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Opening Range Trading Strategy

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Opening Range Trading Strategy

In this article, I will discuss the Opening Range Trading Strategy in detail. Please read our previous article,
where we discussed VWAP Trading. You will understand the following pointers in detail at the end of this article.

1. Understanding market sentiment

2. Understanding opening range
3. Opening range comparative analysis
4. Opening range trading strategy

UNDERSTANDING MARKET SENTIMENT

1. Different market sentiment is related to the prospects of a specific company. There is also sentiment
based on the company’s industry group, and there is sentiment regarding the condition of the whole
market(corona effect)
2. The force behind any price move is the market’s mood or sentiment. Not news or earnings; they are
already happening. I mean old. In good news, prices fall. Why?
3. Sentiment represents bullish or bearish feelings about a stock’s future prospects. This means the current
movements of a stock’s price are dictated by what the market expects will happen in the future, not what
has already happened. Any news is old; any reported earnings data is old information.

How do you find out the market sentiment in the chart?

• Through the Principle of the Opening Range (OR) trading approach

• You should look at a stock’s price action and volume. And find out what it demonstrates that its sentiment
is bullish, bearish, or undecided.

Opening price

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The Opening Price is the first trade of the day. The balance point of the current day. Daily open prices act as
support and resistance.

The Importance rules

1. Don’t try to buy below the open on expected up-close days.

2. Don’t try to sell above the opening on expected large down days.

What do we study at the opening?

1. Where the price opens relative to the previous day’s high and low
2. Where is the next support or resistance level?

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OPENING CANDLE in Opening Range Trading Strategy

OPENING THE CANDLE SUGGESTS THE SENTIMENT FOR THE DAY. IF FORMED AT KEY SR LEVEL(PDL/
PDH/LSL/LSH)

• Clean, Strong, wide-range candles with volume indicate strong market sentiment.
• PIN BAR FROM PDH/PDL also suggests strong sentiment

The proper knowledge of opening a candle and the price action around a reference point is crucial for
successful trades. Follow the trend

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Initial move

Two types of player

• Smart money
• Retailer

The market always looks to handle the current business first. So the initial move will usually tell us about,

• Who were the trapped traders from yesterday scampering for an exit today?
• Who missed an entry yesterday and is rushing into the morning markets?
• Who is driving the price?

Once the current business is taken care of, we can start looking for serious traders who are trying to give the
market direction.

How do we know the above point?

By analyzing the direction of the move and volume, where is the price?

Let’s analyse an initial up move

1. short covering rallies(discussed in volume price action analysis video

2. Actually, buying up move

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3. Morning trap

Why should we avoid the initial move for entry (morning rap)?

The “Morning Specials” comprises two scenarios that can trap novice traders into believing the market is moving
in one direction. Still, in fact, reversal is just around the corner.

1. Often, you see the price moving in one direction very strongly from the opening bell. The momentum is so
strong that it creates a parabolic curve. It makes you regret not entering early. But don’t get trapped. This
parabolic move often gets reversed. The psychology behind this is that a trend is healthy when it’s made
of average trend bars closing near the extremes, consecutiveness, and small corrections. However,

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control has to be restored when momentum gets out of control, such as a parabolic curve with gigantic
bars without pullbacks. Too fast and too big is a problem because there is no consistency. The market is
balanced, where both bulls and bears can profit. If the price is only favoring one side, resistance will be
met. Keep this in mind when you see volatile movement in the early morning. When you see clear signs
of failure or exhaustion, counter them.
2. The operator will run the price down fast from opening and or below any reference point. This action
creates interest among the traders and brings in selling. Smart money objectives are

• To test the selling power of the public who long now wind and exit
• The stock the operator demands gives him a chance to buy a little long stock and put out some long
orders.

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The initial indication of the trend change

• Down opening from a strong close or up opening from a week close may be the beginning of the change
of the trend either way(or type 2)
• When the pullback is deeper and stronger than expected, let it roll over. Wait for test
• Low volume move

Opening Range(OR) and initial range(IR)

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The opening range is defined as the difference between the previous day close to today’s high or low, as shown
on the left side of the image. The initial range is defined as the difference between the first high and low of the
day. So, assume the opening range and initial range have the same meaning. So, the next onward opening
range means the initial range.

Why should you study Opening Range?

• Stocks at opening usually experience violent price action, which arises from heavy buy and sell orders.
This heavy trading in the first five minutes results from the profit or loss taking of overnight position
holders and new investors and traders.
• Wise traders sit on their hands, watch for the opening ranges to develop, and allow the other traders to
fight against each other until one side wins.
• Then, develop a trading plan for the opening range breakout.

What is the Opening Range (OR)?

• The Opening Range Trading Strategy consists of price and volume as inputs to determining the current
bias ( bullish, bearish, or neutral of the stock’s trading activity)
• The Opening Range Trading Strategy is the difference between the first high and low of the day.
• How to find high and low? At least one candle should be completely against the trend. If that candle has a
low volume, it suggests more strength on trend cont.

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Depending on the Opening Range, we can predict what types of days may occur

There are various types of day patterns, but generally, these four types of day patterns occur again and again

• Trend Day
• Double-Distribution Trend Day
• Typical Day
• Trading Range Day

Trend day

• Small opening range

• usually opens with a wide range of candles or pin bar candle
• sharp move at opening with high volume. Consecutive healthy candle
• each period will have a higher high and higher low

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Double distribution trend day

• Relatively inactive during the opening range

• Narrow opening range(accumulation or distribution going on)
• When the price breaks out from the opening range, give a trending move in either direction

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RANGE DAY

• WIDE opening range

• High and low of the day hold throughout the day (BOF at both ends)
• Price rotated up and down without any clear directional conviction during the day

Typical day

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• Very wide opening range

• usually opens with an open drive or open test drive
• sharp move at opening with high volume with very big candle candle
• price generally trading around either day high or day low

How to Analyze Opening Range?

We will ask five questions to analyze the opening range. The answers to these questions will give you insight
into the stock’s current condition.

These are explained below.

BIG PICTURE

• What price did you pay yesterday?

• What types of days?

Where does it occur with respect to the previous day’s range?

• Inside or outside of the previous day’s range. Identify the opening range and see where the opening
range stands, above or below the previous day range (PDR)
• Is the market structure change

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• Identify the opening range and see whether the opening range is low at support or the opening range is
high at resistance.
• Why is it important to establish whether or not the low (high) represents significant support (resistance)?
When trading using the OR, you will approach each day assuming that the OR high and low are likely to
be important price levels.
• If you knew that a particular price level was likely to be either the high for the day or a significant breakout
point, wouldn’t you want to focus on that stock and that price level? You don’t need to know anything
about the OR to understand that.
• Where was the last SR crack, on the upside or downside, successful crack or failure

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The bias of the day(bullish, bearish, neutral)

• The opening range represents the bulls and bears establishing their initial positions for the day.
• The most basic application of the opening range principle is that when a stock moves away from the
opening range, it indicates that one side is stronger than the other. The bulls are in control when a stock
moves above the opening range. This means the prevailing sentiment in the stock is bullish. How the
stock breaks above and trades above the opening range will indicate the strength of the bullish
sentiment.
• Don’t buy aggressively until this stock heads upward. Those stocks that trade above the opening price
will likely go even higher. This is because of a new bull entry plus a short cover buy order, so after the
reaction period, the market set the tone of the morning trend
• Check bias with the trend

#Tips that I am following

• Don’t buy below the opening range; buy above the opening range
• Don’t sell above the opening range; sell below the opening range
• This technique does not work all of the time

How do we find the bias of the day?

• Identify how much a stock retraces relative to how much initial move in the opening range. And pay
attention to the reaction and how stocks tend to act during this period.
• Flat pullback (price consolidates high of the day). Look to see if most of the trading is near one end of the
range. Has the stock spent most of its OR period near the highs of the OR? If so, this is a bullish Strong
buy signal.
• If a stock goes from an up opening and then sells off and remains beneath its opening price after the
morning pullback has stabilized, it may have reached its high of the day.
• however, if a stock gaps up and pulls back during the morning pullback but then rallies to break above its
opening price, the mark-up was probably not a trap gap, and the stock should make new intraday highs

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Volume activity for the entire Opening Range?

• Big volume during the OR means something unusual is going on, and that is exactly what you want if you
are looking for a big breakout day.

Note: Volume it is important to watch the volume carefully when determining if the price will continue in the
direction of the opening range

• If the stock is up, the volume is also high, and the price remains above its opening price after the early
morning pullback, it is an excellent sign that the stock has further to go on the upside.
• If high volume appears after an up move and the stock immediately comes under selling pressure,
chances are that this volume was a seller.

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Opening range relative strength with respect to sector and index

Let’s understand with a bullish relative strength with respect to index or sector. When the market takes out its
OR swing low, most stocks will follow suit and take out their respective Opening Range low

Relative to the parent index,

1. Suppose a Stock holds the open or goes sideways when indexing down. The stocks not trading below
their OR low demonstrate bullish intraday relative strength. If the market does not follow through in its
breakdown, the strong relative strength stocks are the best candidates for an immediate price rise.
2. If the Stock up

These are the signs of strength shown in the stock relative to the index. Don’t short these stocks, but patiently
wait for the index to show some strength or turn from down to up, then go long

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Mastering the Opening Range Trading Strategy https://dotnettutorials.net/lesson/opening-range-trading-strategy/

1 SECTOR TEST OPENING RANGE LOW

M&M -higher low(indicate bullish)

MARUTI- also test opening range low

AMARAJABAT- break opening range low(bearish)

2 sector making higher low but near opening range low

M&M- stalling at opening range high (bullish)

MARUTI-making lower low (bearish)

AMARAJABAT- price below opening range low(bearish)

The sector indicates some strength on the upside as the price is struggling to close below the opening range low
and make a higher low. So, want bullish stock for long entry

M&M Only showing a bullish signal compared to the other two stock

The Opening Range Provides Price Points for Identifying Opportunities and Risk

Entry

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1. Breakout
2. Pullback
3. Reversal

ORB is a powerful strategy that can capture significant moves, but like all trading strategies, it has a risk of loss.
Traders must manage risk through the use of stop losses, proper position sizing, and a disciplined approach to
entries and exits. Additionally, while the strategy can be applied across various markets, its effectiveness may
vary depending on market conditions and the specific characteristics of the traded security.

In the next article, I will discuss the Opening Range Breakout in detail. In this article, I try to explain the
Opening Range Trading Strategy in detail. I hope you enjoy this article. Please join my Telegram Channel,
YouTube Channel, and Facebook Group to learn more and clear your doubts.

Dot Net Tutorials

About the Author: Pranaya Rout

Pranaya Rout has published more than 3,000 articles in his 11-year career. Pranaya Rout
has very good experience with Microsoft Technologies, Including C#, VB, ASP.NET MVC,
ASP.NET Web API, EF, EF Core, ADO.NET, LINQ, SQL Server, MYSQL, Oracle, ASP.NET Core,
Cloud Computing, Microservices, Design Patterns and still learning new technologies.

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VWAP Trading Opening Range Breakout

2 thoughts on “Opening Range Trading Strategy”

UMESH
OCTOBER 20, 2020 AT 8:48 PM

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