This guide will explain what an Open Range Breakout (ORB) is and how to use this strategy. You will also learn how to determine breakout levels and where to place your profit targets and stop losses.
What is an Open Range Breakout
The Open Range is the high and low of the price during a specified time. While an Open Range Breakout is when a stock or asset breakouts out of the current price range. What this means is as the market opens stocks will many times find a range bouncing back and forth against support and resistance. In the Illustration above you can see exactly what an Open Range Breakout is.
So for example, if you look at the first hour of the market open this is called the open range. The one hour is just an arbitrary number this can be any time frame that suits your trading strategy.
How To Trade The Open Range
To trade the open range, there are some key steps you will want to follow.
- Identify what specified time for the range you want to use. Popular times would be the first 15 minutes, 30 minutes or 1-2 hours of the market open.
- Once the stock has developed into its range, you will then determine whether you want to trade a breakout or a breakdown. To do this, you will want to look at some other factors like rsi levels and major support and resistance levels. This will give you an indication of the overall trend.
- Once you have determined the trend, you will then look for the break of the Open Range. You will want to give yourself a small buffer and make sure the price has properly broken out of the range before placing your trade.
- Determine stop loss levels and profit targets using proper risk management. Your stop loss should be just inside the range so that in case the stock goes against your position, you are out of the trade with a minimal loss. For your profit target, it should be at a key support or resistance level. You may have to use a higher time frame to find this level.
One of the main benefits of this strategy is that you can control risk relatively easily since you can use the range as your stop loss which is very easy to determine. It creates minimal losses while leaving the potential for a large upside move out of the open range.
See this guide for more info Simple Guide To Risk Management Trading 2023
Example Of An Open Range Trade
Here is an example of an Open Range Breakout on Nvidia Stock. You can see as the market opened it developed its range within the first half hour. Then slowly falling until eventually it broke down out of the range. This is where you could have taken a short position with a small stop loss to try and catch the downside. Also once the range has been broken, it many time will act as resistance as well.
The Open Range Breakout Strategy can be very easy to learn as it is a simple rule-based strategy. It is one of the more popular strategies used by traders.