Day trading has become an increasingly popular approach to trading in recent years, particularly among retail traders and investors. With the advent of new trading technologies and increased access to financial markets, more and more individuals are turning to day trading as a way to potentially generate significant returns and supplement their 9-5 income or make it their full-time gig.
One of the most popular day trading strategies is the Opening Range Break (ORB) strategy. It is a reliable trading strategy that we have been using for a number of years - And is also something that is taught in the Trading Mentorship Group. Recently, a study has been published revealing the effectiveness of this strategy to generate consistent profits in the stock market. The study shows that there is evidence of sustainable long-term profits from the Opening Range Breakout (ORB) day trading strategy versus the benchmark S&P500. In this article, we will explore the ORB strategy and how it can be used for day trading.
What is the Opening Range Break (ORB) strategy?
The ORB strategy is a day trading strategy that involves identifying the high and low range of a stock during the first few minutes of trading. The 5-minute, 15-minute, and 30-minute opening ranges are often popular choices. Once the high and low range is established, traders can place orders to buy or sell the stock if the price breaks out of the established range.
For example, if the high and low range of a stock during the first few minutes of trading is $50 and $45 respectively, a trader can place a buy order if the stock price rises above $50 or a sell order if the stock price falls below $45. The idea behind the ORB strategy is to capitalize on the volatility and momentum that often occurs during the opening minutes of trading.
Conceptual illustrations of where a trader would enter into a trade and set the stop loss when using the ORB strategy for going long (as shown on the left-hand side) and for going short (as shown on the right-hand side).
How to trade the ORB strategy?
To trade the ORB strategy, traders need to follow a few simple steps:
Step 1: Identify the high and low range of the stock or index they are trading during the first few minutes of trading. This can be done by monitoring the price action and volume.
Step 2: Place buy or sell orders if the price breaks out of the established range. Traders can set a stop loss order to minimize losses in case the price moves against their trade.
Step 3: Monitor the trade and close the position if the price reaches the target or the stop loss is triggered.
Tips for trading the ORB strategy
Use a reliable trading platform that provides real-time market data and fast order execution.
Keep an eye on the news and economic events that may affect the stock being traded. This is especially key if trading an index like SPY or QQQ.
Always use proper risk management techniques, such as setting stop-loss orders and limiting the amount of capital at risk per trade.
Avoid trading during the first few minutes of trading if the market is particularly volatile or has low liquidity.
Practice the ORB strategy on a demo trading account before trading with real money.
The ORB strategy is a simple yet effective day trading strategy that can be used to capitalize on the volatility and momentum that often occurs during the opening minutes of trading. In fact, a recent study has shown that active trade management with the ORB strategy outperforms the basic buy-and-hold strategy.
A comparison between the equity curve performance of the ORB portfolio that day traded the QQQ ETF (both long and short) and the equity curve performance of the portfolio that passively utilized a simple buy and hold strategy in QQQ. Gray highlighting has been used to show when there were bear markets.
By following the steps outlined in this article and using proper risk management techniques, traders can improve their chances of success when trading the ORB strategy. As with any trading strategy, it is important to practice on a demo trading account before trading with real money. If you want to learn more about the ORB strategy, and how to use it with options or futures, join us in the Trading Mentorship Group.