Opening Range Breakout StrategyOpening Range Breakout Strategy
The Opening Range Breakout (ORB) is a classic trading strategy designed to capitalise on volatility during the first few minutes following the market's opening bell. Rooted in principles laid down in the 1960s, the strategy remains relevant today for both stock and forex markets. This article dives deep into the ORB strategy and its application in these markets.
Overview of the Opening Range Breakout Trading Strategy
The ORB, or the Opening Range Breakout, is a tried-and-true approach in the world of trading that focuses on the price range established shortly after a market opens. Invented in the 1960s by American trader Arthur Merrill, this strategy has stood the test of time, with variations and adaptations made to suit modern trading environments.
ORB operates on the principle of monitoring price movements within a set time, typically the first 30 minutes after the market opens—common timeframes include 5, 15, and 30 minutes. The strategy zeroes in on the highest and lowest prices reached during this opening range. However, some traders will use the close of the previous trading day as their initial high or low.
Traders keen on trading the opening range breakout pay close attention to these high and low levels, as a breakout or breakdown from these levels can indicate a strong trend.
Using the ORB for Stocks
Trading the Opening Range Breakout in the stock market offers distinct advantages, primarily due to the well-defined opening and closing times of the stock exchanges. These regulated timeframes provide a clear structure for implementing the ORB strategy. Typically, stock traders focus on the initial 5 to 30 minutes post-opening bell to define the range, as this period often captures the essence of market sentiment.
Liquidity is usually high during this time, and volumes are significant, making it easier to enter and exit positions. The strategy is particularly effective in identifying trends early in the trading session. However, it's crucial for traders to also consider the current trend. Looking for entries in the broader trend direction can reduce the odds of being misled by a false breakout.
Using the ORB for Forex
In forex, the Opening Range strategy can also be effectively applied, albeit with some unique considerations. Unlike the stock market, forex operates 24 hours a day, five days a week, with no clearly defined opening or closing times. Despite this, traders can still focus on specific trading sessions—such as the London, New York, or Tokyo sessions—to define an opening range.
Liquidity and trading volume can vary substantially between these sessions, affecting a trader’s success when using the opening range breakout method. Additionally, it's essential to be mindful of currency pairs; each pair may have increased activity and, therefore, more reliable breakouts during the session of its originating country. Lastly, given the almost continuous trading, overnight gaps are rare, making a careful session-based approach critical for forex ORB.
Breakout Strategy
The opening breakout strategy is a widely used approach to capitalise on strong upward or downward movements that break the defined opening range.
To see how it works for yourself, you can head over to FXOpen’s free TickTrader platform. There, you’ll be able to explore a wide range of forex and stocks to test this strategy out.
Entry
Traders often monitor the price as it approaches the high or low of the opening range, typically using the 5, 15, and 30-minute charts. The opening range is generally defined as the first 30 minutes of the session.
Entry confirmation typically comes from a candle closing above the high for a bullish breakout or below the low for a bearish one.
Stop Loss
A stop loss is commonly set just below the opening range high for bullish trades or above the low for bearish trades. Factors like market volatility and liquidity are often taken into consideration when placing the stop loss.
Take Profit
The target profit is often set at a distance at a given risk/reward ratio, like 2:1 or 3:1, measured from the entry point to the stop loss.
Consideration is usually given to major support or resistance levels that lie beyond the target, which could affect the trade's success.
Pullback Strategy
The pullback strategy within the ORB framework offers traders an alternative approach that seeks additional confirmation before initiating a trade. This strategy can be particularly useful in markets where false breakouts are common.
Entry
Rather than entering immediately on a breakout, traders often wait for the price to break beyond the opening range and then retrace back to the high or low of that range or to a relevant support or resistance level within the range.
Stop Loss
Stop losses are typically placed a few pips below the low of the range for bullish trades or a few pips above the high for bearish trades to accommodate market noise and volatility.
Take Profit
Profit targets are commonly set based on a risk/reward ratio that aligns with the trader's overall strategy.
These targets may also be adjusted depending on subsequent support or resistance levels.
The Bottom Line
The ORB strategy offers traders a robust framework for capturing significant price movements in both stock and forex markets. Whether opting for the traditional breakout method or the more cautious pullback strategy, understanding the nuances of each market can enhance the ORB's effectiveness. Interested in deploying this strategy? Consider opening an FXOpen account to access a wide selection of markets, rapid execution speeds, and competitive trading costs. Good luck!
This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.
Openingrangebreakout
Copper Supply Zone Copper JUST missed our supply zone entry located above the opening range.
Very Clear DBD (drop base drop) formation on the 15 min chart.
We called this out today in the live room. Hopefully we get another shot at this. You never know what is going to work. You can only trade what you see taking place on the chart at that moment.
Timely Opening Range Breakout Strategy (TORB)Today, I’ll tell you about an amazing research study back from 2019 by a team of Taiwanese researchers, “Assessing the Profitability of Timely Opening Range Breakout on Index Futures Markets.”
Takeaway: The study's results are compelling. Implementing the TORB strategy yielded over 8% annual returns across the tested markets. Remarkably, the TAIEX index showcased a staggering 20.28% annual return. These numbers underline the potential of TORB in maximizing trading gains.
█ What is Open Range Breakout?
Open Range Breakout (ORB) is one of the simplest and safest strategies day traders use in a relatively low-volatility market. Opening Range means exactly just that. You check an asset's highest and lowest price in a certain time frame (usually 15 to 60 minutes) from the market's opening time.
These levels become your resistance and support that guide your trading plan for that day. Say if your chosen stock price goes higher than the highest level after the opening range; it indicates a bullish run for the day. Conversely, it indicates a bearish run if the price loses support in a downward trend.
█ Timely Opening Range Breakout Strategy
ORB has a certain set of challenges, especially for volatile markets. The Timely Open Range Breakout (TORB) strategy has been proposed in response to these challenges.
TORB leverages high-frequency intraday data and aligns trading strategies with the active hours of the underlying stock markets.
By analyzing one-minute intraday data from 2003 to 2013 across various markets, including DJIA, S&P 500, NASDAQ, HSI, and TAIEX, the study by Yi-Cheng Tsai et al. demonstrates the effectiveness of this strategy.
The key lies in identifying the 'active hours' of the market, aligning with the opening range of the underlying index.
█ 1. PMMV and PMVR:
The research paper introduces two critical variables for the TORB strategy: Per-Minute Mean Volume (PMMV) and Per-Minute Variance of Return (PMVR). These metrics are essential in identifying the most active hours for futures market trading.
PMMV provides a snapshot of the market's activity level at each minute of the trading day. PMVR is crucial for understanding the volatility or the degree of fluctuation in the market at each minute.
PMMV (Per-Minute Mean Volume) is calculated by averaging the trading volume in a one-minute interval over a specified number of trading days.
The graph shows that the German 40 is most active during the London opening and 30 minutes into the New York opening.
PMVR (Per-Minute Variance of Return) measures the variance of the one-minute returns, calculated as the logarithmic difference between the closing prices of one-minute intervals.
Using PMVR, the German 40 is most active during the London opening session and approximately one hour into the New York session.
█ 2. TORB Trading Rules:
Basic ORB trading rules are applied here.
Buying pressure dominates if the price moves above the resistance level, suggesting potential upward price movement. Conversely, selling pressure prevails if the price falls below the support level, indicating a possible downward trend.
These rules are applied within the active trading hours, defined by the PMMV and PMVR metrics.
Buy Signal
Sell Signal
The strategy also defines three key time points: the beginning of the observed period, the end of the observed period (probe time), and the time of closing the position. The prices at these specific times determine the conditions for buying and selling.
█ 3. Data Sets:
The study utilized two main datasets for its experiments:
Intraday Data of Five Futures Markets: This dataset includes one-minute intraday data of the E-mini futures of the DJIA, S&P 500, NASDAQ 100, HSI (Hong Kong), and TAIEX (Taiwan). The period covered ranges from 2001/2003 to 2013, providing a comprehensive overview of these markets over a decade.
Transaction Data for TAIEX Index Futures: This dataset contains detailed transaction data for the TAIEX index futures, covering the period from 2006 to 2013. It analyzes the relationship between TORB signals and trader behavior in the Taiwanese market.
Interestingly, the research even considers the global financial crisis of 2007-2008, presenting test results for two sub-periods: before and after 2007. This approach ensures a thorough understanding of the strategy's performance across different market conditions.
█ Results and Analysis
1. TORB Profitability Test:
The TORB profitability test involved back-testing the strategy for the five futures markets.
DJIA, S&P, and NASDAQ results revealed that strategies with probe times in the early stages yielded significantly higher annual returns.
DJIA: The results showed that TORB transactions decreased as the probe time moved away from the beginning of active hours. This implies that the strategy was most effective when applied close to market opening times.
S&P and NASDAQ: Similar to the DJIA, these markets also showed that strategies with early-stage probe times earned higher annual returns.
Additionally, the TAIEX results demonstrated that TORB strategies earned significantly higher returns with probe times of less than 200 minutes.
2. Impressive Returns:
The study's results are compelling. Implementing the TORB strategy yielded over 8% annual returns across the tested markets. Remarkably, the TAIEX index showcased a staggering 20.28% annual return. These numbers underline the potential of TORB in maximizing trading gains.
It also found that the best probing times were shorter in the U.S. markets and longer in Asian markets.
The research demonstrated that TORB strategies yielded consistently higher returns than traditional TRB (Trading Range Breakout) strategies, with no significant results in profitability tests for all TRB strategies across the five futures markets.
To provide a clear picture, here's a summary of the daily returns for each market analyzed:
E-mini DJIA: See Table 1 from the research paper
E-mini S&P: See Table 2 from the research paper
E-mini NASDAQ and HSI: See Tables 3 and 4 from the research paper
TAIEX: See Table 5 from the research paper
The active hours, identified by peaks in PMMV and PMVR, played a crucial role in the strategy's success.
For instance, the E-mini DJIA showed peaks around 8:30 AM and 3:15 PM, coinciding with the opening and closing times of the underlying market. Similarly, peaks were observed for HSI around the opening, closing, and lunch break times.
█ Relationship Between TORB Signals and Trader Behavior
The study also examined the relationship between TORB signals and trader behavior, particularly in the TAIEX futures market.
It was observed that the daily volume for individual traders was about twice that for institutional traders. The returns of the TORB strategies were positively related to the net buy positions of institutional traders both before and after the breakout.
This suggests that by following the TORB signals, one could trade in the same direction as institutional traders and obtain positive returns.
Specifically, the returns of the TORB strategies were significantly and positively related to foreign investment institutions, both before and after the breakout, indicating that TORB signals align with the trading direction of the most informed traders in the Taiwan market.
█ Reference
Y.-C. Tsai, M.-E. Wu, J.-H. Syu, C.-L. Lei, C.-S. Wu, J.-M. Ho, and C.-J. Wang, "Assessing the Profitability of Timely Opening Range Breakout on Index Futures Markets," IEEE Access, vol. 7, pp. 32061- 32071 Mar. 2019.
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Disclaimer
*Our results are approximate. We encourage you to test the assumption yourself. We do not guarantee that you will get the same results. This is an educational study for entertainment purposes only.
The information in my Scripts/Indicators/Ideas/Algos/Systems does not constitute financial advice or a solicitation to buy or sell securities. I will not accept liability for any loss or damage, including without limitation any loss of profit, which may arise directly or indirectly from the use of or reliance on such information.
All investments involve risk, and the past performance of a security, industry, sector, market, financial product, trading strategy, backtest, or individual's trading does not guarantee future results or returns. Investors are fully responsible for any investment decisions they make. Such decisions should be based solely on evaluating their financial circumstances, investment objectives, risk tolerance, and liquidity needs.
My Scripts/Indicators/Ideas/Algos/Systems are only for educational purposes!
Review & plan for 13th December 2023 Nifty future and banknifty future analysis and intraday plan in kannada.
This video is for information/education purpose only. you are 100% responsible for any actions you take by reading/viewing this post.
please consult your financial advisor before taking any action.
----Vinaykumar hiremath, CMT
Is GBPUSD going to hit its daily target - Stretch principleThis trade we are looking at on GBPUSD is based on the stretch principle. We have entered on a pending order where the high was for today as in the chart image. We are taking the trade according to our smart money framework indicator and our trend alignment with the the higher timeframes.
E - 1.2690
SL - 1.2654
T - 1.2715
So far,it is going in our favour as it has taken out the upper stretch line which gives the bigger range from open(BRO) a higher probability to form in that direction. We will be tracking this move and managing it as we go along. Keep a look out for it traders.
To understand our ideas and videos better,we highly recommend watching our following stream videos:
1. 7 steps to achieve consistent trading performance
www.tradingview.com
2.7 steps for strategy construction
www.tradingview.com
3.Stretch principle videos
Refer to related ideas links as below
Is Brent going to hit its daily target - Stretch principleThis trade we are looking at on Brent oil is based on the stretch principle. We have entered on the close of the confirmation bar(the one with the dot) according to our smart money framework indicator and our trend alignment with the the higher timeframes.
E - 1.2643
SL - 1.2547
T - To be confirmed(TBC)
So far,it is going in our favour as it has taken out the upper stretch line which gives the bigger range from open(BRO) a higher probability to form in that direction. We will be tracking this move and managing it as we go along. Keep a look out for it traders.
To understand our ideas and videos better,we highly recommend watching our following stream videos:
1. 7 steps to achieve consistent trading performance
www.tradingview.com
2.7 steps for strategy construction
www.tradingview.com
3.Stretch principle videos
Refer to related ideas links as below
Is E-mini futures 15min bottom going to hold for Daily RangeWe are looking at a potential entry on 5min bottom confirmation by the Smart Money and the VSA lite indicator. It is supported by the volume spikes as you can see on the chart image for the 15min bottom to hold. We are looking for price to go upward and hit the target in regards to capturing the daily ATR range. Reference videos to watch are the stretch principle videos originated by institutional quant traders which are included below.
Live Trading Session 225: Live trading with ST,SMI and VSAIn this live trading session video, we are looking at a live trade position on the GBPUSD using the Stretch principle,SMI and VSA methodology. Remember that the knowledge shared here are powerful cross-transferrable principles that can be applied with any intra-day or end of day strategy.
Live Trading Session 224: Live trading with ST,SMI and VSAIn this live trading session video, we are looking at a live trade position on the GBPUSD using the Stretch principle,SMI and VSA methodology. Remember that the knowledge shared here are powerful cross-transferrable principles that can be applied with any intra-day or end of day strategy.
Live Trading Session 223: Putting it altogether based on ST(5/5)In this live trading session video, we are looking at how we put all the parts together based on the stretch principle along with the volume spread analysis methodology. We show you an example of the strategy rules you need to consider to put the strategy together and trade with conviction. Remember that the knowledge shared here are powerful cross-transferrable principles that can be applied with any intra-day strategy.
Live Trading Session 222: Potential trades on S&P and GoldIn this live trading session video, we are looking across different instruments to identify the highest probability trades using the stretch principle and trend correlation. Do reflect on these points to incorporate them into your own strategy.
Live Trading Session 221: Trade update for DAX & BRTIn this live trading session video, we are doing a trade update on the potential trades that we were looking at earlier on BRTUSD and DAX using the stretch principle, smart money and volume spread analysis methodology. Main points to take away are to look at trend correlation across multiple timeframes and take the BRO in that direction.
Live Trading Session 220: ST Principle,VSA and Trend CorrelationIn this live trading session video, we are looking across different instruments to identify the highest probability trades using the stretch principle, trend correlation and VSA methodology. Do reflect on these points to incorporate them into your own strategy.
Live Trading Session 219: Trade update for Brent using SMI & VSAIn this live trading session video, we are doing a trade update on the OIL trade that we took earlier using the stretch principle, smart money and volume spread analysis methodology. Main points to take away are to think cumulative and extract the cross transferrable principles to use in your own strategy.