Intraday trading is such a field where the opening hour is the most active and dynamic. Here, traders can make money quickly but at high risk. The Opening Range Breakout strategy is a setup for intraday. The strategy is highly effective in the first 30 min or 1 hour of trading. This article will define the complete detail of the Opening Range Breakout or ORB Strategy along with the steps to apply.
Opening Range Breakout FAQ
Usually, after the opening bell, in the first 30 min considers the biggest price movement period. In order to find out the opening range, we need to calculate the first 15-30 min high-low price. Monitoring the normal candlestick can give you the best result in determining the opening range.
You need to open the trade in the direction of the breakout. Now, place a stop loss in the middle of the opening range. So, stay in the trade for a minimum price move that is equal to the size of the morning gap. Chart Pattern Gap Pullback Buy happens when the price action finishes a pullback after the creation of a big bullish gap.
ORB trading strategy is quite popular among the trader’s community. The reason is it lets you make quick money. And traders love this technical analysis setup very much. So, in the ORB trading strategy, certain things one needs to consider first. First, of all, just take the time frame so that a range can be formed.
Basic Opening Range Breakout or ORB Strategy
The breakout strategy is quite simple. When the price of a stock cross the 15-30 min opening range, it considers an opening range breakout. Based on the breakout pattern, it can be figured out that the bullish or bearish trend. One of the best things about the trade is that the entry-exit point is easily identifiable. Toby Crabel has developed this concept.
Opening Range Calculation
First, you need to calculate the opening range by using the high and low of the first 15-30 min candle. After that monitor the price and breakout pattern. There is a detailed discussion on the opening range calculator. If you are interested, you may go through our site for the content.
Multiple ORB Strategy To Trade
So the stock market opening period is a specific on-chart phenomenon and that can be approached in many ways. Now, that we have already covered the technical structure, let’s discuss further the day trading strategies.
Strategy #1 – Early Morning Range Breakout
This is probably one of the best opening range formulae. The early morning range (first 30 minutes is taken generally) breakout emphasizes the size of the gap along with the breakthrough’s low/high. As per this strategy, once you identify the gap boundaries, you need to trade in the breakout direction.
Moreover, you should remember that breakouts later in the day should be taken carefully. And, you should always be cautious while trading the early morning range breakout. However, the exact right place for the stop loss is the mid-point of the gap.
Strategy #2 – Chart Pattern Gap Pullback Buy
The gap pullback buy is another popular idea for trading the opening range chart. Hence, this trading strategy is applied only for bullish gaps. If you are able to spot a bullish gap on the chart, the price may immediately start moving contrary to the direction of the gap. It is a pullback theory. So, the main purpose of this trading strategy is to forecast the end of the pullback.
The aim of this trading strategy is to forecast the end of the pullback.
Features of ORB Strategy
- The best time frame to calculate the opening range is 5 min, 15 min, and 30 min. It is after the opening bell of the market.
- Put stop loss target according to the range.
- Though Range breakout doesn’t define the trend anyway, traders need to analyze properly to identify the trade here.
Conditions for a High Probability of Success
- The Opening Range breakout must be above yesterday’s high for buy.
- The Opening Range breakout must be below yesterday’s low for sale.
- Trade is in the direction of higher time frame charts like 15 or 30 minutes.
- Overall Market is moving in the same direction as trade.
- ORB happens after a short period of consolidation.
2 Important Points to Remember Regarding Opening Range Breakout
- Now, if the opening range is too big, it is better to do not to trade ORB. As the SLS will be very far in our system, one can use other trading systems in this type of case.
- And, in case of a heavy news-flow day try to avoid Opening Range Breakout trades. Just like inflation, manufacturing, policy decisions, etc. So, you can use other trading systems once the market settles down after the news.
ORB Strategy AmiBroker AFL
Here is the AFL formula for the ORB that you can use on AmiBroker software. This trades the morning 09:45 AM breakouts and closes the trades before the market close. You can copy the AFL formula code from below.
Video on the ORB Strategy
We have a video on trading the early morning breakouts in the Bank Nifty index. This is really profitable in the backtest results.
Conclusion
Opening Range Breakout (ORB) is the most commonly used trading pattern by professional as well as amateur traders. It has the potential to deliver high accuracy if done with optimal usage of indicators, strict rules, and a good assessment of the overall market trend. This system is highly applicable for intraday trading. So you can easily make profitable trades by using this strategy. ORB become quite popular nowadays.