Opening Range Breakout
Ok - first my apologies for not being able to blog the last week - been moving and had to restart my services including internet etc.
Jumping right in - Opening range breakout is one of most popular intraday trading ideas in professional trading community - I am going to use this on a weekly chart - but first some history: this was first written by Toby Crabel in his book “Day Trading with Short Term Price Patterns and Opening Range Breakouts” - if you search for this title - ISBN: 0934380171 - they are being sold for hundreds of dollars - and some price-comparison sites show them in thousands - yes! for a book.
Although, it is not a good idea to assume that the ideas of a book must be great or even worth it - bcoz of its set price - its probably not a bad idea to look into the ideas - if you can read them elsewhere for free.
The idea behind the “Opening Range Breakout” - is that the market before it finds its direction sways around (usually above or below) the opening price - but once it sets it mind on direction (we all know how the fickle the market is) - it continues its path for the most of its reminder life (that is candlestick/bar session life)
That’s why they say that Amateurs trade early in the day - professional join around afternoon - that’s usually when you see a preferred direction for the currency pair (or for anything that is being traded - stocks etc)
And we all know - the FX market opens its new day at 2pm PST or 5pm EST - so the day begins with the Asian Markets opening first, then the europeans wake up - and we Americans enter the last trading zone for the day with NY waking up early.
If you ever noticed - you probably would have - if you trade 4hr chart like me - 9pm candle (pst) and 1am candle (pst) - usually set the tone and make some real large movements in the market - decisive or indecisive - markets are rarely silent during these times - and you could lose or gain a big chunk of cash (pips) depending on whether you know what you are doing or not.
I decided to use the opening-range-breakout on a weekly chart (the original theory was written for daily-charts) - there is a 4-week-rule for the weekly chart - which I will talk about it some other day - but today I looked into all 4 Majors and found that USD/CHF actually would have been very profitable - if I followed the opening-range-breakout.
I drew the weekly opening-range-breakout on a 4hr chart - and here’s how it looks:
Notice that had I taken the position at breakout of the opening price (1.1335) and used the last high (1.1444) - as a stop-loss - I could easily had a limit order of 100 pips and hit it too - the market corrected itself at 1.1213 = 122 pips.
The market then tested the opening price again - and dropped this time for 206 pips - to 1.1129 - ofcourse, it is folly to assume that you can predict a bottom - but if you are in the market to make 100-150 pips a week - I think this would have been a good trade.
I looked into USD/jpy pair - the market never came back to test the opening price:
The eur/usd and gbp/usd - was all over the map - regarding the opening price range.
I will keep you posted in the upcoming weeks about this theory - using opening price range breakout - on a weekly chart.
Feel free to share your thoughts.
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