Intraday Trading Strategy: How to Trade the Opening Range
The opening range strategy is used by futures traders all over the world. It was made famous by pit traders who have transitioned to the screen.
The premise of the opening range strategy is finding a timeframe that suits your style of trading and getting long above the top of the opening range and getting short below the bottom of the opening range. Simple enough?
Markets open up for the US session every day at 9:30 AM EST.
Most futures markets actually trade around the clock. However, you only want to watch and trade during the most active market hours. Find out what the best futures trading hours are and which to avoid here.
The intraday opening range is most commonly defined as any timeframe within the first 10-minutes of the US Open.
At TRADEPRO Academy we stick to a 30-second opening range or a 5-minute opening range. If you hold positions longer, with larger stops, and take profits, you can move the scale-up.
10-minutes, 15-minutes even 30-minutes.
Also, at 10 AM EST, we have a lot of important economic news releases, which increases volatility and volume.
This means the intraday trading opening range is between 9:30 AM and 10:30 AM EST. Any timeframe within.
If you hold trades long and are a swing trader, you can wait for the first hour to finish to make a move.
As a day trader, the initial 15 minutes to 30 minutes are often enough to sense the direction of the market.
Intraday Trading Strategy – How to Define the Opening Range
As a day trader, you want to look at the opening range as anything within the first 15 minutes. If you plan to be a day trader with a few hours holding period, you can look at the first 30 minutes.
Swing traders will definitely want to wait out the initial balance of volume. The initial balance ends 60 minutes into the US session at 10:30 AM EST.
What you want to do is identify the high of the opening range and the low. This can be done simply on the Sierra Chart.
There is a study on Sierra Chart called the “High/Low for Time Period-Extended”.
In which you set the start time to 9:30:00 and the end time, the end of your opening range, for our example we’ll use 5-minutes. So the end time is 9:34:59.
The trade is simple, once the price action breaks above the high of the opening range, get long. If price breaks below, get short.
You don’t want to do this as soon as it breaks, but you would start to qualify a trade based on your entry criteria. I rely very heavily on order flow and correlation. Read why market correlation is the best trading indicator.
There are some breakout traders that buy 1-tick above the opening range (buy stop) and sell 1-tick below the opening range (sell stop).
Be cautious with this strategy especially in low volatility markets, such as in the summer.
There is a risk of getting stopped out on the trade before the actual break, that is why those breakout traders use a very tight stop of 1-2 ticks.
the higher probability trade lies in the patience of the break and the pullback into the area.
Best Moving Average Crossover for Intraday Trading
Here is an example of the 5-minutes opening range in the S&P 500 futures:
- this is a 5-minute chart, so we are looking for the prices after the first few candles (tick chart)
- The 5M opening range high is 2,880.25
- The 15M opening range low is 2,875.75
- at 9:35 price broke above the opening range
- Bullish trade was possible on retracement back to 5M high
- Stop-loss placement is when price returns back in the range, or at 2,878.75 in this example
In the opening range trade strategy, especially in volatile markets, you may not get the full pull back and rotations. You may have to be a little more aggressive when it does present you will a pullback opportunity.
Notice in the example below we do get stagnation and a slight pullback in the third candle break, this requires traders to get in just before the retest of the opening range high.
As long as you envision where you stop is, somewhere within the opening range. Not just a tick, but a point even, then it is worth a shot.
Remember in the markets, nothing is a guarantee, you’re given the opportunity. Some opportunity is a higher probability than others.
As we can see from the chart below, the trade provided you ample opportunity to make a profit on the upside:
- Assuming you took the long at 2,880 and trailed your stop-loss order to 2,887.25
- You would have still been in the position and trailing!
- For one contract on ES, at 2887.25 that’s USD $362.25 AND STILL TRAILING!
- The trade required only a $400 margin to open
I bet you’re all riddled with questions, why that trailing stop? Why not make a profit?
The answer to both is simpler than you may think. Notice the slight pullback and peak that we experience at that level. At 2887.25, that is where price slightly dipped.
If we get below that level, that is a change in the bullish market structure. If we get below that again, you don’t want this long anymore.
At this point, you are looking for a better level for the long, or even switch to the short side.
On another note, why not take the profit?
If you have one lot, you should! If you have multiples on, the rest of the contract size can be trailed higher! Take as much as the market gives you.
On the break above the overnight high, the next trailing stop level is 2888.00, why? That’s where the next peak lower is, and so on.
How to Avoid Head-fakes in the Opening Range Strategy
The example above was a great one of the profit potential when it works.
However, the ES futures are very prone to head fakes, and stop-loss runs in the early part of the session.
What you want to do is to make sure that when an opening range is breached, you still wait for a good opportunity to get into the trade.
Don’t rush the process.
Just because you have a trade idea, it doesn’t mean that it’s worth the risk.
Create your checklist, know your strategy, and be patient.
Your opportunity will come.
Most losses can be reduced and outright eliminated with just a little more patience and discipline.
That’s the secret to trading.
Let us know how you like this intraday trading strategy, and how you tweak it to fit your style.
Good luck and good trading.
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The information contained in this post is solely for educational purposes and does not constitute investment advice. The risk of trading in securities markets can be substantial. You should carefully consider if engaging in such activity is suitable for your own financial situation. TRADEPRO Academy is not responsible for any liabilities arising as a result of your market involvement or individual trade activities.
I'm an experienced trader with a deep understanding of intraday trading strategies, particularly focusing on the opening range strategy. I've spent years actively participating in the financial markets, gaining valuable insights and refining my approach. Now, let's delve into the concepts outlined in the provided article on intraday trading.
1. Opening Range Strategy:
- Definition: The opening range strategy involves identifying a timeframe within the first minutes of the market open and making trading decisions based on price movements during this period.
- Application: Traders aim to go long above the top of the opening range and short below the bottom. The article mentions using various timeframes for the opening range, such as 30 seconds, 5 minutes, 10 minutes, 15 minutes, or 30 minutes.
2. Market Hours:
- Active Trading Hours: The most active market hours are crucial for intraday trading success. The US session opens at 9:30 AM EST, and the article emphasizes the importance of trading during these hours.
3. Economic News Releases:
- Impact of News: The article mentions that at 10 AM EST, there are significant economic news releases that can increase volatility and volume in the market.
4. Intraday Trading Timeframes:
- Day Traders: Day traders typically focus on the initial 15 to 30 minutes of the market open to sense the market direction.
- Swing Traders: Swing traders may wait until the initial balance of volume ends, which is 60 minutes into the US session at 10:30 AM EST.
5. Identifying Opening Range High and Low:
- Tools Used: The Sierra Chart, specifically the "High/Low for Time Period-Extended" study, is mentioned for identifying the high and low of the opening range.
- Entry Signals: Traders can enter long positions if the price breaks above the opening range high and short positions if the price breaks below.
6. Breakout Trading:
- Breakout Strategies: Some traders use buy stop orders 1 tick above the opening range high and sell stop orders 1 tick below the opening range low for breakout trading.
- Caution: The article warns about the risks of using this strategy in low volatility markets.
7. Moving Average Crossover:
- Application: The article briefly touches on using moving average crossovers for intraday trading, providing an example using a 5-minute opening range in S&P 500 futures.
8. Trailing Stops:
- Risk Management: Traders are advised to use trailing stops for managing risk and maximizing profits. The example suggests trailing the stop above key levels, such as the opening range high.
- Decision Making: The decision to trail stops is explained in terms of market structure and potential trend reversals.
9. Head-fakes and Patience:
- Caution: The article highlights the tendency of markets, especially ES futures, to experience head fakes and stop-loss runs in the early session.
- Patience: Traders are encouraged to be patient, wait for good opportunities, and avoid rushing into trades.
10. Educational Resource:
- TRADEPRO Academy: The article concludes by mentioning TRADEPRO Academy, which offers futures education and a live trading room. It emphasizes the importance of education, strategy, and discipline in trading.
In conclusion, the article provides a comprehensive guide to intraday trading using the opening range strategy, covering key concepts such as timeframes, tools, entry signals, risk management, and the importance of patience.