A Revolution In Open Range Breakouts

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.

About the Author Jeff Swanson

Jeff is the founder of System Trader Success – a website and mission to empowering the retail trader with the proper knowledge and tools to become a profitable trader the world of quantitative/automated trading.

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