Author:
The genius behind these innovative indicators is Arturo López, the brain behind Point Zero Trading Solutions.
Who is Toby Crabel?
Toby Crabel is a legendary commodities trader who made a name for himself by achieving the remarkable feat of avoiding a losing year from 1991 to 2002. A notable author as well, he penned the influential book Day Trading with Short-term Price Patterns, which is a must-read for serious traders.
Understanding the Stretch
The Stretch is calculated by taking the 10-period Simple Moving Average (SMA) of the absolute difference between the open price and either the high or low—whichever difference is smaller. This metric represents the minimum average price movement or deviation from the open price over a specific timeframe. Traders leverage this value to establish breakout thresholds for the current trading session, effectively plotting a multitimeframe breakout channel.
Opening Range Breakout (ORB) Trading Strategy
With this strategy, traders set a buy stop just above the open price plus the Stretch and a sell stop just below the open price minus the Stretch. When either stop gets triggered, it initiates the trade, while the untriggered stop acts as a protective measure.
Research by Crabel indicates that the earlier in the trading session the entry stop is activated, the greater the chances of closing the trade profitably. A market movement that establishes a trend early in the session can significantly enhance a trader's position by the closing bell, making it a viable option for multi-day trades.
Extending Crabel's findings, it becomes clear that as time passes without an early fill, the risk escalates. Thus, it’s wise to consider reducing position sizes as the day progresses. Trades executed late in the day carry higher risk, and the further into the day a trade is filled, the less likely a trader will want to hold that position overnight.
Opening Range Breakout Preference (ORBP) Trading Strategy
The ORBP trade is a more focused approach, functioning as a one-sided Opening Range Breakout (ORB) trade. If other technical indicators signal a strong trend in one direction, a trader may adopt a preference for that direction when executing the ORB trade. The stop to open a position will only be placed in line with the trend, and once filled, a protective stop will also be set. The method for determining the "stop to open" mirrors that of the ORB trade: for long positions, it’s the open price plus the Stretch; for shorts, it’s the open price minus the Stretch.
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