One Way to Trade the Opening Range Breakout Strategy
"Buy the rumor, sell the news" is an old market adage that can be applied to the "Trump Rally."
By Cam White
Monday, May 1, 2017 - 00:00
On Wednesday, April 28, President Trump was set to announce his tax plan, promising HUGE tax cuts across the board.
The markets chopped sideways in the overnight hours going into the opening bell at 9:30 EDT.
Sensing that the “buy the rumor” sentiment was in play, the decision was made to look for the Opening Range Breakout Strategy, taught by veteran futures instructor Geoff Bysshe, of MarketGauge.
An hour before the opening bell, the US 500 Index was trading around 2384, and the decision was made to place the following trade:
Time: 8:44 am EDT – BUY US 500 (Jun) >2393.0 (4:15 PM expiration) $20
Maximum Risk: $20 Maximum Reward: $80 per contract traded
This low-risk trade was placed in the anticipation that the market would rally going into the announcements from Trump.
Next it was time to wait for the Opening Range Breakout Strategy:
The Opening Range Breakout Strategy is a simple setup. Stay on the side of a longer term trend and draw support and resistance lines around the highest and lowest prices of the market within the first 30 minutes after the opening bell.
After 10 am, if the market breaks through resistance, it triggers a BUY. If it breaks through support, it’s a SELL.
Simple as that.
At 10:15 am, the market broke through resistance, and the decision was made to BUY a spread:
10:15 am BUY US 500 2380.0 – 2420.0 (4:15 PM)
Entry Price: 2388.9
Maximum Risk per Contract: $89
Maximum Reward per Contract: $311
Mental Stop-Loss: 2385.9 I’m willing to take a $30 loss if the market moves against me.
Mental Take-Profit: 2394 About 50 ticks or $50, when the market touches the upper trend line.
In the hours before Trump’s announcement, the market moved all the way up to the 4-Hour Upper Channel line, which was my take-profit target. As soon as it touched, the decision was made to exit both trades.
- The OTM binary trade profited $32.75, against $20 risked, for a 163% return against capital risked (exchange fees not included)
- The spread picked up 51 ticks, or $51, which represented a 57% return against the maximum risk in this trade (exchange fees not included)
“Buy the rumor, SELL THE NEWS”
As soon as the Tax Plan was outlined in broad strokes, the market was underwhelmed and started selling off.
By 4:15 PM the market settled at 2382.65. If both trades had been held until expiry they would have resulted in a loss of over $80.
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