Day Trading the Opening Range Breakout Strategy

15 Sep Day Trading the Opening Range Breakout Strategy

One of the most popular and highest risk/reward day trading strategies is the opening range breakout strategy.

Here's how it works:

1. Look for a stock that is gapping up or down and has had decent volume in the pre-market. That suggests that there's interest in driving the stock higher or lower.
2. In the pre-market, the stock should ideally not have retraced by more than 23.8% (draw Fibonacci lines). That shows strong momentum into the primary direction.
3. You wait for either 1, 5, 10, 15 or 30 minutes after the market opens, and then buy or short a stock when it breaks its 1, 5, 10, 15 or 30-minute high. The longer you wait before you take a position, the more information you have about the direction a stock is likely to take. Also, stocks are less volatile later in the session than in the first few minutes. But you also have less upside.
4. The ORB strategy doesn't work well with stocks that aren't gapping significantly and when the market is trading mostly sideways on inside days.
5. Pay close attention to volume when a stock gets to the desired breakout level.
6. Use pre-market data in your charts, and identify key support and resistance levels in the pre-market. Those are also good areas to buy/short.
7. Don't get into a trade if strong bumpers are too close for comfort, e.g. 50 period moving averages, previous areas of support/resistance, stinky 2.50s, etc.
8. Don't get into a trade, if a stock has gone into one direction for more than 4 minutes, because then you would be chasing and the stock is likely to reverse.
9. Jea's trading system rules apply in the ORB strategy as well. The challenge with the ORB strategy and trading gappers is that your stop might have to be quite wide (as per my chart set-up), so be comfortable with big swings in both directions.

I'd practice with slightly more predictable and forgiving stocks like AAPL and FB and smaller share sizes.

Pull up those charts every day and see if you would have made money, if you had bought the break of the 5 or 15-minute high/low on that day.