V.7:2 (47-49): Opening range breakout Part 4 by Toby Crabel

Opening range breakout Part 4 by Toby Crabel

Opening range breakout is a trade in which entry is taken at a predetermined amount above or below the opening range. I've set this predetermined amount (the "stretch") through observation. (See Stocks & Commodities, September 1988.) To trade the opening range breakout, a buy stop is placed above the high of the opening range an amount equal to the stretch and a sell stop is placed the same amount below the low of the opening range. The first stop that is traded is your position.

An inside day is one in which the daily range is completely within the previous day's range. More specifically, an inside day's high is less than the previous day's high and the inside day's low is greater than the previous day's low.

Figures 1 and 2 demonstrate the inside day and the next day's opening range breakout technique. My hypothesis is that inside days precede trend day activity and, consequently, successful opening range breakouts. Figure 3 tabulates the results of this hypothesis in the Treasury bond, S&P 500, soybean and cattle markets.

There were four tests per market with the only difference being the points of entry above or below the open. For example, bond market tests were conducted on an entry 16 ticks above the open (open plus 16 ticks), 8 ticks above the open, 8 ticks below the open (open minus 8 ticks) and 16 ticks below the open.