What Is Opening Range?
The opening range displays a security’s high and low price for a certain time period after the market opens. Day traders pay attention to a stock’s starting range since it might indicate market sentiment and price movement for the day.
- The opening range displays a security’s high and low values for a certain time period after the market opens.
- Opening ranges are essential to traders because they may give insight into the day’s emotion and price movement.
- Traders often keep an eye on opening ranges before and during times of high volatility.
Defining Opening Range
When looking at a chart, technical analysts will look for numerous price ranges, including the opening range. Trading ranges may be a useful signal for technical analysts in general. The opening range often exhibits strength, weakness, or a sideways trend with no discernible mood. Most charts depict the day’s high and low, indicating the precise trading range from open to close.
To assess price direction, many investors look to the opening range of a security’s price before or after a key announcement, such as when a firm issues its quarterly earnings report. Investors may also opt to analyze a stock’s starting range in connection with a prospective trading idea.
Traders may watch the opening range using other patterns, different types of technical analysis, and several timeframes. The starting price of a stock in relation to the previous day’s closing price, for example, may aid in determining the day’s trend. Traders may then add Bollinger Bands to the opening range, which indicates a support and resistance band drawn two standard deviations above and below the moving average of a stock price. Traders may position for a breakout or reversion to the mean when price breaks the starting range band. Some investors may opt to watch just a few minutes of the starting price movement, but others may want to wait an hour or more before making a decision based on the opening range.
Example of Opening Range Trading
Opening ranges may be tracked by investors and traders using a number of charting tools. The chart below depicts Twitter Inc.’s (TWTR) opening range several days after the firm reported its 2019 second quarter (Q2) results.
The first 25 minutes of trading activity are represented by the opening range between the dotted trendlines, with the stock price printing a low of $41.08 and a high of $41.65. A breach above the starting range and the previous day’s high at 9:55 a.m. indicates additional higher intraday momentum, and traders should prefer long positions over short positions.
Depending on risk tolerance, stop-loss orders might be placed below the breakout candle or under the opening range low. Traders may elect to take gains using a risk multiple. For example, if a 30-cent stop is used, traders may set a profit objective of 60 cents. To let profits run, traders might use a trailing stop, such as leaving if the price closes below a moving average. Those who followed this exit strategy, for example, were stopped out at 11:50 a.m. when the stock’s price fell below the 10-day simple moving average (SMA).
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