I want to share with you a trading system based on the technique called ORB (Opening Range Breakout). The ORB is based on taking a position on the market at the breakout of price levels in the first part of the trading day assuming that the trend will continue in the direction of the breakout.
Some strategies decide the breakout levels based on the price range of the first part of the trading day, in this trading system the thresholds are set based on the opening price of the current day and the true-range of the previous day.
Furthermore, not every day is a trading day just because the breakout levels have been exceeded. A filter is used, it is based on the type of candle from the previous day which must be a doji. It means that its body is small compared to its shadow. I really compare the body, not with the shadow, but with its true-range that can also take into consideration the closing price of the first day before.
Just to be clear the true-range of a candle is the max between
( H – L , abs( H – C1 ), abs( C1 – L) )
where C1 is the closing price of the previous candle. The body is simply abs( C – O ) and the shadow is ( H – L ).
The breakout must take place no earlier than a predefined time after the trading opening hours. If it happens and the filter is satisfied, a position is taken in the direction of the breakout. The position is closed at the end of the day if a stop price is not activated. The stop price is based on a fixed amount of points.
The trading instrument is the future on the FTSE-MIB index.
That’s all. Let’s see the results.
Essentially after a very noticeable decline, the FTSE-MIB proceeded in a side walk. As you can see the trading system works well in many declining phases of the future instrument, the equity line is quite trending up.
The trades are much enough to be meaningful, the average profit/loss is enough to contains the not yet considered slippage and commission.
Considering the win-rate equals to 52.25 %, the slippage equals to 1 tick (25 €) for every trade, the commission equals 2.06 €, we obtain an overall fee for each trade equals to 20.53 €.
For the short equity side the average profit/loss is even better as you will see in the next post.