Being a successful trader doesn’t happen by accident. In fact, it’s something that you plan. For example, if you sit down with any successful trader, they are able to define the type of style they trade, edge in the market, as well as describe their trading plan.
As for me, the majority of trades that I like to take are swing trades. These are trades with a holding period of a few days. ( Click here to learn more about my system.)
However, on occasion, I do put on day trades.
The big difference on how I trade them?
The timing and setup I use.
Despite what most people hear about how day trading is so volatile, there is a risk-averse approach you can take.
And today, I’m going to show you one of my favorite day trading strategies. It’s simple to learn, and after you see it a couple of times, you’ll be ready to start applying it to your trading and profiting off it too.
You’ve probably heard that day trading stocks is difficult… risky… and you have to stare at your screens all day.
However, that’s just false.
You see, there’s actually a pattern that you could use to spot day trades… and allows you to take calculated risks and get in before the stock trends higher.
You’re probably wondering, Petra, what’s the pattern you’re using and how can I use it?
Well, I’m talking about the Opening Range Breakout (ORB).
Now, the ORB allows you to find trades in stocks that have been trending… but doesn’t necessarily have a clear signal to get in.
However, if there is a clear pattern… it actually increases your odds of success… and it’s actually really easy to use.
Think about it like this… if a stock is fast out of the gate… there is a chance it could trend higher. So basically, we’re looking to find the start of the trend and buy the stock for the move higher.
That’s where the ORB comes into play.
When to Use the ORB
With the ORB, we monitor stocks right around the open time (9:30 AM EST). More specifically, you want to be looking at the candlestick charts.
You see, after 5, 10, 15 or 30 minutes after the open… stocks tend to pull back into the prior day’s range… and then it could trade lower… but the ORB helps you prevent that.
Now, there’s one thing to keep in mind about the ORB, the shorter the timeframe you’re looking at, the more aggressive your entry will be. In other words, if you’re risk-averse, maybe you want to look at the 30-minute chart.
With that being said, if you understand the ORB, you can spot the trend ahead of time with a high conviction rate.
With the ORB, you don’t necessarily have to have a trading plan ahead of time. However, that doesn’t mean you should trade without a plan… and you should develop one before buying any stock.
For the most part, I use the ORB on stocks that have had big moves in the previous trading sessions, but might not have a clear pattern.
Pair the ORB With A Pattern to Improve Your Odds
However, if you can spot a pattern and pair it with the ORB… it’ll improve your odds of success.
For example, one of my favorite patterns is the Rounded Bottom Breakout (RBB).
Here’s a look at the RBB in Myriad Genetics (MYGN) that has been forming for a few weeks.
Basically, with this setup… you look for a break above the blue horizontal line… if it does, chances are it’ll run higher, and I’ve seen this time and time again.
With this example in Myriad Genetics (MYGN), you could’ve actually used the ORB along with the RBB pattern.
Here’s what I’m talking about.
The chart above shows the ORB in action on the 5-minute chart in MYGN. Remember, if you had spotted the RBB pattern, this would’ve been on your radar.
The key level here in the RBB pattern was $31. With the ORB, we’re looking at the high of the first 5-minute candle. Now, yesterday, the first 5-minute candle had a high of $31.45.
The next step would be to watch for the second 5-minute candle of the day to see whether it trades above $31.45. And if it does, that’s a clear signal to get in.
So you could’ve actually bought shares of ORB at $31.50, and then set a stop for below $30 (a key level). Then you could’ve set a profit target that suits your risk profile.
As you can see with MYGN… the stock started to trend higher with the ORB.
Now, you can actually do this with longer-time frame charts too.
For example, here’s a look at the 15-minute chart in MYGN.
The idea is the same here. Look for the second candlestick to break above the first candlestick. Basically, you could look at the 5, 10, 15, or 30-minute candlestick charts to find the opening range breakout.
With this setup, you can actually manage your risk a lot easier. For example, if you buy on the ORB break, you can set a stop if it breaks below the high of the first candlestick.
It’s really that simple. Spot the ORB, develop a trading plan with your entries, exits, and targets… then ride the trend higher.
Now, if you’re interested in learning more about my chart patterns and how I’ve used them to make over $2M in the stock market, then click here.
If you have any questions about the ORB, please leave a comment below.