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:
