Opening Range Breakout
Michael Guess
Day Trading Coaching and Mentoring Including Trading Strategies for People Who Want to Become Profitable Day Traders of the Markets.
One of the potentially profitable times for day trading is after the market opens in the morning. It typically trades within a given range for the first thirty to sixty minutes and then there may be an opening range breakout either upward or downward. Being able to trade this opening range breakout is a useful skill for any day trader. The range in which a commodity future, stock, or currency pair trades immediately after the open in comparison to the previous day or days can be a good indicator of market sentiment for the day.
Opening Range Breakout Strategy
A basic opening range breakout strategy is to assume that when prices break high or low out of the opening range that it indicates a trend for the day. This may simply be market sentiment based on the news, shifts in fundamentals, or simply the market changing its mind. If the opening range breakout has to do with pending news or reports, traders are well-advised to keep in mind the age-old trading advice to buy the rumor and sell the news! No matter which strategy a day trader employs it is important to?enter, manage, and exit trades?with discipline.
Day Trading Opening Range Breakout
More often than not an opening range breakout is part of the daily fluctuation within the market that day traders routinely contend with and attempt to profit from. To the extent that a major, long term, fundamental breakout occurs at the beginning of the trading day it gives the day trader the opportunity to ride a trend for the entire session. To the extent that the breakout is simply part of the day’s trading activities, this is more common and is amenable to trading with the use of technical indicators.
Day Trading With Short-Term Price Patterns and Opening Range Breakout
Because opening range breakouts are typically part of daily price fluctuations, day traders generally profit by following short-term price patterns as indicators of shifting?market sentiment. A common occurrence in markets is for long term investors and traders who take long positions to decide before the market opens to buy or sell based on the previous day’s market activities and afterhours news. Often these positions are overly enthusiastic and day traders can profit by taking short-term, contrary positions in order to profit as the market corrects.
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Opening Range Breakout Success Rate
Trading opening range breakouts can be very profitable in professional hands. And it can routinely cause losses for many novice traders. There are false breakouts and true breakouts that only last a short time. The false breakout is where the price moves out of the opening range and within seconds retreats. False breakouts and very short term breakouts are typically so quick that only an AI automated trading system will pick them up and earn profits. Regarding true, large and enduring breakouts, they are rare. And, in order to profit from them as a day trader one needs to be at the trade station every minute in order to get the timing perfect. The point is that for most novice traders making routine, easy money on opening range breakouts can be difficult.
Opening Range Breakout Futures
The futures market is just like the stock and currency markets in that a range is commonly established within the first thirty to sixty minutes. Likewise, breakouts early in the day often occur from this trading range. Although the breakout may be because of a major shift in fundamentals like a negative or positive crop report, breakouts are more commonly due to traders trying to anticipate tomorrow’s market and thus causing shifts in market sentiment which is best traded by using short term price patterns and trading strategies.
Opening Range Breakout Stocks
Opening range breakouts for stock depend to a degree on whether you are day trading individual stocks or ETFs that follow major indices like the S&P 500. Both can respond abruptly to news about the economy or actions of the Federal Reserve while individual stocks may be affected by specific events like the announcement of a hostile takeover bid or things like the FDA granting permission to sell a new blockbuster medication that has just passed all of its clinical trials.
How to Trade Opening Range Breakout
If you can catch a breakout in time a standard approach is to enter a trade in the direction of the price breakout and set a stop loss back in the opening range. Remain in the trade for a small price movement and get out. Many traders use the morning gap as an indicator of this price movement. To make money in this way, exercise discipline in how you enter, manage, and exit the trade. You can learn these skills and become a?benchmarked professional trader?with DayTradeSafe.