Opening Range Breakout Strategy for Beginners

STOCK TRADE

The opening range breakout (ORB) is a well-established trading strategy for stock day traders. This post details observations while trading the ORB on short-term time frames such as 1-minute, 5-minute, and 15-minute price charts.

After the opening bell, stock trading usually sees some of the most significant price swings of the day. It’s not unusual for the first 30 minutes of trading set the tone for the rest of the session, determining whether it will be volatile with high volume or sedate with low volume.

The Opening Range

There are various definitions of what the opening range means, but the most common is that it refers to the gap between the low and high price of the first 30 minutes of trading. During this time, the range might expand, but that’s ok; what matters is what the highest and lowest prices are at the 30-minute mark.

Three Approaches to Trading the Opening Range Breakout

Use the height of the reference candle to calculate the number of shares traded. The use of a fixed risk and fixed target simplifies trade management. You place your stop-loss one tick below the opening range breakout low and leave it there.

Fixed Risk, Fixed Target

The number of shares traded remains unchanged and is determined using the reference candle’s Open, High, Low, and Close (OHLC). To continue with our example, you entered the trade by trading the breakthrough of the reference candle’s high, you’re long, and your stop-loss is placed.

Fixed Target, Trailing Risk

Some momentum stocks rise by 20%, 50%, or more on the first trading day. If you hit a home run, using a fixed risk per transaction with no defined target can result in significant returns.

Fixed Risk, No Target

The most crucial thing to remember is to have a stop loss in place – you must not trade without protection. While you can’t predict how much profit you might make with this tactic, you know that if you’re stopped, how much you’ll lose.

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