Day Trading – The Opening Range Breakout

The opening range breakout is a day trading pattern that occurs between 9:50 am and 11:00 am. Of course, like many things in day trading, this is merely a guide and not a steadfast rule. It’s a simple pattern to understand; the first couple of hours on the stock market tend to be very volatile. During this period, some stocks will trend strongly in one direction, while others will swing wildly. Either way, these stocks have created an “opening range,” This range is defined as the price range between the day’s high and the day’s low. The breakout occurs when either the high or low is broken.

The best candidates for an opening range breakout tend to be the stocks that started the morning swinging high and low for a bit, but settle down and choose a direction to trend towards for the rest of the day. Often these stocks will create well-known geometric trading patterns like the ascending, descending triangles.

A couple of other factors you want to take into account when choosing a stock to trade the opening range breakout with are; Was the high or low tested? and Is there enough volume to carry the breakout through to your target? Let’s talk about testing the high or low first. Why is this important? It’s crucial because without that high or low having created a bounce you don’t really know if that level is a key level or support or resistance. The only exception to this is when this level has provided support or resistance for your stock within the past few days. Next, why is volume important? Volume is really the key in any day trade. Increasing volume is what creates momentum, and momentum is what carries a trade through to the next point of resistance or support. This is especially true of breakout trades because breakouts occur at major support and resistance levels so more force (momentum) is required to to breakthrough that level and carry the trade. So in short, volume equals momentum and momentum is a major force required day trading the opening range breakout.