Sometimes you get stopped out and then price shoots down to your TP. This is where real patience is tested, unfortunate losses are inevitable. But if you stick to your plan so is success. ๐ช
๐ฏ Day Trading: Stocks in Play Strategy
Detailed research on the Opening Range Breakout (ORB) strategy, often credited to Toby Crabel, proves that day trading can be a highly profitable and sustainable source of income if applied intelligently.
Below is a day trading strategy that uses ORB for โstocks in playโ:
Trading rules*
The trading rules for trade entry are directional:
- If the first 5-minute candlestick is bullish (closing above its opening price), the system will only take a long position upon breaking the high of the range.
- If the first 5-minute candlestick is bearish (closing below its opening price), the system will only take a short position upon breaking the low of the range.
- Eligibility filters (price >$5, 14-day average volume $>1,000,000$, 14-day ATR >$0.50).
- The strategy would only trade the top 20 stocks experiencing the highest relative volume on that day.
Strategy results and performance
The benefit of limiting day trading exclusively to Stocks in Play (SIP) is significant. A stock is considered โin playโ if it shows unusually high trading activity (The relative volume in the first 5 minutes must be at least 100%).
The strategyโs annual return (2016โ2023) was 41.6% with a Sharpe Ratio of 2.8.
The strategyโs returns are also notable because they showed minimal dependency on overall market movements, evidenced by a beta coefficient close to zero.
The analysis expanded to compare different time frames for the strategy, but the 5-minute ORB system is overwhelmingly superior (comapred to 10,15, 30, and 60 minutes).
The 5-minute ORB generated a 1,637% total return, compared to the next best, the 15-minute ORB, which yielded 272%.
A plausible explanation is that using a shorter time frame to define the opening range allows the system to capture a greater portion of the move on days when strong trends emerge.
*A very good and detailed research paper by Carlo Zarattini, Andrea Barbon, and Andrew Aziz called A Profitable Day Trading Strategy For The U.S. Equity Market.
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