Opening Range Mean Reversion

Entry Logic

• Long Entry: Price breaks below the first 15-minute opening range and then reclaims the low.
• Short Entry: Price breaks above the first 15-minute opening range and then reclaims the high.
• Confirmation: A strong candle back inside the range.
• Timeframe: 5-minute.
• Location: A failed breakout of the opening range.
• Market Condition: Ranging or choppy.

Exit Logic

• Profit Target: The other side of the opening range.
• Scaling Out: Exit 50% at the midpoint of the range, trail the rest.
• Trailing Stop: A bar-by-bar stop.
• Signal Failure: Exit if price makes a new high/low outside the range.
• Opposite Signal: Not applicable.
• Time Expiration: Exit if the target is not hit within the first hour.
• Momentum Loss: Exit if the move back into the range stalls.

Stop Loss Structure

• Hard Stop: Just beyond the high/low of the failed breakout.
• Soft Stop: If price fails to move decisively back into the range.
• Max Dollar Loss: $400.
• Max Percent Loss: 0.8%.
• Structural Stop: The high/low of the day.

Risk Management Framework

• Risk Per Trade: 0.5%.
• Daily Limit: 2 trades.
• Weekly Limit: 3%.
• Max Drawdown: 10%.
• R:R Requirement: 2:1.

Position Sizing Model

• Sizing Approach: Fixed fractional.
• Volatility Adjustment: Adjust size based on the width of the opening range.
• Conviction Sizing: No.
• Scaling In: No.
• Scaling Out: Yes.

Trade Filtering

• Market Conditions: Avoid strong trend days.
• Setups: Look for a clear breakout and then a rapid failure.
• Instruments: Index futures and liquid stocks.
• Time Restrictions: Only in the first hour of trading.
• Chop/News Avoidance: Be aware of news that could cause a true breakout.

Context Framework

• Trend Direction: Neutral.
• VWAP Relationship: The trade is often a fade of a move away from VWAP.
• MA Relationship: Not a primary factor.
• Range Location: At the extremes of the opening range.
• Higher TF Alignment: Not critical.

Trade Management Rules

• Breakeven: After a 1R move.
• Scale Out: At the midpoint of the range.
• Add Size: No.
• Fast vs Slow Moves: This is a strategy for fast, v-shaped reversals.

Time Rules

• Optimal Window: The first hour of the US session.
• Times to Avoid: The rest of the day.
• Session Notes: A classic opening range strategy.

Setup Classification

• A+ Setup: A breakout on high volume that immediately fails on even higher volume.
• A Setup: A breakout that fails with a clear reversal candle.
• B Setup: A breakout that slowly grinds back into the range.
• C Setup: A true breakout that continues to trend.

Market Selection Criteria

• Instruments: ES, NQ, high-volume stocks.
• Volume: High.
• Volatility: Moderate to high.

Statistical Edge Metrics

• Win Rate: 50-60%.
• Avg Win: 2R.
• Avg Loss: 1R.
• Profit Factor: 1.5.
• Expectancy: +0.25R.

Failure Conditions

• Market Conditions: A strong trend day from the open.
• Specific Scenarios: A gap and go.

Psychological Rules

• Discipline: Must be able to act quickly to catch the failed breakout.

Advanced Components

• Regime Detection: Use the size of the overnight gap to gauge the probability of a trend day.
• Filters: Avoid stocks with a major catalyst.
• Correlation: Be aware of the overall market direction.
• MTF Alignment: Not applicable.

Location

• Strongest: On days with no clear market-moving news.
• Weakest: On days with a major economic data release or earnings.