One of the most common and popular intraday trading
concepts is the Opening Range Breakout (ORB) trade. Since its conception, ORB
has evolved into a number of different varieties which are often reviewed in the
Trading EveryDay Live
Trading Room with entries, set ups, and stops.
Ever since the market decline of 2000-2003, the
trading environment has become one of low volatility resulting in the propensity
for short-term price movements to reverse. In turn, this environment has
created chaos with Opening Range Breakout trading. Let’s take a look at what
this means.
Say that a trader looking at the opening prices
from the stock market open interprets a decline at mid-morning as an OBR. If
the trader is astute and experienced, three (3) things would come to mind before
taking the trade.
1. The trader should look at the entire pre-opening
market as the opening range because it is an indication of how U.S. stocks have
responded to pre-opening economic reports and Asia and European market
developments. The only way you can tell if the new buying and selling
information is impacting traders’ value assessments is if you break out of that
range.
2. A true breakout move should impact all the major market averages
and sectors (including, but not limited to, Dow Jones, Standard & Poor’s,
Russell 2000, etc.) the same way.
3. A valid breakout should also provide us
with increased participation as there are lower or higher prices. When this
happens, you can be fairly certain that that the “big boys” are “playing” in the
move, which allows you to follow in their footsteps.
So did the trader take the trade? Not if the
downside move turns out to be a failed test of the overnight lows. The moral of
the story is to do what you have to do to figure out how to separate valid ORB
trades from false breakouts. That means to continue educating yourself because
just as you evolve as a trader, the trading world is evolving as well.
About the Author:
Leroy Rushing is an active,
professional day trader; trading coach; and eBook author. He is the Founder and
CEO of Trading EveryDay
distinguished provider of educational trading products and services that are available
worldwide.