Jeff Cooper Explains His Methodology Behind The Opening Range Breakout Day Trade

2/24/13 Jeff Cooper Explains His Methodology Behind The Opening Range Breakout Day Trade | Business News
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The Methodology Behind

the Opening Range
Breakout Trade
By JEFFREY COOPER SEP 20, 2011 1:00 PM
Explaining a day trading strategy that helps give traders
and edge and removes emotion.
+4
Jeff is the author of Jeff Cooper's Daily Market Report which provides sub scrib ers with day and swing trading ideas.
Take a free trial.
Today, I want to walk through my ORB Method, or Opening Range Breakout Method, utilizing some examples from
yesterday's market action.
An Opening Range Breakout is defined as a trade taken at a breakout above or below a bracket of the first 30 minute
range.
Simply stated, this pattern allows us to take a lot of noise out of the market and condense it into something that we can
work with for the balance of the session.
Despite a strong selloff on Monday morning, there were a number of ORB’s triggered on stocks that I had identified in
Friday evening's market report which were set for upside continuation. These are what I refer to as Torpedo ORB’s -- as
in, damn the Torpedoes, full steam ahead.
Of course, unless these names were on your focus list, the momentum moves came and went and were terrific in
hindsight as opposed to being opportunistic.
One of the setups in the last stock report was the long swing setup in Universal Display Corp. (PANL).
PANL was on the radar as it left a Plus One/Minus Two, 180 Buy signal on Friday.
The stock gapped down with the market making a low at/near the open and triggered an ORB that coincided with Gapfill
before exploding.
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2/24/13 Jeff Cooper Explains His Methodology Behind The Opening Range Breakout Day Trade | Business News | Minyanville.com
Ulta Salon, Cosmetics & Fragrance (ULTA) was an “either or” day pick for Monday based on Friday’s N/R 7 day. In other
words, ULTA was either a long or short setup based on the bias of an initial ORB.
Note the first pullback defined a consolidation which led to higher prices.
In both cases, the ORB did a good job of identifying a Trend Day. Once you think there is a better than average likelihood
that a stock is going to trend into the last hour of the session, you can look to buy pivots out of intraday pullbacks. This
puts you ahead of the game emotionally. At the same time, once it appears a stock has scored a first hour low versus a
first hour high or that a stock is trending past a first hour high, then the probabilities are that the stock will continue
higher on the day.
Such was the case with both PANL and ULTA on Monday, September 19th.
Now let’s take a look at three different setups on Amazon (AMZN) and how to navigate intraday with the benefit of an
ORB.
On September 6th, AMZN went into the Plus One/Minus Two ‘position’ for the first time since the August crash low. Note
the undercut of the 50 dma on the morning of 9/6. Why did AMZN go into the Plus One/Minus Two Buy position? The
Three Day Chart was pointing up as AMZN had traced out 3 consecutive higher daily highs for the Plus One part of the
equation.
On the morning of 9/6, AMZN satisfied two consecutive lower daily lows for the Minus Two part of the equation.
Note how an ORB was triggered immediately after the first half hour of trade. Typically following an ORB one of two
things will play out: Either the stock will spike or there will be a first pullback that tests the ORB. Often times this pullback
will probe into the body of an ORB.
Note the first bonafide pullback midday in AMZN on 9/6 which leads to continuation.
One of the tricks of the trade I like to use is a channel from the first pullback and the first high following the ORB. Often a
stock in a trend day will carve out 3 drives to a high defined by this rising channel. Often a Live Angle on this intraday
action will ‘call’ a high for the day which the stock has been magnetized to. On September 12th, AMZN repeats the
pattern from 9/6: early in the session it goes into the Plus One/Minus Two buy position once again. This behavior of
pulling back for no more than one to two days is typical of stocks in runaway moves. Rocket stocks have a tendency to
pivot and reverse intraday without allowing traders the luxury of spotting the setup in the calm of the day, after the bell.
The action on September 12th set up similarly on the daily chart to that of September 6th but played out differently. While
an ORB led to an extension it came after a spike which meant it was assuming more risk. Note that the first pullback
following the ORB left a bullish pullback pivot but there was no continuation. When AMZN stabbed back through the level
of the ORB, the implication was a full test of the morning low. This was a confirmed ORB Reversal, a reversal back
through the level of the ORB -- with authority.
Note that following a test toward the morning low, AMZN once again recaptured the level of the ORB, the ORB Pivot late
in the session and AMZN explodes on the runoff.
As you can see, the price level and the time level where an ORB occurs is an important reference point through the day
and even into the next session. It is not only a good place to draw lateral support and resistance, but does a good job of
defining rising and declining channels and reversals.
Let’s take a look at one more example of an ORB on AMZN.
On September 16th, AMZN left a Peekaboo Closing High -- not a new intraday high, but a new closing 52 week high.
This put AMZN on the radar for the next session.
On 9/16, AMZN triggered an ORBN and gives a minor pullback prior to a first 1 2 3 Pullback following which the stocks
extends meaningfully. Note how a trendline drawn through the morning low and the first two pullbacks does a good job
of identifying a Live Angle that acts as a magnet for the stock into the bell for a clean Trend Day with a cherry on top.
The Market: Like Monday a week ago the market gapped down and clawed its way back up. This time though it was
clear that someone big was at work buying the five largest tech Nasdaq names from the getgo. And as soon as the big
boys catch a bid, it can ripple through the smaller cap names.
In the last few months these ‘sell today, buy tomorrow’ programs have been executed in front of the Fed, which may
have been front run yesterday.
In addition the breakaway gap from the ascending wedge -- shown yesterday -- like the one from late August/early
September, caught the Street wrong-footed and the buy program concentrated in the 5 largest tech names may have
been engineered in order to provide a graceful exit.
“They” can’t let the market fall away unless they have their put positions can they?
The ‘sell today/buy tomorrow’ buy program in front of the Fed may see another buy program today setting up the
possibility for the new swing high in the S&P above 1230 as has played out in the NDX and NAZ.
While you don’t want to stand in front of outright impressive momentum in names like AMZN and Apple (AAPL) to
mention a few, the explosive action underscores there is no fear in the market.
With the indices coiled in daily ascending wedges, it is worth noting that, in my experience, crashes don’t happen when
there is too much bullishness, but when there is an overabundance of complacency.
With quarter-end approaching, worries about earnings misses and downgrades loom and the institutional mindset
should remain defensive and bearish without clearcut signs of economic growth. Is that going to happen in the next few
quarters?
Consequently, short run optimism is bound to be short-lived, but, as my dad used to say, “stocks don’t move, they are
moved” and we can’t dismiss out of hand the idea that the wagons have been circled to save the quarter by institutions.
Is it possible that our early October turning point inverts becoming a high instead of a low?
Unless the market is right back down below 1200 S&P on Wednesday, the answer may be yes.
iShares Silver Trust (SLV) projects to around 35.50 to 36. If it has begun a third wave down it could see 27.
SPDR Gold Shares (GLD) has defined a high every time the Daily Swing Chart turns up now which underscores the
secondary trend as down. The big bull stand on gold looks like 1750ish. Below that 1600 and below that 1425ish over
the next two to three months. Only above 1823 does gold go into a stronger short term position and only above 1883 is
there a prospect for new highs from right here right now.
Conclusion: Once again, the futes were down as much as 11 points overnight but are back up 9 points this morning. It’s
a slippery market with overnight bias and intraday assumptions turning on a dime. While the buying in the hole is a
potentially constructive change in behavior, at the same time it smacks of manipulation and at the least underscores a
complete lack of fear. Dangerous. Unless the Fed states outright that it is going to buy stocks, rallies should be made
for the selling for institutions.
No positions in stocks mentioned.
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2/24/13 Jeff Cooper Explains His Methodology Behind The Opening Range Breakout Day Trade | Business News

de | Business News | Minyanville.com

The Methodology Behind

Let’s take a look at one more example of an ORB on AMZN.

No positions in stocks mentioned.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

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