There is a very popular strategy called ORB (Opening Range Breakout) which intraday traders use to attempt to profit from the day’s opening action.
In one of our previous blogs, we had written about the Open =High /Low strategy (https://www.plindia.com/blog/using-the-open-high-low-strategy/) .
We present below a simple overview of one could formulate this strategy at their end OR maybe use one of the free screeners available on the internet.
The Trading Strategy
ORB is a well known concept discovered by Toby Crabel. It is a variation of his classic N-bar breakout system and is one of the simplest day trading set-ups to understand.
The first hour / half hour of the trading day is the most volatile – This is calling the Opening Range. As bears and bulls battle it out for controlling the day, the volatility creates a price-range one can trade from, using it as the basis for decision making.
ORB trading has several variations practiced by traders all over the globe. Some traders trade on a significant breakout from opening range, while others trade immediately on opening range breakout. The initial time window for the trades also varies from 30 minutes to 3 hours though quite a few prefer a one hour time window.
The highs and lows of this opening time frame are taken as support and resistance and the basic rule is essentially very simple.
1. Buy when the stock moves above the Opening Range high.
2. Sell when the stock moves below the Opening Range low.
Possible General Rules
Each trader has his or her own preference but common rules mostly have similar elements. Amongst them is the use of the 5 minute candle – Entry in a trade could be made on close of the first 5 min candle outside the opening range accompanied by Volume confirmation – that is, the Breakout candle should show increase in volume .
An optional confirmation could be via any of the two popular indicators – MACD or Stochastics apart from a cross of the 5 EMA (exponential moving average).
Traders may use a 5 min chart with 5 EMA / 20 EMA to start making trading decisions.
Possible Rules for Buy
- Stock should be trading above the 20 EMA line before the breakout.
- Buy when the 5 minutes candle closes above the opening range.
- 5 EMA line should be above the opening range at the time of breakout.
When the 5 min candle closes below the 20 EMA in the case of longs and vice versa for sells.
The Initial Stoploss could be kept as the low of the Opening Range while trailing could be at the 20 EMA level. A close of 5 min candle below 20 EMA confirms exit.
The Opening Range breakout is above previous day’s high for buy while The Opening Range breakout is below previous day’s low for sell.
- Trade is in the direction of higher time frame charts (15 min /30 min).
- Overall Market is moving in the direction of the trade.
- Opening range breakout happens after brief period of consolidation.
- Always exit at the end time of the day.
- If the opening range is too wide, better do not trade ORB, since the Stops will be very far in the system.
- Avoid Opening Range Breakout trades in case of a heavy news flow day.
Using this strategy
The strategy is essentially a simple one so don’t over complicate it by adding too many indicators – use your shortlisted stocks and focus only on those for the day. And keep tight non negotiable stoplosses – and diversity in trades.
One could make an excel out of the above or use any of the free screeners available on the internet which allow you to (example, https://chartink.com/screener/orb) customize the trade criteria.
Follow and observe the results for some days using paper trading or if you are advanced, you may want to back test these on a system like Ami broker.
You may use our Mobile App (PL Mobile App) to chart these stocks on a live tick by tick basis and track their movements during market hours or put in the trades with your desired stop loss levels.
If you are interested in learning more about technical analysis, contact us at www.plindia.com/placademy or alternatively , if you wish to get in touch with us to open an account or be assisted in stock picking , email us at firstname.lastname@example.org