R&D Blog
Opening Range Breakout – Weekly Bars | Trading Strategy (Entry)
I. Trading Strategy
Concept: Trend-following strategy based on volatility breakouts. Research Goal: Performance verification of the weekly reversal model (long/short). Specification: Table 1. Results: Figure 1-2. Trade Entry: Opening Range Breakout: A trade is taken at a predetermined amount above/below the open. The predetermined amount is called the stretch. Long Trades: A buy stop is placed at [Open + Stretch]. Short Trades: A sell stop is placed at [Open − Stretch]. Trade Exit: Table 1. Portfolio: 42 futures markets from four major market sectors (commodities, currencies, interest rates, and equity indexes). Data: 34 years since 1980. Testing Platform: MATLAB®.
II. Sensitivity Test
All 3-D charts are followed by 2-D contour charts for Profit Factor, Sharpe Ratio, Ulcer Performance Index, CAGR, Maximum Drawdown, Percent Profitable Trades, and Avg. Win / Avg. Loss Ratio. The final picture shows sensitivity of Equity Curve.
Tested Variables: Stretch_Length & Stretch_Multiple (Definitions: Table 1):
Figure 1 | Portfolio Performance (Inputs: Table 1; Commission & Slippage: $0).
| STRATEGY | SPECIFICATION | PARAMETERS |
| Auxiliary Variables: | Noise: The difference between the open for each weekly bar and the closest extreme to the open on each weekly bar (Noise[i] = min(High[i] − Open[i], Open[i] − Low[i])). Average_Noise: The simple moving average of Noise over a period of Stretch_Length. Stretch[i] = Average_Noise[i] * Stretch_Multiple. Index: i ~ Current Bar. | Stretch_Length = [1, 40], Step = 1; Stretch_Multiple = [1.0, 4.0], Step = 0.1; |
| Setup: | N/A | |
| Filter: | N/A | |
| Entry: | Weekly Opening Range Breakout (ORB): A trade is taken at a predetermined amount above/below the weekly open. The predetermined amount is called the stretch (defined above). Long Trades: A buy stop is placed at [Open + Stretch]. Short Trades: A sell stop is placed at [Open − Stretch]. | |
| Exit: | Stop Loss Exit: ATR(ATR_Length) is the Average True Range over a period of ATR_Length. ATR_Stop is a multiple of ATR(ATR_Length). Long Trades: A sell stop is placed at [Entry − ATR(ATR_Length) * ATR_Stop]. Short Trades: A buy stop is placed at [Entry + ATR(ATR_Length) * ATR_Stop]. | ATR_Length = 20; ATR_Stop = 6; |
| Sensitivity Test: | Stretch_Length = [1, 40], Step = 1 Stretch_Multiple = [1.0, 4.0], Step = 0.1 | |
| Position Sizing: | Initial_Capital = $1,000,000 Fixed_Fractional = 1% Portfolio = 42 US Futures ATR_Stop = 6 (ATR ~ Average True Range) ATR_Length = 20 | |
| Data: | 42 futures markets; 34 years (1980/01/01−2014/01/31) |
Table 1 | Specification: Trading Strategy.
III. Sensitivity Test with Commission & Slippage
Tested Variables: Stretch_Length & Stretch_Multiple (Definitions: Table 1):
Figure 2 | Portfolio Performance (Inputs: Table 1; Commission & Slippage: $100 Round Turn).
IV. Rating: Opening Range Breakout – Weekly Bars | Trading Strategy
A/B/C/D
V. Summary
Since 1990, the trading strategy stopped working once the realistic cost of trading is applied (Figure 2). Without the cost of trading, the strategy holds (Figure 1).
Related Entries: Opening Range Breakout (Exits) | ORBP Trend (Filter & Exit) | ORBP Counter-Trend (Filter & Exit) | Greatest Swing Value (Exits) | Greatest Swing Value (Filter & Exit)
Related Topics: (Public) Trading Strategies
CFTC RULE 4.41: HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.
RISK DISCLOSURE: U.S. GOVERNMENT REQUIRED DISCLAIMER | CFTC RULE 4.41
Codes: matlab/crabel/orb-weekly-re/