Scandinavian Working Papers in Economics

Umeå Economic Studies,
Umeå University, Department of Economics

No 845: Assessing the profitability of intraday opening range breakout strategies

Ulf Holmberg (), Carl Lönnbark () and Christian Lundström ()
Additional contact information
Ulf Holmberg: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden
Carl Lönnbark: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden
Christian Lundström: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden

Abstract: Is it possible to beat the market by mechanical trading rules based on historical and publicly known information? Such rules have long been used by investors and in this paper, we test the success rate of trades and profitability of the Open Range Breakout (ORB) strategy. An investor that trades on the ORB strategy seeks to identify large intraday price movements and trades only when the price moves beyond some predetermined threshold. We present an ORB strategy based on normally distributed returns to identify such days and find that our ORB trading strategy result in significantly higher returns than zero as well as an increased success rate in relation to a fair game. The characteristics of such an approach over conventional statistical tests is that it involves the joint distribution of Low, High, Open and Close over a given time horizon.

Keywords: Bootstrap; Crude oil futures; Contraction-Expansion principle; Efficient market hypothesis; Martingales; Technical Analysis

JEL-codes: C49; G11; G14; G17

11 pages, August 23, 2012

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