Newbie Questions: 1-min ORB

[nick jiang 0]

I'm new to BBT and have been simulating Andrew's 1-min ORB strategy for 3 weeks. These are some questions popped up, can someone help?

• How far is price too extended from VWAP pre-market? (Do you eyeball this or use some formula?)
• Do you ONLY use the 1st min candle to set the range? (What if the 2nd min candle is a better setup than the 1st?)
• For ORB up, can the 1st candle be red instead of green as long as it ends above VWAP?
• Are both lower wick and long upper wick on the 1st min candle "bad" setup?
• Does it matter if the 1st min candle is too extended from VWAP? If so, how do you define "too extended?"
• How do you manage multiple trades that require your attention around 9:31?

Thank you so much!

nick

[Martin D 27]

Hey, welcome!

Firstly I'll say I don't trade 1 Min ORB in the current market generally speaking. The open is quite choppy a lot of the time at the moment. However:

1) Yes eyeball/experience, it won't be the same for something $5 vs $200 for example so can't say exact amount. Different stocks move different amount even considering price range so has to be experience IMO.
2) Yes for the 1 Min ORB it's the range of the 1st minute candle, another popular strategy is the 5 min ORB which would be the first 5 min candle. That's not to say you can't develop your own 2 Min ORB, just not what is taught here.
3) Yes engulfing candles can be a strategy as you might trap some people short or ride along with people buying the dip but bear in mind it's a momentum strategy so I would record that in your testing and see how it alters your success. In this scenario I'd more likely be trading the Fallen Angel strategy (Brian) for a better entry.
4) Depending on the direction of your 1 Min ORB. On a ORB long a bottom wick is fine as this is buying from the lows (bullish) but an upper wick would be bad as there's some selling. Obviously vice versa if you are taking ORB short.
5) Yes taking too extended from VWAP makes risk:reward more challenging. Experience again I'm afraid.
6) You don't, 1 trade at that time. Experienced traders might take more later on but at the open would be asking for trouble. 

Martin

[nick jiang 0]

Hi Martin, thank you so much for your help, I really appreciate it. I have a follow up question:

 

Re Question 5: Do you use ATR to evaluate whether the first 1-min candle is too extended from VWAP? 

[Martin D 27]

If you asked me to write a trading Bot ATR is where I'd start. However, personally no, it's easy enough with experience IMO. It's not an exact science, some will work extended some won't there's not an exact cutoff line. It's where it tips into bad risk:reward trading is the key which is of course determined by where you think it can get to and the space you have to give for risk.

Order flow and reading the tape experience will keep you out of more bad trades at that time that trying to draw an exact line of extended or not extended.

[nick jiang 0]

Absolutely, gaining the skills in reading the tape is the key. 

For now, I wrote this short ATR formula to estimate whether the 1st min candle is too extended:

[Minimum (PDC, PML, LOD) + Daily ATR (14)] / [Current price - VWAP] >=5.  

... It's saying that it's not too extended if at current price, I have room to reach 5R

Not sure if 5R is too aggressive or too conservative.

[Martin D 27]

Yeah without running a bunch of backtests vs my visual experience I can't say.

It's 5am my time so my brains not working full speed (joys of trading from Australia) but I'm not really understanding what you've written, hypothetically lets say [$100 PDC (likely to be minimum) + $5 ATR] / [$106 as it's had a huge gap up on news - VWAP $105] so it would become $105/$1 = $105 which doesn't make sense?

I assume what you're trying to say is if the stock runs it's ATR then you'd hit 5R if you didn't partial? I'm not going to say it won't work because I haven't tested it but a couple of things to think about:
1) On a gap up it'll most likely be the PDC that's the minimum. On big enough news it could've easily gapped it's ATR or like 10c away or whatever, that doesn't stop it being an ORB target so you'd have to cater for that scenario.
2) Lets say a stock like Tesla (wide ATR) gaps 0.2%, this would be most likely to pass your formula as it has a lot of room to it's ATR. However, what is going to make that a strong ORB candidate? with a small gap which potentially means people are jumping in with no strategy following the price or someone is pushing the price trying to trap people going long before flushing it. Granted it might not be on your watchlist for an ORB but just highlighting you'd need to be careful of it being biased in that type of scenario.
3) Stocks in the current market don't often ORB and run it's ATR without probably stopping you out (assuming you will move to breakeven like most traders do).
4) Targets are not necessarily an ATR, if you end up back in a value range or hitting a strong daily level it'll probably struggle to run through it quickly. I'd want to input my target into the formula based on something I pick out on pre-market.
5) While you say 5R, that's assuming you don't partial. It's not really a 5R trade as most will heavily partial on an ORB strategy, it seems like you're trying to turn a momentum based thing into a hold for an hour or two strategy. It can happen but if it runs quickly and gets extended then you get the situation of heavy profit taking and parabolic reversal traders (like me) which can end up pushing at back to VWAP and below, while it wasn't from an ORB see Tesla yesterday just before 10am as an example of a stock that moved too much too quickly and gave me a lovely short from all the trapped longs who chased it (most of those types of trades for me do come in the first 5-10 minutes from ORB style trades). Trending stocks tend to be slow grinding movements rather than momentum.

Once you get it sorted try it on todays QQQ though, that was a bit extended for me from memory.

Just some personal experience though as I approached trading from a formula standpoint initially (although I wouldn't have listened to me either as I back myself to accomplish anything), I'm an analyst/finance guy by trade and thought I could mathematically break everything down and take trades based on formula. My answer would give me an X probability and I'd grade the answer which means I'd put on Y size and then once I got it working I'd build a trading bot and go travel the world. I built automatic pre market decisions and levels based on daily/weekly/monthly pivots etc, highlighted confluence levels (all pulled automatically). In my practice testing I had all sorts of data recorded like wick length % and it's impact on the ORB, had probabilities based on X,Y,Z combination of criteria for different strategies. Ultimately I spent about a year on it part time, in short it didn't work, there's too much nuance to markets unless you have the size to push everyone around like hedge funds.

[nick jiang 0]

Thanks for writing from Australia, Martin! Beautiful country ... I spent 2 weeks there and can't wait go to back. 

My goal with this formula is to determine if the 1st 1-min candle is too extended from VWAP. For example, in the screenshot below, the setup for orb-up is great (gapped up, above VWAP, etc) but the 1st minute candle is a bit extended from VWAP. ATR is ~$4, and the orb ~ $0.90. 

I suppose it's not a perfect science, rather it's more about experience understanding all the price actions. Thank you.