The most active hour in the market is always in the first hour. That is the time when traders get most of their profit. Usually, traders use opening range fake breakout strategy in trading stocks, exchange-traded funds (ETF) or stock futures.
This strategy aims to help traders capture major reversal during the first hour of the market. Yet, you need to get into the right track to get big profits.
Defining the Opening Range
The biggest price movements in the market during the day happen during the first hour of trading. The first 30 minutes usually will signal whether the market will have high volume, low volume, volatile, sedate, or choppy for the entire day.
If you use a candlestick chart, your chart will mark the high and low prices on the first 30 minutes of trading. That first 30 minute is the “opening range.”
With this strategy, you have to keep the price hang high or low for about 30 minutes in between the first 30minutes high and low. That way, the price can’t blow the opening range high or low since it shows a trend in that direction.
Defining Fake Breakout
During that first 30 minutes, you have to watch the price movement, whether it moves high or low. A fake breakout happens if the price moves above the high or below the low, yet, it moves back again quickly.
Ways to Trade the Reversal
If there is a fake breakout, you have the opportunity to gain profit through trading the reversal. After you know that there is a fake breakout, then buy when the price moves above the height of the last candle.
But, remember, that buy signal should occur during the opening range. After that, you have to also place a stop loss at a point below the low that is still close to the opening range low.
At the same time, place a profit target. The profit target should be at a point below the opening range high.
Or else, you can also sell once the price moves below the low of the previous candle after the fake breakout happen. Similar to the buy signal, the sell signal should also occur during the opening range.
Due to each stock or exchange-traded fund (ETF) have different volatility and price, you need to clearly set how far your stop loss should be below the low. The same goes for your profit target. Trading the same stocks or ETFs may help you to do that.
