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The Open, lesson 1: The idea and the research behind it

Why the first part of the day carries information, what an opening range is, and the published research behind The Open.

The first part of the trading day carries more information than any other. Overnight news gets priced at the open, volume and volatility are at their highest, and the big orders that move an index start working. The Open is built on one observation: when the morning makes a real move, the afternoon has tended to follow it.

Opening range range high range low the break openclose
A. Illustrative, not data. The first part of the morning sets a high and a low, the opening range. When price breaks out of it and keeps going, that is the kind of day The Open is built for.

Rules

  1. An opening range is the high and low of the first part of the cash session, which starts at 9:30 ET. Traders use 5, 15, 30 and 60 minutes.
  2. A breakout is price leaving that range. Most breakouts fail. The work is telling a real move from noise.
  3. A rule decides in advance what counts as a move, where the trade is wrong and when it ends. Nothing is judged by feel.
  4. The Open is a day trade. It is flat before the close every day, so nothing is held overnight.

What the evidence says

The idea is old and well published. Toby Crabel’s 1990 book on opening range breakouts made it famous. Larry Williams traded breakouts from the open by a fraction of the previous day’s range. In 2018 the Journal of Financial Economics published “Market Intraday Momentum” by Gao, Han, Li and Zhou: on the S&P 500 ETF from 1993 to 2013, the first half-hour’s return predicted the last half-hour’s, and the effect was stronger on volatile days.

Opening range studies keep finding the same shape. Zarattini and Aziz (2023) tested a 5-minute opening range breakout on QQQ from 2016 to 2023: it won only 24% of its trades and made its money from a few large winners, and it assumed no slippage.

We coded The Open from published research on intraday momentum and tested it on Nasdaq futures. Before we trusted it, the published version passed a test we registered in advance, on MNQ data it had never seen (2019 to 2022).

Trades, June 2019 to October 20261,339
Winning trades41%
Average winnerabout $1,600
Average loserabout $875
Profit factor1.3
Every calendar yearpositive, 8 of 8

Per NQ contract at $20 a point, after $2.50 commission and 2 ticks of slippage on each side, from June 2019 to October 2026, rounded.

Hypothetical results1, not actual trading. The full statement is at the end of this page.

Exercise

On a 5-minute NQ chart, mark the high and low of the first 30 minutes for ten sessions. For each, write down whether price broke out, which way, and whether it was still beyond the range at the close. Write your guess before you look.

The pointWhen the morning makes a real move, the afternoon has tended to follow it; the work is telling a real move from noise.

Check yourself

  1. A few minutes after the opening range is set, price pokes just above its high. What does this lesson say about a moment like this?

    1. A break of the range is the signal on its own, so buy it.
    2. Most breakouts fail, so a rule has to decide in advance what counts as a real move.
    3. Breakouts only fail on quiet days, so buy it if the open was busy.
    Answer

    B. Most breakouts fail, and the work is telling a real move from noise. A rule decides that in advance; nothing is judged by feel.

  2. Why does The Open pay so much attention to the first part of the day?

    1. Overnight news gets priced at the open, volume and volatility are highest, and big orders start working.
    2. Prices are calmest then, so stops can be placed close and cheaply.
    3. It is the only part of the day when the index trends.
    Answer

    A. The first part of the day carries more information than any other: news is priced, activity peaks and the big orders that move an index start working.

  3. Late in the session The Open is in a winning trade and the move still looks strong. Someone suggests holding it overnight to let it run. What does the rule do?

    1. Holds it, because winners should be allowed to run.
    2. Holds it only if the price is near the day’s high.
    3. Closes it: The Open is a day trade and is flat before the close every day.
    Answer

    C. The Open is flat before the close every day, so nothing is held overnight, however good the trade looks.

Next: Why the morning sets the afternoon

Education only. Nothing here is advice about your account.