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Opening Range Revisited...Still Relevant?


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Opening Range Revisited...Still Relevant?

  #1 (permalink)
 
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 Salao 
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I've been using my free time this weekend to review the concept of Opening Range. I have alot of free time during the weekend these days. And I can only disinfect my house so many times! .

It's difficult to do Opening Range research and not bump into Toby Crabel. His ideas are everywhere. I know he isn't the only OR authority, but his work is pretty accessible using a search bar. . And my 'search bar' education has lead me to believe that a lot of OR concepts are from the 80's. Not that there is anything wrong with old ideas in general, but the markets have changed since then. For instance: The "pits" are gone, and programmatic trading systems are the main source of liquidity in today's markets (or illiquidity--See New/Fun Market Features ). Just these two facts alone are enough to make me skeptical of using Opening Range for today's markets.

Now that the pits are gone, isn't it more difficult to define Opening Range? You could use the old pit open time, or you could use the globex open, you could use 5m bars, 15m bars, 1h bars, or you can use x-ticks, or x-volume. I suppose you can define Opening Range any way you want, but if nobody else is doing the same thing, it's not going to work. There is no limit to the amount of Opening Range configurations. If OR was widely used, then it could be conceivable that traders would 'cluster' around a small set of Opening Range configurations...I suppose. For what it's worth, after reading a fair amount of journals on FIO, OR seems to be used sparingly among retail (assuming FIO is a representative cross section of 'retail'). And It's unclear whether OR is used among institutional programmatic trading, but from what I've read of those methods, I have doubts.

On the flip side of all that skepticism, how do you explain this Crabellian setup in Crude this past week:




I know it's only one day and I'm not really proving anything here, but my cursory review of OR has been interesting. The upper and lower boundaries seem to often function as support/resistance. I'm a bar-by-bar Brooks style P/A trader, so I don't have much interest in creating an OR system, or using OR as a trigger or anything like that. But it seems to be interesting as a visual aid, at the very least. Similar to how a golfer would toss a few blades of grass into the air to see which way the wind is blowing.

Hopefully others will share their views on Opening Range, including whether or not it should be shelved in the antique store of Dated Trading Ideas. . Also, I wasn't sure where I should stash this thread. So I figured I'd give Commodities some love.

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  #2 (permalink)
 
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 AllSeeker 
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Can't comment on outside (your markets) but here in India OR works as S/R, very similar observation as yours. I've recently invested some time in it and read couple of threads here on it and similar concepts like that of ACD by Mark Fisher.

My impression is that you will be getting lot of false breakouts and get stopped out more than you would like, more or less unless you back test it for whatever you are applying it on and have decent results better things could be done. For avoiding this you would have to somehow give leeway to some noise area and extend your SL beyond them. One brilliant such an idea that I came across in that same ACD thread was Fat Tails noise band. You can have a look at it and maybe combine? I dunno, just throwing out an idea.

But like you said, if not enough are trading it these days you would not find much value in it like those of pivot points. I would rather avoid the complications if its just S/R and stick to what crowd is using for hat and plan around it. But that's just my preference, yours might be different.

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 bobwest 
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One thought on this: while the pits are dead, in the equities markets there is still a huge rush of orders beginning right on the dot of the New York Stock Exchange open at 9:30 ET. That makes the US RTH open important for the equity futures. But then the question is, what to do with it?

There is a period of time afterward when there is also high transaction volume, and levels reached in that period may well stay important for some time during the day, at least some days. I have no idea if there is a special opening range over a particular time period that gives a potential edge, however. Also, I have seen opening ranges being used of 5 minutes, 15 minutes and 30 minutes. In market profile lingo, there is an "initial balance" formed from the range of the first two 30-minute bars, so that's the first hour. I have heard old pit traders talking about the initial trade. So opening range periods have been used from very small up to at least an hour. That's a big range of the ranges.

Personal guess: the RTH open is important. Maybe if you discern some highs and lows closely following the opening (with "closely" being deliberately not defined too tightly), then you could perhaps put together some rules that would work out over time.

I do think that opening range ideas belong to the category of often-useful rules of thumb, and that if a trader can profit from them, then he/she should do so. I do think there is something important about the opening period loosely defined as being around the open, and probably keeping an eye on it, in connection with whatever else is going on and your other analysis, is a fairly good idea.

I know there are some more involved systems (in a non-algorithmic sense) that try to exploit the OR. Mark Fisher comes to mind ("The Logical Trader", a book on it that you see mentioned sometimes in connection with OR and that you may want to find... not one I've read, because there are so many trading books and so little point to reading them .)

So, back to my only point: the ES/YM/Etc RTH open is a big deal every day, and I think that anything built around its opening range/initial balance could work out, but I doubt that there is just one good way to utilize it, and I wouldn't get too involved with it myself. Just put a line on your chart for RTH open, and maybe some other lines around it, above and below based on what happens next, and you're probably as good as you'll get.

There's also the fact that as soon as you put a line on a chart, you start weighing and judging what happens next in relation to that line, and frankly that may actually be helpful just by itself sometimes, assuming there was something significant about the line it the first place, as there is to the open.

Just my view. I admit I've never paid much attention to it, so someone who has may have something entirely different to say.

Bob.

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 mtzimmer1 
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Before attempting to determine the best method for defining an opening range I think it is important to ask WHY we’re identifying the OR in the first place.

I utilize OR as one of many tools which help me determine the type of day most likely to unfold (trend vs balance/range). I want to know as early on in the session as possible whether buyers and sellers are active or passive.

If the market opens and immediately drives in one direction then I don’t need an OR to determine which side of the market is active.

However, if the market puts in an impulsive move higher and then immediately drives lower (V-reversal) then I know that both sides of the market are actively participating. I would then mark off the high and low of these impulses and use these as my OR boundaries. In this example my bias would be bearish unless price exceeded the OR high.

What if price opens with no conviction in either direction and oscillates around a mid-line? I would take this to mean that both sides of the market are passive. In this scenario, exceeding the OR in either direction by 1 tick is not going to be enough for me to establish a directional bias. I would expect the range-bound conditions to persist until a clear impulsive move was made, exceeding the OR.

Every day in the financial markets is unique. To glean any valuable information from the opening range (or any other tool) I feel that the trader must be dynamic, willing to adjust to the market, and intimately aware of context.

Just my .02,
-Zimmer

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 Salao 
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Hey @bobwest! You had a couple of points that were interesting. The indices still have a pretty well defined RTH period and I think this creates more commonality for how OR is defined. Commodities are a different story. Also, I haven't really considered the Market Profilers and the concept of initial balance. Which creates an overlap between concepts that frame an OR systems and concepts that make a Market Profiler's system.

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Salao View Post
Hey @bobwest! You had a couple of points that were interesting. The indices still have a pretty well defined RTH period and I think this creates more commonality for how OR is defined. Commodities are a different story. Also, I haven't really considered the Market Profilers and the concept of initial balance. Which creates an overlap between concepts that frame an OR systems and concepts that make a Market Profiler's system.

I think CL also has a pretty well defined open at 8:00 Central.

I still mark the OR on my charts for the equities and CL. For me, I find that the OR is generally about 3 to 3 1/2 minutes. I just watch the 1M and usually about that time period you will have a pretty well defined upper and lower boundary for the OR. I use those as just another S/R area and sometimes price will range within that for awhile as well.

The only OR "strategy" I have used is one taught by Lance Beggs (YourTradingCoach.com). It's not so much an OR strategy as it is an opening "move" strategy and is based on what happens just prior to the open and what happens just after the open.

In the same vein, I sometimes question the validity of Floor Pivots, since there is no Floor anymore.

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 Grantx 
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Yes I do believe the OR is still relevant because as Bob says that is where a significant chunk of volume gets traded. Ive been watching it for a while and there are definitely repeatable patterns that can be traded. For instance on the 5m using a brooks style approach at bars 15 - 18 is where I regularly find actionable signals. Also if you can extract bar info and break it down into statistical data you will find some usable information. Just write down whatever hypothetical questions you have and then answer them with numbers. Then using relative volume and size and nature of the opening swings, you can get a very good read of the market and can formulate effective strategies around that.

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NW Trader View Post
I think CL also has a pretty well defined open at 8:00 Central.

I still mark the OR on my charts for the equities and CL. For me, I find that the OR is generally about 3 to 3 1/2 minutes. I just watch the 1M and usually about that time period you will have a pretty well defined upper and lower boundary for the OR. I use those as just another S/R area and sometimes price will range within that for awhile as well.

The only OR "strategy" I have used is one taught by Lance Beggs (YourTradingCoach.com). It's not so much an OR strategy as it is an opening "move" strategy and is based on what happens just prior to the open and what happens just after the open.

In the same vein, I sometimes question the validity of Floor Pivots, since there is no Floor anymore.

Hey NWT! I was looking into the 600 PST open in crude that you mentioned. Volume comes on to crude oil at random times. So a clearly defined and static OR doesn't make sense to me yet for commodities. However...I painted a bunch of OR lines using the 600 PST open...and things seemed random line-ish to me. A small sample size though. Using a 5m OR at the globex open seemed to produce somewhat consistent s/r. I haven't tried the 3.5 minute OR you mentioned. If it works though, ride that pony till she drops! .

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I use the opening in my trading everyday.
It gives context, just like VWAP does, and it determines the initial direction of my trades (short below OR, long above). I also like to trade from the opening range high (ORH) and low (ORL) especially if these confluence with other levels like floor trader pivots, previous swing highs/lows, VWAP, etc. Another powerful setup is a breakout of the OR when price has been trading inside it since the open for -say- 30 minutes or longer.
Yeah, I love the OR. It works well for me, so it's not an outdated concept. For me atleast. Unless I am outdated too

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GruttePier View Post
I use the opening in my trading everyday.
It gives context, just like VWAP does, and it determines the initial direction of my trades (short below OR, long above). I also like to trade from the opening range high (ORH) and low (ORL) especially if these confluence with other levels like floor trader pivots, previous swing highs/lows, VWAP, etc. Another powerful setup is a breakout of the OR when price has been trading inside it since the open for -say- 30 minutes or longer.
Yeah, I love the OR. It works well for me, so it's not an outdated concept. For me atleast. Unless I am outdated too

Hey @GruttePier! I've followed your journal for a while and your use of OR was part of my inspiration to start exploring the concept. For gold, I've noticed a pretty steady pattern of the 5m OR behaving as S/R. I hesitate to put things on my trading screen though, because I tend to fixate on the indicator rather than the price action. So I tend to use it as a study tool for now. Interesting chart in gold today. The blue area is the 5m OR...


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