A Revolution In Open Range Breakouts

October 31, 2016 5:00 am17 commentsViews: 4889

In last week’s article, A License To Print Money, we took a look at three different opening range breakout methods that were used by several well-known traders. These traders grew very small seed accounts into large winnings. All these traders used a very similar trade setup. That was, variations of the opening range breakout on the futures and/or bond markets. The three traders which were highlighted were…

We also discovered that the recent performance of these open range breakout setups has been diminishing. It’s assumed that a couple of factors are coming into play which are reducing their effectiveness. Most notably is the introduction of the electronic markets which reduced the impact of the traditional market open which took place during the pit hours. The traditional pit open was a time when the market was flooded with liquidity. Today the pits are closed. The traditional set hours that once dedicated when you could place your trade has been expanded well beyond those original pit hours. This leaves one to wonder, does a “true” market open exist?

So, is there any hope that our open range breakout setups will work today? The short answer is, yes!

Revolutionizing Opening Range Breakouts

The traditional market open was based upon time which made sense during the times when the physical pit was king. Today the pits are closed and people are free to buy and sell well beyond the traditional pit times via computer. So, if there is no fixed time to call “the open” what can we use as the open? If time is no longer a good indicator of when a market is open what else could we use?

Traditionally, the market open worked because you had a flood of trading activities. Volume surged at the market open as market participants flooded the exchange with their orders. Could we key off this trading activity to determine a market open?

This idea of a dynamic based open is the brainchild of Murray Ruggiero. Years ago he was perplexed on how to solve this problem of making opening range breakout setups work in a world where there was no true fixed market open. This problem troubled him for years. Just this year Murray discovered a clever way to create a dynamic open based upon a proprietary formula that determines a market open based upon trading activity.

That means a market’s open is free to change daily by 10, 20, or even 60 minutes as it’s calculated based upon the current market activity. He called his discovery, Dynamic Open™ and it really could revolutionize open range breakouts on the futures and commodities.

Murray was kind enough to provide me with the code he used so I could test it on several markets myself. The code used in the computation of the Dynamic Open™ is complex. In fact, it was so complex Murray had to work with Sam Tennis, co-creator of TradeStation’s EasyLanguage, to help him develop the concept into working code. So, I know a lot of work went into creating Dynamic Open™.

So without further delay, let’s look at what the Dynamic Open™ can do.

Incredible Results

To test the effectiveness of the Dynamic Open™ I’m going to test it across several different futures markets and compare the results to the original method. In this case, I’m going to use the Crabel Stretch formula. The original Crabel Stretch, which uses the static open, will be referred to as “classic”, during this test. As a reminder the Crabel Stretch formula looks like this:

BreakoutLevel = Average( minlist( Open of data2 – Low of data2, High of data2 – Open of data2), 10 ).

We’ll use a 15-minute chart to trade. I’ll also use the default 10-period for computing the average. The strategy will go both long and short. There are no stops. To exit open trades the strategy will uses a channel breakout after a required hold period. There is also a condition to only sell short when Close>Open and Close<Open to buy.

Remember, the results below are not complete trading systems. Instead we are interested in guessing the effectiveness of the signal. We are demonstrating a potential edge which can be exploited with opening range breakout and more importantly, a clear difference between “Classic” vs “Dynamic”.

The following assumptions were made:

  • Starting account size of  $100,000.
  • Dates tested are from 2010 through October 25, 2016.
  • A single contract will be traded.
  • The P&L is not accumulated to the starting equity.
  • There are no deductions for commissions and slippage.
  • No stops were used.

Why are we only going back to the year 2010? When the electronic markets began siphoning market volume away from the pits, it was a gradual process over many years. These transition years were largely between 2005  – 2009. In other words, in 2010 we could be reasonably sure that the vast majority of trading volume is electronic. We’ll have nearly five years of history which should provide us with a good number of trades to compare and contrast the traditional classic open with the new Dynamic Open™.

The markets to test will be:

  • Corn
  • Soybean
  • Wheat
  • Crude
  • Live Cattle
  • Gold
  • US
  • Coffee
  • Natural Gas

Our baseline Results will be the classic ORB applied to the above markets.

Classic Open Results

Now I’ll use the same Crabel setup but with the Dynamic Open™.

Dynamic Open Results

We can see the average trade of Dynamic Open™ ($43.33) is more than twice vs the classic Crabel ($19.97). Again, these are not tradable in this current form. You would need to modify the strategy to have higher profit per trade. For example, you can add filters like NR_4 or NR_7  to make tradeable systems in many markets.

Dynamic Open vs Classic

Overall with Dynamic Open™ we see more profit with perhaps a slightly lower drawdown but, it was very similar to the classic. The total profit for Dynamic Open™ is about 65% more profitable with nearly the same drawdown.

Get Your Copy of Dynamic Open

For a second time, Murray is making this available to System Trader Success readers for a limited time. Why only a limited time? He wishes to incorporate this technology into new series of open range breakout trading systems thus, he is limiting how many people will have access to this. I know he made this available to his current clients and Murray was kind enough to extend this offer to you, a reader of System Trader Success.

You will not find this technology anywhere else! It’s rather exciting that this potential market edge is not being used by very many people. Only a tiny fraction of traders know about this. Perhaps other clever traders or firms developed their own version of something similar to what Murray came up with but, it’s certainly not advertised or popular.

Furthermore, because code is proprietary if you wish to use it you’ll have to sign a Nondisclosure Agreement before you can get your hands on the code. I think this will tell you how important this discovery is.

Learn more about the Dynamic Open package here.

Jeff is the founder of System Trader Success – an inBox magazine dedicated to sharing great ideas and concepts from the world of automated trading systems. Read More Google

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  • Great insight Jeff… Drawdowns for grains are really low, do you think this could be enough to trade them?


    • Keep in mind the results are based upon simply loading the Crabel Stretch on the beans chart with its default values. They system then just alternates between long and short. In other words, there is no optimization or filters applied. I would recommend anyone they would fully explore and test before committing money. I would guess additional filters and/or stops would need to be added.

  • Hi

    Interesting stuff.

    Could you explain why you seem not to have compared like with like when comparing equity curves for classic and dynamic. The classic was long and short. The dynamic long only.


    • Paul, I’m not sure what equity curve you’re talking about. If you’re referring to the basket of commodities which appear in this article both the Classic and the Dynamic Open used both long and short trades. If you’re referring to the equity curve of the gold strategy created in the video, this strategy also took both long and short trades. Does this help or did I completely misunderstand your question?

  • Hi Jeff

    many thanks for making this available to the public.

    Will the code provided work on Multicharts as well? As the languages are almost identical. on the other hand one should be able to re-write the code in MC. Don’t you think so?

    Kind regards from Switzerland

    • Hello Peter. At this time it’s for TradeStation only. Murray is attempting to get the code to work under MultiCharts. The code used in Dynamic Open™ is not trivial, so it may take some time. If/when he is able to get it working under Multicharts readers of System Trader Success will be notified via email. If you’re not on our email list, let me know and I’ll add you to our email list. Thanks!

  • Hi Jeff,

    cani use this code whith Multicharts?

    • At this time it only works with TradeStation. However if you would like, I can add to to a waiting list. Murray is working on having a Multicharts version. He hopes to have it early in January. I can email you if you’re interested.

  • Not including commission and slippage generates meaningless results. Slippage on the e-mini S&P can be $12.50 per side of the trade or more, and commissions can run anywhere from $3 to $10 for a round trip. Each trade must overcome at least $30-$50 before profitable. This could potentially change the equity curves in a significant way.

    As far as dynamic opens go…using price action, or ATR over previous days to determine when a breakout may occur the following day…seems a bit suspect, and difficult without using multiple data inputs. I’m not aware of any temporal pattern or statistical studies that can predict such a thing. Although using Tradstation RS functions might provide a convenient way to code such functionality, however it would be more akin to a gap study than a breakout strategy imo.

    • Hello Ernie. Remember, these are not trading systems just an indication on how these basic setups function relative to each other. Again, they are not trading systems. The toolkit contains a library of strategy components and functions which can be used to build trading systems. Within the video demo I create a prototype system with $50 round trip commissions and slippage on the gold market on a 15-minute chart using only the tools provided in the toolkit. As for how Murray computes the dynamic open I’ll have to let him divulge how he does it as it’s proprietary and protected under U.S. trademarked regulations. Let me say this, it’s not trivial and I’m not aware of any other tool which does what Dynamic Open does.

    • “Not including commission and slippage generates meaningless results.”

      Incorrect. A strategy (or component of a strategy) that passes this initail hurdle is worth further investigation. One that fails will obviously not be profitable once any costs are accounted for so it can be trashed.

      Also, your costs of trading may be more or less than mine. I may have only a 1-2% cost associated to my trading due to circumstances like the size of my account, broker’s costs, trade frequency, etc, while your cost may be 5-10% or more. This doesn’t mean the strategy isn’t profitable, it just means your “commission drag” is too high for you to trade it.

      • Only method I see would be based on order flow. Coding appears difficult because easylanguage not really made for this type of analysis. I will take the challenge and code in it in Multicharts.Net (C# based). Fat boy can keep his secret.

  • Why does the offer extend 1 more day when the counter hits 12 hours? Jeff, will you buy it?

    • Not sure why the counter was not correct but, the offer does end tonight at midnight, Central. I did pick up a copy. I’ve been trading a breakout strategy since 2012 but it’s not related to any of these setups.

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