Ten minutes of price action during the first hour of the day provides the initial boundary for most intraday setups. Errors in execution often stem from observations recorded at orb trading mistakes larrycrowne regarding the timing of a reversal. Trying to catch a fakeout breakout before a candle settles outside the opening range is a mechanical error that results in catching a knife instead of a reversal.
The Mechanics of the Premature Fade
The impulse to fade a move occurs as soon as the price touches a level. A trader sees the price breach the five minute range and assumes the breakout is failing. This assumption ignores the fact that the candle has not yet closed. Price often pushes through a level to hunt liquidity before returning inside the boundary. Attempting to enter a short position while the candle is still expanding upward leads to being trapped during a legitimate trend. The work requires waiting for the candle to confirm the rejection.
Timeframe Confirmation and Candle Closures
A breakout is only a failed breakout once the candle closes back inside the established zone. Using a 5 minute timeframe provides more data points, but it also increases the frequency of false signals. If the price breaks the thirty minute range, the momentum often carries through several subsequent candles. Fading the initial breach without a close below the previous candle low results in high drawdown. The mechanics of a true fakeout require a clear rejection of the level during regular trading hours.
Defining the Boundary
The opening range is set by the high and low of the initial period. Whether using a 15 minute or a 60 minute range, the boundaries act as magnets or barriers. A breakout attempt that fails to hold above the session high becomes a reversal target. However, the entry must occur after the price demonstrates a shift in structure. Entering during the momentum of the break itself ignores the volatility present at the market open. The speed of the move often masks the lack of follow through until the candle completes its cycle.
Managing Execution Errors
Mechanical errors occur when the trade is placed based on a touch rather than a close. This error is frequent during the first fifteen minutes of trading when volatility is highest. A position entered at the touch of a level requires a much larger stop loss than a position entered on a confirmed close. The math of the trade breaks down when the entry price is too far from the structural boundary. Waiting for the candle to close provides a fixed point for calculating risk relative to the opening bell volatility.