Trading Strategy:
Opening Range Breakout
A Detailed Guide to Mastering the Opening Range Breakout
In this article I’m going to do a deep dive into the opening range breakout. I’ll give you my opinion and thoughts on the strategy as a whole.
Then you can make an informed decision as a day trader whether you want to add the opening range setup to your trading playbook. Or not…
I’ll cover important trade setup aspects like:
- What exactly is the opening range breakout?
- When might you use the opening range breakout strategy?
- The setup rules
- 5 vs 15 minute opening range
- Stop loss and target parameters
- and more...
I’ve also included a copy of a trading webinar I was asked to present covering the orb strategy in more detail.
At the end of the article, I’ve got a link to an opening range breakout indicator for Trading View.
It’s a cool little script I had a developer code up for me to help test different methods and variables. (yours for free)
More on that later…
Let’s begin…
Contents (tight on time? skip to your chosen section)
What is the Opening Range Breakout Strategy?
Firstly let’s just get a grip on what the heck the ORB is…
The Opening Range Breakout (ORB) is a day trading strategy that involves buying or selling after the “opening range” of a trading day has been established, with the aim to capitalise on the emerging trend.
The opening range is subjective, (more on that later) but typically defined as the first 5, 10, 15 or 30 minutes of trading.
That’s the textbook definition, and it isn’t far off.
The whole objective for us as day traders is to identify when we could possibly have a persistent trend day and then use the opening range breakout play to trigger a trade entry early on in the day.
WEBINAR: The Opening Range Breakout Trade
If you want to skip the text and prefer watching a video, then this webinar covers the ORB in detail.
Pros and Cons of The Opening Range Breakout
ORB Upsides
- Simple trading rules
- Clearly defined stop loss
- Requires little screen time to trade
ORB Downsides
- Can be late to enter if the open is explosive
- Stop can be wide
- Poor performance on range days
The ORB rules are quite simple, but to really get the most of it, knowing when to deploy the trade setup is key.
Toby Crabel
Let me digress slightly and tell you a little story about Toby Crabel… the ORB OG.
Crabel runs Crabel Capital a hedge fund with around $8.5 Billion of assets under management.
He started his career working on the ORB and did a lot of work improving Wyckoff’s research
Like any good trader, he viewed the strategy through his own lens and made it his own.
Crabel noticed that the opening range could often indicate the direction of the market for the next few hours and even potentially a multi-day move.
Narrow Range 7
One of Crabel’s discoveries was that he found the opening range breakout trade to be most effective after a Narrow Range 7 (NR7) day – a day where the range is the narrowest of the last seven days. This often precedes a breakout or trend day.
So adding a screening filter that says “I will only trade the ORB after an NR7 day” can give you a better chance of getting on board a trend day. (DYOR here as always)
Day Trading With Short Term Price Patterns And Opening Range Breakout
Crabel documented all his findings and research in a book called. Day Trading With Short Term Price Patterns And Opening Range Breakout.
He published it and the book was a success!
But Crabel didn’t want his ‘trading secrets’ in the public domain so allegedly bought back all the books. He then went on to create a hedge fund (Crabel Capital) which is currently thriving.
Occasionally you see rogue copies of this book available for thousands of dollars.
I’m lucky enough to have one… mainly because I’m a total markets and trading nerd!
The point of that short story was to show you that the opening range breakout is a very useful trading strategy, but when to deploy it (after NR7 for example) is key.
Back to the topic!
ORB Rules and Parameters
The rules of the ORB strategy are clear and systematic, focusing on bracketing the ‘open’.
For instance, if the high in the first 15 minutes was $112.5 and the low was $110.75, a trader would go short (sell) after 15 minutes if the price drops below $110.75, or go long (buy) if it rises above $112.5.
The strategy has various parameters that can be tweaked, such as the width of the opening range, allowance for additional ticks before entering a trade, and the specific time for entering a trade.
One approach is to screen by daily chart patterns and apply the ORB strategy on a daily chart that aligns with the market theme. This could include anticipating a breakout, identifying the lower end of an uptrend channel, or considering earnings and catalysts.
15 minute opening range breakout
Using 15 minutes as your opening range is a good place to start. It’s short enough not to have a huge range play out, yet long enough to avoid the market noise.
Trading strategy rules for TESLA
- Bracket the opening 15m range
- Trigger a long entry when price breaks above $127.88
- Stop loss under the low @ $125
5 minute opening range breakout
Using 5 minutes is much more aggressive, you are potentially getting a better trade entry on the trend day, but at the cost of getting more chopped up.
Trading strategy rules for 5 min ORB
- Bracket the opening 5 minute range
- Trigger a long entry when price breaks above $279.64
- Stop loss under the low @ $276
Opening Range Breakout Stop Loss
The beauty of the ORB is that the trigger entry is very systematic, as is the stop loss criteria.
Basic rules state placing a stop under the low of the opening range for a long trade, or high for a short trade.
This is a great place to start if you are trying to capture a big trend day. (A slightly wider stop gives you more room to breathe)
If you aren’t looking for a whole day move, then a % of the range may better suit.
Opening Range Breakout Targets
Trade targets are one of those variables you can tweak and adjust to suit your trading style and particular trade objective.
For example, if you are aiming for a higher win rate and the cost of missing out on a big trend day you could set your stops at a RvR of 1. Eg: If your range is 75pts then your target would be a fixed 75pts
If your main objective is to capture big moves then you would have a wider target, or hold until the close. The downside of this is you will take more losses, so your % win rate will be lower. But when you do get one it will be a big mover.
There’s no right or wrong with this. Mould the trading strategy to suit your style.
Small targets
- Use a fixed RvR of 1:1 or 2:1
- Scale a portion at 1:1, then 2:1, 5:1 etc
- Trail a stop equal to the range distance
Larger targets
- Hold until end of the day
- Hold for a multi day momentum move
- Look for 10:1+
Improving the opening range breakout strategy
The key to really getting the most of this strategy is to be very strict when you deploy it.
ORB rules are simple yes, but if you take it every day on every market you will get chopped up.
Creating a clear filter process to only play the opening range break on the best days will improve its success rate massively.
This is where trading intuition comes into play… the trade itself is a mechanical trigger (buy a breakout) but the market you choose to trade is up to you.
How do you select your market?
One nice way to take this play is to screen by daily chart pattern, use technical analysis and only take the ORB on a daily chart that aligns with the theme:
eg: Price about to breakout on the daily chart
or an earnings catalyst.
Do you have a directional bias?
Another smart filter is to only position in the direction you believe has the most momentum.
So, identify or search for a market that has a strong daily chart bias before the open.
Then watch price action, and simply wait for your market to form the range. Then position in alignment with the higher timeframe when you get a trigger.
Let’s dissect an example. Our market is DAX.
DAX Opening Range Breakout
Imagine you’re a DAX trader and you’ve studied the daily chart. You see that price has closed the day strong, right at the top of the multi day range on the daily chart.
So the next day you want to align long only and use the opening range breakout method to get long.
DAX Daily Chart
Daily chart strong. Decent volatility. Price breaking the previous days high and closing at highs.
Prime for a breakout. You can now play the next day with more confidence that you are aligning with the higher time frame sentiment. Many traders miss this but I think it’s really important to assess price from this relevant time frame.
Intraday DAX chart next day
Next day, price makes a large opening drive.
As you are all ready prepared from your daily chart, you’d enter long on a 15 minute opening range price breakout candle in the same direction as the drive.
Price action is super strong, and after the market opens the initial move is a one way street.
The opening range low is never even tested!
If you can identify this before the trading session you have already done the hard work. You have a defined entry, defined risk, clear exit points.
(High-volume price moves from the market open in one direction often indicate nice momentum)
Before you go trade opening range breakout...
If you want to dig deeper into the ORB these links will help.
I also host a podcast, here are two episodes which might interest you:
A trading strategy is only as good as the trading pulling the trigger… Don’t forget to work on your trading psychology and discipline too!