As experienced traders will attest, the financial markets are filled with subtle nuances that can significantly influence trading strategies. One such nuance is the ICT New Day Opening Gap (NDOG). In this comprehensive guide, we’ll explore what NDOGs are, how to identify them, and how you can effectively incorporate them into your trading approach.
What Is an ICT New Day Opening Gap (NDOG)?
The ICT New Day Opening Gap refers to the price gap that occurs due to the one-hour trading halt from 5:00 PM to 6:00 PM New York local time, Monday through Thursday. This gap represents the difference between the market’s closing price at 5:00 PM and its opening price at 6:00 PM. On Fridays, the market closes for the weekend, and the gap observed on Monday’s opening is known as the ICT New Week Opening Gap.
These gaps are not just anomalies but are integral to understanding market behavior. NDOGs act like magnets for price action. Markets often revisit and fill these gaps to achieve fair value, making NDOGs critical areas for traders to watch. They are essentially real fair value gaps, providing insights into potential support and resistance levels.
Identifying an NDOG
To identify an NDOG, begin by marking the closing price at 5:00 PM when the market temporarily halts trading. Next, mark the opening price at 6:00 PM when trading resumes. The difference between these two prices constitutes your NDOG. While you mark NDOGs on the daily chart, it’s advisable to switch to lower time frames, such as the 15-minute chart, for more precise trading opportunities. This approach allows you to see the finer details of price movements within the gap.
Understanding Consequent Encroachment
The concept of consequent encroachment refers to the 50% retracement level of the NDOG. This midpoint often serves as the most reactive price level within the gap. To calculate this level, you can use the Fibonacci retracement tool set with inputs at 0, 0.5, and 1. Apply it from the low to the high of the NDOG to find the 50% level, which represents the consequent encroachment. This level can act as a critical point for potential price reversals or continuations, providing valuable insight into market dynamics.
Incorporating NDOGs into Your Trading Strategy
According to ICT principles, annotating at least five NDOGs one for each trading day on your chart can offer valuable references for fair value pricing. These NDOGs can act as dynamic support or resistance levels, influencing price movements and serving as potential liquidity zones. Observing how price interacts with these gaps can reveal areas where liquidity accumulates, leading to potential trading opportunities. Additionally, you may notice price rejection and accumulation around these gaps, which can help gauge market sentiment.
Before trading NDOGs, it’s essential to establish a clear bias for the market, whether bullish or bearish. Your bias will dictate how you interpret and react to NDOGs.
Bullish Scenario
If your bias is bullish and the price is above the NDOG, you would wait for the price to retrace to the NDOG. After observing a confirmation of reversal, such as a Market Structure Shift on lower time frames like 5 or 15 minutes, you can consider entering a long position. Your target would typically be the next liquidity draw or significant resistance level.
Conversely, if the price is below the NDOG and your bias is bullish, the NDOG may act as a liquidity draw. In this case, you would wait for the price to test and close above the NDOG, which would then serve as a support level. After a confirmed close above the NDOG, it may be appropriate to consider a long position.
Bearish Scenario
If your bias is bearish and the price is below the NDOG, you would wait for the price to retrace up to the NDOG. Upon receiving bearish confirmation signals like a Market Structure Shift on lower time frames, you might decide to enter a short position. Your target could be the next liquidity draw or a significant support level.
If the price is above the NDOG and your bias is bearish, you might expect the NDOG to act as a liquidity draw. You would then wait for the price to test and close below the NDOG, which would become a resistance level. After a confirmed close below the NDOG, entering a short position could align with your bearish outlook.
Leveraging Lower Time Frames
While NDOGs are identified on daily charts, executing trades effectively often requires zooming into lower time frames. The 5-minute chart is ideal for pinpointing precise entry and exit points, while the 15-minute chart is useful for confirming market structure shifts and trend continuations. Using lower time frames helps in capturing short-term price movements while aligning with the overall trend indicated by the NDOG.
Conclusion
Understanding the ICT New Day Opening Gap is a valuable skill that can enhance your trading strategy. By recognizing these gaps and knowing how to react to them based on your market bias, you can make more informed trading decisions. Remember, the key is to combine NDOG analysis with sound risk management and other technical indicators for a well-rounded approach.
Frequently Asked Questions (FAQs)
The NDOG is unique because it results from the daily one-hour trading halt between 5:00 PM and 6:00 PM New York time, from Monday to Thursday. Unlike other gaps caused by overnight news or economic events, the NDOG is a regular, predictable occurrence that traders can plan for in their strategies. Its predictability allows traders to use it as a consistent reference point for support and resistance levels.
NDOGs often attract price action because markets tend to fill gaps to reach fair value. When a gap occurs, it creates an imbalance between buyers and sellers. The market naturally seeks to correct this imbalance, drawing the price back to the gap area. This behavior makes NDOGs significant for identifying potential reversal points or continuations in price trends.
Absolutely. NDOGs are most effective when used alongside other technical analysis tools. For instance, combining NDOGs with Fibonacci retracements can help identify consequent encroachment levels. Incorporating moving averages can assist in determining overall market trends. Utilizing market structure shifts can confirm entry and exit points on lower time frames. Volume indicators can also be valuable for assessing the strength of price movements around NDOGs. By integrating NDOGs with these tools, you can enhance the accuracy of your trading decisions
The consequent encroachment, or the 50% retracement level of the NDOG, is often the most reactive point within the gap. It serves as a critical threshold where the price might reverse or accelerate in the direction of the trend. Traders watch this level closely for signs of buying or selling pressure, making it a strategic point for potential trade entries or exits.
On Fridays, the market closes for the weekend, and the gap that appears on Monday is referred to as the ICT New Week Opening Gap. This gap can be larger due to the extended closure and the accumulation of news and events over the weekend. When trading on Mondays, it’s important to be cautious. The New Week Opening Gap may present different dynamics compared to the daily NDOG. Reassess your bias by considering any new fundamental factors that may have emerged over the weekend. Adjust your gap analysis by using the New Week Opening Gap as a reference point, but be prepared for increased volatility. By adapting your strategy to account for these differences, you can better navigate the unique challenges presented at the start of the trading week.