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This trading strategy can be used across any futures asset right off the opening bell.
For equities that is at 9:30 am EST Monday through Friday
Gold Futures 8:20 am EST Monday through Friday
Oil Futures 9:00 am EST Monday through Friday
This trading strategy has 2 components to consider. They are:
- the time frame of the opening range used.
- the first break out
The Trading Strategy
The Opening Range time frame
There is a lot talk about the opening range time frame, anything from 30 seconds to 15 minutes plus. Why is that? It depends on how long you plan on holding trades! If you are swing trading a larger opening range frame makes sense. However, for the day trading purpose, anything from 5 mins and lower is what’s generally used.
A tip from the pit, the first 30 seconds make up the opening range and that is what this trading strategy consists of.
The Initial Break
Catching the first break out holds some risk to it because you have to keep the risk tight and get an extended move in the break out direction quickly.
This involves using a tighter bracket, scratching quickly and using a buy stop/sell stop-limit order to get in.
It is a good idea to use multiple lots, 2 or 3.
Perfect this execution on demo and micros before attempting.
Volatility is required because it may not be as successful in slow summer chop.
The basis of the strategy Explained
The opening range consists of the first 30 seconds of the open on whatever futures market you trade. Sierra Charts has a study that does just that “High/Low for time period”.
In the image below it is denoted by the two blue lines.
The premise of this trade idea is that traders are long above the opening range and short below.
As price moves into the top or bottom after it has been established, a buy stop limit is set above or a sell stop limit is set below. This is done with a bracket order, with a tighter stop and a wide take profit.
This trade is done with at least 2 lots, more prefer doing it with 3 lots. Each lot has a target level or should be taken out at market structure breaks. This will be further discussed below.
In slower summer chop days, traders have to be aware of the possibility of no break or a late break. That is why I caution traders to take this trade a max of 3 times with scratch or -2 tick stops.
If it does not go relatively quickly there is not enough volatility in the market to propel it. This is a great fall-spring strategy.
Below is a chart of the ES and the opening range playing out.
This is a simple trading strategy by nature, harder to master in terms of timing and management. Practice, practice, practice.
Application
Below is a picture of the strategy being used. The asset used for the demonstration is CL. This goes to show this strategy can be used on any asset.
First thing is first, we have to consider market structure. The oil market was printing lower lows and lower highs.
The sentiment and price action was point price lower. Price was below the pivot point adding to bearish sentiment. Price was also below the VWAP, holding it as resistance.
Price was coming into the established 30 seconds OR and a long was taken just below the OR as the price was coming into that area.
The trade was taken with a three lot with inventory kept in mind. The inventory of large bids were below pulling price lower.
The first target was hit, stops were moved so that the trade was converted into a risk-free trade.
Managing the trade & target areas on multiple lots
The trade doesn’t end when your position gets filled. You have to be wary of the potential risk and profit-taking levels.
When trading 2 or 3 lots you can configure brackets for each lot, all should have the same or similar tight stops but laddered take profits.
Here are some examples:
- ES: 2-3tick stop loss. Target 1: 2 points, Target 2: 4 points, Target 3: 6+ points.
- NQ: 4-5 tick stop loss. Target 1: 4 points, Target 2: 7 points, Target 3: 10+ points.
- CL: 3-4 tick stop loss. Target 1: 6 cents, Target 2: 10 cents, Target 3: 15+ cents
After taking the first take profit, its wise to move all the stops for the remaining lots to break even scratch or a +2 tick scratch as you wait for your other profits to get hit.
Now, this doesn’t turn into a waiting game, either one or the other happens. You have to manage the trade if it doesn’t look like the trend will continue. Take the profit and run.
Just as the third lot profit close out in the example above.
On the other end of that, if the gains look extended, take profit on the first two and let the last one run until it can’t anymore.
That requires watching market structure. In this case, is the market printing lower lows and lower highs? Move the stop loss down to each new pullback in anticipation price doesn’t print a higher high.
Exactly like the example above, the last stop is at the previous peak just before the take profit. This strategy can end up running overnight even if the market continues to trend.
Watching things like correlations, order flow and inventory will help you stay in for max gains or get out!
Conclusion
This is a breakout strategy that takes a lot of practice and timing. You will have to learn how to trade what the market gives you and not force the trade.
There is a lot of psychology that goes into this strategy, meaning that you have to stop yourself from forcing the trade and overtrading.
Just like any other trading strategy, this is not 100% hit rate but is low risk if managed properly and high return. It is also a little difficult with a 1 lot. That is why we have the micros!
I would love to hear from you – how is this strategy working, and what has been your experience?
The information contained on this website is solely for educational purposes, and does not constitute investment advice.  The risk of trading in securities markets can be substantial.  You should carefully consider  if engaging in such activity is suitable to your own financial situation.  TRADEPRO Academy is not responsible for any liabilities arising as a result of your market involvement or individual trade activities. Past performance is not indicative of future results, nor are any trading profits or any degree of success guaranteed. Trading can lead to partial or full loss of capital.
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Awesome write up Vic.
You can also try a variation of this same strategy with a 5 minute opening range instead of 30 seconds, or any other shorter term time-frame.
I know of some day traders that use the first hour as their “opening range” – but those guys and gals tend to be the TPO profilers. (Market profile by time at price, versus volume).
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Exactly George!
You can use any time realistically! As long as you implement the same approach the time frame for the range can be anything.
Follow order flow, momentum, inventory and price action into the test of the low or high for the break out.
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Did you do the risk management math on 2 lot?
Also, In Sierra, extended High/Low don’t quite work on tick charts (it draw the price line at the close of candle so if candle runs over your time, let’s say its 30sec but candle opens on 29s and closes at 55s you will get 55s range) so you may need to use time chart and the overlay price levels. -
Hey Yuri,
That’s a really good point, the overlay may be needed in this case, thanks for bringing that up.
That does change the outlook.
Also Yes I would recommend the same risk management math, however you are looking for quick scratches if the price does not burst out of the opening range.
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Hi Yuri. For Sierra Charts you might want to try the study called “Initial Balance” this is the study I use to mark my 30 sec and 5 min opening range on my 6 tick chart and it works quit well. Maybe just give it a try and see if that one works better than the “extend high/low” study.
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I hear a lot about Opening strategies, and Curious about on CL the open to VWap strategy. I have back tested it for about 100 days. But it gets aggravating because you keep having to change the CL contract each month. My over all has been that more times than not the open will head to the VWap first things. So basically I’ve just been hitting market bids or offers soon as the market opens depending on the needed direction.
My question is for experienced oil traders is this just a fluke because as I’ve said I’ve only test about 3 months worth. Or is this a certain thing.
My target is the Vwap but I just set my limit at 11 tick target and stopped there. But the direction was toward the VWap. Would it be better to wait after the first 30 seconds? Just curious of this findings and wanted more info from people with more experience with CL.
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Hey Jeffrey! This is an interesting finding! I can’t say that we’ve tracked this personally but I would recommend building out a larger data set to confirm if there actually is an edge with this strategy (min. 100 occurrences)
I can confidently say that there is no “sure thing” in the markets but if backtesting proves that there is a profitable edge with this strategy then the next step would be to forward test it on demo!
The data will tell you whether your findings are “just luck” or whether there is an actual edge present! George posted a similar opening fade strategy on Gold in the ELITE strategies section which seems a bit similar to your findings. Give that a look over as well and let us know how this goes!
Cheers
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