OPENING RANGE BREAKOUT

(ORB) TRADING STRATEGY

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What is the Opening Range Breakout (ORB) Trading

Strategy?

Measuring the Size of Opening Range Breakouts

Which Time Frame is Best for the ORB Strategy?

What is the ORB Strategy in Forex Trading?

Which Market is the Best for ORB Trading?

How to Use the ORB Technical Indicator?

What is the ORB Trading Calculator?

The ORB Trading Strategy – How to Trade Opening

Range Breakouts

Is ORB Strategy Profitable?

How to Start Trading Using the ORB Strategy

What is the Opening Range Breakout
(ORB) Trading Strategy?
The roots of the ORB trading strategy can be traced back to the 1960s when the
legendary American trader and investor Arthur Merrill pioneered its use. Merrill used this
strategy for nearly two decades while trading the Dow Jones Industrial Average index.
Although many years have passed since then, this strategy’s fundamental principles
have remained remarkably consistent.

The ORB trading strategy hinges on a simple concept: the opening range breakout. That
means a trader is looking for a break out of a specific trading range following a
predefined time frame after the opening time.

The ORB works on the same principle and guidelines of the breakout trading strategy. For
instance, a trader can look for a range within the first 15 minutes after the bell rings. Then,
a break-up or down of that range signals to enter a trade. However, what exactly
constitutes the “opening range” can vary depending on your trading style and
preferences.

Originally, when this strategy gained prominence in the 1990s, the opening range was
defined as the price movement within the first hour of trading following the market
opening. As time progressed and traders gained access to faster data feeds and shorter
time frames, some narrowed their opening range definition to the first half-hour, 15
minutes, and sometimes even five minutes. This flexibility allows traders to adapt this
day trading strategy to suit their specific trading goals and market conditions.

Now, why is the ORB strategy considered one of the most important strategies for
making money in the stock market? The answer is simple: it helps traders identify
lucrative trading opportunities during the opening hour of the market. During this period,
trading volumes are substantial, and market volatility is at its peak. Traders gain a
valuable edge by identifying pre-market highs and lows, which often act as price
magnets after the market opens.

The key point of the ORB strategy lies in its reliance on range breakouts as entry points.
Consequently, the ORB trading strategy is designed to leverage these breakout
opportunities to maximize profits during the opening and closing times of the day.

Measuring the Size of Opening Range

Breakouts
When mastering the OBR trading strategy, understanding how to measure the size of
opening range breakouts is crucial, and here are the two methods for doing this:
Method 1
The first method is a two-candle approach that provides a clear snapshot of the
opening range. Here’s how it works:

First Candle: This candle is the last from the previous day’s trading session. It represents
the price action leading up to the market’s close. To measure the size of the opening
range, focus on this candle’s high and low prices.

Second Candle: The second candle is the first one created when the market opens for
the current trading day. This candle captures the initial flurry of activity as traders react
to new information, news, and market sentiment. To determine the opening range’s size,
you’ll need to consider the high and low of this candle as well.
The distance between these two candles’ high and low prices is the opening range. It
helps you gauge the potential for a breakout and inform your trading decisions.

Method 2
Alternatively, you can measure the size of the opening range by focusing on the high
and low prices during the early moments of the market’s opening.
Here’s a breakdown of this method:

High and Low of the Day: During this initial period, you aim to identify the highest and
lowest prices reached in your chosen timeframe. These levels are crucial reference
points for the rest of the trading day.

By focusing on the high and low prices during this early trading window, you gain
insights into the market’s initial sentiment and potential trends for the day. It’s a
dynamic way to measure the opening range as it adapts to the evolving market
conditions and trading dynamics. Then, when the price breaks these levels, a signal is
made.
Which Time Frame is Best for the ORB
Strategy?
When it comes to the Opening Range Breakout (ORB) trading strategy, selecting the
right time frame is similar to choosing the right lens for a camera – it significantly
influences how you perceive the market.

Like many other trading strategies, the ORB trading strategy offers flexibility regarding
time frames, catering to traders with varying preferences and trading styles. After
thorough research and analysis, it’s evident that the 5-minute, 15-minute, and 30-
minute time frames stand out as the most effective choices for implementing the ORB
strategy. This is because you are trying to trade the first 15 minutes to 1 hour of the day.
So, using a 4-hour is not a good idea, right?

Bear in mind, however, that one noteworthy approach to optimizing the ORB trading
strategy is multiple time frame analysis. This technique involves simultaneously
examining the same asset or market in different time frames. By doing so, you have a
broader view of the trend and can trade breakouts in that direction with confidence. If
you are not familiar with multiple time frame analysis, we suggest you visit our free
course on setting up multiple charts on MetaTrader 4.

What is the ORB Strategy in Forex Trading?

The ORB strategy in forex trading involves taking positions when currency pair prices
break above or below the previous day’s high or low. However, unlike other markets
(particularly the stock markets) that have daily opening and closing times, the ORB
trading strategy in forex focuses on the opening range price observed during the first
trading hour of the day. This makes it a bit tricky to utilize the ORB strategy in the FX
markets since the ability to capture the opening and closing times is quite limited.
Which Market is the Best for ORB Trading?
The ORB strategy can be effectively applied to various markets, but it particularly shines
in stocks and commodities (futures). This is because the market’s opening tends to be
more significant in the stock markets compared to other markets.

Traders seeking versatility and better trading conditions can also use Contracts for
Difference (CFDs) to trade stocks and futures. Since these are derivative products that
follow the underlying asset, these markets offer the liquidity and volatility necessary for
successful ORB trading.

How to Use the ORB Technical Indicator?

While drawing the open range manually is straightforward, some indicators do the job
for you efficiently. For instance, to use this indicator on TradingView, just hit the
“indicator” menu, search for “ORB,” select the one you like, and configure it to align with
your preferred settings.

The same works for MT4/5, although the ORB is not a built-in indicator on this platform.
This means you’ll have to visit a third-party vendor site and then download and install
the indicator on your MT4/5 platform.

What is the ORB Trading Calculator?

The ORB trading calculator is a tool traders use to determine key parameters for
executing the Opening Range Breakout strategy. Based on historical price data, it helps
calculate the opening range, stop-loss levels, and potential profit targets. This calculator
streamlines the decision-making process, making it easier for traders to set up their ORB
trades and manage risk effectively.

Check out our daily market analysis page for insights about leading FX pairs,
global indices, and commodities.

The ORB Trading Strategy – How to Trade

Opening Range Breakouts
Now that you have learned all the individual parts of this strategy, let’s combine all the
concepts to analyze Apple’s stock using the ORB trading strategy:
Step 1: Use the 200 and 50 EMA to Determine the Trend
The 200 EMA and the 50 EMA are some of the most important indicators stock traders
use. It is often used to precisely analyze the dominant trend and detect dynamic support
and resistance in the market.

Generally, the stock is in an uptrend when the 50 EMA crosses the 200 EMA upward (also
known as the golden cross). Conversely, when the 50 EMA crosses the 200 EMA to the
downside (also known as the death cross), it signifies a downtrend.

Another way to know the trend is to observe the price position of the two EMAs. If the
price is under the two EMAs, it is a bearish trend. However, if the price is above the EMAs,
it is an uptrend. Let’s consider an actual chart:

The AAPL chart above shows the EMA crossover, indicating a bullish trend. We can now
anticipate a breakout to the upside after forming our opening range.

Step 2: Plot the Opening Range

There’s no hard rule when choosing how to plot your opening range. Some traders have
claimed success with the ORB trading strategy while using the high and low of the first
5-minute range to plot their opening range, although others also use the first 15 or 30
min.

In our example, we will use the high and low of the first 30 minutes of the trading session
to plot our opening range.
Step 3: Entry and Confirmation
After the first two steps, entering a position is straightforward: you have to wait for the
opening range to break, and this is where having a context of the market trend pays off.
In our case, we know the market is in an uptrend, and we are only waiting for a breakout
of the high of the opening range.

While waiting for the break in the same direction, note that we don’t simply place a buy
limit on the high of the range. Instead, we wait for a full-body candle break before
entering a position to avoid fakeouts. That is to avoid a false breakout.

Moreover, before executing our trade, we use the volume indicator to confirm our entry.
We execute our trade if there’s a spike in the stock volume. As in the example above, we
can enter a position once each criterion lines up.
Step 4: Stop Loss and Target Profit
Depending on your risk tolerance, there are two ways to set your stop loss while trading
the ORB strategy. You can place the stop loss below the candle that broke the range or
at the low of the opening range. The first method is riskier but gives the best risk-reward
ratio, while the second method is more conservative.

Likewise, setting our target profit is as simple as targeting two or three risk-reward ratios.

Is the ORB Trading Strategy Profitable?

At this point, it’s only natural to wonder if the ORB trading strategy is profitable. When
evaluating the profitability of any trading strategy, the winning rate percentage is a
critical metric. This percentage represents the frequency at which your trades result in
profits.
In the case of the ORB trading strategy, historical data and analysis indicate that it is
profitable. At least, according to people who used it. ORB enthusiasts often report
winning rates ranging from 42% to 65% and sometimes even higher. This means that a
significant portion of ORB trades hit the target profit, making it an attractive option for
traders seeking consistent returns.

But that’s subjective to the opinions and experiences of others. To fully appreciate the
profitability of the ORB strategy, it’s essential to understand that winning percentages
alone don’t paint the whole picture. Risk management also plays a pivotal role in
enhancing profitability.

Successful ORB traders typically employ risk management techniques like setting stop-
loss orders and defining risk-reward ratios. These trading strategies help mitigate losses
when trades go against expectations while allowing profits to accumulate when they
align with the ORB strategy’s principles.

It’s important to note that profitability isn’t static; it fluctuates with market conditions. The
ORB strategy’s adaptability is one of its strengths. It can be tailored to suit various assets,
time frames, and market conditions.

Yet, if you plan to utilize the ORB strategy, you must backtest your strategy before
applying it in real markets. Not only that, we suggest using a trading journal template to
record all your trades and analyze them to get the best results.

The ORB trading strategy hinges on a simple concept: the opening range
breakout. That means a trader is looking for a break out of a specific trading
range following a predefined time frame after the opening time.

How to Start Trading Using the ORB Strategy

Before diving into the market, equipping yourself with knowledge is crucial. Also, you
must remember that the ORB strategy works best in markets that have daily opening
and closing times. Therefore, we can say that it is an ideal strategy for trading stocks or
commodities. You also need to identify suitable stocks or futures to implement the ORB
strategy effectively. For instance, utilize a stock/futures screener to narrow down your
options and look for assets that exhibit the price volatility and liquidity necessary for
successful ORB trading.
Frequently Asked Questions About the 20
EMA Strategy
Here are some frequently asked questions on the 20 EMA strategy:

Is 20 EMA a good indicator to find trade signals?

The 20 EMA is indeed considered a good indicator for finding trade signals, especially
due to its emphasis on recent price data. This makes the 20 EMA more responsive to new
information than a simple moving average, which can be advantageous in a fast-
moving market.

How is the 20 EMA used for intraday trading?

Absolutely. For intraday trading, the 20 EMA can be particularly useful. It helps identify
good entry points in the market by waiting for a price pullback that tests the resistance
level provided by the 20 EMA line. Traders often look for a valid confirmation of the price
level to enter the market.

What EMA do most professional traders use?

Well, there isn’t a one-size-fits-all answer, as it largely depends on their trading style, the
market they are trading in, and their specific trading strategies. However, commonly
used EMAs include the 20-period EMA, as well as other periods like the 50-period and
200-period EMAs. The choice of EMA often aligns with the trader’s time frame for analysis
and their approach to capturing market trends and reversals.