Key Price Range Part I: Finding Opening Ranges
The Art Of Finding Range Breakouts
You were recently introduced to price ranges and over the next few articles we are going to discuss their significance for traders identifying opportunities. A price range is the price zone between a high and the low over a given set of time. How the market reacts around that zone is helpful for us to see whether a trend will continue, which happens on trend confirmation or whether a move or trend will reverse which can provide another opportunity for us.
In 2015 alone, there have been multiple instances in the Forex market where price ranges have provided very clear opportunities and warning signs. Both opportunities and warnings signs are very important for traders as they help us understand what the larger market is betting on. For our purposes, we will identify an opportunity as a trend continuing and a warning as a trend reversing.
Defining the Opening Range
It would be a safe bet to say that there are a multitude of indicators that you never have nor ever will hear about in your trading career. The reason why is because many of them do not stick or prove ineffective when a market environment changes. However, there are a special few that stand the test of time and that work in bear and bull and even sideways markets. One of those special few is the opening Range breakout strategy.
When looking at the opening range, what were interested in is identifying the high and the low over the opening range and then seeing how price reacts around the high and the low.
If price breaks for the high of the first 30 minutes and is unable to move below or through the low range then it is said to be a rather strong market and traders should be looking for buying opportunities such as corrective moves. If price breaks the low and is unable to move above the low or that prior range and were said to be in a rather weak market.
A move through the opening range high or low is known as an opening Range breakout.
The opening Range breakout strategy was introduced by Tony Crabel in the early 90s and made popular by Mark Fisher in his book, The Logical Trader. The logical trader takes an approach of using key points within a opening range, usually within the first 30 minutes of a market trading session and building a biased based on how price reacts to those key points. What makes this method unique, as per Mark Fisher, is that the more people that use the strategy the better he believes it will work out in the end.
Price Ranges in Focus
The philosopher, Descartes once said, I think therefore I am. The trading equivalent to that statement could be, I hold therefore I am. I hold, therefore I am, is a simple way of saying that your preference as a trader for how long you will be in a trade before exiting will determine the type of strategy and subsequent ranges that you prefer to trade.
The sessions that you will be introduced to in this article are the daily opening range, weekly opening range, monthly opening range, and biannual opening range. As you can imagine, a day trader would mainly have interest in the session or possibly weekly opening range and should start their day recognizing these zones.
A swing trader, would have more of an interest in the weekly or monthly opening range. And a position trader would have most interest in the monthly or biannual opening range. But these ranges beg the question, how long must price trade before we can identify significant high and low to constitute the opening range.
Time of Ranges in Focus
Session: First 30-minutes of a trading session
Weekly: first trading day of the week
Monthly first trading week of the month
Bi-Annual first two weeks of January and July
As a trader, your job will simply be to identify the high and the low over the range that you're interested in trading. Once you identify the high and the low over your preferred time-frame, you can then wait for the breakout whether bullish or bearish and build your bias from there. The next article, will cover how to trade the breakout once it happens.