Opening Range Breakout Trading Strategy

How to trade Opening Range Breakout?

This strategy is one of the most common trading strategies. It is easy and powerful system. We have to define key price level and waiting for break through. After break through we either buy or sell. Below you can find procedure and rutine how to trade this strategy for long position.

 

Based on these steps I decide if I enter the position or not.

 

Stock selection

How to select stocks or Index for Opening Range Breakout Trading Strategy?

– Stock has to correlate with index such S&P500, Dow 30, Nasdaq or Russell 2000

– Stock has higher beta factor than 1

– High volatility

– Stock has higher relative volume in pre-market than average volume

– Stock is moving because of an earnings report, news, dilution, insider trading, SEC filings,  etc.

 

Trading rules

– Wait 30 minutes after open market

– You define high and low value in this period

–  You trade either 5 minute or 15 minute timeframe

 

Entry conditions

Buy when the stock moves above the Opening Range High

and

at this moment is volume higher than average volume

and

this volume has buying sentiment (green bar)

 

Advanced Entry conditions

– breakout confirmation is stronger if Index SP500 is break through as well.

– check high, low value in pre-market session, because of news report or Asia and Europe markets.

– take note close value of previous day. It could define stronger high/low level.

 

Exit

set stop loss in half of initial 30 minute range

or

significant support

or

fix stop loss, such as 2 percent

or

30 minutes before close market

 

Money management

optimal risk/reward ratio is 1:3

 

Other

It depends on you if you will enter to position where is gap between close previous day and open present day.

According to other opinions, gap is dangerous. Rather dont trade this situation. On the other hand, there good oportunity for success trade.

 

Conclusion:

I have several conclusions.
First, I recommend set trailing stop, not profit target. If stock has trend up tendency, you would stay in position as long as possible.
Second, If you want to trade according to this strategy, you should enter to position, when whole market has positive sentiment.
Third, If you trade big market capital companies and during first 30 minutes stock go up more that 4 percent, there is not good outlook for big profit.

 


Would you like to read more detailed information about this strategy?
For instance:
How to choose volatile stocks.
How to find beta factor.
Where to find pre-market volume
or
would you like to see backtest?

In this case, please ask for private section entry on marek.traders@gmail.com email.

 


 

Temporary open private section for this article.

BACKTEST RESULTS 27.4.2020

test 1
condition: 27.4.2020, volatility> 3 percent, beta> 2, market cap> Billion, different sectors. Other conditions – unused
AMD – the stock dont moves above the Opening Range High. Stock went below opening range low. NO BUY
SQ – entry 63,69, max 64,18 => profit 0,77 percent. Close day 63.63
ET – all day in opening range. NO BUY
OKE – entry 27,58, max 28,52 => profit 3,41 percent. Close day 28,52
SIVB – entry 187,59, max 193,21 => profit 3 percent. Close day 192,18
THO – entry 61,37, max 63,63 => profit 3,68 percent. Close day 62,18

 

test 2

conditions: 27.4.2020, random select. Based on long-term observation.

ROKU – entry 129,90, close day 128,40 => profit -1,15 percent. BUY, but price went down. Set stop loss -2 percent, but did not hit. Sell on the close day

T – entry 30,11, max 30,63 => profit 1,73 percent. Close day 30,48

MU – all day in opening range. NO BUY

 

test 3

conditions: 27.4.2020, based on news.

GM – premarket analysis: negative news, entry 21,84, max 22,56 => profit 3,3 percent. Close day 22,47

V- premarket analysis: higher price target estimate, entry 169,93, max 172,33 => profit 1,44 percent. Close day 171,40. Stock went down about -0,68 percent. Stop loss -2 percent was not executed.

 

conclusion:

I have gotten very surprising results. According to entry rules I have chosen 11 stocks.
Three stocks were neutral. There were not impulses to buy. All day prices moved in opening range.
Six stocks have moved above opening range. these stocks to rised. There were profit.
Only one stock I had to sell with loss.

Stocks had circa 3 per cent profit. I will try to set profit target to 2,5 percent next time.
In my opinion fix stoploss could be less than 2 percent for intraday trading.

In this backtest I wanted to sell stocks before end of market day.

I take note, that macro economic data for this day were positive. Indexes grew up.

 


BACKTEST RESULTS 28.4.2020

test 1
condition: 28.4.2020, volatility> 3 percent, beta> 2, market cap> Billion, different sectors. Other conditions – unused
AMD – the stock dont moves above the Opening Range High. Stock went below opening range low. NO BUY
SQthe stock dont moves above the Opening Range High. Stock went below opening range low. NO BUY
ET – the stock dont moves above the Opening Range High. Stock went below opening range low. NO BUY
OKE – entry 29,93, exit max 30,59 => profit 2,21 percent. Close day 30,45. Above ORH in the middle of session. Earlier it was below ORH
SIVB – the stock dont moves above the Opening Range High. Stock went below opening range low. NO BUY
THO – inside ORH range all time of session

 

test 2

conditions: 28.4.2020, random select. Based on long-term observation.

ROKU – the stock dont moves above the Opening Range High. Stock went below opening range low. NO BUY

T – entry 31,10, exit 30,61 => loss 1,58 percent. Close day 30,61. Sold on the last day bar

MU – the stock dont moves above the Opening Range High. Stock went below opening range low. NO BUY

 

test 3

conditions: 28.4.2020, based on news.

GM – the stock dont moves above the Opening Range High. Stock went below opening range low. NO BUY

V- the stock dont moves above the Opening Range High. Stock went below opening range low. NO BUY

BA – the stock dont moves above the Opening Range High. Stock went below opening range low. NO BUY

BYND – inside ORH range all time of session

F – the stock dont moves above the Opening Range High. Stock went below opening range low. NO BUY

MMM – the stock dont moves above the Opening Range High. Stock went below opening range low. NO BUY

 

 

 

conclusion:

Purchase opportunities were more poor than yesterday. I have checked 15 stocks. Only 2 stocks moved above opening high range. OKE ticker was successful, profit 2,21 percent. I have entered to position in the middle of session. Second stock was not profitable. I lost 1,58 percent. Again I entered to position almost on the end of session. Question. Should I enter to trade in this time? I dont think so. There is not space for volatility and profit.

I have to take note, that backtest profit or losses do not include fee.

 


BACKTEST RESULTS 29.4.2020

test 1
condition: 29.4.2020, volatility> 3 percent, beta> 2, market cap> Billion, different sectors. Other conditions – unused
AMD – no entry signal
SQ – BUY.  exit fix stoploss -2 percent
ET – BUY. max profit 9 percent
OKE – BUY. max profit 3,13 percent. After max. value stock went down. Different -4 percent from buy price.
SIVB – BUY. max profit 0,88 percent. After max. value stock went down. Different -1,4 percent from buy price.
THO – BUY. max profit 2,79 percent. After max. value stock went down. Different -1 percent from buy price.

 

test 2

conditions: 29.4.2020, random select. Based on long-term observation.

ROKUBUY. max profit 0,88 percent. After max. value stock went down. Different -2,8 percent from buy price.

T – BUY. max profit 1,05 percent. After max. value stock went down. Different -0,35 percent from buy price.

MUBUY. max profit 5 percent

 

test 3

conditions: 29.4.2020, based on news.

GM – BUY. max profit 3,06 percent. After max. value stock went down. Different -0,5 percent from buy price.

V- BUY. max profit 0,99 percent

BA – BUY. max profit 4,13 percent. After max. value stock went down. Different -1,66 percent from buy price.

BYND – BUY. max profit 0,72 percent. After max. value stock went down. Different -2,7 percent from buy price.

F – BUY.  lowest -4,72. exit fix stoploss -2 percent

MMM – no entry signal

 

 

conclusion:

I have tested same 15 stocks as yesterday. Description was little bit different. In case of entry signal, I bought a stock. I wrote maximum profit or loss in percent, because absolute values are not necessary. If I bought and stock went down during session, I wrote loss value in percent as well.

There were two stock without entry signal. Two stocks went down atfer entry. I realized loss.
Furher 11 stocks went up. After maximum value went down.
It depends on stoploss/profit target configuration.

Anyway, the best solution is trailing stoploss function.

 


 

BACKTEST RESULTS 30.4.2020

test 1
condition: 30.4.2020, volatility> 3 percent, beta> 2, market cap> Billion, different sectors. Other conditions – unused
AMD – BUY. loss -3,84 percent
SQ – no signal for entry. 
ET – BUY. max profit 5,62 percent. Dropdown from buy price is 3 percent
OKE – BUY. loss -4,65 percent
SIVB – no signal for entry. 
THO -no signal for entry. 

 

test 2

conditions: 30.4.2020, random select. Based on long-term observation.

ROKU – BUY. loss -2,91 percent

T – no signal for entry. 

MU – no signal for entry. 

 

test 3

conditions: 30.4.2020, based on news.

GM – no signal for entry. 

V- no signal for entry. 

BA – BUY. loss -3,19 percent

BYND – BUY. max profit 2,28 percent. Dropdown from buy price is -5,86 percent

F – no signal for entry. 

MMM – no signal for entry. 

 

conclusion:

I have chosen same stocks like yesterday. For many stocks there were not signal for entry. In 4 cases I lost position. Two stocks went up. I got profit. However, during a day these stocks went down as well.
My conclusion sound: If global market sentiment is negative as well as futures are negative too, than there is not opportunity for entry.

 


BACKTEST RESULTS 1.5.2020

test 1
condition: 1.5.2020, volatility> 3 percent, beta> 2, market cap> Billion, different sectors. Other conditions – unused
AMD – no signal for entry. 
SQ – no signal for entry. 
ETno signal for entry. 
OKE – no signal for entry.
SIVB – no signal for entry. 
THO -no signal for entry. 

 

test 2

conditions: 1.5.2020, random select. Based on long-term observation.

ROKU – no signal for entry. 

T – no signal for entry. 

MU – no signal for entry. 

 

test 3

conditions: 1.5.2020, based on news.

GM – no signal for entry. 

V- no signal for entry. 

BA -no signal for entry. 

BYND – no signal for entry. 

F – no signal for entry. 

MMM – BUY. loss -0,93 percent

 

conclusion:

From 15 stocks I could buy only one stock. I did not get signal for entry. Main reason was negative macroeconomic sentiment. Index SP500 fall about 2,7 percent.