Opening Range Breakout Trading

Day trading breakouts usually is a losing game and should be avoid at all costs.  Trust me, day trading will probably cause you more pain than gain in the long term.

I know this because I spent the better part of a decade trying to crack day trading with only a few successes.

With that said, I'm going to share two systems for day trading breakouts I've found to work. 

Links to the open source code for these systems are below.

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If you’ve Googled "day trading breakouts" before you may have stumbled onto the term “Opening Range Breakout”, or ORB for short.

The term was coined by Toby Crabel in the 90’s and Toby even has a $800 book on Amazon.  It’s only a collectible now as most of the information inside is hopelessly outdated.

However, Toby was correct about one thing: in all markets, there are periods of high volatility and of low volatility which cycle back and forth on different time scales.  It's in the changing volatility that breakouts can occur.

The idea behind day trading breakouts is to look for periods of low volatility and then buy or sell when prices “breakout” to the upside or downside.

Now, when I went to code my own day trading systems using ORBs, I was only able to find two markets where it worked, the S&P 500 and gold.

I'll discuss my system for day trading breakouts in the gold market first.

Day Trading Breakouts, Gold System:

day trading systems Gold using opening range breakouts

Day trading Gold using Opening Range Breakouts

My gold system looks for a day that traded in a tight price range compared to the day before, and places a buy order near the top of the day.

See the little green bar in the screen shot above?  Prices that day traded in a very tight range.  

You can see that the next day prices exploded to the upside as volatility expanded, and my system automatically bought into the move.  Then, because this is a day trading system, I sold gold at the start of the next day.

Here are the exact rules you can use:

  • If close >= low[1]  and       { Gold closed above yesterday's low }
  • If close <= high[1]  and     { Gold closed below yesterday's high }
  • Then buy X shares next bar close + var2 stop  { Buy next day at a price a bit above yesterday's close}
  • Sell X shares next bar on open { Sell gold next day on open }

If you have a computer run these rules every day and make the trades automatically for you, you will end up with a very nice return on your money.

Here's what that would have looked like starting all the way back in 2001:

Gold day trading system

Gold opening range breakout day trading system

The second market I was able to make a system to day trade breakouts for was the S&P 500.

Now, the S&P 500 is a different animal from gold for many reasons and one of the largest is its reacts to news events.  When major news hits the stock market it will usually reverse directions intra-day.  (Which is why day trading the news will lose you money).

The S&P 500 is a mean reverting market, not a trending market like gold as such you must use a different system on it than on gold.

When I wrote up a system to day trade breakouts on the S&P 500 I had to use the exact opposite rules to the gold system - i.e. the system looks for a breakout to the upside and then shorts the damn thing!

Day Trading Breakouts, S&P 500:

Day trading the S&P 500 using opening range breakouts

Day trading the S&P 500 using breakouts

You can see that instead of continuing in the direction it broke out the S&P 500 likes to turn around and revert back to its average, or mean.

This system looks for a big move the previous day and then puts in a sell short order a bit higher than the day's close.

Here are the system rules you can start using today (I recommend you program them into a system and run them on a computer, you'll go crazy trying to watch for these setups everyday).

  • If Range >= LargestRange  and { Today's range is largest in X periods }
  • If Range >= var2 * atr  and { Today's range is larger than the average * var2 }
  • If Close > open {Today's close is greater than the open}
  • Then sell short Y shares next bar close + var3 * limit  { Sell short if S&P 500 starts to move higher the next day }
  • Cover Y shares next bar on open

Here's what the profits would have looked like starting all the way back in 1993:

Day trading breakoutS&P 500 system

Conclusion: Day Trading Breakouts

As you can see, day trading breakouts can be profitable but only if you develop a strict set of rules and follow them exactly.  

That's why I create automated trading systems so I can actually test my ideas and see what makes money and what doesn't.

It's very easy to lose a fortune in the markets, but also easy to make a fortune if you do your homework.

Always remember that you must constantly adapt to an ever-changing marketplace, don't trust me or anyone else out there with your hard earned money.  Do your own research!

It’s just like life. The quickest to adapt not only survives but thrives. Adapt or die off like the dinosaurs.

  • Gold likes to continue in the direction of the breakout and will usually continue to move higher
  • The S&P 500 likes to reverse directions after a breakout
  • The full open source code for both these systems (written for TradeStation) is free via the Member's portal
  • Please remember to test all your ideas first and never forget the risk management formula

About the Author

Hello, I'm Kurt Bruch and I'm the Relaxed Trader guy writing most of the stuff on this website. Feel free to ask questions or leave comments on my posts. I love talking to fellow traders. Remember if you can't test it you shouldn't trade it!

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