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By Mark Buckingway
The Opening Range Breakout is probably the easiest day trading set-ups to know. The first hour of the trading day is considered the most volatile. Bears and bulls are fighting against each other in the stock market, wanting to tell you who is going to be the superior group for the day. This volatility creates a price-range you can trade from. Like all breakout trading set-ups, it is a wonderful set-up as it offers a very low risk entry. If there is no follow-through on the opening range breakout, you need to exit the trade quickly.
The Time-Frame
You are searching for opening range breakouts to take place between 9:50 am and 11:00 am. This gives a stock lots of time to establish the range while supplying you with enough data to ascertain which direction it will breakout.
Things for Breakout Success
There are actually four points which need to be taken into consideration in order for the opening range breakout trade to be likely and money-making.
1. If playing the long side, is the Dow, S&P 500, and Nasdaq all in strong uptrends? They must be. If playing the short side, the major indices must be in a strong downtrend. Don’t pee into the wind.
2. The price should show a prejudice towards one side or the other. The uptrend signifies a solid bias towards the high and increases the probabilities of a follow-through when the high is broken.
3. The high or low must be tested. Without this test, this level has not shown to be resistance or support so a follow-through is less likely to occur.
4. Volume has to be high. One thing to be aware of with any breakout trading play would be that the volume should increase on the breakout. The trades over the tape ought to be increasing in size and quantity as the level is broken. This implies that the trade possesses the momentum to carry on to your objectives without falling back to the opening range.
These four factors will make sure that you receive the most probability of a follow-through on the Opening Range Breakout.
Exit Strategy
To exit, I like to set a hard target of say 2.5% or even more and then take profit. Bulls make money, bears make money, but pigs get slaughtered. You shouldn’t be a pig. You want to keep your profit objective small and as soon as you hit it, take your profit and run.
Look out for the price as it draws near to whole numbers. A considerable amount of investors take profits at these crucial psychological levels. These kinds of whole numbers are $10, $11, $12,and so on.
Opening Range Breakout the Gap Reversal Method
Now I would like to discuss a variation of the Opening Range Breakout. It’s called the Opening Gap Reversal. It’s yet another of the numerous valuable setups for daytrading via the internet which you can add to your arsenal.
The Play
Charts will often gap open. If the chart gaps between market open and 11:00 am, this is the way you play it.
If it was a gap up open or the chart gaps up in the first hour of trading, a lot of traders believe gaps must be filled. Whether that is accurate or not, we do not care. We just desire to make money from the traders that do believe that it is true. If the chart gaps up, you may fade (short) the gap pending the gap filling. If you’d like to play it a little bit safer without shorting, you can wait until the gap fills then go long.
If it was a gap down open or perhaps the chart gaps down in the first hour of trading, you may fade (go long) the gap in anticipation of the gap filling. A different way to play it is to let the gap fill then the moment it does, go short the stock.
The common mantra of traders is that gaps fill most of the time. I’m not sure how correct that is, but I do know lots of people feel that it’s true.
The concept of the Opening Gap Reversal is that a number of people that had anticipated closing the gap are getting out of that trade. You will also find those of us that are there to take advantage of that, which increases the momentum of this variation of the opening range breakout.
About the Author: Lance Jepsen is a 10 year stock trader and teacher. To find out more about trading the opening range visit
Opening Range Breakout
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