The opening range breakout strategy defines a high and low price level for a certain period of time, from the opening bell. The basic idea is that the direction you trade a stock is determined by where the stock is trading relative to its opening range.
There are different variations on the time that is set from the opening bell. The most popular opening range breakout time frames that day traders use are: 15 minute, 30 minute, and 1 hour. Keep in mind that you need to be disciplined and stick with one strategy for one trade.
Market open is a discovery time where the market is digesting the orders that were entered the previous day after market close, overnight futures, and any news that came out after market close on the previous day.
The premise behind the opening range breakout strategy is that after this discovery period is done, the bias for the day can be determined fairly quickly, by comparing it to the high and low points in the opening range.
You must determine what period of time from the open is the most effective in the market you are trading. Look at 15 minutes, 30 minutes, and 1 hour from market open and see which time span is most effective in predicting market action for the remainder of the day.
The OR high (opening range high) and OR low (opening range low) often represent important prices levels in determining the market’s direction for the remainder of the day. This will let you filter out different types of trading setups and focus in on specific trading setups.
If the price breaks above the OR high, day traders have a bullish bias. Look for bullish trading setups like breakout trades or moves down to support that you can go long. Look for bullish candlestick patterns.
If the price breaks below the OR low, day traders have a bearish bias. Look for bearish trading setups like breakdowns or moves up to resistance that you can short. Look for bearish candlestick patterns.<< Back to Glossary Index