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Trading Opening Range Breakouts

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1Trading Opening Range Breakouts Empty Trading Opening Range Breakouts Thu Dec 03, 2015 1:01 am

time is money

time is money

When identifying ranges that can open trading opportunities, one ranges can be put to use on a daily basis and that is the opening range.  The is a simple yet effective strategy for two reasons. First, identifying an opening range, the high and low over a set of time, helps a trader to build objective levels that they can use in order to build a bias or direction in which they will be entering trades.

Second, the ORB also allows them to understand when the trade is not working out as per their analysis and when it may be best to just cut losses. We discussed, that there are different time frames that an opening range can take place on in those different time frames require a different strategy, which will be covered in this article.

Before we get into the specific strategy, it's best to clear the air. The strategy does not intend to beat the market, as if that was possible to do. This strategy looks to join the market or rather the larger forces that move the market. The larger forces may be known as smart money, but whatever the appropriate name, when the market is moving aggressively we want to be moving with it and not against it or them.

The Day Trader

The main opening range that we are going to look at is the daily opening range. The daily opening range is a bit of a misnomer because it really only consists of the first 30 minutes of trading. In the equity markets the opening range breakout traders earned the name, the 10 o'clock bowls in the 1990s during the perennial .com bull market fueled by the bubble of stocks like Netscape, eBay, Amazon and the like.

Regardless of the specific stock names and market that the opening range was being traded on the concept is still valid and that concept is that once a breakout takes place three key level you either want to be trading in the direction of the breakout were getting out of the way.

When to Enter

Once you identify the high in the low over the first 30 minutes of a session, you then wait for a breakout in the breakout to hold for about 15 minutes or half the time of the opening range session you're looking at.

We do want to avoid, is a news spike where a non-significant news events caused a quick volatile move that is not technically significant to the overall trend to suck us into a portrayed. If, we've identified behind the low over the first 30 minutes and then we identify a breakout through the opening range high that lasts half the length of the opening range time for 15 minutes then we can set our stop either below the opening range low or in the middle of the opening range which does have a higher risk of being stopped out and look to capture as much of the day's move as possible. As you can imagine, this is an active strategy which could have you in five trades a week per instrument however, the benefit is that it doesn't cost you to over analyze the charts which many new traders and some experienced traders get in a poor habit of doing.

When to Close

Entering the trade is as simple as finding the breakout once the time requirement has been met. Exiting the trade requires a little bit more understanding of your preference.  Understandably, some traders want to get all of the days move and in that instance it's probably best that you hold the trade up to the end of the trading session and then close outs that you do not hold any overnight risk unless you want to turn this into a swing trade, which is your preference. Other traders quite simply want to just grab 15 or 20 pips as a profit target and leave for the day. This is understandable and is likewise up to the traders preferences.

The other scenario, of course, is that the trade gets stopped out. This would mean that the opening range breakout was not technically significance or did not grab the attention that you hoped it would when you enter the trade in the market is now starting to turn against you. Either way, it is better to get out when uncertainty arises then to hold onto risk and let the market trade against you as you sit and fear and hope that the market will turn back. In my formative years of trading markets the inability to take a loss was easily my largest tuition fees.

What Session To Trade

For those of you familiar to the Forex market you likely know that there are more than one sessions within a day. The trading day begins at 5 PM Eastern with the Tokyo or Asian trading session however, this session is not even good choice for the opening range breakout because the volatility is low relative to the other two session. That trading session leads into the London session which begins at 3 AM Eastern time and is easily the most volatile and best session for the specific opening range. The US session begins around 8 AM Eastern and is a very close second in terms of volatility and value of trading the opening range breakout.

Other Time Frames

We have covered how to trade the opening range breakout in this article spending the majority of our time on day trading the session opens. The weekly opening range, monthly opening range, and by annual opening range also encourage you to identify the high and low over that set period of time and then wait for the breakout to be confirmed to enter the trade. The difference between these sessions and the daytrading session is only the holding time but the theory is the exact same.

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