Opening Range (OR) – is simply the range of the opening one minute bar during US market hours (sounds too simple, but don’t underestimate the power of this tool!). I use two horizontal bars to mark it as it often comes into play and is an excellent gauge of market direction:
(video contains no audio, simply demonstration of drawing opening range bars on 7/8/9)
Uses of Opening Range
- Excellent set ups for single contract traders
- Determining market direction
- Defining exact risk amount on gap fill plays and helping decide whether to play gaps or not.
- Using OR as a target on market reversals / fade plays.
- OR based trades
- Laminating with other setups you use on regular bases to improve trade success probability
There is no need complicated computer algorithms and trying to tweak settings of indicators based on indicators based on some other indicators, Opening Range alone is very powerful, simple and profitable trading tool.
Opening Range Examples
It comes into play on daily basis and even if you don’t base trades on it, it is very useful tool to watch for clues in the market. Without much discrimination here are last 7 days and opening range notes:
- Market gaps down if playing the gap, not taking it until ES trades above opening range, defined stop behind OR, gap fills.
- ES retraces back to OR, bounces a bit and break down.
- After breaking down, retraces back to OR and bounces for few points (should be enough to get a target hit / get risk free trade)
- Chops around the rest of the day, until towards the end of the day, breaks above, backtests to the tick and takes off.
- ES breaks down below OR, and fills the gap
- retraces back to OR and breaks down
- trades above OR, backtests and goes on to rally (small break above before backtest easy to miss)
- Market gaps up and never trades below opening range, big time clue to not attempt gap fill play until inside of OR and previous close pocket in entered
- ES goes up, backtests OR and goes on to rally.
- Later on in the day as rally fizzles few more minor bounces on OR
- Market gaps down and never trades above opening range. Warning to not enter gap fill trade.
- If it does trade above you have defined risk trade of 1.5 pts with reward of 13 pt gap fill / or 6 pt half fill, nice r/r
- market gaps down, trades inside of OR = gap fill is on, risk is defined below OR. Gap fills.
- Market retraces back to OR small bounce and break down
- Backtest of OR after breakdown and tiny bounce
- Break above OR and 2 backtests before moving up
While taking every OR trade might not have been very wise in this particular instance, it still gave some great clues on gap fill and market direction.
- Market gaps down and trades few ticks inside the OR into the gap and then break down from OR. If you were playing the gap you would have been stopped out regardless, at least this time there was defined stop behind OR.
- OR feels bad about letting you down on gap fill and after ES breaks down, smacks it down 15+ pts on the backtest.
Today on the day with highest volume in a month, lowest $tick in 11 days and highest $tick in 2 months you be the judge if it provided any valuable clues on it’s own. (nothing is perfect, sorry to disappoint , this is not the holy grail of trading)
Opening range is very simple and useful tool, particularly useful when laminated with other trade setups.
If you are too lazy to draw two lines across first 1 minute bar, I post daily OR via my Twitter account @esecfutures within minutes of market opening.
Hope this helps