Opening Range Breakout Trading Strategy

Opening Range Breakout Trading Strategy

• For traders, breakouts are a staple tactic. To profit from them, you must first anticipate a crucial price level that you believe the price will eventually surpass and then either purchase or sell at that level. Traders often employ breakouts when the market is approaching the extreme high or low of the recent past. If the market is headed one way, you won’t lose any profits using breakout trading.
• The European Opening Range is one method of achieving a breakthrough. Although EURUSD (Euro/U.S. Dollar) is the currency pair most often used for this approach, any of the European majors might be used instead.
• Forex trading occurs around the clock (Sunday evening to Friday evening ET), although volume in any one currency pair may fluctuate significantly at different times of the day.
• The foreign exchange market (FX) operates in four main sessions every day (all timings are Eastern):

Trading the European Opening Range has three steps:

• To begin, you must determine the high and low prices during the last half an hour before the London market opens (2:30–3 am ET).
• Keep an eye out for a sustained move above or below this level over the next ten to fifteen minutes after a breakout of this range +/- ten pips, or one-tenth of the daily average true range (ATR). Again, this is an effort to determine the day’s overall “flow” direction.
• The last step is to use a mix of moving averages (13-sma, 144-ema, and 169-ema) and oscillators to control this bullish or bearish bias on 1-, 2-, or 5-minute charts (RSI, Stochastics, and CCI).
• Other important considerations include the time of day (when major markets open/close, option expirations, fixings, etc.) and significant news releases (often avoided). The chances of achieving the true average range again in the same week are drastically lowered if it is accomplished earlier in the week. This happens very rarely and usually involves two different orientations.
• If you’re a currency trader, waiting on the sidelines while volatility rises is not ideal. If this approach has yet to hit its average true range goal by Wednesday of a given week, it may be prudent to pay special attention to it on Thursday and Friday. However, if the ATR is hit early in the week, keep an eye out for market failures in the second part, as they may signal a false break and a likely reversal.

Noteworthy times to be aware of:

It may be wise to lower the position size in advance if the price is suffering, approaching these occurrences (usually identified by a bullish/bearish divergence using an oscillator). If you use this strategy, you’ll have a clear idea of where you went wrong (on the other side of the breakout high/low), and it might assist you in trading with less emotion.

Here’s an example: EUR/USD (2-minute chart)

• As shown above, the EUR/USD produced a significant bottom between 2:30 and 3:00 am ET, followed by a sharp ascent (along with a positive RSI divergence with price). However, the 13-period simple moving average (SMA) maintained above the 144 and 169-minute EMAs, and the relative strength index (RSI) found strength in the critical 40/45 zone, suggesting that EURUSD was stable above these levels. So there was no need to abandon the intraday positive inclination.
• Another consideration is the time of day, which was already mentioned. For example, traders in London often close their positions in the FX market between 11:00 am and noon ET, while those in New York do it between 4:30 and 5:00 pm ET. As a result, at specific periods of the day, the price tends to have a last surge, followed by profit-taking (usually identified by a bullish/bearish divergence using an oscillator).
• A bearish divergence with the RSI oscillator occurred shortly before noon ET after EUR/USD surged higher just after 11 am. ET to hit the intraday average true range objective of 1.2927.