![]() ![]() Let’s have a look at the clustering of highs and lows during a trading day. So what about currencies? They trade 24 hours a day, and close only for weekends. Toby Crabel made this approach famous and Mark Fisher used it as the cornerstone of his ABC trading approach which is outlined in “The Logical Trader.” You can find a link to this book in the Resource section of my site. That is the point of the Open Range Breakout (ORB). ![]() So if we are correct in assuming that highs and lows tend to cluster around the opening of the day, it means that we stand a good chance of capturing a trend if we somehow get on-board in the right direction. For currencies, it turns out that we don’t need to take this into consideration. You need to control for this clustering of highs and lows to determine if the market you’re considering shows abnormally high concentrations of highs and lows at the start of the trading period. It’s the nature of random movement to cluster its high and low points at the start and the end of the time period. ![]() There is a caveat to this observation: this is equally true for random markets! If you model the markets with a Geometric Brownian Motion you will find that the highs and lows tend to cluster at the start and the end of the day. The justification for this type of trading is based on following observation: the frequency of highs and lows for the day tend to be highest during the opening range. ![]() The shaded region indicates the initial range of the market open. Here is a diagrammatic representation of this setup: Example of Open Range Breakout If price moves either side of this range it is a strong indication that price will want to continue in that direction. The key concept behind this strategy is that the range set at the start of the day sets a neutral zone for the rest of the day. Let’s start out with the notion of Open Range Breakout. In this article we’ll look at some results with regards to this strategy, as well different ways of trading it. The London Breakout Strategy falls under the category of Open Range Breakout as developed by Toby Crabel. ![]()
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