ORB—Opening Range Breakout—Auto trading bot

  • Oct-24-2019

ORB — Opening Range Breakout — Auto trading bot

Opening Range Breakout (ORB) is a commonly used trading system by professional and amateur traders alike and has the potential to deliver good returns if done with proper discipline and money management rules. This system is applicable only for intraday trading.

ORB trading has several variations practiced by traders all over the globe. Some traders trade on a significant breakout from opening range, while others trade immediately on opening range breakout. Time window for the trades also varies from 10 minutes to 1 hour.

Trading Strategy

Quite Simple and straightforward. Rules in the next section needs to be adhered to increase the success rates dramatically.

Any stock creates a range in the first 10 to 30 minutes of trading in a day. This is calling Opening Range. The highs and lows of this time frame is taken as support and resistance.

1. Buy when the stock moves above the Opening Range high.
2. Sell when the stock moves below the Opening Range low.

General Rules — Applicable for both Buy and Sell:

Opening range is defined by the high and low made in the first 15 minutes. You can set the duration as per your wish, it could be either first 5 mins range, 10 minutes range or 15 mins range.

Rules for Buy

  • Buy when the stock price crosses above the opening range

Rules for Sell

  • Sell when the stock price crosses below the opening range.

Risk Management

This is how most traders think:

They first think about the Entry point, at which price should I buy? At which level should I enter? At which point should I get into a trade?

But this is how you must think to be a profitable trader.

You have adapt to trading strategy that suits your psychology, assign trade management rules, keep position sizing and money management rules.

One of the main reason people lose money in stock market is because of their position size.

Consider the following example:

Vicky starts trading with a capital of Rs. 1,00,000 and he finds a trading opportunity and buys Spice Jet share for Rs. 100. At the max, he can buy 1000 shares of Spice Jet stock.

Now if the stock gains 110 in few days, he will gain 10*1000=10,000. That is 10% of his capital. He sells all his 1000 shares, making 10% returns in short span, makes him more happy and wants to try his luck again.

Consider if he makes an purchase again of 1000 shares at 100, what if the stock goes down to 90 from 100? He will lose 10% of his capital in short span of time, but he may hold the stock and if continues to slide 90, 85, 80. He panics and sell all his shares at 80, losing 20% of his capital.

What made Vicky panic? Spice Jet stock falling from 100 to 80?
No. Its 1000 shares that he bought made him panic.

Imagine, if he had 100 shares. Stock falling from 100 to 80, results in 2000 loss. Which is just 2% of his capital. In this situation, Vicky might be in a better position to make wise decision.

So next time you buy a stock and want to know how many shares you need to buy, follow the below rules.

A. Capital:Rs. 10,000

B. Entry Price of your stock: Rs.100

C. Stop loss: Rs.90

D. Risk: Rs.10

E. We should risk only 2% of capital: 2% of 10,000=Rs.200

So if the trade goes wrong, we will lose only 2% of capital.

F. No of shares: Rs.200/Risk (formula= E/D)

So when you buy 20 shares, if the trade goes against us and hits stop loss, we will lose 20*10=Rs. 200 only which is just 2% of the capital.

Quantity:

It should be decided based on the risk per trade, say if our capital is Rs.10,000 and I want to risk 1% of my capital in each trade, then it should be 1% on 10k, which is Rs.100. So 100 Rs is what am going to risk in each trade, accordingly my quantity will be decided. 

We have automated this ORB strategy, more details on it can be found in the following link.

https://www.squareoff.in/single-post/Automated-Intraday-Trading-Bot



  • Tags | Trading,Investment,Stocks,Investing,Stock Market