ATR for ORB

[Silviu 0]

Hello! I saw it mentioned many times that one of the most important requirements for ORB (here I am talking about 5 mins ORB) is that the ORB is smaller than the ATR and I have a few questions (I am aware that everyone has different trading styles, so any advice from your personal experience is greatly appreciated). How do you calculate the ATR? Do you use the daily average over the past few days (and if so how many?)? How strict are you about ATR being bigger than the ORB? Is it a strict rule, or you would take a trade if other indicators are good. For example if the ORB is bigger than the ATR by $0.5 on a $100 stock, but there is large volume in the right direction and an ABCD pattern on the 1 min chart, would you take it (assuming it is one of the stocks you were looking at)? Does it usually work, or should I just completely ignore any stocks with the ORB bigger than ATR? Thank you!

[Silviu 0]

Thanks a lot! I was just using the opening range as a comparison with the ATR, not the gap, too. So basically, ideally, we would want a stock that gapped (such that we expect some momentum in a given direction), but the gap + the opening range of the first candle should be smaller than the ATR, such that there is still room for the stock to move.

One more questions: What if the gap is bigger than the ATR, but the stock moves in a direction that reduces the gap. For example, what if in the example you showed above the stock would set up for an opening range break up, instead of bread down? Would you take that trade? Or do you take the trade (at least for ORB) only in the direction of the gap (so downwards in the example above)?

[Paul aka Aurbano 82]

@Silviu please check the "Trend Trading Webinar" by @Aiman where you will find super dupper cool explanation about how to use daily ATR. Most of the time, a period of 14 is used on the daily chart taking into consideration both premarket and postmarket. Any platform like DAS or TWS will place the numbers for you in the charts just adding the indicator to the daily chart 😉 

Apply logic 100% of the time: if the GAP+ the ORB is over 50% of the daily ATR(14) ... would you take a trade that have in the best case scenario only a 40% daily range available to capture ?? I wouldn't

 

[Bailey Nevener 83]

On 1/11/2022 at 8:29 PM, Silviu said:

One more questions: What if the gap is bigger than the ATR, but the stock moves in a direction that reduces the gap. For example, what if in the example you showed above the stock would set up for an opening range break up, instead of bread down? Would you take that trade? Or do you take the trade (at least for ORB) only in the direction of the gap (so downwards in the example above)?

Yes I would and have. 

However since you are more than likely countertrend trading (due to trading against the gap) be careful with placing your stop too close because there will likely be whipsaw price action before it moves in your direction.

Also, build a tradebook on that type of scenario over time because it will behave differently than a 60 minute breakout in the direction of trend.  (One of the precautions I have mentioned)

Edited January 13, 2022 by Bailey Nevener