Opening Range Breakout Definition: Day Trading Terminology
An opening range breakout is a fairly simple strategy that involves taking a position when a price breaks above or below the previous candle high or low. This can be used for different time frames depending on your style and preference. This trade is taken usually on the 5-minute, 15-minute or 30-minute time frame and generally resolves very quickly.
The great thing about this particular trade is you know exactly where to get in and where to get out. The entry is on the break of the opening range and the stop would be at the low of or high of the open range candle. For scalpers the most popular time frame is 5-minutes and for intra-day swing traders they will most likely use the 15-minute of the 30-minute time frames.
In the above example you will notice that the opening range is indicated between the two dotted red lines. We are looking at a 5-minute chart of NVDA which is known for being a big mover whether it’s in play or not. This is a great setup because it opened above the VWAP failed to break over pre-market highs and then closed below the VWAP showing that sellers were stepping in. The opening range was between $109.41 and $108.95, which is pretty tight for this stock.
Entry would have been on the break below $108.95 with a stop at 109.41. When prices flushed through it kept falling hard and was a fairly straight forward trade that could have earned well over a point in profits. This is a high probability setup and when it hits can easily give you 3 to 1 risk reward and often even more.
Warrior Trading Pro Tip
When trading opening range breakout’s it’s important to look for other key levels as well if the stock is oversold or overbought. It will help confirm price action and will give you greater confidence trading the breakout.
The breakouts also work better on stocks in play that have a high relative volume for that time frame whether be for 5-minute or 30-minute. You’ll also want to look for setups where the opening range bar opens above VWAP and then closes below.