“Opening Range Breakout” is a popular trading strategy that uses first intra-day candle’s high-low range to identify the entry point upon its breakout.
How to trade using Opening Range Breakout?
A trader should open a buy trade when price breaks the high of the first candle and a sell trade when price breaks the low of the first candle.
To run a back-test we have coded a complete Opening Range Breakout trading strategy as a MetaTrader 4 Expert Advisor. During preliminary analysis we have identified that the best time frame for Opening Range Breakout trading strategy is 1 hour (H1).
We have run a back-test of Opening Range Breakout strategy. For our test as a trade exit rule we have used a Trailing Stop of 30 pips which is launched after a trade has started and is modified each new 1 pip of profit. From our point of view, such approach allows to maximize profit and minimize drawdown.
We have run the test for 2009.01.01-2019.12.26 using Every Tick modelling on EURUSD-H1, using 1:1 leverage, without reinvestment, assuming spread equals 10 ticks. These are the main parameters of Opening Range Breakout trading strategy performance at its non-optimized state:
|ROI||# of trades||Winning ratio||Max. drawdown|
Trading data analysis
After running the initial test of a simple non-filtered strategy we perform a trading data analysis that allows to identify possible filters to use to make the strategy more profitable reducing the drawdown simultaneously.
The following charts may give some possible insights on which filters to apply (time sessions, day of week limitation, trend strength threshold, overbought/oversold conditions, volatility range) to turn this strategy profitable should you decide to use this strategy in your investment portfolio:
Opening Range Brekout trading strategy can be used with other indicators to filter out losing trades and make entry signals more accurate. After analysing trading data we have found the following insights which have helped us to increase the profitability of Opening Range Brekout trading strategy and reduce it’s drawdown
- Most trades that were opened at a boundary state of Stochastic were losing when trading “Opening Range Breakout” trading strategy during 2009 – 2019. Market behavior is not stable at overbought and oversold zones of Stochastic.
(ROI increase -6% -> 2.5%, Drawdown reduction 65% -> 7%)
- The most profitable trades were opened at the middle value of RVI when trading “Opening Range Breakout” trading strategy during 2009 – 2019. RVI measures the strength of a trend and it is unreasonable to take trades when trend is still not stable or when the current trend is at its final stage.
(ROI increase -6% -> 1%, Drawdown reduction 65% -> 12%)
- Trades that were opened at a boundary state of Demarker brought more losses when trading “Opening Range Breakout” trading strategy during 2009 – 2019. Demarker aims to assess the directional bias of the market.
(ROI increase -6% -> -3%, Drawdown reduction 65% -> 31%)
We have analysed data received from a test of Opening Range Breakout trading strategy during 2009 — 2019 years and applied some filters such as Stochastic, RVI and Demarker. As a result, the profitability of the strategy has increased from -6.34% up to 1.34% and it’s drawdown has reduced from 64.29% to 5.17% using leverage 1:1.
Reducing the drawdown has allowed us to increase the leverage that can be used while trading this strategy up to 1:25, which in turn, has resulted in annualized ROI increase up to 33.59%!
Reducing the drawdown has also allowed us to use risk based lot calculation. Below you can see the back-test results using $10,000 initial balance and 3% risk per trade:
|ROI||# of trades||Winning ratio||Max. drawdown|
Analyze your trading strategy!
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Disclaimer: Hypothetical or Simulated performance results have certain limitations, unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity.
Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown.
Past performance is not necessarily indicative of future results. The customer is responsible for using the product at his or her own risk and “Nordman Algorithms” is not responsible for any possible losses caused by use of the product, including but not limited to losses.