8/1/2020 An Early Morning Trader Strategy: The Opening Range Breakout - PLblog

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An Early Morning Trader Strategy: The Opening

Range Breakout
 Sandip Raichura    August 25, 2019    No Comments

There is a very popular strategy called ORB (Opening Range Breakout) which intraday traders use to attempt
to pro t from the day’s opening action.

In one of our previous blogs, we had written  about the Open =High /Low strategy
(https://www.plindia.com/blog/using-the-open-high-low-strategy/) .

We present below a simple overview of one could formulate this strategy at their end OR maybe use one of
the free screeners available on the internet.

The Trading Strategy

ORB is a well known concept discovered by Toby Crabel. It is a variation of his classic N-bar breakout system
and is one of the simplest day trading set-ups to understand.

The rst hour / half hour of the trading day is the most volatile – This is calling the Opening Range. As bears
and bulls battle it out for controlling the day, the volatility creates a price-range one can trade from, using it as
the basis for decision making.

ORB trading has several variations practiced by traders all over the globe. Some traders trade on a signi cant
breakout from opening range, while others trade immediately on opening range breakout. The initial time
window for the trades also varies from 30 minutes to 3 hours though quite a few prefer a one hour time
window.

The highs and lows of this opening time frame are taken as support and resistance and the basic rule is
essentially very simple.

1. Buy when the stock moves above the Opening Range high.
2. Sell when the stock moves below the Opening Range low.


Possible General Rules

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8/1/2020 An Early Morning Trader Strategy: The Opening Range Breakout - PLblog

Each trader has his or her own preference but common rules mostly have similar elements. Amongst them is
the use of the 5 minute candle – Entry in a trade could be made on close of the rst 5 min candle outside the
opening range accompanied by Volume con rmation – that is, the Breakout candle should show increase in
volume .

An optional con rmation could  be via any of the two popular indicators – MACD or Stochastics apart from a
cross of the 5 EMA (exponential moving average).

Traders may use a 5 min chart with 5 EMA / 20 EMA to start making trading decisions.

Possible Rules for Buy

Stock should be trading above the 20 EMA line before the breakout.
Buy when the 5 minutes candle closes above the opening range.
5 EMA line should be above the opening range at the time of breakout.

Booking Pro ts

When the 5 min candle closes below the 20 EMA in the case of longs and vice versa for sells.

Stoploss
The Initial Stoploss could be  kept as the low of the Opening Range while trailing could be at the 20 EMA level.
A close of 5 min candle below 20 EMA con rms exit.

Additional conditions

The Opening Range breakout is above previous day’s high for buy while The Opening Range breakout is below
previous day’s low for sell.

Trade is in the direction of higher time frame charts (15 min /30 min).
Overall Market is moving in the direction of the trade.
Opening range breakout happens after brief period of consolidation.
Always exit at the end time of the day.

Important

If the opening range is too wide, better do not trade ORB, since the Stops will be very far in the system.
Avoid Opening Range Breakout trades in case of a heavy news ow day.

Using this strategy

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8/1/2020 An Early Morning Trader Strategy: The Opening Range Breakout - PLblog

The strategy is essentially a simple one so don’t over complicate it by adding too many indicators – use your
shortlisted stocks and focus only on those for the day. And keep tight non negotiable stoplosses – and
diversity in trades.

One could make an excel out of the above or use any of the free screeners available on the internet which
allow you to (example, https://chartink.com/screener/orb) customize the trade criteria.

Follow and observe the results for some days using paper trading or if you are advanced, you may want to
back test these on a system like Ami broker.

You may use our Mobile App (PL Mobile App) to chart these stocks on a live tick by tick basis and track their
movements during market hours or put in the trades with your desired stop loss levels.

If you are interested in learning more about technical analysis, contact us at www.plindia.com/placademy or
alternatively , if you wish to get in touch with us to open an account or be assisted in stock picking , email us at
info@plindia.com

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