Opening Range Breakout (ORB)

The opening range breakout treats the first minutes of the session as a discovery auction and trades the direction in which price leaves that auction. It is a breakout system with a built-in level, so you do not get to choose the high after seeing the day. The range is whatever the window produced. A narrow opening range is a coil and gives a tight stop and a higher false-break rate. A wide opening range has already used up a lot of the day's average range, and the breakout has less room and a worse stop. Both situations are tradable only if the plan says what to do with them. Many ORB traders simply skip a range that is already larger than a fraction of ADR.

Fix the window and the instrument. When the window closes, mark the high, the low, and the midpoint. Take the break only in the direction you allow. Some versions trade either break. Some trade only the break that agrees with the daily trend. The second has fewer trades and usually fewer self-inflicted fades. Enter on a close outside the range or on a tick through it, and journal them separately. The stop at the opposite side of a wide range is often too far. Use the midpoint only if you have tested that the midpoint actually invalidates the idea, not because it makes the size larger. The first target is a measured move of the range or a session level, VWAP if you are fading back, the prior day high if it is in front of you.

Trade ORB as a session strategy with a daily cap, not as an all-day license. The setup fires once or twice. If the break fails back inside the range, the setup is done for that direction. A second break can be a rule of its own, and it is often worse than the first. Prefer the version aligned with the higher timeframe. An ORB long under a daily breakdown is a scalp at best. Combine with relative volume. A break of a sleepy open on no activity is the opening range being nudged, not discovered.

Changing the window after the open so that the range "looks right." Also trading both sides of every open and calling it ORB. And holding an ORB trade all day by default. If the rule is a scalp to a measured move, take the measured move. Converting the winner into a swing is a new system, entered at the best moment to fool yourself.

The opening range is noisy on event days, and the break can be a headline rather than a direction. ORB backtests are sensitive to the window, the entry assumption, and the costs. A five-minute ORB on a wide-spread instrument is a donation. The method also clusters: one index futures breakout and five stock breakouts in the same index are one trade. Count them as one against the daily risk cap.