ORB Futures Trading Strategy Lecture

Motivation & Mindset

• “Trading is hard – so what?”
  – Expect difficulty; embrace work, discipline, and repetition.

• Adopt the Do-what-others-won’t philosophy:
  – Sacrifice comfort now to gain freedoms later.
  – If family/friends doubt you, use that as fuel rather than a deterrent.

• Zero-tolerance attitude toward excuses, whining, or procrastination.

• Ownership: You only get one life and one trading career – treat every session as consequential.

Core Concepts Introduced

• Opening Range Breakout (ORB) – centrepiece of Futures Strategy #1.
  – Works on CME futures (6 PM globex open), NYSE cash open (09{:}30 – 09{:}45), London and Asian opens, stocks & forex.

• Confluence – combining two or more data sources to raise trade probability:

  1. Index vs index (SPX vs NQ).

  2. ORB structure.

  3. Momentum tools (e.g.8 RSI “50-yard line”).

• Relative Strength / Weakness – measure each instrument’s %-change versus \text{ES / SPX} baseline.

• Risk-to-Reward Ratio ("R multiple") – cornerstone of profitability.
  R = \frac{\text{Reward in pts / $}}{\text{Risk in pts / $}}
  – Acceptable minimum: R \ge 3:1; ideal: R \approx 5–6:1.

• One and Done Rule (prop-firm discipline):
  – 1 green trade ⇒ shut the platform.
  – 2 consecutive reds ⇒ shut the platform.
  – Promotes consistency, reduces drawdown, passes evaluation profitably.

The Opening Range Breakout (ORB)

• Drawn only on the first 15-minute candle of the chosen session. Steps:

  1. Mark candle high (green line).

  2. Mark candle low (red line).

  3. Plot Mid-line (cyan) = halfway between high & low.

• Why it matters
  – First 15 min captures overnight or pre-open imbalance → future liquidity zones.
  – Acts as support/resistance for the rest of the day; expect multiple tests.

Confluence: SPX vs NQ Relative Strength

• NQ characteristics
  – Faster, more volatile; transcript quote: “one NQ tick is \$20” (vs ES \$50 tick).
  – Therefore a 10-–15 pt scalp on NQ completes in seconds.

• Procedure

  1. Monitor SPX 15-min ORB.

  2. If SPX breaks and NQ has not yet → expect catch-up acceleration on NQ (higher reward).

  3. Conversely, if SPX drops while NQ showing weakness → expect sharper NQ sell-off.

• Numeric gauge: Compare percentage change at open. Example from class:
  \Delta{SPX}=+0.16\%, \Delta{NQ}=+0.26\% \Rightarrow NQ\text{ > stronger}.

Risk-to-Reward (R Multiple) Essentials

• Profitability threshold:
  \text{Win Rate}_{min}=\frac{1}{1+R}
  – If R=6:1 ⇒ 16.6\% wins yields break-even.
  – If R=3:1 ⇒ 33.3\% wins.

• Example: risk 2 pts to target 10 pts ⇒ R=5:1.

ORB Scalping Entry Set-ups

Strategy 1 – The "One-Two Punch"

• Pattern: Break → Immediate Retest → Fail.

  1. Candle breaks ORB boundary.

  2. Next candle retests boundary and closes back inside.

  3. Enter toward boundary rejection; stop = break of last wick; target = Mid-line or opposite band.

• Typical metrics (SPX example)
  – Risk: 2 pts (\approx\$100).
  – Reward: 10 pts (\approx\$500).
  – R=5:1.

Strategy 2 – The "1-2-3" (Three-Bar Play)

• Candle 1: Impulse through boundary.

• Candle 2: Inside / rest (small range).

• Candle 3: Continuation in same direction.

• Execute on break of Candle 3; manage identically to Strategy 1.

• Back-tested win-rate ≈ 67\%.

Strategy 3 – Pure R-Multiple Boundary Scalps

• When a boundary (top/bottom) rejects ≥ 3 times → treat as high-probability liquidity wall.

• Enter on approach without extra candle triggers.

• Tight stop (0.5–1 pt) outside boundary; aim 4–5× that distance.

• Ideal for choppy days; needs only \le40\% win-rate to stay green.

Strategy 4 – 15-Minute ORB Plays

• Same One-Two / 1-2-3 patterns on the 15-min chart itself.
  – Much fewer signals, but highest reliability.
  – Suitable for swing-scalp hybrids; larger targets.

Trade Management & Risk Removal

• Remove risk ASAP but avoid premature stop-outs:
  – No hard stop at entry; stop = structural break (last swing/wick).
  – After +10–15 NQ pts, move stop to break-even; let runners breathe.

• Always include possibility of runners to catch full-day trends.

• Avoid trailing stop that hugs price; keep it at B/E until significant extension.

Timeframes & Tools

• ORB plotted on 15\text{-min} only.

• Execution charts: 2-min preferred; 1-min or 30-sec acceptable if comfortable.

• RSI “50-yard line” – quick momentum barometer:
  – Above 50 ⇒ bullish bias; below 50 ⇒ bearish; crossing back into zone matters more than leaving it.

Prop-Firm & Daily Discipline Rules

• One win ⇒ stop trading.

• Two consecutive losses ⇒ stop trading.

• Follow prop-firm daily loss caps; keep evaluation accounts alive.

RSI & Liquidity Insights

• Mid-line of ORB often aligns with latent liquidity; expect whippy behaviour.

• Momentum indicator confirmation:
  – ORB mid-line bounce coinciding with RSI hold above 50 = stronger bullish case, vice-versa.

Cross-Market Applications

• Identical ORB logic applies to:
  – London FX futures (e.g.86 AM ET).
  – Asian session opens.
  – Equities (cash market 09{:}30 ORB).

• Suitable for options: Choppy ORB days ⇒ sell iron condors; trend ORB days ⇒ directional.

Live Trade Walk-Through (Class Demo)

• Watched ES for pattern, executed NQ long:
  – One-Two punch near mid-line (demonstration only).
  – ES barely moved; NQ printed +15 pts quickly.
  – Paper P/L: \approx\$300 per contract; broker logged off to illustrate “one-and-done”.

Common Questions Clarified

• Do you count wicks? Yes – boundaries, stops, & targets incorporate full wick.

• ORB only first 15-min? Yes; never redraw intraday.

• Can One-Two be used at mid-line? Class data insufficient; instructor avoids it.

• Stop-loss location? Beyond structural wick, not arbitrary tick distance.

Ethical / Practical Implications

• High-leverage instruments require strict emotional control; class emphasises discipline over thrill.

• Prop-firm capital can be multiplied via consistent small wins rather than lottery trades.

Key Numbers, Formulas & Quick Reference

• Win-rate formula: \text{Win Rate}_{min}=\frac{1}{1+R}.

• Example: Risk 2 pts, Reward 10 pts ⇒ R=5, \text{Win}_{min}=16.7\%.

• Relative strength check at open:
  RS = \Delta\%{NQ} - \Delta\%{SPX}.
  Positive ⇒ NQ stronger; Negative ⇒ weaker.

• Tick values (quoted in session):
  – NQ tick ≈ \$20, ES tick ≈ \$50 (note: CME specs differ; verify).

Recap Checklist for Each Session

1. Draw 15-min ORB (high, low, mid).

2. Log %-change of SPX & NQ; note stronger instrument.

3. Wait for One-Two or 1-2-3 at ORB extremes on 2-min chart.

4. Confirm RSI bias & candle structure.

5. Enter on retest failure; set stop at structural wick.

6. Trim at mid-line; move stop to B/E; let runner aim for opposite band.

7. Apply One-and-Done / Two-and-Out rules.

ORB Scalping Entry Set-ups

Strategy 1 – The "One-Two Punch"

• This pattern describes a scenario where price attempts to break out of the Opening Range Boundary but immediately fails and re-enters the range. It involves a specific sequence of candle actions:

  1. Break: A candle's body or wick extends beyond the ORB boundary (high or low).

  2. Immediate Retest & Fail: The very next candle immediately retests the just-broken boundary. Crucially, this second candle must then close back inside the ORB. This signifies a rejection of the breakout attempt.

  3. Entry: Enter a trade when the second candle rejects the boundary and closes back inside. The direction of the trade is opposite to the attempted breakout (e.g., if it attempted to break above the top ORB then failed and closed back inside, you'd look for a short entry). The stop-loss is placed just beyond the structural wick where the rejection occurred. The target is typically the Mid-line of the ORB or the opposite ORB boundary.

• Typical metrics (SPX example):
  – Risk: 2 pts (\approx\$100) – this is the maximum potential loss if the trade goes against you, based on the stop-loss placement.
  – Reward: 10 pts (\approx\$500) – this is the potential profit, targeting a move to the opposite ORB boundary.
  – R=5:1: This signifies a favorable risk-to-reward ratio, meaning for every \$1 risked, you aim to make \$5.

Strategy 2 – The "1-2-3" (Three-Bar Play)

• This strategy looks for a sustained breakout after a period of consolidation. It involves three distinct candles:

  • Candle 1: Impulse through boundary. This candle decisively breaks either the high or low ORB boundary with a strong move, indicating initial directional momentum.

  • Candle 2: Inside / rest (small range). The second candle forms immediately after the impulse. It must be an inside bar (its high is lower than Candle 1's high, and its low is higher than Candle 1's low), or at least a very small range candle, showing a temporary pause or consolidation after the initial impulse.

  • Candle 3: Continuation in same direction. The third candle then breaks above (for a long trade) or below (for a short trade) the high/low of Candle 2, confirming the continuation of the initial impulse direction.

  • Execution: Enter the trade on the break of Candle 3. Management (stop-loss and target setting) is handled identically to Strategy 1, aiming for the Mid-line or opposite boundary.

• Back-tested win-rate \%\approx 67\%: This indicates a relatively high probability of success for this specific pattern, making it a reliable entry signal.

Strategy 3 – Pure R-Multiple Boundary Scalps

• This strategy is based on identifying strong support/resistance levels at the ORB boundaries that have been repeatedly tested:

  • Condition: A boundary (either the top or bottom of the ORB) rejects price \ge 3 times. This repeated rejection strengthens the boundary as a

ORB Scalping Entry Set-ups

Strategy 3 – Pure R-Multiple Boundary Scalps

• This strategy is based on identifying strong support/resistance levels at the ORB boundaries that have been repeatedly tested:

  • Condition: A boundary (either the top or bottom of the ORB) rejects price \ge 3 times. This repeated rejection strengthens the boundary as a reliable liquidity wall or a strong area of support/resistance. It signals that institutions or significant market participants are defending this price level, making it a high-probability zone for a reversal or continuation after a test.

  • Execution: Enter on approach without needing additional candle triggers like the One-Two Punch or 1-2-3 patterns. The rationale is that the boundary itself, after multiple rejections, is a clear signal. You trade directly off the touch or an immediate slight breach and recovery.

  • Stop-Loss and Target: A tight stop-loss (typically 0.5 to 1 point) is placed just outside the boundary. The target is set aiming for 4–5 times that distance (e.g., if risk is 1 pt, target 4–5 pts), hence the name "Pure R-Multiple". This ensures a favorable risk-to-reward ratio.

  • Ideal Market Conditions: This strategy is particularly effective in choppy, range-bound days where price respects defined levels. It capitalizes on the market's tendency to revert to the mean within a range. During strong trending days, it may provide fewer opportunities or require quicker profit-taking.

  • Win-Rate: It needs only a win-rate of \le 40\% to remain profitable due to the high risk-to-reward ratio. This makes it robust even with a lower success rate per trade, as the wins are significantly larger than the losses.

  • Why it's "Pure R-Multiple": The focus is directly on achieving a high R-multiple by risking a small amount at a well-defined rejection point for a disproportionately larger profit.

ORB Scalping Entry Set-ups

Strategy 2 – The "1-2-3" (Three-Bar Play)

• This strategy looks for a sustained breakout after a period of consolidation, indicating continued momentum in the direction of the initial move. It involves three distinct candles:

  • Candle 1: Impulse through boundary. This is the initiating candle that decisively breaks either the high or low ORB boundary with a strong, often wide-ranged, move. Its closure outside the ORB signals initial directional momentum and pressure from buyers (if breaking high) or sellers (if breaking low).

  • Candle 2: Inside / rest (small range). The second candle forms immediately after the impulse. It is crucial that this candle signifies a temporary pause or consolidation after the initial strong move. It must be an inside bar, meaning its high is lower than Candle 1's high, and its low is higher than Candle 1's low. Alternatively, it can be a very small range candle, showing a brief period of indecision or profit-taking without reversing the direction.

  • Candle 3: Continuation in same direction. The third candle is the confirmation candle. It must break above (for a long trade, if Candle 1 was a bullish impulse) or below (for a short trade, if Candle 1 was a bearish impulse) the high/low of Candle 2. This break confirms the continuation of the initial impulse direction and suggests that the consolidation period is over, with momentum resuming.

  • Execution: Enter the trade once Candle 3 breaks above Candle 2's high (for a long) or below Candle 2's low (for a short). The stop-loss and target setting are handled identically to Strategy 1 (The "One-Two Punch"). This means the stop-loss is placed just beyond a logical structural wick, and the target is typically the Mid-line of the ORB or the opposite ORB boundary, aiming for a favorable R-multiple.

• Back-tested win-rate \%\approx 67\%: This indicates a relatively high probability of success for this specific pattern, making it a reliable entry signal when observed. The consistency of this strategy in back-testing provides confidence in its application.

ORB Scalping Entry Set-ups

Strategy 1 – The "One-Two Punch"

• This pattern describes a scenario where price attempts to break out of the Opening Range Boundary but immediately fails and re-enters the range. It involves a specific sequence of candle actions:

  1. Break: A candle's body or wick extends beyond the ORB boundary (high or low).

  2. Immediate Retest & Fail: The very next candle immediately retests the just-broken boundary. Crucially, this second candle must then close back inside the ORB. This signifies a rejection of the breakout attempt.

  3. Entry: Enter a trade when the second candle rejects the boundary and closes back inside. The direction of the trade is opposite to the attempted breakout (e.g., if it attempted to break above the top ORB then failed and closed back inside, you'd look for a short entry). The stop-loss is placed just beyond the structural wick where the rejection occurred. The target is typically the Mid-line of the ORB or the opposite ORB boundary.

• Typical metrics (SPX example):
  

  – Risk: 2 pts (\approx\$100) – this is the maximum potential loss if the trade goes against you, based on the stop-loss placement.
  

  – Reward: 10 pts (\approx\$500) – this is the potential profit, targeting a move to the opposite ORB boundary.
  

  – R=5:1: This signifies a favorable risk-to-reward ratio, meaning for every \$1 risked, you aim to make \$5.