Key points covered in this podcast
- What is the opening range?
- Why the opening range bias is a useful trading tool to have at your disposal
- How opening ranges work on multiple timeframes
The opening range breakout strategy is a logical and repeatable strategy that involves traders building firm market direction biases after price breaks above or below the market defined opening price range of a session.
In a special installment of our DailyFX podcast Trading Global Markets Decoded, our senior strategist Tyler Yell walks through the concept of opening ranges here, covering how they are effective for building a bias, how they play out, and what traders should watch out for when trading them.
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Typically with opening range breakout strategy, traders are looking to ride a clear move as soon as possible; bulls will build long positions and bears will build short positions as early in the session as they can.
Then after a period of time the opening range is set, that breakout will determine the path of least resistance for the rest of the day, where a trend, if it is to take place, may eventually move. Tyler uses the example of the ’10 O’Clock Bulls’ in the 1990s, where bullish breakouts were common. ‘The US equity market opens at 9:30 and then if you get a breakout you tend to have the bearish dump their positions and then everyone load into the topside.
‘That’s how they got the name 10 O’Clock Bulls; 30 minutes after the open, the opening range would be established and typically broken higher, and you’d see this aggressive move higher,’ he explains.
The Opening Range Concept
With the opening range concept, you typically have a very clear frame of price over the first 30 minutes of a session. Once you have the high and the low of the session, if you have an upper breakout, you’re typically not going to see that low broken for the rest of the day, Tyler explains. Conversely, if you have a downside break, you’re typically not going to see that high broken for the rest of the day. ‘That allows traders to build in not only a bias but a very clear stop point.’
This is very different to fundamental analysis, where you’re thinking of different factors that will affect the value and the market view of a certain asset. ‘With opening range breakouts, you’re looking at it more from a trading standpoint – where is the trend, how can I manage risk, how can I preserve capital at all costs?’ Tyler says.
The chart below gives an example of how four opening ranges played out in consecutive years.
An advantage of opening range breakout strategy is that it gives you not only a clear bias, but it presents clear messages: that traders don’t want to miss out on the first big directional move of the year, and they don’t want to be lagging the benchmarks they follow.
But in addition to that, Tyler says, traders can’t afford to be holding a loss, and if they’re on the wrong side of an opening range breakout they’re usually pretty quick to get out of that trade, and then reverse, or find themselves a new opportunity to trade.
From a trading standpoint, that’s a very valuable thing. ‘You can build this view that if it breaks below that opening range and I’m bullish, then I get out of the trade, maybe I stop and reverse, and if I’m bearish, and it breaks higher, then I get out of that trade, possibly stop and reverse or go to another market altogether,’ Tyler says.
Understanding Macro Opening Ranges
It’s important to understand Macro opening ranges;that opening ranges work on multiple timeframes. You can go session opening ranges, daily opening ranges, weekly, monthly, quarterly and biannual. ‘As a trader, pick a market you’re focused on, or a handful of markets, and opening ranges will help you manage risk and understand how trends are playing out,’ Tyler advises.
Opening range breakouts are a tool that you should definitely put in your pocket, especially from a trading standpoint, where you not only need a clear bias but you need an objective way to measure risk or measure when your view is no longer likely to play out. ‘To me, opening ranges give you a great way to approach that,’ Tyler says.
Be Sure to Check out our Series on Becoming a Better Trader
DailyFX analyst Paul Robinson recently recorded a series on how you can prepare your trading for 2019, as well as building up a respected library of webinars and how-to videos on DailyFX that deal with the core tenets of successful trading that you can access here.
Traders Net-Short Are 63.3% Higher from Last Week
TRADERS REMAIN NET-SHORT
US 500: Retail trader data shows 24.6% of traders are net-long with the ratio of traders short to long at 3.07 to 1. In fact, traders have remained net-short since Jan 07 when US 500 traded near 2473.53; price has moved 11.9% higher since then. The number of traders net-long is 1.7% higher than yesterday and 1.6% lower from last week, while the number of traders net-short is 5.2% higher than yesterday and 63.3% higher from last week.
For more in-depth analysis, check out the Q1 2019 Forecast for Equities
S&P 500 SUGGESTS STRONG BULLISH BIAS
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests US 500 prices may continue to rise. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger US 500-bullish contrarian trading bias.
— Written by Nancy Pakbaz, CFA, DailyFX Research
Follow Nancy on Twitter @NancyPakbazFX
On to the Next Big Levels of Resistance
S&P 500/Dow Jones/Nasdaq 100 Technical Highlights:
- S&P 500 nearing 2800-area, several swing-highs from last year
- Dow Jones 26k-ish stands between it and record highs
- Nasdaq 100 trading around resistance already
Check out the forecasts for Global Stock Indices and other markets on the Trading Guides page.
S&P 500 nearing 2800-area, several swing-highs from last year
The S&P 500 is continuing to show impressive strength since its v-bottom began the day after Christmas, with it having a few points along the way where it could have been stopped in its tracks. But it wasn’t, and this has levels prior to the December swoon in view. The area surrounding 2800 is a big one.
From 2800 up to 2817 there were three peaks created from failed rallies, a logical area, with the rally having come this far, to look for stocks to weaken from. Watching price action will be key, as always, but especially around the levels just ahead.
While resistance looks likely to get tested soon, the upward channel structure over the past month will keep stocks pointed higher for as long as it holds. If the S&P is rejected off resistance, to further bolster the notion of a sizable retracement we’ll need to see the underside parallel undermined.
For now, the top-side must be respected, but the time for material weakness may be nearing…
Stocks are rallying, but will it last in the long-term? Find out where our analysts see stocks headed in the Global Equities Forecast.
S&P 500 Daily Chart (2800/817 big spot)
Dow Jones 26k-ish stands between it and record highs
The Dow is nearing the 26k-area, a spot which is basically the equivalent of what 2800 is to the S&P 500. The zone runs up to near 26300. The focus is primarily on the S&P right now as it is the broader index, but depending on how price action plays out, the Dow may be the better index to short at some point if it shows relative weakness to the broader market.
Dow Daily Chart (26k-ish stands in the way)
Nasdaq 100 trading around resistance already
The Nasdaq 100 continues to lag behind, which is something to continue monitor given it was the bull-market leader with its leading group of stocks – FAANG – dominating price action and sentiment. The NDX is trading around the 200-day and near late-year swing highs equivalent to the ones discussed with regard to the S&P 500 and Dow. So far, relative weakness is making the 100 the preferred fade if the S&P finds material selling off resistance surrounding 2800/17.
Nasdaq 100 Daily Chart (trading around resistance)
To learn more about U.S. indices, check out “The Difference between Dow, Nasdaq, and S&P 500: Major Facts & Opportunities.” You can join me every Wednesday at 10 GMT for live analysis on equity indices and commodities, and for the remaining roster of live events, check out the webinar calendar.
Tools for Forex & CFD Traders
Whether you are a beginning or experienced trader, DailyFX has several resources available to help you; indicator for tracking trader sentiment, quarterly trading forecasts, analytical and educational webinars held daily, trading guides to help you improve trading performance, and one specifically for those who are new to forex.
—Written by Paul Robinson, Market Analyst
You can follow Paul on Twitter at @PaulRobinsonFX
Aussie Dollar Falls on RBA Minutes, US-China Trade Talks Eyed
TALKING POINTS – AUSSIE DOLLAR, RBA MINUTES, ZEW, TRADE WARS, CHINA
- Aussie Dollar, commodity bloc FX down on downbeat RBA meeting minutes
- Germany’s ZEW survey may compound worries about slowing global growth
- Trade wars in focus on US-China negotiations, fears of US auto tariff hike
The sentiment-linked Australian, Canadian and New Zealand Dollars weakened in otherwise quiet Asia Pacific trade. The move appeared to be inspired by an ominous tone in minutes from February’s RBA policy meeting. Meanwhile, the US Dollar corrected gently higher.
RBA officials cited “significant uncertainties”, noting that trade tensions and cooling domestic demand have increased negative knock-on risks from China. They added that consumption may fall if domestic house prices fall much further. They suffered the worst drop since 1983 in the three months through January.
TRADE WAR DEVELOPMENTS, GERMAN ZEW DATA MENACE MARKETS
Looking ahead, Germany’s ZEW survey of analyst sentiment may compound the downbeat mood, especially if it echoes the disappointing trend in regional data outcomes since September. A small improvement in the forward-looking Expectations index is nevertheless expected to keep it within a hair of six-year lows.
The tone of US-China trade negotiations may also be formative as a delegation from Beijing arrives in the US for continued talks. Both sides painted a rosy picture earlier in the week, but the Trump administration may be preparing a spoiler as the President ponders raising auto import tariffs.
What are we trading? See the DailyFX team’s top trade ideas for 2019 and find out!
ASIA PACIFIC TRADING SESSION
EUROPEAN TRADING SESSION
** All times listed in GMT. See the full economic calendar here.
FX TRADING RESOURCES
— Written by Ilya Spivak, Currency Strategist for DailyFX.com
To contact Ilya, use the comments section below or @IlyaSpivak on Twitter
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