Twelfth-century monk and mathematician Leonardo de Pisa (later branded as Fibonacci) uncovered a logical sequence of numbers that appears throughout nature and in great works of art. Trading strategies are employed to avoid behavioral finance biases and ensure consistent results. Trading strategies can be stress-tested under varying market conditions to measure consistency. Here, you’ll find in-depth resources, tutorials, and courses designed to help you understand the ORB trading strategy inside and out. Depending on your risk tolerance, there are two ways to set your stop loss while trading the ORB strategy. You can place the stop loss below the candle that broke the range or at the low of the opening range.

Are you ready to take your trading to the next level?

When civilizations got bigger, more people needed more resources which became the reason behind the development of trade. One of the oldest trades documented was that of shells used as tools, with evidence dating as far back as 3200BC.

Deeper market analysis requires greater effort because trends are harmonic phenomena, meaning they can subdivide into smaller and larger waves that show independent price direction. For example, a series of relative uptrends and downtrends will embed themselves within a one- or two-year uptrend in the S&P 500 or Dow Jones Industrials. We see this complexity most clearly when shifting higher, from daily to weekly charts, or lower, from daily to 60-minute or 15-minute charts. According to the Strat theory, by analyzing repetitive candle patterns, traders can easily find lots of trade opportunities without the need for other trading tools.

This means that a significant portion of ORB trades hit the target profit, making it an attractive option for traders seeking consistent returns. The key point of the ORB strategy lies in its reliance on range breakouts as entry points. Consequently, the ORB trading strategy is designed to leverage these breakout opportunities to maximize profits during the opening and closing times of the day. The ORB works on the same principle and guidelines of the breakout trading strategy. For instance, a trader can look for a range within the first 15 minutes after the bell rings. However, what exactly constitutes the “opening range” can vary depending on your trading style and preferences.

When it comes to the Opening Range Breakout (ORB) https://forexanalytics.info/ trading strategy, selecting the right time frame is similar to choosing the right lens for a camera – it significantly influences how you perceive the market. This strategy can help traders find trading signals by just knowing the implications of 2-3 structured candlesticks. And for that reason, it is primarily considered as an ideal strategy for intraday traders. At this point, it’s only natural to wonder if the ORB trading strategy is profitable. When evaluating the profitability of any trading strategy, the winning rate percentage is a critical metric. This percentage represents the frequency at which your trades result in profits.

You also need to identify suitable stocks or futures to implement the ORB strategy effectively. For instance, utilize a stock/futures screener to narrow down your options, and look for assets that exhibit the price volatility and liquidity necessary for successful ORB trading. HowToTrade.com takes no responsibility for loss incurred as a result of the content provided inside our Trading Academy. By signing up as a member you acknowledge that we are not providing financial advice and that you are making the decision on the trades you place in the markets.

1. A quantitative trading strategy is similar to technical trading in that it uses information relating to the stock to arrive at a purchase or sale decision.
2. The pattern is a strong indicator of a potential trend continuation or reversal.
3. A single Fibonacci grid on a daily chart will improve results, but ratios come into sharper focus when examining two or more time frames.
4. However, the matrix of factors that it takes into account to arrive at a purchase or sale decision is considerably larger compared to technical analysis.
5. This alignment can signal the sustenance of an ongoing trend or hint at an imminent trend reversal if divergences across time frames are observed​​.

Developing a Trading Strategy

As an example, look at Meta (META), formerly Facebook, after it peaked at $72.59 in March 2014 and entered a correction that found support in the mid-$50s. The subsequent bounce reached the 78.6% retracement at $68.75 two months later and stalled out, yielding nearly three weeks of sideways action. In the case of the ORB trading strategy, historical data and analysis indicate that it is profitable. ORB enthusiasts often report winning rates ranging from 42% to 65% and sometimes even higher.

What Is a Trading Strategy?

The Strat, developed by experienced trader Rob Smith, is a multifaceted trading strategy rooted in the analysis of candlestick patterns to understand market trends and potential reversals. This approach is not just about recognizing a singular pattern but involves a comprehensive understanding of a set of distinct multi-candle patterns that signal various market movements. Each pattern is a combination of specific candle formations (usually 2-3 candlesticks), which, when read together, provide insights into the continuation or reversal of market trends. Bear in mind, however, that one noteworthy approach to optimizing the ORB trading strategy is multiple time frame analysis. This technique involves simultaneously examining the same asset or market in different time frames. By doing so, you have a broader view of the trend and can trade breakouts in that direction with confidence.

Which Time Frame is Best for the ORB Strategy?

According to the Strat theory, the identification of broadening and contracting markets can provide a strong indication of the market’s movement. For example, in the chart above, Microsoft Corporation (MSFT) shares pounded out a deep low at $42.10 in Oct. 2014 and rallied in a vertical wave that ended at $50.05 a few how to trade forex weeks later. The subsequent pullback settled on the 38.2% retracement (.382) for four sessions and broke down into a mid-December gap that landed the price on the 61.8% (.618) Fibonacci retracement. That level marks a tradable low ahead of a sharp recovery that stalls at the 78.6% (.786) retracement. The ORB strategy can be effectively applied to various markets, but it particularly shines in stocks and commodities (futures).

Reading Strat candles involves analyzing candlestick patterns, especially inside and outside bars, and understanding their implications in the context of overall market trends and time frame continuity. Profitable trading strategies are difficult to develop, however, and there is a risk of becoming over-reliant on a strategy. For instance, a trader may curve fit a trading strategy to specific backtesting data, which may engender false confidence. The strategy may have worked well in theory based on past market data, but past performance does not guarantee future success in real-time market conditions, which may vary significantly from the test period.

Overall, outside and inside bars are an extremely vital part of the Start technique. Memorizing these patterns is also pretty straightforward; however, for a more robust understanding of these patterns, consider checking out our complete Strat Trading Cheatsheet. Emotional trading is one of the major reasons why most traders struggle to become profitable. Thankfully, Rob Smith discovered how to read price action in a logical and non-emotional way and dubbed it “The Strat.” This trading technique has gained some popularity over the past few years. Let’s tackle the subject with a quick Fibonacci primer and then get down to business with two original strategies that tap directly into its hidden power.

2-2 RevStrat Reversal

The longer-term tax results of trading are a major factor and may encompass capital gains or tax-loss harvesting strategies to offset gains with losses. Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master’s in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.