Strategy Library

Breakout

Opening range breakout

The high and low of the first minutes of a session make the opening range. A move beyond it is traded in the direction of the break, on the idea that early direction often carries through the day. Toby Crabel wrote the classic articles on it in 1990.

IntermediateIndex futures and US stocks; anything with a clear session openNew York open (09:30 New York time)M1, M5, M15
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Example 01

Opening range breakout on a chart

US100 · M5First 15 minrange, break

First 15 minutes: 17,978.50 to 18,022.25Entry: 18,034.50Stop: 17,978.50Target: 18,146.50 (2R)Sample candles, not market data

The rules

Setup
  • Fix the range length before the open: the first 5, 15, 30 or 60 minutes
  • Fix which session open you use (for futures, the regular session, not overnight)
  • Mark the high and low of that range
Entry
  • Either: a candle closes beyond the range high (long) or low (short), and you enter at the next open
  • Or: stop orders a set distance above the high and below the low; the first to fill is the trade
Stop
  • The other side of the range, or the extreme of the first candle
Target
  • A multiple of the risk, or close at the end of the session
Manage
  • One trade a session
  • Close by the end of the session

Common mistakes

  • Not fixing the range in advance. Changing the range length after the fact turns the test into hindsight.
  • Taking every day. Some versions only trade on days with a reason, such as unusual activity.
  • Ignoring costs at the open. Spread and slippage are highest right after the open and can erase a small edge.
  • Re-entering after a whipsaw. Several attempts in one morning turn a rule into guessing.

When it's off

  • Call it off if price closes back inside the range
  • Skip the day if high-impact news is due right after the open

Words to know

Opening range breakout
Mark the high and low of the first minutes of a session (the opening range) and trade a break of either side. Forex has no single opening bell, so you choose which session open you use.
Breakout
Price moves through a support, resistance or range edge and a candle body closes beyond it. A wick beyond that closes back inside is a sweep, not a breakout.
False breakout
Price breaks beyond a level but cannot stay there and comes back inside, trapping breakout traders. It is only known after the return, never at the breakout candle's close.
ATR stop
A stop placed a multiple of the Average True Range away from the entry or a swing, so its distance follows how much the market is moving. ATR measures range, not direction.
Opening range
The high and low of the first minutes after a session opens.
Trend day
A session that moves mostly one way from the open.

When you make it yours, I'll ask what the rules above leave open. Start with one of these:

  • What range length, which session open and which time zone do you use?
  • Is the trigger a touch, a stop order or a candle close beyond the range, and do you add a buffer?
  • Do you take both directions or only one, and what decides it?
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From DT Academy

What testing exists

Academic tests found positive results on some markets, but they are sensitive to trading costs, and one replication found little left after costs.

Before you trust a backtest

  • Many professional traders risk under 1% of their account on one trade idea, and the common guideline is 1 to 2%.
  • The more versions of a rule you try on the same data, the more likely a good backtest is luck. Decide your rules before you test.
  • Include spread and commission, and practice on dates you have not looked at, before you trust a result.

Sources