Maybe the most popular intraday trading technique used by institutional stock traders is the Opening Range Breakout. Since its beginning, the Opening Range Breakout has mutated into a number of assorted strategies.
We are going to define our Opening Range as the first 30 minutes of stock trading. At the thirty minute mark, we can draw a line on our stock chart or make a yellow sticky of the highest price and lowest price during this time frame. Thus the key principle of defining the Opening Range is that the partiality for trading the underlying stock will be established by where the stock is trading relative to the Opening Range.
While the stock or market trades within the Opening Range, it is trend neutral and does not give either a buy or sell signal.
If the stock breaks above the high of the Opening Range do not do a thing yet. You must have a close above this range on a 5 minute candlestick chart.
If you get a 5 minute candle breaking above the Opening Range, the next thing you need is confirmation. You need one more 5 minute candlestick closing above the range to verify the breakout.
If the stock breaks below the low of the Opening Range, do not do a thing. You want a 5 minute candlestick breaking below and you need an added candlestick for confirmation just like a break over.
A stock trading above its opening range has a bullish predisposition, and a stock trading below its opening range has a bearish predisposition if it meets the additional requirements talked about above.
Remember that the trend is your friend. Breakouts that ensue in the direction of the bigger trend have a higher success rate. So make sure that you find out the larger trend first.
Think of volume as market sentiment. Greater than average volume increases the potential for the breakout to persist in your favor. A lack of volume will lower the likely profitability of the trade.
In this episode, I did not wish to simply show you a model trading session. I took the previous trading day prior to doing the video. I also wanted to include real market chart data on SPY rather than simply show you a static illustration or chart.
Looking back in time at a stock chart with price action in the center of the chart is always easy to guess. The real challenge is the closer you get to the right of the chart in terms of accurately predicting future price direction. Thus in the video, I deal with the chart as far to the right as we can go to reproduce what this tactic looks like in real time as you trade during the day.
Disclosure: No positions