Opening Range Breakout Strategy for Beginners

After the opening bell, stock trading usually sees some of the most significant price swings of the day. It's not unusual for the first 30 minutes of trading set the tone for the rest of the session, determining whether it will be volatile with high volume or sedate with low volume. 

There are various definitions of what the opening range means, but the most common is that it refers to the gap between the low and high price of the first 30 minutes of trading. 

Any basic stock charting package can do this work for you through candlesticks. There are four key price points in a candlestick; the chosen period's open, high, low, and close. 

A breakout of the opening range occurs if, after the first 30 minutes, the price crosses the highest or lowest wick. 

Example: 

During the first 30 minutes of the trading session, these are the price data for ABC stock:

– $121 is the opening range high. – $120 is the closing price for the opening range. – $110 is the first price of the opening range. – $109 is the opening range low.

If you're trading the opening range breakout the traditional way, you'll buy the stock if the price rises above $121 and sell the stock if the stock price falls below $109.  

The strategy is very simple, so don't overthink it! While the strategy is simple, your focus should be on trading tactics, including position sizing and what you do after opening the trade. 

Position Sizing

Trading a specific number of shares or a fixed dollar amount makes little sense when trading the opening range breakout. Instead, you must alter the position size to match the range of your reference candle. 

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