Opening Range Breakout, for Futures and Equities

The point is that ORB is a good valid method. It might not be working well currently , but that might not be true in a few months. Valid systems go into bad periods but do come back. My point is that if we really understand the system then we can adapt it to changing market conditions.

I hope some of you have have watch the first part of the video. In part two of the video we discuss the Opening range breakout formulas for all three traders, William,Knight and Crabel. This part two of the video includes Crabel's basic formula. You can watch it for free my registering on TradersStudio.com
 
Quote from Murray Ruggiero:


When this method is backtested using a backtesting platform like TradersStudio, it is implemented by accessing the next day's open in the rules so that the entry and exit price is known by the software and the orders can be filled by the backtester.

When it is traded in real life we don't know the next day's open so we report the order in terms of offset from the open, by setting next open to 0.

What this means is that if you test opening range breakout system on daily bars the next open can only appear in the order for the stop price. You can't use it for the condition to enable the order. In addition we can not put a protective stop on the entry bar because we would not be sure which one got hit first.
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This doesn't appear to be any different than what TradeStation has already been doing for years. All you do is set up an intraday chart and then wait for the first tick (e.g., time < time[1]) -- that's your open. After that, you can use either a price offset or time offset to execute an ORB. From there, backtesting is a cinch.

This whole idea of reporting the order as offset from the open and setting the next open to zero is a real kluge. This problem was solved a long time ago.
 
Quote from Murray Ruggiero:

The point is that ORB is a good valid method. It might not be working well currently , but that might not be true in a few months. Valid systems go into bad periods but do come back. My point is that if we really understand the system then we can adapt it to changing market conditions.
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There's not really much to understand, other than the ORB tends to produce more false breakouts during periods of low volatility.

If anything, the best technique is to fade the ORB that counters the prevailing 3-5 day trend (using a simple MA).
 
Yes , it was solved if you are using intra-day data. But if you want to test a concept using EOD data, then for tomorrow's orders you do have this problem.

I did not say we were talking about something TradeStation's does not do here. We should start talking about opening range breakout systems, and show results of different variations of them. I will start with a index system which is part of TradersStudio, it comes with the product for free.

Some of you might call this volatility breakout not opening range but the point is we are buying or selling off the the opening price.
Here is the QQQ System that ships for free with TradersStudio.

'(C) 2004 TradersStudio(r) all rights reserved
' Simple ORB system to trade the QQQ, also works short term on nasdaq.
Sub QQQBreakOut(MULT)
Dim AveTr
Dim Nxtopen
if barnumber<lastbar then
Nxtopen=nextopen(0)
else
Nxtopen=0
end if
If Close>Open then
Sell("SellBrk",1,Nxtopen-MULT*truerange,STOP,DAY)
end if
If Close<Open then
Buy("BuyBrk",1,Nxtopen+MULT*truerange,STOP,DAY)
end if
End Sub

Let's use this to start a constructive conversation. If we use .3 for Mult we get ok results on the Nasdaq , not good in 2005 , but good before then. Let's start here .
 
Well, If you watch part 2 of my video , you will see the concept is deeper than you think. ORB profits from big range days , how do you predict big range days ?. Another issue is has the noise level risen. How do we define this noise.
The problem is that system development is not just plugging numbers, you need a valid premise and a deeper understanding of why, what really happening. How does group behavior cause a given system to work better or worse.
 
You asked in your previous post, "how do you predict big range days." Your video makes a few suggestions, but again these are just ideas that might be plugged in to your product.

And though you say you are offereing the video for free, all I was able access were Chaps 1&2, although I had the opportunity to "claim" the entire video at a reduced price. That's confusing.

I don't know that I would be basing the utility of my backtesting product on a trading strategy that, my product notwithstanding, had a bad year. While for academic purposes it might be appropriate to relinquish that a method had a bad year.... practically speaking that won't pay the rent.
 
I think people don't take the time to understand the markets, they just throw rules and data and if it works , then trade it and if it does not work then don't. If we get a deeper understanding then we understand why during some period it did not work and in others it worked well. We should not assume that general beliefs are true. I use TradersStudio because I can create custom reports as well as use OLE automation to Excel, in fact all of the spreadsheets from the video were created in TradersStudio. You can do this research with any tool you wish, but will not be able to create these type of reports easily.

We could use this thread to share research and ideas. I don't mind giving feedback and sharing things with you. In addition you can also ask me questions on the TradersStudio forum, if it relates to things I only make available to registered members.

I will think over the weekend and share my thoughts with you next week and try to put a new light on this classic methodology.
If you have any questions feel free to ask and I will do my best to answer , what I can.
 
Quote from Murray Ruggiero:

I think people don't take the time to understand the markets, they just throw rules and data and if it works , then trade it and if it does not work then don't. If we get a deeper understanding then we understand why during some period it did not work and in others it worked well. We should not assume that general beliefs are true. I use TradersStudio because I can create custom reports as well as use OLE automation to Excel, in fact all of the spreadsheets from the video were created in TradersStudio. You can do this research with any tool you wish, but will not be able to create these type of reports easily.

We could use this thread to share research and ideas. I don't mind giving feedback and sharing things with you. In addition you can also ask me questions on the TradersStudio forum, if it relates to things I only make available to registered members.

I will think over the weekend and share my thoughts with you next week and try to put a new light on this classic methodology.
If you have any questions feel free to ask and I will do my best to answer , what I can.
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I can't say I've read any of your articles but if they were on this subject line that probably was the reason.
I know that a variety of methods work for a variety of individuals so I try not to be too picky when commenting on others peoples opinions and methds but "break out trading" is something that sticks in my teeth like a raspberry seed.
I've been an avid student of price movement for over ten years and can say that price continues profitably after a breakout as often as it doesn't. To say it is a 50/50 propotition would probably be close.
What do you find so appealing in the inconsistent nature of "break-out trading"?
 
My work has covered everything from breakout trading, Elliott wave, Intermarket analysis, short term swing trading and Wyckoff. You can see I have covered almost everything so my work has something for everyone.

In terms of trend following, breakout trading you are correct you only win 40%-50% of your trades but your average win/loss ratio is 2-1 or with a good system close to 3-1. What is happening is the distribution of trades has a fat tail in the positive direction. This is why trend following makes money.

If the markets had a normal distribution trend following breakout type methods would not work but the markets do not. Major once in a lifetime events happen much more than one in a lifetime, trend following is always on the correct side of them.

Let's look at the game, its a coin flip game, but when you win I pay you 3.00 on your dollar bet, and you lose a dollar when you lose. If you have enough money to detail with losing 10-15 in a row, this game will make you rich.

Let’s look at another game; we will call it the sunny day game. Let's assume it does not rain 66% of the time where you are.
If you guess dry, you will 1.20 for every dollar you bet. Even though you will 66% of your trades this game loses. Money.

I hope this helps.
 
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