Opening range breakout, a very simple technique for nearly anyone

It is one of the easiest and most popular methods used by Forex traders, especially those who don’t have the opportunity to study the market for several hours every day.

This means that a market will move in one direction or another depending on how it opens or closes. The range that the trader trades in at the beginning creates resistance and support levels. When these are broken, the trader is given a signal to enter the market and can also easily identify the stop-loss level which is usually the extent of the range in a specific time period.

The fact that the trader can choose the time reference in which to trade is the strength of this approach. The instruments or selected currencies that best suit the trader’s preferences are selected if the trader prefers a specific time period. On the other hand, the trader can adjust the time period in which he wants to trade if he prefers a particular asset or currency/currency pair.

This allows the trader to concentrate only for a certain period of the day and then forget about the markets for the rest of the day. More active traders can also choose to use a number of time periods, and there is also no limit to the size of the time frames. Experienced traders can also program an automated trading system that follows a couple of basic guidelines.

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Simple thought, many possibilities

The entire system is based on the idea that the general direction of the market can be established as the day begins to trade.  The time at which the opening range is formed may vary from one trader to another. However, with more accurate and faster data available today, many traders are now using the first half or even quarter hour of the trading day to form their opening ranges. But a range can also form before the markets open, at the end of the day, the beginning of the week or even the end of the months.

European traders tend to follow the opening of the Europe markets (from 8am to 9am Central European Time after the Frankfurt opening, or from 9am to 10am Central European Time after the London opening), US traders follow the opening of the US markets, Asian traders follow the opening of the Tokyo markets, and so on.

The trader’s choice of instrument for the strategy will of course be dependent on the time of day. Naturally, when European markets open, currency pairs such as EUR or CHF are appropriate, as are DAX indices and so on. Opening in the US will then allow the trader to choose from basically all the major pairs thanks to the USD, US indices, and so on.

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Watch out for fake signals!

As with any other technique, the Opening Range Breakout has its drawbacks, which beginners will want to watch out for, especially if they’re starting. False breakouts are the main problem with all breakout-based strategies. Prices may break out of a range for a time, only to come back and finally move in a different direction. The movement within the range is actually a constant fight between the sellers and the buyers, so the support and resistance levels that define the range may not always be 100% accurate.

This problem can be partly overcome by adding additional entry conditions, the direction of the current trend or direction on a higher timeframe, and so on, or indicators to open positions only in a given direction. Small false breakouts can be handled by taking a margin of 3 or 5 pips above resistance or below support instead of going in at the high or low of the range.