For binary options traders, it’s essential to examine the chart and patterns. That’s because without analyzing the charts, they cannot learn the market movement. And without proper binary options market knowledge, they will lose the trade.
But what is the right way of monitoring the daily market event? Which strategy can you use to take a position in the market? Well, you can use an Open range breakout trading strategy.
One of the best ways to let volatility subside is by waiting on the sidelines and gaining profitability from the trend when the market opens. Several traders use this strategy to reduce the chances of losing a trade.
If you also want to use this strategy while making a trade, you must know what open range breakout truly is? The size of open range breakout? And how to manage risk? The answers to these questions are given in this guide.
What you will read in this Post
What is a open range breakout strategy?
Open range breakout is a way of monitoring the market and taking a position in the trade according to the price break. It is designed to analyze the market reversal or move during the first hour.
The first hour in binary options trading is crucial as it is the most dynamic period. During this time, several traders are active, which further creates a market trend.
That means, during this hour, you can make a considerable amount of money. But you can lose the same amount if your speculations are incorrect or if you trade without a plan. That’s why you should take the help of an opening range breakout strategy to increase your profitability.
See an example here:
In simple words, this strategy is high and low of an asset in a given time. Mostly, this time is 30 or 60 minutes long. During this period, you must identify the highs and lows and know the pre-market low and high.
Once you have predicted the price action of the asset and entry points by using open range breakout, you can then make a trade.
While 30 and 60 minutes are standard trading time frames, you can also choose a time frame you are most comfortable with. After selecting the time frame, you can predict price movement.
Size of an open range breakout
Before you start trading, it’s essential to measure the size of the opening range. You can do this with the help of two candles that become available once the market opens.
Out of two candles, one is created after the market opens, and the other one is from yesterday’s trading session.
You can note down the highs and lows of the two candles. Next, you can calculate the difference between the two candle’s prices, which is the size of the opening range.
If you want to use an open range breakout strategy for intraday trading, there are three simple things to consider, i.e., volatility, relative strength, and volume.
To successfully use an open range breakout strategy, you must identify the volatility of the asset. You can do this with an ATR indicator.
Once you know the volatility, you should then hold a position in the assets that shows upcycle. Without volatility in the trade, you might lose it.
After volatility, relative strength is another essential aspect of winning trade by using open range breakout. You can obtain the relative strength by dividing an asset’s price with the broader market index.
To make long trades in the market, you need to concentrate on the relative strength line sloping on the upside. Similarly, if you want to make short trades, you should look for a sloping line on the downside.
The basic idea is to make a trade on the long side of the respective trade. In simple words, relative strength is a way of looking for underperformers for short trades and outperformers for long trades.
Another way of making profitable open range breakout trade is by spotting volume. You can either manually look for the volume or can find it with the help of some tool.
What is the open range breakout calculator?
In open range trading, an important aspect is a breakout. That’s because when the price of an asset breaks down, it shows a change in the market. Also, the breakout indicates two things:
- If the stock breaks open range upwards, then the price of an asset will proceed to travel in the bullish direction.
- On the other hand, if there is a break in the opening range downwards, the price will move in the bearish direction.
If the price breaks out of the opening range, that means you can enter the trade. Following this, you can open the trade in the direction of the breakout. And lastly, you can place a stop loss in the middle.
Different open range breakout trading strategies
Here are a few helpful Open range breakout trading strategies.
Early morning chart breakout
Out of all the available trading strategies, this is the popular one. That’s because it focuses on the breakthrough, it’s high/low, and the size of the gap.
Using this strategy, you can identify the boundaries of gaps and then trade in the breakout direction. You should always place a stop loss in the middle of the gap when using this trading strategy.
Chart pattern gap pullback buy
This strategy is another successful way of using Open range breakout trading. After spotting a bullish gap on the trading chart, you can use this strategy. Following this, the price of an asset moves in the opposite of the gap direction, meaning bearish. This thing is known as a pullback.
If you are using chart pattern gap pullback buy, you must know the right time of purchasing the pullback. Reversal candlestick patterns reveal the right time.
After identifying a reversal candlestick pattern, you should wait for the approval. Lastly, you can place a stop loss below the lowest point of the opening range to avoid losing trade.
When using this trading strategy, you are required to trade for a minimum bullish
The last opening range breakout strategy is gap reversal. The gap reversal occurs when the range breaks in the reverse direction, and there is a gap.
In this scenario, if the gap reversal happens when the price breaks the upper level of the opening range, you can conclude that the gap is bearish. On the other hand, the gap will be bullish if the price breaks the lower level of the opening range.
Just like in the other two trading strategies, you are supposed to place a stop loss in this trading strategy as well. In this trading, you should hold the trade for the size of the gap to the minimum price move.
Identify high profitability in an opening range breakout
Importance of narrow range
In Open range breakout trading, you should focus on cluster candles rather than a single candle. That’s because narrow range clusters give a better idea of market movement. You can identify narrow range candles concerning, X candles. Here, X is the number of days.
Two widely popular narrow candle patterns are NR7 and NR4, i.e., Narrow Range 7 and Narrow Range 4. You can spot NR7 when the current candle range is the smallest among the last seven candles. Similarly, NR4 is when the range of candles is the smallest among the previous four candles.
Both are essential filters since the open range breakout shows volatility expansion and the narrow range represents volatility contraction.
Importance of high volume nod
Before starting a trade, you should understand the importance of a high-volume nod. You can spot the high-volume nod by looking for the area where the maximum trading activity takes place.
If the high volume nod is located above the opening range breakout, you can trade as it is one of the most profitable areas.
Importance of stock selection
Another important thing is to select the right kind of asset. If you want to make more profit, you should choose an asset that is highly volatile by nature. But if you want to play safe, you can select a familiar asset.
Importance of VWAP indicator
Some significant breakout in the opening range breakout strategy happens above the VWAP indicator.
But if the stock breakout takes place way above or below the indicator, you should avoid trading it. To be precise, you should avoid taking trades if the gap range is more than 2%.
Open range breakout is a vital trading strategy that can help you win a large amount of money. But for increasing profitability, you should look out for key levels. Additionally, it’s essential to follow a solid trading strategy to avoid losing trade.
You can also place a stop loss above or below the breakout to manage risk. Furthermore, if the trade moves as per your expectations, you can find a winning exit point.
Overall, whether you have recently started trading or are trading for a while, you should always start small to be successful in the opening range breakout strategy.
(Risk warning: You capital can be at risk)