The opening range breakout trading strategy is one of the most important technique in a day trader’s arsenal.
The opening range is the high and low of a given period after the market opens . We do backtesting to determine which timeframe is well suited for orb startegy for different stocks.
The strategy is simple.
Buy when the price breaks the high of the range. If the stock prices breaks above 15 min candle, you buy and keep stop loss at the low of the range.
Sell when the price breaks the low of the range. If the stock prices breaks below 15 min candle, you sell and keep stop loss at the high of the range.
Before taking the trade, always think of the exit strategy. Some guys exit when reward hits 2x of the risk(stop loss) while some exit at nearest supports and some degenerates want to ride it to the fullest. It’s your wish how you want to exit.
But the most efficient way to ride their profits is with using 20 ema. If the price crosses and close above/below 20 ema simply exit and enjoy the profit.
Things to consider before the trade.
- We need to choose the timeframe for the opening range.You can use any time frame from 5min to 2 hr. I use 15m for most most of my orb trades.
- Always respect Support and resistance levels in daily timeframes and align the strategy with the price action
- Check volume near breakout/breakdown levels of the range, a high volume increase confirms the break.
- Check overall trend of the market, if the trade is in the same direction you will mint huge money and if its opposite be cautious.
- ORB breakout is above/below the previous day high/sell, if this is true it ensures high probability for the trade to succeed
- Don’t trade very wide ranges, stops will be brutal to handle.
Follow the simple rules and you will be rewarded. You need to sit tight and hold you nerve in order foe strategy to make you money. Always log your results and continue to improve. Like orb works very well in trending days while not so good in consolidation days.
Bonus – ORB with Gap
Opening range breakout with gap specially is my favorite. Since gap tends to get filled as soon as possible, trading the gap with orb gives a high probability setup. Consider this scenario.
So price gapped up considerably due to some news flow. If the price now breaks down the opening range eg. 15 min, we can enter the trade with high of the range as the stop loss. It means that people most likely booking their profits when they saw a gapped up stock. Take your profits just slightly above when price fills the gap. You can also ride it with 20 ema if you want.
If price moves in the direction of the gap, it shows a massive interest in the stock by speculators. This generally means the news or even is very positive for the stock. Just follow the same Strategy foe entry and exits.
Follow similar strategy in case of Gap downs.
“It was never my thinking that made the big money for me. It was always my sitting.”