Wednesday, October 31, 2007

Day Trading: Opening Range - Part 1

Breaks from the opening range (OR)


When day trading, my favorite type of trade is a break above the opening range. I seem to have my most successful trades using this setup. Here is what I look for:

Step 1: Find stocks that gap higher at the open. I want to find stocks gaping higher on earnings or some other news driven event. When you hear the term "gap up" or "gap higher" it simply means that the stock opens up significantly higher than the price it closed from the previous day.

Step 2: Patience, wait 15 minutes for the stock to create an opening range. Once you have created a watchlist full of stocks that "gap up," you now wait 15 minutes for the stock to create an opening range. This will give you your entry and exit points.

Step 3: Do not pick a bottom. Patience is key here, you wait for the stock to trade above the opening range, period.

Step 4: Buy stock when the price moves above the opening range. The opening range is simply the price range the stock traded during the first 15 minute candlestick. Take a look at the chart above, I have plotted a light blue line that represents the high on the opening range. Once the price moves past the line, that is my buy signal (yellow circle).

Step 5: Set Stop. I like to set my stop at the low of 2 candlesticks behind my entry. On the above chart, I have plotted a red line to represent my stop price.

Step 6: Take profits when appropriate.

New to charts? Practice at bigcharts.com.

Step 1: Type in stock symbol, then click advanced chart.

Step 2: Under time frame, set your time to: 1 day. Set your frequency to: 15 min.

Step 3: Click chart type, then under the heading "price display" click candlestick.

Step 4: Click draw chart.

4 comments:

Jonathan said...

This is such a great setup. I imagine you could make a nice living by specializing just on opening range breakouts.

Jay said...

Thanks for your setup tips Ragin' Cajun, appreciate it. I will study it for a few days and put it to work when ready :)

Dinosaur Trader said...

Ragin,

Where you at? Hopefully there are no tall buildings in your trailer park for you to jump from.

-DT

William G. Cash said...

I love when stocks break their opening range high later on in the day. I'm made money on this quite a few times.