Trading strategy · Day Trading
Opening Range Breakout
Trade the first big move of the day.
▶ Watch the free video lesson with TomWhat it is
The first 15 to 30 minutes of the session sets the "opening range" as overnight orders are absorbed. A break above the range high often signals the direction for the rest of the day. The trader buys the break, places the stop at the range midpoint or low, and targets a multiple of the range.
How it works
- Mark the high and low of the first 30 minutes (six 5-minute candles).
- Buy when a 5-minute candle closes above the opening range high (or short below the low).
- Stop at the midpoint of the range (or the opposite side for more room).
- Target 1.5x to 2x the range height, or hold until the close if the trend is strong.
- Works best on stocks with a catalyst (news, earnings) and high relative volume.
The rules
| Entry | 5-min close above the 30-minute opening range high. |
|---|---|
| Stop loss | Opening range midpoint. |
| Take profit | 2× the range height, or exit at the close. |
| Filter | Stock "in play": news + high relative volume. |
Pros
- Clear, mechanical rules
- Done early in the day
- Captures the main daily move
Cons
- Choppy days produce false breaks both ways
- Gaps and news can create slippage
- Requires watching the open live
Common mistakes
- Trading stocks with no catalyst or volume
- Taking a second, third and fourth break on a choppy day
- Making the opening range too short on volatile stocks
Lesson transcript
Lesson eight: the opening range breakout. This is a classic day trading strategy, and it focuses on the most important part of the trading day: the open. When the market opens, all the orders that built up overnight hit at once. Price swings wildly as buyers and sellers battle. After about thirty minutes, that battle defines a range. The opening range. We mark the high and the low of those first thirty minutes. These two lines are the battle lines for the rest of the day. Then we wait. When a five minute candle closes above the range high, buyers have won the opening battle. That's our entry. Our stop goes at the middle of the range. Our target is two times the height of the opening range. On strong days, the first breakout sets the trend for the whole session, and price grinds higher into the close. The key is choosing the right stock. Opening range breakouts work best on stocks that are in play, with news, earnings, or a big gap, and heavy volume. On quiet, choppy days, the breaks fail in both directions. The rules. Mark the first thirty minutes. Buy a close above the high. Stop at the midpoint. Target twice the range, or exit at the close. And only trade stocks in play. Recap. The open reveals who is in control. Let the range form, trade the break, and keep risk tight. Next, the favourite tool of intraday institutions: VWAP.
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