Opening Range Breakout Strategy (ORB): Backtest

Opening range breakout trading strategies (ORB) are popular strategies, perhaps because of Tony Crabel’s classical trading book published in 1990: Day trading With Short Term Price Patterns And Opening Range Breakout. 31 years after it was published, we still see an abundance of opening range breakout strategies on the internet. But do opening range breakouts work? We test some opening range ideas quantitatively: Historical performance is often analyzed through backtesting to evaluate the effectiveness of trading strategies.

Unfortunately, opening range breakout trading strategies don’t work very well anymore. In this article, we do some backtests on trading the opening range breakouts on the S&P 500. Please note that past performance does not guarantee future results, and traders should be cautious when interpreting backtest outcomes.

• The Opening Range Breakout (ORB) strategy is a day trading approach that focuses on the price range established during the initial minutes of the trading session, and is favored by day traders for its clear rules and structured approach.
• Traders monitor this “opening range”—typically defined by the high and low prices within the first 5 to 30 minutes after the market opens—to identify potential breakout points. The ORB trading strategy relies on predefined criteria for entries and exits, making it accessible for traders seeking discipline.
• A trade is initiated when the price moves beyond this range, signaling a possible continuation in the breakout direction.
• However, the effectiveness of the ORB strategy has diminished over time. Backtests on instruments like the S&P 500 have shown that simple opening range breakouts no longer yield consistent profits. This decline in performance is attributed to the strategy’s popularity, leading to its edge being eroded as more traders adopt it.
• To enhance the ORB strategy’s effectiveness, traders are advised to incorporate additional filters and context. The effectiveness of the ORB trading strategy can be improved by combining clear rules with technical indicators. Here’s a list of technical trading indicators

What is an opening range breakout?

Opening Range Breakout Strategy

As the name indicates an opening range breakout happens when the price breaks away from what is defined as the opening range.

The open range can vary and there is no open range indicator. There is, of course, no definite answer to what is an opening range. You can define the opening range yourself, also depending on which time frame in trading you use. But obviously, in most cases, we are talking about a very short time frame. In this article, we test some day trading strategies and some strategies by using a bit longer time frame (daily bars).

To summarize the trading strategy explained: the opening range breakout strategy involves identifying a specific price range at the market open and entering trades when the price breaks above or below this range. This method can be applied to various timeframes, making it flexible for both intraday and longer-term trading.

An example of an opening range breakout

The opening range can, for example, be from the open of the daily session until the close of the first five-minute bar (obviously opening range breakout is intraday bars). Then you use the high and low within that 5-minute bar to determine where you should go long or short. It’s the max and low within that time frame that trigger the entries.

Let’s say you trade the S&P 500 futures contract. This means you record the high and low during the first five minutes, and you might go long if the price breaks above the opening range high. The entry point is typically confirmed when a candle close occurs above the opening range high, which helps reduce false breakouts. You can also add some filters as to the time frame of your trades, for example, take only trades between 0835 and 0900 local Chicago time.

You are not predicting the opening range – you are using it as part of your trading strategy after the fact.

In the chart below, we have an opening range breakout for DAX futures (5-minute data). The high and low for the first 30 minutes were recorded, and later in the day, the price broke out of this range. Traders often wait for a candle close above the opening range high to validate the breakout before entering a trade:

Opening Range Breakout (ORB) example

When does the market set high and low?

Markets tend to establish significant highs and lows during early market activity, making early price action crucial for identifying potential breakout opportunities. If you are a day trader you might find it interesting to know at what time of day does S&P 500 set high and low. The linked article is old, but we can confirm that the main conclusions from this backtest are still intact: high and low for the day usually happen in the first and last hour, reflecting the importance of early market activity and early price action.

If you trade opening range breakout, the information above is important. It gives you a real clue where to start.

Why trade the opening range breakout?

The opening session discounts news that has accrued overnight. Most times it is just noise and the opening is marginally different than the close the day before.

News needs to be adjusted to price and this frequently means volatility. A trader can only prey on volatility! That’s why it makes sense to trade around the open and the close. It is by no means easy, but at least it is better than the doldrums during lunch hours.

During the closing minutes of the trading session, any prior trends tend to be exacerbated – or reverse….. The marketplace is chaotic, and you need to use filters if you want to trade breakout trading strategies. Traders should look for breakout signals confirmed by high volume and momentum indicators to reduce false signals and confirm momentum before entering trades.

The internet is flooded with anecdotal setups on how to trade opening range breakouts. Anyone can set up such “systems” but the sad truth is that most of these ORB trading strategies don’t work. A robust trading plan with predefined profit targets and exit points helps traders avoid emotional decision making and stick to their strategy. The only way to find out if an opening range breakout trading strategy works is by backtesting.

Let’s create some simple ORB trading strategies based on minute bars. All the tests below are performed on futures contracts (@ES) during the regular trading hours of Chicago time. The opening range breakout strategy may be more effective during a bull market when upward momentum is strong.

Opening range breakouts in the S&P 500 – Backtest and statistics

We buy when the price breaks above the highest price within time interval x and we sell at the close of the day (1500 local time):

ORB strategy success rate

The table can be understood like this:

• Column one shows the time of day (this is Chicago time – not NY time). 90 000 equals 09.00 and 120 000 is 12.00.
• Row one contains the result when the S&P 500 breaks above the highest price from 0830 to 0900. It can enter at any time after 0900 until close at 1500.
• Row two contains the result when the S&P 500 breaks above the highest price from 0830 to 1000. It can enter at any time after 1000 until close at 1500.
• and so on…

As you can see the average gain per trade is minuscule: the best is 0.04% per trade, something that will certainly not make you famous or rich. Also worth noting is the relatively low success rate (win rate). These backtest results are based on historical data and do not guarantee future results.

Let’s flip the strategy and buy when the price breaks below the lowest price within time interval x (and sell at close):

Opening range breakout strategy success rate

Again, we sell at the close. But the result is even worse than buying a breakout to the upside.

Futures traders often use the opening range breakout strategy to capitalize on early market momentum, especially in highly liquid and volatile futures markets. However, as shown in our tests, the results can vary and are not always profitable.

We tested multiple other options around the opening, but we didn’t manage to find anything close to tradeable. You need to add some smart and logical filters.

We tested additional contracts for Nasdaq (NQ), gold (GC), silver (SI), and oil (CL) as well – with the same negative result.

Does it mean that this is either impossible to find tradeable strategies or we just find something that is curve fitted? No, you might need to add some daily filters:

Daily (weekly) opening range breakout

You can add filters by using daily bars (or even weekly bars). This is a different time frame than you might be doing the backtest on, but it often acts as a great filter. The daily filter can be based on longer trends, volume action, reversal patterns, oversold or overbought indications, moving averages, or price action. Monitoring the lower range of the opening can also help identify key support levels for potential breakout trades. Only your imagination (or lack thereof) sets the limits!

Luckily, this way you can probably find tradeable strategies:

Opening range breakout strategy in Nasdaq (NQ futures) – daily and one-minute bars [- Backtest and statistics]

Below is an equity chart of a strategy we have been trading live for some time. In addition to the 1-minute bars we are using, we added one daily filter based on daily bars.

We buy a breakout after n minutes and we sell at the closing price of the daily session. A bullish orb setup occurs when the price breaks above the opening range high with strong buying momentum, signaling potential for continued upward movement.

ORB strategy backtest

The number of trades is 198, the average gain is 0.27%, the win ratio is 65%, and the profit factor is 2. We believe this is pretty good. The success of the orb strategy depends on disciplined execution and strict adherence to risk management principles. We don’t want to reveal the strategy because we might publish it as a strategy for our paying subscribers for the monthly edges.

Managing risk in opening range breakout strategies

Managing risk is at the heart of any successful opening range breakout (ORB) strategy. Because the ORB strategy relies on trading the price range established during the initial minutes of the trading session, it often exposes traders to increased market volatility and the potential for sharp price moves—both in their favor and against them. To navigate these challenges and protect your trading capital, it’s essential to implement robust risk management techniques tailored to the unique dynamics of opening range breakout trading.

One of the most effective ways to manage risk in ORB trading is by setting clear stop-loss orders. In the context of the opening range breakout, a stop-loss is typically placed on the opposite side of the opening range: for long trades, just below the range low; for short trades, just above the range high. This approach helps limit losses if the breakout fails and the price reverses direction, which is a common occurrence in volatile early market conditions.

Position sizing is another critical component of risk management in the ORB strategy. Deciding how much capital to allocate to each trade can make the difference between surviving a string of false breakouts and blowing up your account. Many traders use fixed fractional position sizing, risking a set percentage of their capital per trade, while others prefer volatility-based sizing, which adjusts position size according to the market’s current volatility. By aligning your position size with your risk tolerance and the characteristics of the opening range, you can better withstand the inevitable losing trades that come with any range breakout strategy.

The Average True Range (ATR) is a valuable tool for ORB traders looking to adapt their risk management to changing market conditions. The ATR measures market volatility and can be used to set dynamic stop-loss levels and determine appropriate position sizes. For example, in periods of increased volatility, you might widen your stop-loss to avoid being prematurely stopped out, while reducing your position size to keep your risk per trade consistent. This flexibility is key to managing risk effectively as market conditions shift throughout the trading session.

Beyond stop-losses and position sizing, traders can further manage risk by scaling in and out of positions, using options as a hedge, or diversifying across different markets and instruments. Scaling allows you to adjust your exposure as the trade develops, while diversification helps spread risk and reduce the impact of any single losing trade.

Finally, always consider the broader market environment and trend direction when applying the ORB strategy. Trading in the direction of the prevailing trend and being mindful of overall market conditions can help you avoid false breakouts and improve your odds of success. Remember, not every breakout is worth trading—sometimes the best risk management is staying on the sidelines when the setup isn’t clear.

In summary, effective risk management is essential for anyone using the opening range breakout orb strategy. By combining stop-loss orders, smart position sizing, the use of average true range, and an awareness of market conditions, you can manage risk, protect your capital, and give yourself the best chance of long-term trading success.

Reasons not to trade opening range breakouts

The market has completely changed since Tony Crabel wrote his best-selling book. ORB strategies don’t work as well as they used to.

One of the reasons is the multiple false breakouts. The price might break out only to reverse and head in the opposite direction moments later. Another reason is that most of the gains have come during the night session. We have covered this in a separate article called overnight edges and strategies.

A second reason is the enormous computer power that scans zillion of possibilities. This means strategies are “arbed” away pretty soon.

A third reason is what we established at the beginning of the article: high and low for the whole trading day are more likely to happen in the morning and at the close. If you are trading ORB then you might arrive too late to the party.

That said, if you look at specific stocks you might get better results. Indices are just averages while tickers or stocks might have a life of their own, especially when they are in play. The beauty of the stock market is that there are endless opportunities to tweak and do research.

You might ask yourself: how do I find my open range breakout? The best way is to use strategy optimization. However, be careful not to curve fit and make sure you have something that might be robust.

Can the strategy be improved?

We are not oracles, and we are pretty sure there are traders out there who can improve the strategy. Do you have any ideas on how to improve it?

If so, please comment below or drop us an e-mail.

Opening range breakout – does it still work?

To sum up, we can safely say the opening range breakout strategies are much less relevant now than they used to be, at least for the most traded futures contracts or ETFs.

We recommend adding some daily filters but don’t risk overfitting your opening range breakout strategies!

Are there successful opening range breakout strategies discussed in the article?

The article presents backtested results of various opening range breakout strategies, particularly focusing on the S&P 500. Unfortunately, the results indicate that these strategies, without additional filters, may not be consistently profitable.

How can traders find their own opening range breakout strategy?

Traders can explore and find their own opening range breakout strategy by using strategy optimization. However, caution is advised to avoid overfitting and to ensure that the strategy is robust.

Why trade the opening range breakout?

Opening range breakout strategies are designed to capitalize on volatility around the open and close of the trading session. Traders aim to take advantage of price movements influenced by overnight news and market reactions.

Key Takeaways

• Backtested opening range breakout strategies on the S&P 500 show limited profitability without additional filters.
• Strategy optimization can help traders develop their own ORB approach, but avoiding overfitting is crucial.
• ORB strategies seek to exploit volatility at the start of the trading session, often driven by overnight news.
• Robustness and careful evaluation are essential for long-term success with opening range breakout strategies.