Stocks In Play Trading Strategy (Day Trading Stocks)
While retail participation in financial markets has surged since the mid-2000s, especially following the 2020 pandemic and events like the 2021 GameStop short squeeze, retail traders often face the daunting challenge of competing with high-frequency trading (HFT) algorithms.
Finding proven strategies that offer a consistent advantage is not easy. A very good and detailed research paper by Carlo Zarattini, Andrea Barbon, and Andrew Aziz called A Profitable Day Trading Strategy For The U.S. Equity Market offers a very detailed strategy that we have chosen to call stocks in play trading strategy. This strategy may provide you with valuable insights to develop your own day trading strategy based on stocks with high volume (stocks that are in play).
The analysis focuses on the Opening Range Breakout (ORB) strategy, a well-documented technical system, and assesses its effectiveness in producing consistent and uncorrelated returns.
The key finding of the research is clear: there is a significant benefit in limiting day trading exclusively to Stocks in Play (SIP).
Trading Rules: The n-Minute ORB (Opening Range Breakout)
The ORB strategy, often credited to Toby Crabel in 1990, is a trading system that identifies the highest and lowest prices reached during the first n-minutes of trading.
A trader takes a position (buying or selling) only when the stock price breaks out of this initial range, and only in the direction suggested by the opening range itself.
In the study, the authors focused primarily on the 5-minute ORB. The trading rules for trade entry are directional:
- If the first 5-minute candlestick is bullish (closing above its opening price), the system will only take a long position upon breaking the high of the range.
- If the first 5-minute candlestick is bearish (closing below its opening price), the system will only take a short position upon breaking the low of the range.
Effective risk management is integrated using a stop loss based on the Average True Range (ATR), a standard measure of market volatility introduced by J. Welles Wilder Jr.
In the strategy, if an order is triggered, a stop loss order is placed at a distance equal to 10% of the 14-day ATR from the executed entry price. Positions not stopped out are closed at the end of the trading session (EoD).
Position sizing is managed so that the resulting loss, should the stop loss be hit, does not exceed 1% of the deployed capital, subject to a maximum 4x leverage constraint.
The Base Strategy’s Lackluster Performance
When the 5-minute ORB strategy was applied broadly to all eligible US stocks (those with price above $5, average 14-day volume above 1,000,000 shares, and 14-day ATR above $0.50), the results were underwhelming.
From January 1, 2016, to December 31, 2023, the base ORB portfolio:
- Achieved a total net profit of only $7,500 on a $25,000 initial investment, resulting in a Total Return of 29%.
- Yielded an annual return (IRR) of just 3.2%.
- Had a Sharpe Ratio of 0.48, significantly lower than the S&P 500’s 0.78.
In comparison, a passive long position in the S&P 500 during the same period would have achieved a total return of nearly 200%.
The underlying issue is that the ORB strategy relies on identifying an abnormal imbalance between demand and supply that persists throughout the day. Trading all eligible stocks fails to isolate days where this abnormality is strong enough to overcome transaction costs.
The Game Changer: Focusing on Stocks in Play
Experienced day traders often mitigate this underperformance by focusing exclusively on Stocks in Play (SIP). A stock is considered “in play” if it shows unusually high trading activity, leading to an expansion of its daily price range and a distinct intraday trend.
This abnormal activity is usually prompted by a major fundamental catalyst, such as:
- Earnings reports or surprises.
- FDA approvals or disapprovals.
- Mergers or acquisitions.
Measuring Stocks In Play: Relative Volume
An effective method for determining if a catalyst is truly generating high trading activity is using Relative Volume. This metric statistically compares the current day’s trading volume against the average volume from previous days.
In the study, Relative Volume was calculated specifically for the opening range (first 5 minutes). Analysis showed a strong positive correlation between the opening range, Relative Volume, and the subsequent realized Profit & Loss (PnL), net of commissions.
When Relative Volume was below 100% (average activity), the PnL averaged -0.02R (meaning a net loss). When Relative Volume exceeded 100%, the PnL improved significantly to 0.08R per trade. Remarkably, for stocks exhibiting activity over 30x (3,000%), the average profitability soared to 0.38R per trade.
The Performance of the Refined Stocks in Play Strategy (ORB + Rel Vol)
To capitalize on this, the refined strategy imposed two key constraints on top of the base filters:
1. The Relative Volume in the first 5 minutes must be at least 100%.
2. The strategy would only trade the top 20 stocks experiencing the highest Relative Volume on that day.
The performance improvement achieved by the ORB + Relative Volume strategy was extraordinary.
| Strategy | Total Return (2016–2023) | Annual Return (IRR) | Sharpe Ratio | Alpha | Beta (Correlation) |
| ORB + Rel Vol | 1,637% | 41.6% | 2.81 | 35.8% | 0.00 |
| ORB Base | 29% | 3.2% | 0.48 | 3.3% | 0.01 |
| S&P 500 | 198% | 14.2% | 0.78 | 0.00% | 1.00 |
An initial investment of $25,000 grew to approximately $435,000 using this refined strategy, compared to only about $75,000 achieved by passive S&P 500 exposure.
Worth noting is that the ORB (stocks in play) day trading returns are uncorrelated to the S&P 500.
The Sharpe Ratio, a measure of risk-adjusted return, rose more than five-fold from 0.48 to 2.81. Furthermore, the annualized alpha surged to an impressive 36%, indicating substantial profits generated that are not attributable to simple market exposure. The beta coefficient remained close to zero, meaning the strategy’s returns showed minimal dependency on overall market movements.
The Superiority of the 5-Minute Time Frame
We also expanded the analysis to compare the return profile of the ORB strategy across different time frames (15, 30, and 60 minutes), all applied only to Stocks in Play with high Relative Volume.
The 5-minute ORB significantly outperformed all other time frames, as well as the passive S&P 500 exposure. For example, the 15-minute ORB achieved a 272% total return and a 1.43 Sharpe Ratio, which, while impressive, was far below the 5-minute results.
A plausible explanation for the 5-minute ORB’s superior performance is that using a shorter time frame to define the opening range allows the ORB to capture a greater portion of the move on days when strong trends emerge.
The success of the strategy highlights the importance of selecting high-volume, volatile stocks. Notable top performers included popular tickers such as Tesla (TSLA), NVIDIA (NVDA), and Advanced Micro Devices (AMD).
Stock-Specific Analysis: 5-Minute ORB Strategy (2016–2023)
The data confirms that the most profitable stocks were those that are generally popular, highly volatile, and exhibit significant trading volume.
The success of the strategy highlights the importance of selecting stocks with high Relative Volume, as this activity contributes to pronounced intraday price movements, offering greater profit opportunities.
Among the 25 best performers, several well-known tickers emerged:
| Ticker | Cumulative PnL (R) | Win Ratio (%) |
| DDD | 385 | 21% |
| FSLR | 370 | 20% |
| NVDA | 309 | 19% |
| SWBI | 272 | 24% |
| RCL | 271 | 20% |
| W | 252 | 21% |
| VIR | 244 | 20% |
| EXAS | 229 | 19% |
| ALK | 207 | 18% |
| FOSL | 205 | 23% |
| WW | 190 | 19% |
| OKTA | 188 | 19% |
| PBF | 186 | 19% |
| AMD | 184 | 17% |
| TSLA | 183 | 18% |
| ADBE | 182 | 17% |
| ACAD | 176 | 17% |
| ELV | 174 | 20% |
| TWLO | 172 | 19% |
| TDOC | 170 | 17% |
| SPLK | 165 | 19% |
| PARA | 164 | 17% |
| WDC | 163 | 17% |
| NWL | 159 | 18% |
| SQ | 158 | 18% |
Familiar names such as Tesla (TSLA), NVIDIA (NVDA), and Advanced Micro Devices (AMD) were among the top-performing stocks. Their success, along with other high-volume tickers, suggests that focusing on stocks with substantial trading activity and widespread interest among the trading community enhances the performance of the ORB strategy.
Worst Performing Stocks (5m-ORB):
In contrast, the worst-performing stocks recorded substantial cumulative losses, highlighting that even when restricting trades to Stocks in Play, not all volatile tickers generate consistent profits using this system.
The stocks that performed the worst often had low Win Ratios, indicating that most trades resulted in hitting the stop loss.
| Ticker | Cumulative PnL (R) | Win Ratio (%) |
| CMC | -154 | 12% |
| TRGP | -132 | 14% |
| CSX | -128 | 12% |
| CNP | -127 | 13% |
| BJ | -120 | 10% |
| PSTG | -120 | 13% |
| WMB | -113 | 13% |
| TT | -112 | 12% |
| HP | -112 | 13% |
| ALLY | -110 | 13% |
| FL | -109 | 11% |
| PSX | -107 | 13% |
| WYNN | -105 | 14% |
| DOW | -103 | 11% |
| URBN | -101 | 14% |
| APC | -100 | 11% |
| ROST | -99 | 12% |
| JBL | -95 | 12% |
| DD | -92 | 10% |
| MARA | -91 | 13% |
| VOYA | -89 | 14% |
| BLMN | -87 | 13% |
| BRO | -84 | 11% |
| HOG | -84 | 15% |
| SKX | -83 | 15% |
What is the best time frame for the stocks in play trading strategy?
This analysis directly addresses the importance of the time frame chosen when implementing the highly profitable Opening Range Breakout (ORB) strategy on Stocks in Play (SIP). The source material confirms that while the ORB strategy can be applied across various time frames during the first trading hour, the 5-minute ORB system is overwhelmingly superior.
All time frames (5-minute, 15-minute, 30-minute, and 60-minute) were restricted to Stocks in Play, meaning they only traded the top 20 stocks whose Relative Volume was at least 100% in their respective opening ranges.
The superior performance of the 5-minute ORB strategy is stark when compared against the longer opening range definitions:
| Strategy | Total Return | Annual Return (IRR) | Sharpe Ratio | Alpha | Beta | MDD |
| 5m-ORB + Rel Vol | 1,637% | 41.6% | 2.81 | 35.8% | 0.00 | 12% |
| 15m-ORB + Rel Vol | 272% | 17.4% | 1.43 | 16.9% | -0.01 | 11% |
| 30m-ORB + Rel Vol | 21% | 2.3% | 0.21 | 2.8% | 0.01 | 35% |
| 60m-ORB + Rel Vol | 39% | 4.1% | 0.40 | 4.4% | 0.01 | 21% |
| S&P 500 (Passive) | 198% | 14.2% | 0.78 | 0.00% | 1.00 | 34% |
Data covers Jan 1, 2016, to Dec 31, 2023, with $25,000 initial investment and $0.0035/share commission.
Although the exact reason for the 5-minute ORB’s exceptional performance is complex and warrants further investigation, a plausible explanation is offered: a shorter time frame used to define the opening range likely allows the ORB system to capture a greater portion of the ensuing move on days when strong intraday trends emerge.
Stocks in play trading strategy and trading activity
The relationship between trading activity and profitability is the foundation of the successful Stocks in Play (SIP) strategy. The source material confirms a strong positive correlation between the volume traded during the first five minutes of the day, quantified as Relative Volume, and the subsequent realized Profit & Loss (PnL), calculated net of commissions.
Relative Volume is critical because it measures the abnormality of the opening range volume. This metric statistically compares the volume traded in a stock during the first 5 minutes of the current day against its average 5-minute opening volume from the previous 14 days. Identifying high Relative Volume helps confirm that a fundamental catalyst is, in fact, causing unusually high trading activity.
Relative Volume and Average Profitability (in R):
The average profitability of a trade, measured in units of risk (R), improves dramatically as the opening range Relative Volume increases:
| Relative Volume Threshold | Average PnL per Trade (in R) | Insight |
| Below 100% (Below average activity) | -0.02R | Trades resulted in a net loss. |
| Exceeding 100% (Above average activity) | 0.08R | Profitability improved significantly. |
| Over 30x (3,000%) (Extreme activity) | 0.38R | Average profitability soared. |
This data clearly illustrates the inefficiency of applying the Opening Range Breakout (ORB) strategy broadly to stocks with low or average activity, as those trades average a negative return (-0.02R). Profitability only emerges consistently when focusing on true Stocks in Play—those with Relative Volume exceeding 100%.
Stocks in play trading strategy and eligibility criteria
The rules were designed to exclude unsuitable securities, such as penny stocks and low-liquidity stocks, to create favorable conditions for day trading.
These criteria defined the “eligible universe” for the Base Strategy and were subsequently adopted as the first three filters for the highly profitable ORB on Stocks in Play strategy.
Here are the specific, mandatory eligibility requirements that stocks had to meet on any given day before the Relative Volume check was applied:
1. Price Threshold: The opening price of the stock had to be above $5. This serves to exclude “penny stocks”.
2. Liquidity Threshold (Volume): The average trading volume over the previous 14 days had to be at least 1,000,000 shares per day. This filter ensures sufficient liquidity.
3. Volatility Threshold (ATR): The Average True Range (ATR) over the previous 14 days had to be more than $0.50. ATR is a technical indicator used to measure market volatility. High ATR values indicate high volatility, suggesting wider price ranges and potentially greater opportunity for traders.
If a stock met these three mandatory filters, it then proceeded to the enhanced filters for the refined strategy: Relative Volume.
Conclusion: The Final Verdict on the Stocks in Play Trading Strategy
The analysis conducted on the stocks in play trading strategy (Opening Range Breakout (ORB)), spanning over 7,000 US stocks from 2016 to 2023, provides a definitive answer to the viability of day trading: it can be a highly profitable and sustainable source of income, provided the strategy is refined and applied intelligently.
The Winning Formula: ORB + Relative Volume
The key to success lies in transforming the underperforming ORB Base Strategy (which yielded only a 29% total return) by applying the constraint of trading only Stocks in Play (SIP). This is achieved by focusing on stocks exhibiting abnormal trading activity, quantified by their Relative Volume (RV).
• The Critical Constraint: Only trade the top 20 stocks where the Relative Volume in the first 5 minutes is at least 100%. The data showed a direct correlation between high Relative Volume and increased profitability, noting that average trades below 100% RV resulted in a net loss (-0.02R).
• The Optimal Time Frame: The 5-minute ORB strategy proved to be overwhelmingly superior, demonstrating a notable advantage over the 15-minute, 30-minute, and 60-minute time frames. A plausible explanation is that the shorter time frame allows the system to capture a greater portion of the move on strong trend days.