Initial Range Breakout
- May 27, 2019
- Posted by: PurpleTrades
- Category: AFL
Initial range breakout also is known as Open range breakout strategy.
is most famous among freshers who want to do intraday trading and for those who have disciplined Risk-Reward ratio.
IRB, as the name suggests, is basically checking first candle or first few sets of candles of the day (of any time-frame) and marking High and Low of this candle. Now if the high/low of the candle is broken we initiate a trade in that direction.
Let’s understand this strategy with a simple example:
In the Chart above, we have 15 min time frame candlesticks for stock SBIN and data is as of 20 May 2019.
You can see we have market High and Low of First candle (The candle in White Box).
Let’s call this candle as Reference candle
And the second candle is started to form but it hasn’t broken the high/low of first candle (Reference candle).
Now the logic of the strategy is:
If High of the reference candle is broken we will buy (GO LONG) with Low of the candle as STOPLOSS.
If Low of the reference candle is broken we will go Short with High of the candle as STOPLOSS.
In case you want, you can modify the Stop-loss also.
And Target can be in terms of percentage or points.
Let’s see what happens as market moves…….
For this example,
I have set the following Parameters:
As you can see, I have set my Target as 2% from my Buy Price and STOPLOSS as 1% from my buy-price. (And not the low of the reference candle).
So my Risk-reward ratio is now 1:2.
This means I will buy if the High of the reference candle is broken and we will short if Low of the reference candle is broken.
And from the point of our entry 2% is Target and 1% is SL.
Also in the above picture, you can see I have set Trail SL points to be 1.
That means once my Target is achieved, I would book 50% of my shares and rest quantity I will trail with 1 point trailing.
I have given Exposure as INR 15000 (Last column in the figure). It means I will buy shares worth Rs. 15000 only.
So settings are ready!!!
Let’s get started :
As the market continues the breakout on one end has to occur, either High or low will be broken as shown in the fig :
In this case on the 4th candle, the High of the reference candle is broken and hence Buy signal (Represented by Green arrow) is generated and simultaneously we can see trade details at the left top corner.
You can see that as per our calculations automatic Target and SL levels are calculated.
Initial Range High is 337.00.
Initial Range low is 331.00.
Entry Price = 337.05.
Stop loss ( As set 1%) is 333.70 (calculated automatically).
Target (As set 2%) is 343.80 (calculated automatically).
Since we kept exposure as 15000 rs,
It would buy 15000/337.05 = 44 shares. (calculated automatically).
Now we will have to wait till the exit signal is generated.
You can see that our 2% target was achieved and is represented on the chart by a green asterisk (*).
At this point as said earlier 50% of my shares will be booked i.e 22 shares.
For rest 22 shares we will trail with 1 point trail SL as said earlier.
You can see that after quite a good time, our trail Sl also triggered represented by a light violet asterisk (*) and white arrow to confirm the full and final exit.
Here we have sold our rest 22 shares.
The strategy would work similarly for Short position also.
Remember if SL is triggered full quantity will exit at once, however, if the target is achieved 50% of the quantity is triggered.
In this Write-up, I have used all calculations automatically by coding on Amibroker using AFL language.
However, if you are a beginner and want to try this strategy we sincerely suggest you try it manually for few days on many scripts and once you are satisfied with the results and want to fully automate this strategy we will help you with a complete solution.
This is not the golden egg that will give you confirm profits, the Gains and loss using this strategy are subject to market conditions.
Use your own judgement and analysis and manual experience before you automate this in your trading account.
Hope this article helped you.
There are lots of modified version of this Strategy, however, this is the simplest one.
For more modifications contact our team.
Watch the Full explanation of the strategy here: