Showing posts with label Opening Range Breakout. Show all posts
Showing posts with label Opening Range Breakout. Show all posts

Friday, September 25, 2026

George Cole and the Discovery of Pivot Points for Day Trading | Toby Crabel

The daily support and resistance lattice that most day traders treat as folk knowledge was first set down in 1936 by George William Cole (1870–1937), though he rarely gets credit for it. Cole was the first author to publish the formula now called Classic or Floor Pivots. Toby Crabel himself uses these pivot levels—not as a standalone system, but as one layer in a larger map of reference points.

"Before the many books and derivations of pit trader's numbers, there was George Cole in 1936. He was the first author to write about the formula so many day traders use now, most of whom have no idea where it originated. I haven't seen any contemporary authors credit Cole for it. Fair enough, the method works well, and the numbers are good reference points for structure in the market. It’s worth knowing where they sit each day in whatever you're trading."

 Cole self-published Graphs and Their Application to Speculation (a sequel to his 1928
book Successful Speculation: A Business) the year before he died, and Donald Mack
reprinted it
in 1998
in the Financial Times / Pitman Traders' Masterclass series.

Cole was not creating a simple day-trading cheat sheet. He wanted speculation to operate like a profession: charts as a visual map of mass psychology, a "law of occurrence or recurrence" in commodity prices, and human judgment required to pull the facts together. That is 1930s technical analysis in the Wyckoff family—slow, pictorial, and commodity-first. On subsequent literature, Crabel is blunt, and he names names:

"Almost all short-term traders have explored these numbers. Larry Williams called them his own. John Hill, Fisher, and Ochoa each added something to them. Carter and Person use them too. I saw traders on the floor in the '80s carrying their "Green Sheets" into the pit, and these numbers were the dominant feature on them. It’s safe to say most traders know about them and have built systems around them, so it pays to know where they sit if you want a read on the market’s mind throughout the day."⁠

These details matter. By the 1980s, the formula was no longer just a book idea; it had become pit infrastructure.

»
 Huh! that fellow is a 'chart trader.'
« 
 
Two Different "Pivots," Often Smashed Together
► Structural and Swing Pivots: A high with lower highs on both sides; a low with higher lows on both sides. Livermore called turning points "pivotal points" and split them into reversal versus continuation. Larry Williams later said he first called those short-term turns "ringed" highs and lows "in deference to the work done in the 1930s by Henry Wheeler Chase." That is swing structure, not a closed-form projection.
► Calculated Floor Levels: Yesterday's high, low, and close, printed into today's map before the open.
 

This is what Crabel means by Cole numbers (15-minute E-mini NASDAQ-100 of January 29, 2024): "R4 to S4 including the pivot (p), are all Cole numbers. I-1 hi and I-1 lo are yesterday's high and low. The two-day high (2 day hi), the all-time high (ath), and swing low (1 day sw lo) are also an important part of market structure."⁠ 

John Person's lineage credits Chase with the formula and Williams with its 1979 revival. The honest history involves two 1930s names, an unread reprint, a popularizer, and a floor practice that was already regarded as "secret numbers" when Person walked onto the CBOT. Crabel is likely right that Cole printed the arithmetic first. Person is likely right that the pits treated it as inherited craft. Neither invented the market’s habit of defending yesterday’s range.

The Formula Without Mysticism 
   Let H, L, C be the prior session's high, low, and close.
 
R4 and S4 are further range multiples, which Crabel plots. PP is the typical price (High + Low + Close / 3). R1 and S1 reflect the opposite extreme through that typical price, while R2 and S2 add or subtract the full prior range. Variants exist simply because people keep reweighting those same three numbers: Woodie doubles the close; Fibonacci stacks 0.382/0.618/1.00 of the range off the Pivot Point; Camarilla builds tight fade and breakout rails off the close; DeMark flips the calculation depending on whether the prior bar closed above or below its open. None of this is new physics. It is a daily map printed from a finished bar. 
 
How Crabel Uses the Numbers
He does not treat Cole levels as a system in themselves. He views them as a "predetermined" framework that sits next to a "dynamic" one:

"These are all predetermined price levels. Once the market opens, there are dynamic reference points to factor in too, and I cover those elsewhere. [...] Price will often poke through a high or low before resuming trend, so the action around the previous day's high and low matters."⁠

That last sentence is the core operational rule. The Cole grid provides the scaffolding; the prior high and low are the live walls. A poke-and-fail through yesterday's extreme, in Crabel's framing, tells you far more than a simple tap of R2.

The dynamic half of the map is the work Crabel is known for. In the 1988 Stocks & Commodities series that became his 1990 book, he defined the open itself as the other reference point of the day:

"Opening range breakout is one of the most important indicators of daily market direction that a trader can utilize. An opening range breakout (ORB) is a trade taken at a predetermined amount above or below the opening range. When the predetermined amount (the "stretch") is computed, a buy stop is placed that amount above the high of the opening range and a sell stop is placed the same amount below the low of the opening range. The first stop that is traded is the position and the other stop is a protective stop."⁠

He was already distinguishing rare trend days from ordinary rotation:

"Early entry is defined as a large price movement in one direction within the first five minutes after the open of the daily session. A study of early entry is essentially a study of price action, and the type of price action that takes place on early entry shows that participants are urgent about entering the market. It is a distinct recognition of either a profitable or dangerous situation. [...] It should be noted that directional moves of this nature are relatively rare and may occur only 10% of the time. Most days (70% to 80%), prices exhibit rotation or choppy action and the first five to 10 minutes of trading are sluggish and directionless without a clear movement away from the opening range.⁠"

The hinge between those two day-types is the principle that still sits under NR4, NR7, inside days, and two-bar and three-bar narrow range:

"The market having a specific nature is constantly changing from a period of movement to a period of rest and back to a period of movement."

 
That is the Principle of Contraction/Expansion. Cole numbers do not tell you which regime you are in; compression plus a move off the open does. Crabel reduced that entire visual tradition to two forces:

"My observations of markets through visual displays of data have led me to a simple conclusion: there are two primary forces at work. One is momentum, which includes the opening range breakout (ORB). The other is mean reversion, which at times can even involve trading in the opposite direction of the ORB. This has always been a useful way to think about markets. But over time, I have come to appreciate that there are many nuances and additional conceptual frameworks that continue to refine this view."⁠

Cole's grid is useful in both regimes. On a rotation day, it marks the likely fade rails. On a momentum day, it marks where the move should pause or accelerate. It does not choose the regime for you.

 
What Changed: The Open Stopped Being the Open
The Cole numbers survived the death of the pit because they do not depend on a clean open. ORB did. Crabel has been explicit about that at length, and the long version is the right one:

"⁠Where's the open? For God's sake. I mean there's so much volume in the 24-hour sessions it's impossible to determine what the open is. So the wonderful thing about open range breakout—back in the day when there were just primary session, domestic session trading—was it was the most vital piece of information, the reference point that you could have. [...] The real problem is where is the reference point? Where the open was a great reference point, but now what other reference points are there in the markets? One is the close of the previous day and the movement off of that."⁠⁠

He has also been careful not to claim invention of the open as a tool—"I didn't invent it"—and to note that Larry Williams was already working the same ground, and was not pleased to see it in print.
 
S&P 500 vs. Daily, Weekly, Monthly, and Quarterly Pivot Levels.
 
What Crabel does claim is the research program: find where order flow concentrates, then trade the imbalance. In the early 1990s, that meant two markers. Now it means a crowd of them:

"⁠In the early nineties I used ORB as a primary, or previous day’s high or low, as a reference point for marking and entering trades. Now we probably have 10 or 15 or maybe even 20 different reference points that exist in any market and different ways of navigating that. [...] The closing of the previous day tends to be much more important now than it ever was.⁠"⁠

Reading the Cole essay against that interview and the layout of Crabel's January 29, 2024 chart, the takeaway becomes obvious. R4 and S4 are the old predetermined lattice. The prior high and low, two-day high, all-time high, and swing low are the reference points that still carry energy now that the open is no longer a single moment.

 
What is Solid, What is Soft
► Solid: The levels are objective and available before the session begins. They establish a sensible bias rule: lean long above PP, lean short below PP, and treat R1 and S1 as the first places the auction should hesitate. Prior-day highs and lows are usually respected more than outer projections because they are actual traded extremes rather than mathematical reflections. Crabel's poke-through-and-fail observation around those extremes remains one of the cleanest intraday tells in trading literature. The green sheets existed because the numbers were shared—and shared levels become structural market points even after their original rationale is forgotten.
►
Soft: The formula does not account for overnight gaps or a Sunday FX open. "Yesterday" is no longer a clean object in 24-hour markets. Outer levels are often wallpaper. Buying S1 and selling R1 as a standalone system is how the method earns its bad name. The edge, when there is one, is confluence: a Cole level + prior high and low + opening range or prior close + the actual swing right in front of you.

That is also why Crabel's credit-where-due note is more than antiquarianism. Cole printed a portable map. The pits made it a common language. Williams, Hill, Fisher, Ochoa, Carter, and Person turned it into product. Camarilla, Woodie, Fibonacci, and DeMark are variants. Crabel's own contribution is the frame around the map: predetermined levels first, then the day’s dynamic reference points, then a decision about whether the session is momentum or mean reversion.

Ochoa's CPR, Cole's Floor/Classic or Traditional, Woodie, DeMark, Fibonacci, Scott's Camarilla.

However, do not give the pivots' arithmetic more metaphysics than it earns. It is a prior-day typical price and a set of reflections. It works when the market is still negotiating yesterday's range. It is noise when the market has already decided today is a different day. The skill is telling those two conditions apart—and that skill, as Toby Crabel keeps repeating, is not in the formula. It is in the structure you put around it.

Reference:
 
Why pivot points work?
Self-fulfilling prophecy.
 Aha!
 
See also:

Tuesday, August 18, 2026

The Evolution of the Opening Range Breakout | Toby Crabel

My observations of markets through visual displays of data have led me to a simple conclusion: there are two primary forces at work. One is momentum, which includes the opening range breakout (ORB). The other is mean reversion, which at times can even involve trading in the opposite direction of the ORB.

The ORB concept should not be discarded, but it must be modified.
 
This has always been a useful way to think about markets. But over time, I have come to appreciate that there are many nuances and additional conceptual frameworks that continue to refine this view. After more than 50 years of trading, one thing is clear: all ideas are subject to revision. Flexibility is required. I do not discard the original intellectual structures when changes are necessary. Instead, the framework evolves and, ideally, strengthens as markets change.
 
The Impact of Electronic Markets
One of the most important revisions to the concept of the opening range breakout came with the transition to electronic trading and nearly continuous global markets. The primary session open no longer carries the same significance it once did. That moment used to concentrate liquidity and information. Today, that effect has been diluted. The concept should not be discarded, but it must be modified.
 
Diminishing ORB Annual Sharpe Ratio 1923-2025.
 
Modifications to the ORB Framework
Over time, several adjustments have proven useful when thinking about ORB and momentum more broadly.
1. Simplifying Entry
In my 1989 book, the entry logic for moves off the open was more complicated than necessary. A simpler approach is to use a percentage of an n-day average range. The exact percentage and lookback period will vary by market and should be explored. Different markets require different thresholds.
 
2. Expanding Reference Points
There are now many valid reference points beyond the open. In some cases, they may be more relevant. Regional closes, or moves of a certain magnitude from any price level, can serve as useful anchors. Observation should guide testing.
 
3. Time of Day
Time of day remains a critical factor. There was once a multi-billion-dollar firm that used the open to 11:00 EST as a primary directional signal. If markets moved consistently in one direction during that window, positions were held over multiple days. That specific behavior has changed, but the broader concept remains. Other periods during the day may now carry similar importance and should be part of the research.
 
4. Day of the Week
Day-of-week effects also deserve attention. Yale Hirsch did extensive work in this area, now continued through The Stock Market Almanac. We have observed, for example, that a gap lower on a Monday can be a dangerous place to initiate short positions. Conversely, momentum later in the week can be quite powerful when markets are active. These tendencies are probabilistic and evolve over time, but they appear to reflect persistent behavioral patterns tied to the structure of the trading week.
 
5. Magnitude and Price Action
The magnitude of the move off the open, along with the nature of the price action, is essential. For discretionary traders, this is critical. To the extent these ideas can be formalized, systematic approaches can benefit as well.
 
6. Prior Market Behavior
The behavior of prior days has a meaningful impact on ORB outcomes. Arthur Merrill's work on simple price patterns, some of which I included in my 1989 book, still has relevance today. These patterns can serve as useful supporting indicators when evaluating momentum.
A Long-Term Perspective on ORB
Below is a basic test of an opening range breakout strategy in its raw form. The system enters at 0.80 time the 10-day average range, with no stops or profit targets, and exits on the next day’s open. While simple, it provides a useful baseline.
 
The study spans more than 100 years, beginning with a single market (wheat) and expanding as additional markets became available. What stands out is a gradual decline in both dollars per contract and Sharpe ratio over time. This reflects a broader reality: markets evolve, and edges tend to diminish.
 
Interpreting the Data
Markets in the study are equally weighted as new ones are added. This is not realistic for large-scale trading, where position sizing must be adjusted, but it is sufficient for understanding long-term behavior.

» No edge remains static. Markets evolve. «
 
The tables include: number of contracts traded, total profit, percentage return, dollars per contract, maximum drawdown, return-to-drawdown ratio, Sharpe ratio, Sortino ratio, standard deviation, trades per year, number of markets. Totals are provided at the bottom.
 
Final Thought
The most important lesson is not the strategy itself. It is that no edge remains static. Markets evolve. What worked in one regime will weaken in another. The advantage comes from continuing to observe, test, and adapt.
 
Quoted from:

Wednesday, June 26, 2024

2-Bar Narrow Range Setup | Toby Crabel

2-Bar Narrow Range (2BNR)  represents a condensation of the market concept called congestion or contraction. Contraction is subsumed within the market Principle of Contraction/Expansion which states that the market, having a specific nature, is constantly changing from a period of movement to a period of rest and back to a period of movement. This interchange between the phases of motion and rest are constantly taking place with one phase directly responsible for the other's existence. 2-Bar NR represents this market principle and provides a means of quantifying contraction in any market environment. This is possible because of the open-ended nature of the concept 2-Bar NR. 
 
 2-Bar Narrow Range (2BNR) in the S&P 500 on June 26, 2024.
If the 2-bar range is the narrowest range from high to low of any two day period relative to
any two day period within the previous twenty days, we are sitting on a 2BNR trading setup for June 27.

Because it is not dependent on a constant measurement it represents contraction in a volatile or narrow market period. In other words, contraction is a relative condition that can occur even in a volatile market. Once a market concept is formulated it is tradable. An ORB (Opening Range Breakout) trade is taken the day after the 2-Bar NR formed. An ORB trade is entered at a predetermined amount above or below the opening range (stretch), that is the range of prices that occur in the first 30 seconds to 5, 15 or 30 minutes of trading. 
 
The assumptions are that with a contraction of this type trending action would follow the direction of the breakout, and that because this pattern exhibits a more defined contraction that trending would take place over the next several days also. It is advantageous if the 2-Bar NR is holding at an important angle of support/resistance, including trendlines, when it is formed. Once the market has moved away from the open in one direction after a 2-Bar NR, it should not return to the opening price. If it were to do so, that would disqualify the day as a trend day. Trending action is ideal and is expected after the pattern.
 
Reference:

Friday, June 14, 2024

The Principle of Contraction/Expansion | Toby Crabel

Price always moves from Consolidation to Expansion, never from Consolidation to Reversal or from Consolidation to Retracement. 
 

After an Expansion, two possible scenarios can occur: either a Retracement or a Reversal, followed by another Expansion or Consolidation. That’s it—it happens over and over again. 

» The principle of Contraction/Expansion is defined as the market phenomenon of change from a period of rest to a period of movement back to a period of rest. This interaction between the phases of motion and rest are constantly taking place, with one phase directly responsible for the others' existence. «
 
Toby Crabel, 1990
 
In his study 'Day Trading with Short Term Price Patterns and Opening Range Breakout' Toby Crabel defined the following range contraction and expansion patterns:

NR4 - The narrowest daily range relative to the previous three day’s daily ranges compared individually.
NR7 - A day with a daily range that is narrower than the previous six day’s daily ranges compared individually.
WS4 - (Widespread 4) A day with a daily range that is larger than any of the previous three day’s daily ranges.
WS7 - (Widespread 7) A day with a daily range that is larger than any of the previous six day’s daily ranges
             compared individually.

His key findings were: A cumulative total of Gross Profits for the contraction patterns vs expansion patterns on trades in the direction of the move off the open showed $710,000 for contractions on 7,313 trades and $102,000 for expansions on 7,524 trades. Profits were seven times larger for ORB (Opening Range Breakout) trades after contractions than expansions.

» Clearly something is going on here. The suggestion from these results is that one should be looking to go with a forceful move off the open after a contraction and not willing to do so after an expansion. In fact, fading price action off the open, with trend, after an expansion is a consideration. Other patterns can help with the decision on whether to fade a move off the open along with previously mentioned market context. If nothing else, one should be aware of the dangers of ORB trades the day after a big directional day. Caution is necessary after expansions. This is when the most attention is given to the market by the novice trades who invariably get caught in whipsaws and trendless markets. «  

 The more defined the congestion area, the better the chances for a Trend Day activity the following day.

Bitcoin - Inside Bar Narrow Range 4 (ID/NR4) in monthly, weekly, daily and 4 hour bar charts.

» An object at rest stays at rest and an object in motion stays in motion with the same speed 
and in the same direction unless acted upon by an unbalanced force. «
Isaac Newton's 'First Law of Motion', 1687
 

Monday, February 5, 2024

Implementing Economic Calendar Events | Darya Filipenka

 
One of the primary reasons for studying the economic calendar is to anticipate and manage potential volatility in the markets. Economic events can have a profound impact on market sentiment and can cause significant price fluctuations. For example, an unexpected interest rate hike by the Central Bank can lead to a sharp sell-off in the stock market, while positive economic data can boost investor confidence and drive prices higher. The focus should be on High Impact and Medium Impact News Events.

Reference: