is Theoretical Opening?

Ever wonder how does the system decide the opening price of the day? Why it will gap up or gap down? 

Exchange uses theoretical opening price & volume to decide the opening price with 4 rules. 

R1:  Maximum Executable Volume

R2: Establishing the MINIMUM SURPLUS (Lowest quantity shares left in the market)

R3: Ascertaining where the market pressure exists (+ve/ Surplus will remain on the buy side, -ve/ negative will remain on the sell side.)

R4: Consulting reference price (Previous day closing price).

Need to based on the above 4 principles sequence to determine TOP. For example: if R1 doesn’t fulfil, then fall to R2 and follow by R3 and R4.

By understanding the Theoretical opening, it helps us to decide our morning day trade. (link below for our Pre-open market trade.) 

https://youtu.be/YlPG8A4xUC4 

You may watch the video explanation at the link below : 

https://youtu.be/EZ4LxPv57Oc

What is R1: Maximum Executed Volume?

- Assuming everyone is selling the same type of surgical mask in the market. 

- There are 3 sellers, you, Kelvin, Bob & 1 buyer, Lucy.

- 10,000 is the maximum the market is able to absorb and at 1 price only. So the TOP will fall under RM1.

- If there are 3 price differences to fulfil the maximum volume, RM 1, RM 0.90 & RM 0.80, then we will be based on R2 to find out which price TO will be. :

2nd Principle, R2: Establishing the MINIMUM SURPLUS (Lowest quantity shares left in the market):

In the above case, the lowest quantity of shares left in the market is +2,000, RM 0.80. Therefore Theoretical Opening price will be RM 0.80.

However, if there are 2 prices, they have the same lowest quantity of shares which in this case is 0.90, -2,000 & 0.80, +2,000. Then the system will move forward to principle 3 to find out which price will be TO price.

3rd Principle, R3: Ascertaining where the market pressure exists (+ve/ Surplus will remain on the buy side, -ve/ negative will remain on the sell side.)

If under R2, there are 2 or more price levels that have the same surplus quantity. Then the system will proceed to 3rd principle, R3 to check where the market pressure from. 

If the surplus more on is positive, then the pressure is from the buyer side, so the TOP will follow the highest price in the Buy Queue and vice versa.

For the above case, the pressure is from the Buyer side, because the surplus is positive due to Cumulative Buy Quantity minus Cumulative Sell Quantity. Therefore we will take the highest price of Buy Queue as TOP, RM 1 vice versa.

4th Principle, R4: Consulting reference price (Previous day closing price).

 

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Malaysia stock market is a unique market, hence it requires a customized trading approach to tackle & swerve. Many existing traders in Malaysia applies a plug-and-play strategy from the overseas stock market, but it is not necessarily the best strategy to trade in KLSE. This is due to the difference in local and overseas stock market regulation and the size of market participants of institutional funds & retail investors.

“True traders react to the market.” is the backbone of our trading method. Our findings and strategies are developed through years of trading experience and observance of the operating style in Malaysia stock market.

 

Trading Account Opening

They are offering IntraDay trade brokerage rate at 0.05% or RM8 whichever is higher for day trading stocks RM 50,000 & above transacted volume (buy sell the same stocks in the same day). Buy & hold at 0.08%or RM8 whichever is higher.

Open a cash account now at the link below : 

https://registration.mplusonline.com/?ref-id=R311

As Kelvin’s trading client, you will be exclusively invited to join Kelvin’s weekly webinar and telegram group. Click here to join. 

For more inquiry contact him by email: kelvinyap.remisier@gmail.com or 019-5567829 

If we have missed out on any important information, feel free to let us know and feel free to share this information out but it will be much appreciated if you can put us as the reference for our effort and respect, thank you in advance!

 

This blog is for sharing our point of view about the market movement and stocks only. The opinions and information herein are based on available data believed to be reliable and shall not be construed as an offer, invitation or solicitation to buy or sell any securities. Round & Surge and/or its associated persons do not warrant, represent, and/or guarantee the accuracy of any opinions and information herein in any manner whatsoever. No reliance upon any parts thereof by anyone shall give rise to any claim whatsoever against Round & Surge. It is not advice or recommendation to buy or sell any financial instrument. Viewers and readers are responsible for your own trading decision. The author of this blog is not liable for any losses incurred from any investment or trading.