How to trade opening range breakout in 2020

How To Trade Opening Range Breakout In 2020 Made Easy written by Trade With Trend October 21, 2019 Contents 1 How To Trade Opening Range Breakout In 2020 Intraday Trading Strategies o 1.

How To Trade Opening Range Breakout In

2020 (Made Easy)

written by Trade With Trend October 21, 2019

Contents 1 How To Trade Opening Range Breakout In 2020 (Intraday Trading Strategies)

o 1.1 Opening Range Breakout – What Is Opening Range Breakout

o 1.2 Opening Range Breakout – Time Frame Selection

o 1.3 Opening Range Breakout – 3 Simple Intraday Trading Rules

 1.3.1 Opening Range Breakout – Volatility

 1.3.2 Opening Range Breakout – Relative Strength

 1.3.3 Opening Range Breakout – Volume

o 1.4 Opening Range Breakout – Identifying Strong Breakouts

 1.4.1 Opening Range Breakout – Importance Of Narrow Range

 1.4.2 Opening Range Breakout – Importance Of VWAP Indicator

 1.4.3 Opening Range Breakout – Importance Of High Volume Node

 1.4.4 Opening Range Breakout – Importance Of Stock Selection

o 1.5 Opening Range Breakout Strategy – How To Execute Trades

 1.5.1 Opening Range Breakout – Entry & Stop Loss

 1.5.2 Opening Range Breakout – Exit

o 1.6 Opening Range Breakout – How I Trade

o 1.7 Opening Range Breakout – How To Proceed

o 1.8 Opening Range Breakout Strategy – Trading Video

How To Trade Opening Range Breakout In 2020

(Intraday Trading Strategies)

Opening Range Breakout – What Is Opening Range

Breakout

An opening range breakout is a fairly simple strategy that involves taking a position when price

breaks above or below the previous candle high or low This can be used for different time frames depending on your preference

Opening Range Breakout – What Is Opening Range In Intraday Trading

The ‘Opening range’ is simply the high and low of a given period after the market opens This period is generally the first 15 minutes or the first 30 minutes of trading During this period, you want to identify the high and low of the day Once the high and low are identified, you then wait for price to move above or below this range And once this happens, you go ahead and

initiate the trade in direction of price move

Despite Advent Of High Frequency Trading, Opening Range Breakout Still Works Very Well.

Opening Range Breakout – Time Frame Selection

Every trader has a different preference for time frame and this is totally fine You have to be comfortable with the Time frame you trade Spend some good amount of time in thinking which time frame suites you best This will save you from lot of whipsaws going ahead.

The most common time frames in opening range breakout is 15 min and 30 min time frame For Equities, I have found 15 minute time frame to be really effective Especially if you choose to trade index futures and high beta stock futures For Commodities, 10 minute time frame works best for me Underlying principles of Opening Range Breakout remain the same irrespective of Time frame.

I have also used this Intraday Strategy on 5 Minute time frame and it does work well But make sure momentum is strong, else you will encounter more whipsaws 5 minute time frame is only for phase when Momentum for the day is really strong

Opening Range Breakout Strategy – 30 Minute Time Frame Chart

One suggestion that I will give is that don’t be afraid to experiment with time frames Whichever time frame you choose, be consistent with it Do not switch time frames if few trades don’t work in favor. This is a very common mistake and this should be avoided at all cost

Opening Range Breakout Strategy – Time Frame Selection

Understanding Which Time Frame Suites You Best Is Vital.

Opening Range Breakout – 3 Simple Intraday Trading

Rules

Opening Range Breakout – Volatility

The first step is to assess volatility cycle of the stock This is done on daily time frame chart using

a simple ATR indicator that is available across all technical platforms I use standard ATR parameters to assess the same

If you look at the chart posted below, as average true range of stock moves higher, look at how many wide range candles we get Till the point volatility does not begin to fall, there are total of

23 wide range candles on the chart After volatility begins to fall, you get very few wide range candles As an Intraday Trader, always focus on those charts where volatility is expanding.

Opening Range Breakout Strategy – Volatility Expansion Average True Range Indicator

To be successful in opening range breakout strategy, you need to be in only those stocks which are clearly exhibiting an up cycle in terms of volatility This way, you will increase the odds of success a great deal As volatility contracts, range of stock contracts as well and as intraday traders, this is something we don’t want. For you to Profit in Day Trading, Volatility is

a must Always focus on this

Volatility Is Elixir Of Intraday Trading.

Opening Range Breakout – Relative Strength

On a daily time frame chart, we need to check for relative strength line trend To get the relative strength line, you have to divide price of stock with price of broader market index. For example, if you trade in the U.S Markets, you should divide price of Apple with Price

of Nasdaq Index Similarly for Indian Markets, you should divide Price of Reliance with Nifty 500

or Energy Index

Opening Range Breakout Strategy – Relative Strength Chart

You need to make sure that relative strength line should be clearly sloping on the upside, in case you are willing to take long trade in the stock On the flip side, if you are willing to short sell, then you should focus on stocks where relative strength line is sloping on the downside Therefore, you will trade only those opening range breakout stocks on the long side, where relative strength line is sloping up and for short selling, only those stocks where relative strength line is sloping down

Basically you are looking for out performers for long trades and under performers for Short sell trades.

Through Relative Strength, You Focus On Buying Strong Stocks And Short Selling Weak Stocks.

Opening Range Breakout – Volume

I have observed that prior to up move or down move in stock, volume begins to increase way above the average volume levels seen over the past 10 days.

Most of the profitable opening range breakout trades come about when such volume activity is spotted I have seen more of this in Stocks than in Index futures But, underlying principles remain the same I wouldn’t recommend using a scanner for this It would be much better if you could manually scan for such stocks

I belong to the breed of old school traders who get a ‘feel’ of Price structure by manually scrolling through multiple charts If you are beginner, I would strongly advise you to attempt to

manually scan for Stocks

Opening Range Breakout Strategy – Volume Expansion In Intraday Trading

Volume Represents Interest Of Traders In The Stock Look For Signs Of Expansion.

Opening Range Breakout – Identifying Strong Breakouts

Opening Range Breakout – Importance Of Narrow Range

Another important factor to consider while trading Opening Range breakout is to focus on charts which exhibit Narrow range characteristics Instead of focusing on Narrow range candles, focus on Narrow range clusters (group of narrow range candles).

Narrow range candles is when range of current candles, is smallest with respect to last ‘X’ Candles (where x is number of days) Two most popular Narrow range candles patterns that are widely tracked are NR4 & NR7 Patterns Narrow Range 4 (NR4) pattern is formed when current candle range is the smallest among the last 4 candles Similarly, Narrow range 7 (NR7) pattern is when range of current candle is smallest among the last 7 Candles

Opening Range Breakout Strategy – Narrow Range 7 Candle – NR7

Narrow range represents volatility contraction and opening range breakout exhibits volatility expansion Both these concepts fit perfectly together and hence this is one of the most important filters in Opening range breakout strategy. What I have found is that when a stock forms NR4 or NR7 and next day, price exhibits opening range breakout pattern, then odds are high for trade being a profitable one While single narrow range candles work well,

do not forget the importance of clusters of Narrow range candles Cluster of candles is more powerful than single candles

Opening Range Breakout Strategy – Narrow Range Candles

In Opening range breakout, always prefer charts with clusters of candles that I have shown above in the chart This represents contraction in volatility and this means in coming few sessions, volatility will expand which will cause movement within the Stock price

Narrow Range Candles Are Excellent Way To Measure Volatility Contraction.

Opening Range Breakout – Importance Of VWAP Indicator

From opening range breakout point of view, I have observed that some of the strongest breakouts happen just at the VWAP Indicator region

This makes sense as well as VWAP region is kind of a neutral region in market and buying and selling usually emerges from this region If breakout happens way above or below the VWAP level, it is better to avoid taking such trades

Opening Range Breakout Strategy – VWAP Indicator Opening Range Breakout

One of the most common mistakes in Day trading is to take Opening range breakout Trades when price has gapped up or down When range of gap is greater than 1.7-2%, avoid taking the trade These type of trades result in Whipsaws and hence it is best to let such trades pass

I have covered VWAP Indicator in depth and you can find link of the same towards end of this post

Opening Range Breakout Strategy – Gaps And Opening Range Breakout

Opening Range Breakout – Importance Of High Volume Node

Another important factor to consider while trading Opening Range Breakout is to identify High volume nodes Before taking a trade, always mark out the nearest high volume node region High volume node is where maximum trading activity has taken place and Price tends to

consolidate 55-60% of time around such regions In a typical cycle, Price transitions from High volume node to low volume node

Opening Range Breakout Strategy – High Volume Node And Opening Range Breakout

If you find opening range breakout above high volume node region, then do pay attention to such setups More often than not, these are high probability trades and you will profit from these

Opening Range Breakout – Importance Of Stock Selection

Another Important factor for Identifying high probability trades is how you select which Stocks to Trade Now Stock selection within itself is a vast concept and I will write in detail about it at a later stage As a Day Trader, you should focus on Stocks which are Volatile by nature For this, you should start with list of High beta stocks These are the stocks which tend to move the most and these should be on every Trader’s watch list

I have already done a detailed video about Stock selection on our YouTube channel Do check out the same

Opening Range Breakout Strategy – How To Execute

Trades

Opening Range Breakout – Entry & Stop Loss

Entry and Stop loss in Opening Range breakout is fairly simple Depending on which time frame you choose (15 min or 30 min), you simply have to wait for opening range to be established. If you are trading on 15 min chart, once the first 15 minute candle is complete, you then have to mark out the high and low of the same candle and wait for it to be breached on the

up side or down side Once the range is breached, you simply have to initiate the trade in the direction of breakout At times, price will reverse and this will result in whipsaw, but this is where your Stop loss will help you protect your capital

Opening Range Breakout Strategy – Entry Stop Loss In Opening Range Breakout

As far as Stop loss in Opening range breakout is concerned, it depends on the range of the candle and where the candle forms When range of candle is between 1-1.5%, I prefer

keeping Stop loss at nearest swing low point When range of the candle is greater than 1.5%, I prefer keeping stop loss at low point of the entry candle In all trades that I execute, I don’t prefer losing more than 1.5-2% on it Hence, this strategy of stop loss works for me as I always aim to protect my Capital

Opening Range Breakout – Exit

Exit Strategy in Opening Range breakout is very subjective The reason I write so is because all traders are different and Exiting trades has a lot to do with risk profile of a Trader Once

a Trade starts moving as per expectation, you can use a combination of Fixed % Exit and combine this with Pivot points This is something I use in my own trading quite often

Opening Range Breakout Strategy – Pivot Points And Opening Range Breakout

As an Intraday trader, I like to exit trades (long trades) on Strength If trade moves as per

my expectation, I am always on the look out to exit on back of Strong wide range candles. If I spot strong momentum in the market, I prefer to then exit based in a staggered manner Within this, I prefer exiting positions as price keeps moving in the direction of anticipated Trend For long trades, I prefer exiting at R1, R2, R3 & R4 levels These are defined as per Standard Pivot Points

Opening Range Breakout – How I Trade

Let me now explain one of the trades I took based on Opening Range Breakout concept & VWAP Indicator This trade was taken in Reliance Industries I entered this trade at 1409 and exited in a staggered manner at 1424 and 1423 respectively Below is the screenshot of Order book details

To understand the Trade, look at the chart below I have marked out Candles on the chart for you

to understand the example

Opening Range Breakout – Example Trade Order Book

If you look at Candle 1, it is the first Candle on 5 minute chart that defines the Opening range for the day Candle is neither Bullish nor Bearish as demand and supply both are visible Demand is represented by long tail whereas Supply is evident by long wick of the Candle Once this candle was formed, we then got 7 Candles within the range of the first candle Long trade came at the 8th Candle (marked A) when Price moved above the Opening Range

Opening Range Breakout Strategy – Trade Chart Reliance Industries

Since I like exiting Trade based on Strength candles, first exit was made 1% higher at 1424 (marked as Candle 2) Look at the range of the candle and look at its closing Clearly this candle represents strength on the upside and these are the candles I use for exiting trades Second exit was done on Candle 3 It was not as strong as Candle 2, but closing was still strong Stop loss for this trade was set at the nearest Swing low point that I have marked on the chart

Opening Range Breakout – How To Proceed

As an Intraday Trading Strategy, ORB is fairly simple, but difficult to implement. Reversals are quite frequent and most Traders abandon this once they experience a few reversals in real time I have found success rate of this strategy to be around 37% – 39% and this is why Risk and Money management is so important in this Profit factor for this strategy is 2.2 and drawdown is between 8-14% (which is fairly good)

Opening Range Breakout Strategy – Focus On Trading Process

In order to be successful in this strategy, its important for you to start small Too many traders under-estimate the importance of humble beginnings The thing is, you learn a great deal in your first 100 trades and most traders don’t get to complete 100 trades with any Intraday strategy.

Make sure you document all your Trades in a journal and do review it on a Weekly basis Most beginners don’t focus on documenting their trades and this remains one of the single biggest mistakes in Day Trading More than a strategy, it is the discipline to pursue perfection which matters most in the end.