What Is Opening Range?
The opening range (OR) describes 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 trend for the day.
- 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 trend for the day.
- Traders often monitor opening ranges before or after periods of heightened volatility.
Understanding 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 to the opening range, which shows a 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.
Opening Range Trading Example
Investors and traders can monitor opening ranges using a variety of charting resources. The chart below shows the opening range of social networking service Twitter Inc. (TWTR), several days after the company released its 2019 second quarter (Q2) 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-day simple moving average (SMA).
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?
What Is a 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.