Opening Range Breakout (ORB) Trading Strategy Explained: How to Identify and Trade It

The Opening Range Breakout is a trading strategy that takes advantage of the increased volatility at the open of a trading session. This is a common beginner strategy, but very effective if executed properly. In this guide, you will learn how to identify the opening range breakout trading setup, how to manage your risk, and how to execute long and short trades with it.

What is the Opening Range Breakout Strategy?

The Opening Range Breakout trading strategy focuses on the first few minutes of the market open. This strategy is attractive to traders because entry and exit points are defined, leaving no gray area. This strategy is typically traded on lower timeframes such as the 1-minute, 3-minute, and 5-minute timeframe. The idea behind the strategy is that the market is uncertain of its direction when it first opens and if you wait a short period, you can have a higher chance of success in choosing a market direction to trade along with.

How to Identify the Opening Range Breakout Trading Setup

To identify the Opening Range Breakout trading setup, you want to first find out when the asset you are trading opens. For reference, stocks listed on exchanges in the United States open at 9:30 A.M EST. When the market opens for whichever asset you are trading, you will wait for a certain period of time, before marking out the high and low of that period. Most day traders use a period of 15 minutes. However, it’s not uncommon to use other periods, such as 5 minutes, 30 minutes, or even 1 hour. For the sake of this guide, I will use the 15-minute timeframe as my period and use the 1-minute timeframe for entering positions. Once you’ve marked out the high and low of the period you chose, you will wait for a candle to close above the high or low. If price closes above the high, you will take a long entry. If price closes below the low, you will take a short entry. I will explain how to set your stop loss and take profit targets below.

How to Manage Risk With The Opening Range Breakout Strategy?

There are three ways you can set up your risk-to-reward with the ORB trading strategy.

For long trade entries or buys, you can set your stop loss below the high of the range and take a 1:2 risk-to-reward trade. Or, you can set your stop loss at the 50% threshold, or the middle, of the range and take a 1:1.5 risk-to-reward trade. Lastly, if you have a high-risk tolerance, you can set your stop loss at the low of the range and take a 1:1 risk-to-reward trade.

For short trade entries or sells, you can set your stop loss above the low of the range and take a 1:2 risk-to-reward trade. Or, you can set your stop loss at the 50% threshold, or the middle, of the range and take a 1:1.5 risk-to-reward trade. Lastly, if you have a high-risk tolerance, you can set your stop loss at the high of the range and take a 1:1 risk-to-reward trade.

All of these risk management methods apply to the ORB strategy. You should backtest using all of them and see what works best with your favorite tickers.

Bullish Opening Range Breakout Setup

For a bullish ORB setup, wait for the first 15 minutes after the market opens. After the first 15 minutes, mark out the high and the low of those 15 minutes. We will call this area our range. Now, wait until price approaches the high of the range. Once prices closes above the range, you can take a long entry and set your stop loss and take profit using one of the methods described above.

Bearish Opening Range Breakout Setup

For a bullish ORB setup, wait for the first 15 minutes after the market opens. After the first 15 minutes, mark out the high and the low of those 15 minutes. We will call this area our range. Now, wait until price approaches the low of the range. Once prices closes below the range, you can take a short entry and set your stop loss and take profit using one of the methods described above.

Opening Range Breakout Trading Indicator

We developed and released an indicator that automates the entire ORB strategy. The indicator includes buy signals, sell signals, take profit areas, stop losses, and much more. You can also backtest everything with the built-in backtesting dashboard. Try it out for free today on TradingView here.