What Is the Opening Range?
The term opening range (OR) refers to a security's high and low price for a short period just after the market opens, often the first fifteen minutes of the trading day. Day traders often monitor a stock's opening range because it can provide an indication of market sentiment and price trends for the day. They often use the opening range to help secure and maximize their profits
- The opening range shows a security's high and low prices for a given period after the market opens.
- Opening ranges are important to traders because they can provide an indication of sentiment and price trends for the day.
- Traders often monitor opening ranges before or after periods of heightened volatility.
- Many traders follow the opening range after a major event or announcement.
- Traders can use different patterns, technical analysis, and timeframes to track the opening range.
Understanding the Opening Range
The opening range is one of several price ranges that technical analysts follow when watching a chart. Trading ranges, in general, can be a powerful indicator for technical analysts. The opening range often shows strength, weakness, or a sideways trend with no clear sentiment. Most charts display the day's high and low, which shows the exact trading range from open through the current time period.
Many investors follow the opening range of a security's price before or after a significant announcement, such as when a company releases its quarterly earnings report, to gauge price direction. Investors may also choose to follow a stock's opening range to consider its sentiment in conjunction with a potential trading idea.
Traders can use varying patterns, other forms of technical analysis, and multiple timeframes to track the opening range. A stock's opening price in comparison to the previous day's closing price, for example, may help determine the day's trend. Traders can then apply Bollinger Bands, which provide a hypothetical support and resistance band drawn two standard deviations above and below a stock price's moving average.
When the price violates the opening range band, traders can position for either a breakout or reversion to the mean. Some investors may choose to follow only a few minutes of the opening price action, while others may prefer to see an hour or more before drawing a conclusion from the opening range.
Example of Opening Range Trading
Investors and traders can monitor opening ranges using a variety of charting resources. The chart below shows the opening range of the social networking service Twitter (now known as X Corp), several days after the company released its 2019 second-quarter earnings.
The opening range between the dotted trendlines shows the first 25 minutes of trading activity, with the stock's price printing a low at $41.08 and a high at $41.65. A breakout at 9:55 a.m. above the opening range and the previous day's high gives traders an indication of further upside intraday momentum, and to favor long positions over short positions.
Stop-loss orders could sit below the breakout candle or beneath the opening range low, depending on preferred risk tolerance. Traders may decide to take profits using a multiple of risk. For example, if using a 30-cent stop, traders might set a 60-cent profit target. Alternatively, traders may implement a trailing stop, such as exiting if the price closes below a moving average, to let profits run. For example, those who used this exit strategy got stopped out at 11:50 a.m. when the stock's price closed below the 10-period simple moving average (SMA).
Twitter's stock was officially delisted on Nov. 8, 2022, after it was taken private by Elon Musk. The company officially changed its name to X Corp
Why Is the Opening Range Important?
The opening range is important for some traders as it can be a period of high volume and volatility that then sets the tone for the rest of the trading day. Indeed, some research points to the fact that a day's high or low being printed during the opening minutes of trading is far more frequent than a random walk would suggest.
How Do Day Traders Use the Opening Range?
Day traders frequently use the trading range of the first half hour of the trading session as a reference point for their intraday strategies. For example, a trader might buy a stock if it breaks above its opening trading range.
What Is an at-the-Opening Order?
An at-the-opening order instructs one's broker to buy or sell a security for their account right at the very beginning of the trading day. If the order cannot be executed at the opening of the market, it will be canceled.
The Bottom Line
Traders look at many different variables when they're making their investment decisions. The opening range is one of those tools. This is the high and low price of an asset shortly after the market opens. The OR helps traders because it can help them understand the tone of the trading day ahead in terms of market sentiment and price. As such, it's an easily understood strategy with identifiable entry and exit points.