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.
Weekly Trade Levels for US Dollar, Euro, Sterling, Loonie, Gold & Oil
DXY, Euro, Loonie Monthly Opening-Ranges Intact
The US Dollar Index is trading into the monthly opening-range highs into the start of the week and the focus is a reaction around the 98.05/10 resistance zone- note that the monthly ranges in Euro and Loonie also remain intact. In this webinar we review updated technical setups on DXY, EUR/USD, USD/CAD, GBP/USD, Crude Oil (WTI), Gold, USD/JPY, AUD/USD, EUR/AUD & SPX.
Why does the average trader lose? Avoid these Mistakes in your trading
Key Trade Levels in Focus
DXY – Immediate focus is on topside resistance at 98.05/10. Initial support at 97.87 with near-term bullish invalidation raised to 97.71.
EUR/USD – Euro is coiling into the monthly opening-range just above slope support. Immediate focus is on support at 1.1140. Initial resistance at 1.1187 with near-term bearish invalidation at monthly-open resistance at 1.1215– look for a bigger reaction there IF reached. A break lower would expose 1.1110.
GBP/USD – Sterling broke below multi-month slope support last week with price responding to near-term pitchfork support into the open. Initial resistance at 1.2798 with bearish invalidation at 1.2859. Downside support objectives at the August low-day close at 1.2697 and the 100% extension at 1.2662.
Gold – Risk for near-term recovery while above the yearly / monthly low-day close at 1270. Initial resistance at 1280 with near-term bearish invalidation with the monthly open a 1283.
For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy
Key Event Risk This Week
Economic Calendar – latest economic developments and upcoming event risk
Active Trade Setups:
—Written by Michael Boutros, Currency Strategist with DailyFX
Follow Michael on Twitter @MBForex
AUDUSD Soars on Shock Election, Apple Shares Slump, Risk of S&P 500 Drop
AUD: The Aussie outperforms following a shock election outcome, in which Prime Minister Scott Morrison secured re-election (full story). In reaction, the Aussie gapped higher at the Asia open, reclaiming the 0.69 handle against the greenback. However, as equity markets have headed lower throughout the European morning, risks are for gains to be faded. Alongside this, key headwinds in the form of trade war tensions and a potential RBA June rate cut are likely to limit upside. Reminder, RBA Governor Lowe due to speak tonight after RBA meeting minutes (calendar)
Crude Oil: Oil prices surged at the Asia open as Saudi Arabia signalled that cuts could be extended throughout the remainder of 2019 at the JMMC meeting, while President Trump had also stepped up his critical rhetoric towards Iran. Although, with equity prices beginning to push lower, oil prices have pared the majority of its initial gains.
Equities: US equity futures have headed lower amid the continued crackdown by the US on China’s Huawei, which in turn has chipmakers come under pressure, while Google also stated that they are to restrict the company’s use on android services. Elsewhere, Apple’s price target had been cut by HSBC to $174 (median street price target = $220), citing concerns over China, while tariff led price increases on Apple products could also have dire consequences on demand. Apple shares currently lower by 2.4% in pre-market.
Source: DailyFX, Thomson Reuters
DailyFX Economic Calendar: – North American Releases
WHAT’S DRIVING MARKETS TODAY
- “Gold Price Sell-Off Continues, Silver Price Hits a Six-Month Low” by Nick Cawley, Market Analyst
- “COT Report: Japanese Yen and Euro Shorts Collapse, USD Longs Reduced” by Justin McQueen, Market Analyst
- “Crude Oil Price May Be Carving Out a Top” by Paul Robinson, Currency Strategist
- “Using FX To Effectively Trade Global Market Themes at IG” by Tyler Yell, CMT , Forex Trading Instructor
— Written by Justin McQueen, Market Analyst
To contact Justin, email him at Justin.firstname.lastname@example.org
Follow Justin on Twitter @JMcQueenFX
Gold Price Sell-Off Continues, Silver Price Hits a Six-Month Low
Gold (XAU) and Silver (XAG) Price Analysis and Charts.
Gold (XAU) Needs to Support to Hold
The sell-off on gold continues with the precious metal down around $30 in less than a week. Gold is under pressure from a resurgent US dollar, buoyed by last Friday’s Uni of Michigan data which smashed expectations and hit a multi-year high. The important 61.8% Fibonacci retracement level at $1,287/oz. failed to provide any support when broken last week, while the $1,287 – $1,281/oz. zone made up of old horizontal support is being tested now. A clear break and close below opens the way to the recent double bottom around $1,266/oz. which is currently being guarded by the 200-day moving average at $1,268.6/oz. Below here the 50% Fibonacci retracement level at $1,262/oz heaves into view.
Gold (XAU) Daily Price Chart (August 2018 – May 20, 2019)
Silver (XAG) Nears a Fresh Six-Month Low
Another precious metal under heavy selling pressure. Silver is now at levels last seen in early December last year and is over 11% lower since making its recent high of $16.21/oz. in late February. The downtrend since the late-February high continues to be respected and it is possible that silver completely retraces all the way back down to the November 14 low at $13.89/oz. Psychological support at $14.00/oz. may slow the decline, while the CCI indicator shows that the market is extremely oversold.
Silver (XAG) Daily Price Chart (August 2018 – May 20, 2019)
IG Client Sentiment data show that retail traders are 79.1% net-long gold, a bearish contrarian indicator. Recent daily and weekly sentiment shifts give us a stronger bearish contrarian bias.
— Written by Nick Cawley, Market Analyst
To contact Nick, email him at email@example.com
Follow Nick on Twitter @nickcawley1
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