I know because I was like them - place quick entry orders as soon as possible after Market Open, and scoot to work, and not bother about the market for the rest of the day. The result of the trade could be be checked at the end of the day anyway. And much to my surprise, money would keep coming - day by day, week by week, month by month... until the time disaster struck - like it always does.
Augubhai's ORB Trading System
Here are the basic steps of the system:
- Define an Opening Range Period - 1 minute, 5 minutes, 30 minutes, or even a Range.
- After Market Open, wait for the Opening Range Period to be completed.
- Place Stop Loss Entry orders, at the High and Low of the Opening Range
- That's about it... except for the exit. You get to set your own exit logic - If I was busy with work, I would try to wait for a few minutes for the entry to trigger on one side, and update the other order to place the Stop Loss at a calculated optimum value from the Entry Price. (For an Opening Range of 1 minute or 5 minutes, the entry usually triggered quickly. Else, canceled the orders, if the Opening Range was wide)
There are a number of methods for trading Opening Range Breakouts, the most famous of them is perhaps Tony Crabel's formula. Many of these methods are for scalping the Breakout or booking profits at targets. My method is more a fire and forget for the day - with a wide calculated Stop Loss, targeting the maximum, but taking whatever the market gives - Day Trading with the attitude of a Swing Trader.
I had given an outline of the system on the Traderji forum, and am pasting that verbatim below:
http://www.traderji.com/amibroker/52959-augubhais-orb-system.html#post540835
| To answer the queries above - this is a simple intraday ORB system. ORB stands for Opening range break-out. We decide on a period to watch - it could be the first 5, 10, 15, 30, 60 minutes - anything that you decide. Assuming that we decide that the opening range period is 10 minutes. At the end of 10 minutes, place a Buy Stop Loss order at the day's high(+filter), and a Sell Stop Loss order at the day's low(+filter). The filter need not be a big number, otherwise you could lose some part of a good move. If the Buy Stop Loss gets triggered, you could either decide to leave the the Sell Stop Loss unchanged or modify it to a fixed percentage or a trailing Stop Loss. It is up to you to decide on the stock, filter, and method of Stop Loss once you are in position. The premise is that we make the most profits during trending days. Generally, on trending days, the Open and Close are at near the extreme ends of the daily range, with minor pullbacks. So once you are in position, if you set your Stop Loss to avoid pullbacks, then you would get the most of a trending day with less risk. The key here is to decide on the Stop Loss. The Stop Loss will vary from stock to stock and period to period. The AFL will help you backtest and decide on the Stop Loss. With whatever backtest I have done, the maximum returns were when there was no stop loss. Obviously, that is more risky, and I never trade without a Stop Loss. This is not something new that I discovered. You will find so many ORB systems on the internet. What I want to share is that I have been profitably trading this system successfully for many years now - on NIFTY and recently on Bank Nifty. (Sometimes there have also been very serious whipsaws as well). This is an Intraday method that does not require any charts. You just need to know the day's high and low at the end of the opening range period. You also do not need any AFL, except for backtesting. Hope this answers your queries. |
Rationale
The rationale for this system is already mentioned in the snippet above. It is to capture days when the open stays near one extreme (High or Low) of the daily candlestick bar. The number of such days, and the potential points to be made trading this system on such days is huge. Around 60-70% of the time, either the day's high or low is made within the first 60 minutes. If the Opening Range is 5 minutes, then this number reduces to around 20%, but you get to capture more points when you win (Don't take my word for it - Check these out on your charts, and see what's the percentage that you get. This is not very difficult to verify.)
Again, here's my post from Traderji:
http://www.traderji.com/day-trading/89936-opening-range-breakout-orb-intraday-trading-system.html#post867878
| OK, here's the thinking behind my method of ORB... Open the daily chart. How many bars do you see that open at one end and close at the other end? If we capture even some of those bars, could we be in profit? I traded this mechanically, but if we are smart, we can get better results. |
Warning
So, everything is hunky dory so far. But then comes the twist in the tale. You get to win only around 20% of the time. That means that for a random series of 100 trades, there is a 18.5% chance that you could have a continuous losing streak of 20 trades (Check this out with a Streak Calculator). Will you be able to handle this sort of a losing streak? I certainly cannot, at least not at this point - which is the reason that now I don't trade Opening Range Breakout the way it is described above.
Opening Range Breakout or ORB is my first and favorite Day Trading system. My first love. It is with ORB that I had my first Day Trading success - months of big profits, and then I was hooked. Then it all went bad in a few days - poor Money Management being a major reason. There is need to be aware of the risk of huge drawdowns trading the system mechanically as described above. Use it at your own risk.
Trading Systems
I am kicking off this series of posts on Trading System and Methods with my notes on Opening Range Breakout. These are just notes and not a comprehensive review. Maybe, I'll flesh out more details about this Trading System as I continue posting...
So do you play ORB these days?
ReplyDeleteNot since the last 6 months. I do keep changing my trading methods, so I might get back to trading ORB again.
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