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Opening Range and Volume Break Out Strategy for Intraday Trading

The first hour of a trading day plays a vital role as it is one of the most active and dynamic stage of the market hours. Much of the volatility has been seen during this period.

Thus, to avail the benefit of this volatility one can use Open Range Break out with volume trading strategy. It works really good in cash or future of a stock or commodity. The other benefit of this strategy is the Risk and Reward ratio which is significant. One can make a good amount if it goes right else one will lose little. 

On a candlestick chart, mark the high and low price of the first 5 minutes of trading. This is called the opening range. And wait for the some other candle that gives a break out either side of the range.

How to Take Entry

1. Select 5 min or 15-time frame on the chart. 5 min time frame has some noise, so one can replicate it with 15 min time frame. It works equally good on both.
2. Now wait for the candle that gives a closing above or below the first candle with Volume. Volume above 20 ma is recommendable. (Use 20 Moving average with type Volume.)

3. If breakout comes, wait for the confirmation candle. If break outcomes with confirmation upside go for buy. If breakout comes downside with confirmation down, go for sell. Trade only on confirmation. However; if you are sure on a trade then you can take trade on range break out without waiting for confirmation.

4. Keep SL just below the Confirmation candle for buy-side and just above the confirmation candle for sell-side. You can play the safe by keeping the SL just below the opening candle high or low according to the nature of the trade. Also check the Risk-Reward for that.

How to book Profit

I book my profit based on Fibonacci levels.
1. Draw Fibonacci levels on the chart. For details check the chart given below.

Keep these things in mind:

1.  5 min range must be a break with very bullish or very bearish candle and close above or below of 5min range (Bullish/bearish engulfing candlesticks patterns recommended).

1. Volume Plays important role here. Before taking trade check if volume is above 20 MA. For Cipla trade, Volume is above 1m though the SL but second time it gave good profit.
2. Always book your 70% of profit if not 100% with fib levels 1.618, 2.618,3.618. If break out candle is near 1.618 and 2.618, avoid the trade here.
3. Avoid trade if Risk Reward ratio does not match with 1:2.

Exit and Modification in SL
1. Maintain strict SL in trade as mentioned above
2.If the candle closes in 5 min range with volume (20 ma) then close the trade immediately.
3. If candle closes without volume then wait another candle with volume for confirmation which closes in range.

See the CIPLA trade again (See above Chart)
1. No candle comes with volume which is above 20 MA after break out candle and candle closes in range without volume. If you want to take risk then don't close your trade but keep open your position until you don't get candle which volume is above 20 MA. Otherwise open your position after 2nd break out range happen.

The Muthoot finance Trade: 

In this trade one can book 70% of his holding at 261.8% level with rest of the load one can ride the movement.

The Bottom Line:
You can make your own tweaks with the strategy and can develop your own version with it. If you use this strategy, it would be advisable to do back testing before taking any trade based on this. You can also check the Bollinger Band trading strategy for intraday.

Write us in the Comment if you made any changes with it and that works good.

Special thanks for Bharat Ji for this contribution. 

Opening Range and Volume Break Out Strategy for Intraday Trading Reviewed by Ankit on March 22, 2020 Rating: 5

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