Opening Range Breakout
by Toby Crabel
Two price chart patterns — the inside day (ID) and the four-day narrowing range (NR 4) — have
proven to be reliable predecessors of trending action that can be profitably traded with an opening range
breakout (ORB) system. (See Stocks & Commodities, February and April 1989.)
What happens to the predictive power of these patterns when they're combined? My research assumption
was that, because they were both individually successful, they would produce clearer ORB buy/sell
indications when combined.
I examined this assumption in several ways. First, I directly tested how the ID/NR 4 pattern affected ORB
trades entered at various points on either side of the opening range (Figure 1). Secondly, I compared the
percentage of winning trades taken after the ID/NR 4, ID and NR 4 patterns and on any day regardless of
whether or not a pattern existed (Figure 2).