What is The Opening Range Breakout Strategy?
The Opening Range Breakout Strategy helps traders predict future price direction of a currency pair. With this strategy, traders can identify ideal entry and or exit signals in the market. In our article, we discuss how you can trade with the Opening Range breakout Strategy.
Understanding Opening Range Breakout Strategy
The Opening Range Breakout (ORB) Strategy involves taking forex positions when the currency pair prices break below or above the previous day’s high or low. The opening range price is what you see during the first trading hour. ORB helps identify the price level at which you expect the currency pair price to break through which can in turn help you make successful buying and selling decisions. These price breakouts occur very close to the market highs and lows, and allow you capture market gains in the same direction as the price movement.
- If the price breaks near the market high in a bullish market, it sends traders an entry signal
- If the price breaks near the market low in a bearish market, it sends traders an exit signal to minimise the risks associated with the declining prices
Rules of trading with Opening Range Breakout Strategy
1. Identify retracements
Always identify how much the currency pair has retraced compared to its initial opening price range to make entry or exit decisions. The lesser the retracement, the higher chance of making a successful entry/exit point.
2. Strong initial movement
Before entering or exiting the market with this strategy, wait for the initial move to complete and wait for the market to react to it aggressively. Enter or exit the market only when the initial move is strong enough.
3. Enter above the opening high price range
In a bullish market, always look for the currency pair price to break above or near its previous day’s high. As soon as the price breaks at the high level, it signals traders a strong upward directional move which gives them ideal entry positions.
4. Fix stop losses below the opening high price
Stop loss orders should be placed below the price range where the currency pair opens to minimize the risk associated with the trade. When the stop loss is placed below the high price range, you can exit the market quickly if it reverses unexpectedly.
How to trade with Opening Range Breakout Strategy
1. Gap reversal
Gaps are the price breaks that mostly occur during weekends when the market closes. Gap reversals with the Opening Range Breakout Strategy occur when the currency pair’s opening price moves in the opposite direction of the gap. For example, if USD/EUR closed at a low of 0.7 over the weekend and opens in the opposite direction on Monday, at a high price of 2, it will be known as a bullish gap and will signal traders to enter the trade. On the other hand, a bearish gap will occur if the trader sees the currency price breaking above the previous day’s price range high.
- Stop loss placed in between this range will help their traders minimise trading risk
- Take profit targets can be assessed according to the distance between the gap’s high price and low price, which in our example is 1.3 (2-0.7)
2. Gap Pullback
A pullback occurs whenever there is an opposite price behaviour in a currency pair compared to its long term price behaviour. So, if a currency pair has been bullish in the long run, a gap pullback would mean a sudden drop in the prices temporarily. You can trade with gap pullbacks and the ORB Strategy when the market is bullish or bearish as it helps identify ideal buy or sell signals.
- As soon as a bullish gap is spotted on the currency pair chart, the price moves in the opposite direction and falls. Once the downtrend is confirmed as the prices continue to fall, a short order can be placed right after the price breaks out in the opposite direction.
- As soon as a bearish gap is spotted on the currency pair price chart, the price moves in the opposite direction and rises. Once the uptrend is confirmed as the prices continue to increase, a long order can be placed right after the price breaks out in the opposite direction.
Stop loss orders can be placed below the lowest price of the currency pair’s opening price range and targets can be assessed according to the distance between the gap’s high and low price.
3. Early Morning Opening Range Breakout
You can trade with the Early Morning ORB by focusing on the gap size in the currency pair’s price chart and keeping a close eye on its high or low breakthrough. As soon as a breakout occurs, you can trade in the same direction of the breakout after identifying the gap in the market. This strategy takes place in the first 20 to 30 minutes of the market opening as the markets are very volatile during this period. The currency pair price’s distance from the high or low price will indicate if you can enter a buy position or a sell position.
- If the currency pair trades near the high price, you can enter a buy position to trade along with the market’s uptrend
- If the currency pair trades near the low price, you can enter a sell position to trade along with the market’s downtrend
- Stop loss orders can be placed anywhere between the gap
- The take profit level can be set above the high price range
Trade with the Opening Range Breakout to identify buy and sell signals
Trading with the Opening Range Breakout will help you identify ideal buying and selling opportunities that will assist you in placing successful trade orders. You can start trading today with Blueberry Markets to enjoy the technical tools, indicators and strategies that can make your trading experience seamless. Ready to use ORB strategy to profit from your forex trades? Sign up for a live trading account or try a risk-free demo account.
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