Opening Range Breakout Strategy
ORB stands for Opening Range Breakout. This standard was developed by Toby Crabel, manager of Crabel Capital Management, who, as a curious fact, this fund occupied the 101st of 196 in the 2005 Absolute Return magazine ranking, which means that every year it obtains constant positive returns. Today we will focus on the pattern he developed, the Open Rankge Breakout.
What is the Opening Range Breakout?
The Opening Range Breakout is a price range, which when it is exceeded high is a buy signal and when it is exceeded low is a sell or enter short signal.
When the Opening Range Breakout gives a buy signal we have to set the stop loss to the minimum of the range, and vice versa, when the Opening Range Breakout gives a sell signal we have to set the stop loss to the maximum of the range.
This is the average of the last ten days of the difference between the opening and the closest end to the opening price of each session. To understand this, let's imagine that on day X the future on the S&P 500 opened by 2,000 points, had a maximum of 2,025 points and a minimum of 1,960 points, as there is less distance between the maximum and the opening (25 points) than between the opening and the minimum (40 points), we will take the difference between the maximum and the opening to calculate the Opening Range Breakout.
According to Toby Crabel, the Opening Range Breakout is more effective after an inside bar that has a lower daily range than the previous 4 sessions.
Example of the Opening Range Breakout?
Let's see an example of how the Opening Range Breakout would be calculated and what the entry levels would be like. To make the example we took of the data of the Future of S&P 500, in the following table you can see the data.
The "O" column shows the opening price for each session, the "H" column shows the maximum for each session, and the "L" column shows the minimum for each session. Then I calculate the difference between the maximum and the opening and between the opening and the minimum, so I always get a positive number. Then I used the =MIN function in Excel to select the minimum value of these two differences, which are listed in the "Minimum" column, and finally I took the average of these 10 values, which is in the ORB box. The "Open" box shows the opening price of the next session and the "Max" and "Min" boxes show the buying and selling levels respectively.
In the graphic we can see the selected period between the two vertical red lines and the candle where the input occurs, which is selected with a green one. The horizontal blue line shows the input level of long and the vertical red line shows the input level of short. As we see in this case, the length without touching the short line and as we see the price continued to rise during the session, de done rose almost 7 points from the opening level of the operation.