One Way to Trade the Opening Range Breakout Strategy

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."

Getty Images

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.

Trade Results

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.

This information has been prepared by Nadex, a trading name of North American Derivatives Exchange, Inc., prepared by independent third parties contracted by Nadex or reproduced form third party news agencies. In addition to the disclaimer below, the material on this page does not contain an offer of, or solicitation for, a transaction in any financial instrument. Nadex accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication.