What Is the Opening Range?
Let me explain the opening range, or OR as it's often called. It's simply a security's high and low price during a short window right after the market opens—usually the first fifteen minutes of the trading day. As a day trader, you should pay attention to this because it gives you clues about the market's mood and where prices might head for the rest of the day. I find it helps in locking in profits by providing a solid foundation for your trades.
Key Takeaways
- The opening range shows a security's high and low prices for a given period after the market opens.
- Opening ranges are important to traders because they can provide an indication of sentiment and price trends for the day.
- Traders often monitor opening ranges before or after periods of heightened volatility.
- Many traders follow the opening range after a major event or announcement.
- Traders can use different patterns, technical analysis, and timeframes to track the opening range.
Understanding the Opening Range
You know, the opening range is just one of those price ranges that technical analysts like me keep an eye on when charting. Trading ranges in general are powerful tools for us. The opening range can reveal strength, weakness, or even a sideways trend where sentiment isn't clear. Most charts will show you the day's high and low, which is basically the trading range from open to now.
I often look at the opening range before or after big announcements, like a company's quarterly earnings, to get a sense of price direction. You might do the same if you're weighing a trading idea and want to factor in the stock's sentiment.
To track it, you can use various patterns, other technical analysis methods, and different timeframes. For instance, compare the opening price to the previous day's close to spot the day's trend. Then, apply something like Bollinger Bands—they draw support and resistance lines two standard deviations from the moving average.
When the price breaks out of that opening range band, you can position for a breakout or a pullback to the mean. Some folks only watch the first few minutes, while others, like me sometimes, wait an hour or more before deciding based on the opening range.
Example of Opening Range Trading
You can monitor opening ranges on various charting tools. Take this chart of X, the social networking service formerly known as Twitter, a few days after their 2019 Q2 earnings release.
(Note: There's an image here showing the chart, but since this is text, imagine dotted trendlines marking the first 25 minutes: low at $41.08, high at $41.65.)
In this case, a breakout at 9:55 a.m. above the opening range and the prior day's high signals more upside momentum intraday. That tells you to lean toward long positions rather than shorts.
For risk management, place stop-loss orders below the breakout candle or under the opening range low, based on your tolerance. To take profits, use a multiple of your risk—like a 60-cent target if your stop is 30 cents. Or trail your stop, exiting if it closes below a moving average. In this example, using a 10-period SMA would have stopped you out at 11:50 a.m.
Important note: X's stock was delisted on November 8, 2022, after Elon Musk took it private.
Why Is the Opening Range Important?
The opening range matters to traders like you and me because it's a time of high volume and volatility that often dictates the rest of the day's tone. Research even shows that the day's high or low is more likely to hit in those opening minutes than random chance would suggest.
How Do Day Traders Use the Opening Range?
Day traders often reference the first half-hour's trading range for their intraday plays. For example, you might buy if it breaks above that opening range.
What Is an At-the-Opening Order?
An at-the-opening order tells your broker to buy or sell a security right at the market open. If it can't execute then, it gets canceled.
The Bottom Line
When making investment decisions, traders consider many factors, and the opening range is one key tool. It's the high and low of an asset soon after open, helping you grasp the day's sentiment and price direction. This makes it a straightforward strategy with clear entry and exit points.
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