Open Range Breakout Strategy for Binary Options Explained


The Open Range Breakout strategy for binary options involves analyzing the highs and lows during the first hour of trading, using the opening price range and the previous day’s price range to measure the breakout. It factors in volatility, relative strength, and volume to assess potential market moves.

This blog will explain the strategy, demonstrate how to use it effectively, and offer tips on managing risk and applying best practices.

Key Facts About Open Range Breakout Strategy

  • Open range breakout strategy is based on the price highs and lows in the market’s first hour
  • Breakout size is measured using the opening and the previous day’s price range
  • The strategy considers volatility, relative strength, and volume
  • It includes methods like early morning breakout, gap pullback, and gap reversal, with stop losses for risk management

What is an Open Range Breakout Strategy?

The open range breakout strategy is a method for tracking market movements and taking positions based on price breaks. It focuses on analyzing market trends or reversals during the first hour of trading. This hour is critical in binary options, as it’s highly volatile, with many traders active, shaping the market direction.

While it presents an opportunity to earn significant profits, it also carries the risk of losses if your predictions are wrong or if you’re trading without a clear plan. Using the open range breakout strategy can help improve your chances of success.

See an open range trading example here:

Open-range-breakout
Open Range Breakout

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.

What is the 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, you should consider three simple things: volatility, relative strength, and volume.

Volatility

To successfully use an open range breakout strategy, you must identify the asset’s volatility. An ATR indicator can help you do this.

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.

Relative Strength

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.

Volume

range breakout trading

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 are the most important aspects of an Open Range Breakout?

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, you can enter the trade. You can then open the trade in the direction of the breakout and place a stop loss in the middle.

What Are Different Open Range Breakout Trading Strategies?

Here are a few helpful open range breakout trading strategies:

1. 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.

2. 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 to purchase the pullback. Reversal candlestick patterns reveal the right time.

After identifying a reversal candlestick pattern, you should wait for 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

3. Gap Reversal

The final open range breakout strategy is gap reversal, which occurs when the price breaks in the opposite direction, creating a gap. If the price breaks above the opening range, the gap is considered bearish, while a break below the opening range indicates a bullish gap.

As with the other strategies, setting a stop loss is important. For gap reversal, you should hold the position until the price moves at least the size of the gap.

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How To Identify High Profitability in an Opening Range Breakout:

Importance of Narrow Range

In open range breakout trading, it’s more effective to focus on clusters of candles rather than individual ones. Narrow-range clusters provide better insight into market movement, and you can identify them by comparing the current candle’s range to that of the previous X number of days.

Two common narrow-range patterns are NR7 (Narrow Range 7) and NR4 (Narrow Range 4). NR7 occurs when the current candle’s range is the smallest of the last seven candles, while NR4 is the smallest of the last four candles.

These patterns are important filters because the open range breakout indicates volatility expansion, while narrow-range candles signal a period of 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 in this area, 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 a highly volatile asset. But if you want to play safe, you can select a familiar asset.

Importance of VWAP Indicator

Some significant breakouts in the opening range breakout strategy happen 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%.

Conclusion: Maximize your success with open range breakout strategy

The open range breakout is a powerful strategy that can lead to significant profits, but focusing on key levels is crucial for maximizing gains. To manage risk, place a stop loss above or below the breakout, and if the trade goes as expected, look for a suitable exit point. Whether you’re new to trading or experienced, it’s important to start small to succeed with the opening range breakout strategy.

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Most Asked Questions:

How do I measure the size of the opening range in the open range breakout strategy?

To measure the opening range size, compare the high and low of the first two candles—one from the market’s opening and the other from the previous day’s trading. The difference between these two prices is the breakout’s size.

What role does volume play in the open range breakout strategy?

Volume is crucial as it helps confirm the strength of the breakout. A high volume nod, where maximum trading activity occurs, indicates a more reliable breakout, signaling a potentially profitable trade.

How can I manage risk using the open range breakout strategy?

A stop loss should be placed either above or below the breakout point, depending on the direction of the price move. This helps protect your trade in case the market moves against your position.

What are NR7 and NR4 patterns, and why are they important?

NR7 and NR4 are narrow-range candle patterns that indicate periods of low volatility, which can precede significant price movements. These patterns help traders identify potential breakout opportunities.

What should I look for when selecting stocks for open range breakout trading?

Choose assets based on volatility; more volatile assets offer higher profit potential, while familiar assets can be safer choices. Understanding the asset’s behavior will help improve your chances of successful trades.

About the author

Marc Van Sittert
Marc Van Sittert is an experienced Binary Options Trader and coach who is originally from South Africa. He started his career in 2014 by trading old-school Binary Options online. His main focus is on short-term contracts with 60-second trades.

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