Introduction
Opening range breakout trades can be some of the easiest and most profitable trades that you can make if you are a short-term day trader, particularly if you like to trade the main GBP and EUR pairs.
However this is not always the case. It all depends on the overnight trading range because the best set-ups will have a really narrow trading range (the smaller the better) because then there is much more potential for the price to move quite significantly when the markets open at around 8.00 AM local time.
In a perfect scenario, you will have a very small overnight trading range compared to the daily average true range (as indicated by the ATR indicator), and that’s exactly what we saw today with the GBP/USD pair.
GBP/USD Breakout Trade
It is only 9.30 AM in the UK at the time of writing this article, but the price has already moved enough to make a decent profit from this opening range breakout strategy.
In this example the overnight trading range of the GBP/USD pair was just 16.7 points between 00.00 and 7.00 AM, which is a fraction of the average daily trading range of 92.9 points.
Therefore when the price broke downwards out of this range just after 7.00 AM, this was a good opportunity to open a short position and trade the opening range breakout.
The best strategy is often to take a small profit when it presents itself with half your position, such as 10-20 points, for example, move your stop loss to break-even and then let the other half run for as long as possible, and this would have been a profitable strategy today.
As you can see from the chart above, the price has already moved more than 50 points from the closing price of the breakout candle (which is where most breakout traders would enter a position), and we are only a few hours into the trading session.
Closing Comments
The point of this article was simply to demonstrate how profitable it can be to trade opening range breakouts.
It’s not every day that you get the perfect set-up, even if you watch many of the major currency pairs, because the price will often have moved quite a lot already in the overnight session, but if you are patient enough to wait for the ideal set-ups when the overnight range is really small, you can potentially generate some excellent profits.
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