What is Opening Range?
The opening range is basically the high and low price after a market opens. This period is usually the very first 30 minutes or 60 minutes of trading. During this time frame, you must try to discover the high and low of the day. Additionally, you must also be aware of the premarket highs and lows. As this levels will most time serve as a magnet on price action after the bell jingles. Since the opening, bell is related to the gig trading, volumes and volatility. This period of the section supplies numerous trading chances. This way traders makes use of the opening range to place entry point on the chart and to equally predict the price action for the day.
Size of the Opening Range Breakout
The initial thing that must be done before carrying unto trade the opening bell is to ensure you calculate the size of your opening range. As soon as the market opens, you need to closely observe two candles which will aid you in calculating the size of your range. The first candle would be the very last candle from yesterday’s trading session while the second candle would be the candle that was firstly created when the market opens. To figure out the size of your range, you need to take the high or low of yesterday’s candle as well as the high or low of today’s opening candle. The difference between this two prices would be the size of the opening range.
Opening Range Breakout Calculator
The most crucial aspect of the opening range trading is the breakout. The opening range breakout as an impact on the further rise direction. There is a big probability for the price action to continue in the same direction if the price breaks out of the range. For this reason, range breakout are used as entry point on the chart for open trading strategies.
Opening range breakout trading strategy: the stock market opening bell can be visited in diverse ways.
Let’s take a look at a day trading strategy
- Early morning range breakout: this is one of the most common successful formula for opening range. The early morning range breakout pays attention to the size of gap as well as the breakthrough, it high or low. With this strategy, we are required to trade in the direction of the breakout whenever we discover the boundaries of gaps. Later during the day the breakouts are to serve as cautions. You should always place a stop loss order whenever you are trading the early morning range breakout. The stop loss should be placed at the mid-point of the space.
- Chart pattern space, pullback buy: here is another way for trading the opening range but it is only available for Bullish space. As soon as we see a Bullish gap on the chart, the price instantly begins to move contrary to the gap direction. This is referred to as the pullback. Whenever the gap is Bullish, the pullback will Bearish. The major use of this strategy is to forecast the end of the pullback. With this strategy, one ought to know when to buy the pullback. This can be achieved by searching for a reversal candlesticks pattern. After a reversal has been identified, you should wait for verification thereafter, you can enter a long trade
Secure your trades with a clear stop loss
When you make use of this opening range trading strategy, you must also incorporate the stop loss order. It secures your trade.
Also, the proper location of your stop order is equally very vital and should be placed below the lowest point of the open range. You should ensure that you hold your trade for a minimum Bullish, equal to the size of the gap.
- Gap Reversal: a gap Reversal is another method of dealing with the opening money range of a stock. The gap is reversed as soon as the price creates a gap, but the range gets broken in an opposite direction.
When the gap is breached, there is a gap reversal immediately the price breaks the lower mark of the opening range. Similarly, when the gap is bearish, then there exist a price reversal immediately the price breaks the higher level of the opening range.
Whenever you open your gap reversal trade, then it is important you place a stop loss in order to ensure your trading security. The stop should be placed at the mid-point of the opening range.
Whenever you trade the gap reversal, then you ought to hold the trade for a minimum price move. It might be equivalent to the size of the gap.
Closely observe for the price to move from the high or low from in between. If the price moves beyond the high or beneath the low but then rapidly moves back beneath the high or beyond the low, you have gotten a fake breakout.
Trading the reversal
Hunt for the trade
You should watch out for a chance to enter a trade on the reversal. After the price moves to the low of the opening range and produces a fake breakout, buy when the price goes beyond the high of the previous candle. The buy signal must take place within the opening range.
Apply a stop loss at a place beneath the day low which should be near to the opening range low. Place a profit target anywhere beneath the opening range high.
Conversely, after the price goes to the high of the open range and produces a wrong breakout, short sell where the price goes beneath the low of the last candle. The short signal must happen within the opening range.
Protect your trade
Apply a stop loss anywhere beyond the day high, which should be at close proximity to the opening range high. Apply a profit target anywhere beyond the open range. Since all stock has diverse price and volatility, define precisely how distant away your stop loss will be beneath the day low or beyond the day high and how distant away your target will be beneath the opening range high or above the opening range low. Trading similar stocks every time, or at least for some days in a row will assist you in this aspect.
The proximity between your entry and stop loss should be a fraction of the proximity between your entry and the profit target. This implies that your risk is small but your likely profit is large. You should only take up a trade if the reward is at least thrice of your risk value. Under a normal circumstance, it should be five times greater. For instance, if your risk value on a trade is $50 based on your entry point and stop loss, your profit target preferably ought to be $250 profit.
This isn’t a strategy to be implemented every day. The odd enhancer helps you to discover the certain days in which you would most likely achieve trading success. It’s due to using the strategy and you should therefore, consider giving it a shot. The stock or stock future you are trading must be displaying numerous activity on high trading volume. Whenever there is a low volume relative to the average, it is not certain that you will get a price snapping back to the other side of the opening range, which makes the profit.
The opening range high and low should be placed side by side with longer time resistance and support marks. E.g price is likely to decline drastically if the price is having a wrong breakout beyond the opening range. It is also possible with a wrong breakout beyond a resistance mark on the daily chart. When the latter happens, it takes many investors by surprise. Their thought was that the price was going to shoot higher, if fails to and now they are forced to sell.
You will want to have the majority of your profit at the profit target you decide on. Consider holding back a fraction of the position and resisting after the profit mark has been hit. If you have gone short, exit the last of the position just beneath the opening range low. But if you have gone long, exit the last of the position just beyond the opening high range. This strategy should give you a chance to syphon a little more profit from the trade. This is possible when the price fails to stay in the opening range all day which happens most times.
As an intraday trading strategy, opening Range Breakout is somewhat simple, but can be tedious to carry out. Reversals take place quite often and most investors drop it once they go through a few reversals in real time.
To ensure your success with this strategy, it’s crucial for you to begin small. Many traders despise the importance of humble beginnings.
Again, it is very essential that you try as much as possible to document all your trades into a journal. And try to conduct a review on it weekly. Not documenting trades is one of the biggest errors most novice day traders commit. If what interest you is the intraday trading, then try to study the pullback trading strategy. This would take your daily experience to a notch.