TheORTraderEbook Revised (1)

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The OR Trader.com 2

OPENING RANGETRADING

USING THE OR TRADER METHOD TOCONSISTENTLY & PROFITABLY TRADE THE ES MINI FUTURES

By Mark Church

Copyright 2010, TheORTrader.com

Published by HopeXchange Publishing26 Towne Centre Way #731

Hampton, VA 23666, USA

All rights reserved. No part of this work may be reported or transmitted, in anyform or by any means, electronic, mechanical, photocopying, rec ording, or

otherwise, without the prior written permission of the publisher and author.

Printed in the United States of America

The charts used in this book were created by using www.TradeStation.com

ISBN 0-9748699-1-0


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Disclaimers

The methods described in this book are for educa tional purposes only. Past results are notnecessarily indicative of future results. The author and the publisher assume noresponsibility for your trading results. Trading involves a high degree of risk. Norec ommendation is being made to buy any stock, commodity, option or other financ ialinstrument. Consult your financial advisor before starting any investment system.

U.S. Government Required Disclaimer - Futures, options, and spot currency trading havelarge potential rewards, but also large potential risk. You must be aware of the risks andbe willing to accept them in order to invest in the futures and op tions markets. Don'ttrade with money you can't afford to lose. This eBook is neither a solicitation nor an offerto Buy/Sell futures or options. No representation is being made that any ac count will or islikely to a chieve profits or losses similar to those discussed in this eBook. The pastperformance of any trading system or methodology is not necessarily indicative of futureresults.

CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANC E RESULTS HAVE C ERTAINLIMITATIONS. UNLIKE AN ACTUAL PERFORMANC E RECORD, SIMULATED RESULTS DO NOTREPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NO T BEEN EXECUTED, THERESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OFCERTAIN MARKET FAC TORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADINGPROGRAMS IN GENERAL ARE ALSO SUBJ ECT TO THE FACT THAT THEY ARE DESIGNED WITH

THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILLOR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.

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The OR Trader Method eBook

Introduction....5

1. Understanding the Opening Range.6Introduction to the Pivot Range........7

2. Chart Set up for the OR Trader Method.......17 Timeframe and Symbol.........17Pivot Range and Prior Day C lose...18

The 9:30am Open20 The Opening Range...25

3. Trade Signals.................30

Buy Signals.................30Sell Signals..............30

4. Trade Entry..33 Trade Entry Long34 Trade Entry Short35

5. Targets & Stops...37

6. Using the Pivot Range for Trade Entry.44

7. Trad ing Pointers..49

8. The OR Trader Test.51

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Introduction

I hear complaints all the time from traders who say, "Oh, I tried Opening Range tradingand it didn't work for me."

That's because the Opening Range is not enough!

Trad ing based on a breakout of any Opening Range alone, no matter what timeframeyou use, is a sure way of losing money.

The most basic application of O pening Range trad ing is when a stock or commodity istrading above its Opening Range you should be long and when it is trading below itsOpening Range you should be short.

This principle and simple rule can keep you in sync with the markets sentiment or bias. The OR can provide a great road map for analyzing the sentiment of the market, identifytrades with good risk/reward ratios and limit your risk; but you need more than just theOpening Range to be successful.

Here at the OR Trader, in addition to the Opening Range we use a confirming closesignal above the Opening Range as well as our Pivot Range from the prior day's tradingto help us develop our bias going into the next day. This increases our odds of taking onlythe most profitable signals.

Our philosophy is simple: Here at the O R Trader we like to say, "Opening Range + PivotRange = Clarity.

In this eBook, we will explore how I use the Opening Range along with the Pivot Range toprofit in the market. This method is tailored for the S&P 500 E-mini Futures. All the signals,entries and stops are designed to work on this instrument only.

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Understanding the Opening Range 1.Opening Range Trading is a method that ca lculates the price, above which, you want tobe long and the price, below which, you want to be short.

In this method you mark the high and low of a set time frame from the open. Afterdefining the Opening Range, you buy a breakout to the upside of this range or sell shorta breakdown of this range. You then place your stop a t the opposite end of the range.

If price breaks up, you place your stop at the bottom of the Opening Range; if pricebreaks down, your stop will be the top of the Opening Range.

The first thing you need to do is define the time frame you will use for your OpeningRange (5-minute, 15-minute, 30-minute, etc .) for each stoc k, bond, or commodity youhave chosen to trade. Every financial vehicle has its own optimal Opening Range, sothere are many opinions for the time frame to use.

The OR Trader is a method to trade the S&P 500E-mini Futures. We have found with the ESMini futures the best Opening Range is a 20-minute range.

When I refer to the Opening Range, I want you to think 9:30 am Eastern Standard Time(EST) to 9:50 am Eastern Standard Time (EST).

This is a very important time because 9:30am to 9:50am is the time when brokerage firms,banks, mutual funds, hedge funds, etc. are filling orders from the overnight and Pre-Market. These trades are put on for various reasons. Orders from the day before areplaced with brokers to buy at the open and others have orders to sell at the open.Orders are used to get out of a losing position or to take profit from a winning position.

This order flow is very important. As an individual trader your goal is to follow the bigmoney orders. The Opening Range is the footprint in the market made by these orders .We want to follow the path of the big money.

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Introduction to the Pivot Range

What is the Pivot Range?

The Pivot Range is a confluence area that identifies where the market is likely to findsupport or encounter resistance based on the prior days trading. The Pivot Rangeidentifies the areas where buyers are likely to show up (which is support) and wheresellers are likely to show up (which is resistance). The Pivot Range will also help you to seean a rea where a significant move could follow if the price c an break through that area.

Pivot Range Overview

This sec tion is an overview of the Pivot Range. We will get into how to use the Pivot Rangeas a buy or sell signal and where to place your stops in a later section. The key point here

is to see how the Pivot Range can keep you on the right side of the market.

The first thing we need to do is calculate the prior days Pivot Range.

See (Example 1) on the next page:

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High 1106.50+Low 1096.25

Total: 2202.75/2HL: 1101.38

High 1106.50+Low 1096.25+Close 1103.50

Total: 3306.25/3

Daily Pivot: 1102.08

Subtract Smallest Numberfrom Largest Number

1102.08-1101.38.70 (factor)

1101.38 to 1102.78

Close 1103.50 Bullish Bias

Add factor (.70) to your Daily PivotNumber:1102.08 + .70 = 1102.78

Then Subtrac t fac tor (.70) from yourDaily Pivot Number: 1102.08 - .70 =1101.38

Step 1. We take the prior days high, low and close and add them together and thendivide our total by 3. This gives us our Daily Pivot.Step 2. We add the prior days high and low together and divide by 2. This gives us our HLnumber.Step 3. We take the larger of the 2 numbers (Daily Pivot and HL) and subtract the smallernumber. This gives us our Factor number.Step 4. We add our Fac tor number to our Daily Pivot number and we also subtrac t it fromor Daily Pivot number. The resulting 2 numbers become our Pivot Range.

Example 1

Now that we have our Pivot Range we need to see where price c losed on the prior day.In this example we closed at 1103.50, which is above our Pivot Range.

This gives us a Bullish Bias going into the next day, so we will expec t to get long a t somepoint after the open.

Lets go over a Bullish Pivot Range in (Example 2) on the next page:

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In this example we have a Bullish Bias going into this day because we closed above ourPivot Range. Once our Pivot Range is calculated , we draw horizontal lines on our chartsso we have a visual reference point. We will go over how to place these lines on yourchart in a later section.

When the market opens, we will look for the best opportunity to go long, using either thePivot Range as our trigger or the Opening Range as our trigger. The price action whenthe market opens will determine what action we will take. The key point to note is thatthe Pivot Range should give support at this price zone.

1103.50

1102.78

1101.38

Example 2

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I like to think of the Pivot Range as a thick piece of foam. As price moves down and intothe Pivot Range it should give, but it shouldnt break. It should suppo rt this price rangeand ac t like a spring, bounc ing price back out of this range. Buyers are showing up.

1103.50

1101.38

1102.78

Think of the rangeas foam that givesbut should notbreak

Example 3

Lets go over a Bearish Pivot Range in Example 4 on the next page:

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In this example, we have a Bearish Bias go ing into the day bec ause we c losed below ourPivot Range.

If we c lose below our Pivot Range then our bias would be Bearish for the day. We wouldlook to get short at the best opportunity using either the Pivot Range as our trigger or theOpening Range as our trigger. The price action when the market opens will determinewhat ac tion we will take. The key point to note here is that the Pivot Range should act asresistanc e at this price zone .

1101.38

1099.13

1098.00

Example 4



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Again, think of the Pivot Range as a thick piece of foam. As price moves up into the PivotRange it can give, but it shouldnt break. It should act as resistance at this price rangeand spring price back out of the range. Sellers are showing up.

1098.00

1099.13

1101.38

Think of the

range a sfoam thatgives butshould notbreak

Example 5



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The same would be said if resistance is overcome. We would exit our trade and realizethat the market conditions have c hanged .

1098.00

1099.13

1101.38

Example 7



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Opening Under a Supportive Pivot Range

There are only two things that c an change our Bullish Bias for the day. One is gapp ingunder the supportive Pivot Range at the open. The other would be closing a 5-minutebar under our supportive Pivot Range after the market is open.

If we have a supportive Pivot Range and we are opening below it then we must changeour bias from Bullish to Bearish. The support has failed. The old support now becomes newresistance. We would now be looking for an opportunity to get short using the PivotRange a s resistanc e.

Important: We must open below the Pivot Range in order to change our bias! One tickmatters!

Example 8



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Opening Above a Resistant Pivot Range

Again, there are only two things that can change our Bearish Bias for the day. One isgapping above the resistant Pivot Range a t the open. The other would be c losing a5-minute bar above our resistant Pivot Range a fter the market is open.

If we have a resistant Pivot Range and we are opening above it then we must changeour bias from Bea rish to Bullish. The resistance has been overcome. The old resistancenow becomes new support. We would now be looking for an opportunity to get longusing the Pivot Range as support.

Important: We must open above the Pivot Range in order to change our bias! One tickmatters!

Example 9



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Chart Set-Up and Guidelines2.Now that we understand that our Opening Range is the first 20 minutes of the tradingday, and we know how to calculate our Pivot Range and how it affects price the nextday; it is time to put it all together into an organized way of trading. The first thing weneed to do is set up our charts for the OR Trader Method. You should note that the ORTrader Method is designed to be used on the S&P 500 E-mini Futures only.

In this sec tion we will show you:

How to set up your charts. What timeframe to use. How to draw Opening Range and Pivot Range lines on your charts.

Depending on your charting software, the E-mini S&P can be found in your instrumentData list and can be displayed in different formats.

TradeStation displays the S&P 500 E-mini as:

ESH10 - which represents the March 2010 E-mini S&P contractESM10 - which represents the J une 2010 E-mini S&P contractESU10 - which represents the September 2010 E-mini S&P c ontrac tESZ10 - which represents the December 2010 E-mini S&P contrac t

The OR Trader Method is to be used with a 5-minute chart. The timeframe you should set up on your charts is a 5-minute chart. The settings should be 24 hours or Globex mixed with day session or

continuous data. The charts should be set up as 24-hour c ontinuous data for the contrac t

month you are trading in. If you live in a time zone other than Eastern Standard Time, then you must

apply the time d ifference to your charts.

Setting Up Your 5-Minute Chart

Each evening after the 4:15pm EST close, I calculate the Pivot Range for the next day.

Next, I (manually) place horizontal lines on my chart at the price values of the PivotRange (I use purple hash lines for my Pivot Range, but you can choose your owncolor and style). Then I place a horizontal line on the price va lue of the closing price (Iuse blue for my closing price- again you can customize your chart as you see fit).

Take a look at Example 10 on the next page:



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Drawing the Pivot Range and Prior Day Close Lines

Use your trading software to draw horizontal lines at the price values of your calculatedPivot Range and Prior Day closing price. I use purple hash lines for my Pivot Range and ablue solid line for the Prior Days close.

Bearish Bias for Next Day

Example 10



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Bullish Bias for Next Day

Example 11



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The 9:30 Open

We want to begin calculating the Opening Range from the 9:30am opening price. Inorder to calculate the Opening Range properly you need to know which bar to use tostart your calculation.

We are using a 5-minute chart. All minute bars have an opening price and a closingprice. You will plac e a vertical line on your chart on the last ba r of the Pre-Market. This isthe bar that closes at 9:30am. Find this 9:25am - 9:30am bar on your 5-minute chart andplace a vertical line on this bar. The bar opens at 9:25am EST and closes at 9:30am EST.

This is very important to understand because the opening bar for our trad ing methodbegins at 9:30am EST and has an ending time (or closes) at 9:35am EST. On TradeStation,when you place the crosshairs over the bar it shows 9:35am, but the bar actually opensat 9:30 and closes at 9:35 (on a 5-minute c hart). The timeframe showing is a close price,not an open price.

The following examples (Examples 12, 13) illustrate proper chart setup:



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Example 12



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Example 13



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The Open Price

Once the market is open, the next step is to place a horizontal line at the price of theopen (I use a green line for my open price). We place a horizontal line there bec ause theopen price is a key area for the trading day. The open price acts like a magnet thatdraws price to itself. Knowing this will help us as the trading day goes on. Also, it is a nicevisual referenc e point.

See Examples 14 and 15 below:

Example 14



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Example 15



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The Opening Range

After the market opens we will wait until four 5-minute bars post. This means we are using

a total of four 5-minute bars for our Opening Range:

The first bar is 9:30am open, closing at 9:35am.

The second bar is 9:35am open, closing at 9:40am.

The third bar is 9:40am open, closing at 9:45am.

The final bar opens at 9:45am and c loses at 9:50am.

We are using these four 5-minute bars as our Opening Range. This period of pricediscovery is a ba ttle between Bulls and Bea rs fighting for control of the market. The

Opening Range defines the critical price inflection points for the day. It contains all theinformation we need to determine how price will react in the near future.

We now place horizontal lines on the Highest High and Lowest Low of these four ba rs.

See some examples of the four 5-minute bars beginning on the next page (in Examples16, 17 and 18):



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Example 16



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Example 17



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Example 18

Now you should understand how to plot these four bars. We are isolating these bars to beused as our Opening Range. Remember, only the Highest High and Lowest Low of thesefour bars will be outlined. This is the reference point we need to calculate the entry to ourtrades.

Now that you know how to set up your chart, lets take a look at a chart with all the linesin their proper place.

See Example 19 on next page:



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Prior Day Close

Example 19



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Trade Signals.Now that our charts are set up, the next step is to wait for the market to give us a signalto trade. This comes when a 5-minute bar closes either above or below our OpeningRange.

For a Buy Signal:

When a 5-minute bar closes above the Opening Range we have a buy signal.

If price penetrates above the Opening Range, but closes back inside the OpeningRange, we have no signal.

Important: This is only a signal, not an entry to a trade. We are not going long based on

this close above the Opening Range alone. We will go over order entry in the nextsection.

A Short Signal is Exactly the Opposite:

When a 5-minute bar closes below (the low) of the Opening Range then we have a sell

signal.

If price penetrates below the Opening Range, but closes back up into the OpeningRange, we have no signal.

Important: This is only a signal, not an entry to a trade. We are not going short based onthis close below the Opening Range alone. We will go over order entry in the nextsection.

*We do not take signals between 11:00am EST 1:00pm EST. This is considered a lowvolume timeframe and is prone to bad signals. We have found that the best signalshappen before 11:00am.

See examples of 5-minute bar closings (Examples 20 and 21) beginning on the nextpage:



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Example 20

Remember, this is NOT a signal to take the trade. This is only a signal which could lead toentering a long trade. Price closed above the Highest High of our Opening Range. Wehave a signal to go long, but not a trigger to enter the trade. That is yet to c ome.



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Example 21

Remember, this is NOT a signal to take the trade. This is only a signal which could lead toentering a short trade. Price closed below the Lowest Low of our Opening Range. Wehave a signal to go short, but no trigger to enter the trade. That is yet to come.



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The Entry

Once our signal has oc curred, we know the direc tion in which we want to Trade. If it is abuy signa l, we will go long, and if it is a sell signal, we will go short.

4.The question is where to enter, and at what price?

If we have a long signal (when price penetrates the Highest High of the Opening Range,stays there and closes above it), then we will place a limit order to go long a t the p rice ofthe top of the Opening Range. This is the entry point.

If we have a short signal (when price penetrates the Lowest Low of the Opening Range,stays there and closes below it), then we will place a limit order to go short at the price ofthe bottom of the Opening Range. This is the entry point.

The horizontal lines you placed on your chart p rovide not only a visual reference, butthey also ac t as a buy and sell po int.

Lets review: After price closes above our Highest High or Lowest Low of our OpeningRange we immediately place a limit order to enter the market at that Highest High /Lowest Low (horizontal lines) as our entry price for going long or short onc e our signal iscomplete.

In order to be filled, price needs to retrac e to that level after closing above/below it. Itdoes not matter where the signal occurs. Price must retrace to the Highest High or LowestLow after the signal; that is your long or short entry or trigger.

Lets look at a long entry in Example 22 on the next page:



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Once a 5 minute bar clo ses above the Opening Range we place our limi t order atthe price of the top o f the Opening Range to go lon g (in th is case 1079.50)

Stop would be 1 tick belowthe Opening Range

Example 22

We are entering long at the white line (Highest High of the Opening Range) after pricehas closed above the Opening Range and waiting for price to retrac e bac k to it.

Important: If price has not retraced within 15 minutes of closing above the OpeningRange then we will cancel the order.

Now lets look at a short entry in Example 23 on the next page:



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Stop would be 1 tick above the

Opening Range

Once a 5 minute bar closes b elow the Opening Range we place ourlimit or der at the price of the bottom of the Opening Range to goshort (In this example 1073.25)

Sell Signal(Close below theOpening Range)

Example 23

We are entering short at the white line (Lowest Low of the Opening Range) after pricehas closed below the Opening Range and waiting for price to retrace back to it.

Important: If price has not retraced within 15 minutes of closing above the OpeningRange then we will cancel the order.



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Keep in mind that sometimes price does not retrace as in Example 24 below:

This is ok. We didnt miss anything because we didnt lose anything. Price may or may notcome back. This oc curs onc e in a while, so when it does, do not force a trade. Tomorrowis another day. I f it d o e s c o m e b a c k d o w n a f t e r t h is h a p p e n s, yo u p ro b a b ly d o n t w a n tit.

Notice price clos ed above the

Opening Range signaling a buy, butnever retraced back to the top of th eOpening Range

Example 24



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Target & Stops

In the beginning of this book we told you that the Opening Range is not enough. This isbecause trading based on a breakout of any Opening Range alone, no matter whattimeframe you use, is a sure way of losing money.

5.

A key point to understand about the OR Trader Method, and how it is different, is theconcept of acceptance or rejection of the Opening Range breakout. Once price hasbroken out of the Opening Range there is a period of adjustment among traders. Thistime of adjustment is used to see if the new prices are going to be accepted or rejected.

In the S&P E-mini we have calculated that this point of acceptance or rejection is thearea 2 points above o r below the O pening Range.

See examples (Example 25 and 26) below:

Example 25



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Example 26

Notice that the initial breakout of the Opening Range went to 2 points above theOpening Range. Also notice the overlapping bars around the area of the 2 points. This isthe adjustment time where traders are fighting it out to see if the breakout will beaccepted.

Another po int to note is after the breakout has been accepted and price moves higher-there is a pullback that respec ts this 2 point area again.

Created with TradeStation

Example 26

Notice that the initial breakout of the Opening Range went to 2 points above theOpening Range. Also notice the overlapping bars around the area of the 2 points. This

is the adjustment time where traders are fighting it out to see if the b reakout will beaccepted.

Another point to note is after the breakout has been accepted and price moveshigher, there is a pullback that respects this 2-point area again.



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The OR Trader Method uses this to our advantage by making this area our first target.Knowing that price will go to at least 2 po ints above or below our Opening Range beforegetting rejected gives us a great place to take profits on a part of our position. This

ensures a lower risk trade.

In the OR Trader Method we enter the trade with a full position and we divide our targetsin halves. Our first target is always 2 points bec ause of the reasons explained on theprevious page about the area of acceptance or rejection. Our target on the secondhalf of our position is normally 4 points.

If you a re t ra d ing f rom a sm a l le r a c c oun t a nd c an o n ly a ffo rd to t r ad e one c on t r ac t , youwi ll have a d ec ision to m ake a bo u t t rad e m ana ge m en t - whe the r t o g o o n ly fo r t he f irstta rg et o r to h old unt i l the 2 nd t a rge t .

Our stop (on the whole position) at entry is 1 tick above or below the Opening Range-depending on which direction we are trading. After our first target is hit at 2 points, wethen move our stop on the second half of our position to the close of a 5-minute barback into the Opening Range.

This way, if price gets rejected at the 2-point area, at least we exited half of our positionto ensure a break-even trade or, at worst, a small loss.

Lets look at the math:

Lets say our normal full position size trade is 4 contrac ts.

If we exit half of our position at 2 points we would poc ket $200 (2 contracts x 2 po ints=$200 profit).

If price reverses and closes a 5-minute bar back into the Opening Range, lets say by 2ticks, we would close our trade and lose 2 ticks on the 2 nd half of our position. (2 contractsx 2 ticks = - $50).

So the results of the trade would look like this:First ha lf of position +$2002nd half of position - $50Net trade +$150 commissions

As you can see, the beauty of this method is even if the breakout is rejected we canhave a small winner or, at worst, a small loser depending on how far price closes backinto the Opening Range. The key is to exit half of our position at the point of ac ceptanceor rejec tion (2 points).

Lets look at a chart in Example 27 on the next page:



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Example 27


The worst-case scenario happens if we are unable to get out of the first half of ourposition at 2 points and price reverses to stop us out at the other end of the Opening

Range (with a full position loss). This scenario is highly unlikely because of the adjustmentperiod of the breakout; however it does happen on occasion.



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Extended Targets

Our next target is 4 points in most cases. I say most cases bec ause there are times whenyou can go for more. The OR Trader Method is designed to catch a trending day. Atrending day occurs when price closes above or below the Opening Range and nevercloses a bar back into the Opening Range. It continues to trade higher or lower(depending on the trade) until the end of the day. On the better set-ups, you mightconsider holding a portion of your trade to catch this trend day.

We like to set-up our trades with bracket orders where the targets and stop are set oncewe get filled. We have found that the market likes to move in predictable increments.

The best set-up combinations are:

1st target2 points 2 nd target 4 points (These trades would be done in halves)

1st target 2 points 2 nd target 5 points (These trades would be done in halves)

1st target 2 points 2 nd target 4 points final target 8 points (These trades would bedone in thirds)

1st target 2 points 2 nd target 5 points final target 8 points (These trades would bedone in thirds)

Stops

A key point to note when we plac e our order is that we a lways have a hard stop of 1 tickabove or below the Opening Range (depending on the direc tion we a re trad ing). Onceour first target is hit we move our stop to the close of a 5-minute bar back into theOpening Range.

If you think about this, you cannot move your stop there physically because you do notknow where that will be until it happens; so we must move our stop there in our minds.Our hard stop is still 1 tick above or below the Opening Range. You always want a hardstop in place at all times for safetys sake when waiting for the close of a 5-minute barback into the Opening Range.

Once price closes back into the Opening Range, we exit immediately with a marketorder canceling any other orders that might be left on our dome. When going forextended targets, stop placement is a matter or personal risk tolerance. Once the firsttarget is hit we move our stop to the close of a 5-minute bar back into the OpeningRange.



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When your 2 nd target is 4 points, this stop doesnt change. However, when you are goingfor 5 and 8 points, you can keep your stop at the close of a 5-minute bar back into theOpening Range or you can trail your stop by using swing pivots.

This dec ision is up to the individual. Those who do not want to let profits slip away mightprefer a trailing stop while others may be willing to give the trade more room by keepingtheir stop at a close back into the Opening Range.

Lets look at some examples (Example 28 and 29) below:

Once 1 st target is hit move stopto a close of a 5 minute barback into t he Opening Range

Example 28




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Once 1 st target is hit move stop to aclose of a 5 minute bar back into theOpening Range

Example 29




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Using the Pivot Range for Trade Entry

There are times when we can use the Pivot Range to enter a trade early, before theOpening Range has completed. Lets say we have a Bullish Pivot Range (meaning weclosed above this Pivot Range) and the next day we are opening inside this Bullish PivotRange.

6.

We can go long at the open knowing that this Pivot Range should be support. This givesus a lower risk trade entry because we now can use the Pivot Range as our stop. We canalso have larger targets if the O pening Range gives us a buy signal later in the morning.

The same would be said if we had a Bearish Pivot Range and we were opening inside thisBearish Range. We could go short at the open using this Pivot Range as our stop to helplower our risk. If we enter a trade using the Pivot Range we will use the Pivot Range a s our

stop just as we use the Opening Range.

One point to make about using the Pivot Range as a stop- I use the close of a 5-minutebar above or below the Pivot Range as a stop rather than using 1 tick above or belowlike we do on the Opening Range. This is because the Pivot Range is based on the priordays price action and is not as firm of a predictor as the current days Opening Range.Alwa ys hav e a hard s top in p lac e w hen us ing th i s t ec hnique .

Lets take a look at some examples (Example 30 and 31) on the next page :



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Buy at Open with Bullish Pivot Range

Example 30



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Sell at Open with Bearish Pivot Range

Example 31



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Using the Pivot Range for Better Signals

We can also use the Pivot Range as a filter for taking only the best Opening Rangesignals. Our Pivot Range acts as our daily bias, so if we have a Bullish Bias go ing into theday and we are looking to get long, but we get a sell signal from our Opening Range,we might not want to take the sell signal. Taking the signal would mean that price wouldhave to trade into our supportive Pivot Range, preventing us from hitting our targets.

See Example 32 below :

Example 32



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The same could be said about a Bearish Bias with a buy signal.

Our Pivot Range acts as our daily bias, so if we have a Bearish Bias going into the dayand we are looking to get short, but we get a buy signal from our Opening Range, wemight not want to take the buy signal.

See Example 33 below:

Example 33

One point to make about these situations is the hierarchy of the Pivot Range and theOpening Range. The Opening Range always overrides the Pivot Range . So even thoughthese Opening Range signals might not be the best signals to take, you must be awarethat the market is at odds with the prior days price action.



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7. Trading Pointers1. Handling Losses

Trad ing is a game of probabilities. That may sound strange because everyone believes ifIm right, Ive made a good trade. Face it: you are going to get stopped out; it isinevitable.

Your job is to make excellent risk-reward dec isions, not to make money. Your must findpa tterns that offer you the best probabilities. The money will come.

How you manage the trade is what will constitute your success in using this method. Ifyou do get stopped out, here are some guidelines:

Dont panic. Sometimes the ma rket just pulls back too far. Thats rea lity. Sometimes price and volatility are just too much and your stop is hit. Take the next signal and entry. Trade the method rega rdless of what you may

think or feel. Trust in the probabilities of this method, you will win more than you lose. To recover from a loss, take the next trade rega rdless.

2. Taking Profits

Discretion is in the exit not the entry. Here are three questions that must be answeredwhen developing an exit strategy: "How long am I planning on being in this trade?", "Howmuch risk am I willing to take?" and finally, "Where do I want to get out?"

Money management is one of the most important aspects of trad ing. Many traders entera trade without any kind of exit strategy and are therefore more likely to take prematureprofits or, worse, have losses.

If you are trading from a smaller account and can only trade one contract then go forthe first target and be done. Grow your ac count this way until you c an trade 2 contrac tsand then 3 and so on. There is no need to trade large contract size with this method. Youcan make a great living with this method with as few as 4 contracts.

3. Tricks of the TradeNarrow Pivot Range Day

Whenever the Pivot Range is 1.25 points or less, we call this a Narrow Range Pivot RangeDay. The narrow range indicates a large price movement for the next day. This does not



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mean price will move a large amount in one direction, although it could. It means pricewill be volatile. You can think of the Narrow Range Pivot Range as a volatility indicator.

You want to be ca reful to be on the right side of the market on these days.

Use the Open Price as Entry and Stop

Whenever the open price is in the top or bottom of the Opening Range you c an use itas an entry instead of the top or bottom of the Opening Range. This will give you a betterentry with less risk. The only drawback to using this method of entry is that price might notcome to the open price and you will end up missing the trade, or worse, c hasing it.

The logic behind this entry is that the open price acts like a magnet and draws price toitself. If the open price is near the top or bottom of the Opening Range price will not justpull back to the top or bottom of the Opening Range, but will likely pull back to theopen.

You can also apply the same logic to use the open price as a stop. Lets say you enteredlong a t the top of the Opening Range and have hit your first target of 2 points. Your stopnow should be a close of the 5-minute bar back into the Opening Range. However, if theopen price is in the top of the O pening Range you might want to give the trade a littlemore room and use a close below the open price as your stop instead. If the open priceacts like a magnet, drawing price to itself, then price might want to come back to theopen price to test that area. Waiting for a close below the open price might cause youto give back more to the market. On the other hand, it might keep you from gettingstopped out with a c lose bac k into the Opening Range.

Pre-Market Price Action

When you have a Pivot Range that is either Bullish or Bea rish and price trades above orbelow this Pivot Range in the Pre-Market, but opens inside the Pivot Range, beware ofthe Pivot Ranges validity. When this happens the safest thing to do is wait on theOpening Range to complete before taking a trade.

Final Thoughts

Before you begin trad ing this method (or any method) with real money, practice trad ingit on a simulator first. Familiarize yourself with your trading software and learn to usebracket orders. Practice entering and exiting trades. Learn how to use trailing stops. Youmust lea rn how to make money on paper before you can make it for real.

I hope you have found this course to be both educational and a valuable tool to tradeprofitably. Please take time to test your knowledge with our OR Trader Test on thefollowing pages. We invite all questions, comments and general feedback too.

Good trading!



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The OR Trader Method Test

This test will help you think through different trading situations andunderstand the proper action to take at the appropriate time. Tradershave told me how much this simple test has helped them to understandand utilize the OR Trader Method.

1. What defines the Opening Range?

A. High a nd low of the first hour of the dayB. First day of the month

C . High and low of the first 20 minutes of thetrading dayD. High and low of the last hour of the previous

day

OR

Answer is on the next page.



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Answer to Question 1 : C - The high and low of the first 20 minutes of the trading daydefines our Opening Range.

2. What is the purpose of the Pivot Range?

A. To identify a key area where the market islikely to find support or meet resistance

B. To give us our bias for the dayC. To ac t as a guide for our trading strategyD. All of the above

Pivot Range



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Answer to Question 2 : D - All of the above. The main purpose of the Pivot Range is togive us our daily bias, along with showing us a key area where support and resistanceare, plus act as a guide to our trading strategy.

3. Given the scenario below what is your biasfor the day?

A. BullishB. BearishC. Neutral

Pivot Range

Prior Day Close



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Answer to Question 3 : B - Bearish because we closed below our Pivot Range.



Pivot Range

Prior Day Close



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Answer to Question 4 : A - Bullish because we closed above our Pivot Range .

5. What does this Pivot Range say about thenext day?

A. Consolidation dayB. Large price movement dayC. Neutral

PivotRange

Prior Day Close



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Answer to Question 5 : B - Large price movement day. Whenever you see a narrowPivot Range (1.25 or less) this points to a large price movement the next day.



Pivot Range

Prior Day Close

Open



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Answer to Question 6 : B Bearish. Whenever price opens below your supportivePivot Range at the open then you must change your bias.

7. What action should you take at the open?

A. BuyB. SellC . Nothing

Prior Day Close

Pivot Range

9:30AM

Open



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Answer to Question 7 : B Sell. Since the close of the prior day was below the PivotRange, the Pivot Range should be resistance. You can sell anywhere inside aresistant Pivot Range.

8. Since the right answer to #7 was sell, wherewould your stop go?

A. Below the openB. Below the prior days closeC. Above the Pivot RangeD. Above the open

Prior Day Close

Pivot Range

9:30AM

Open



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Answer to Question 8 : C - Above the Pivot Range. Either 1 tick above or a close of a5-minute bar above, whichever you are more comfortable with given your risktolerance


A. BuyB. SellC . Wait for 20-minute Opening Range to

completeD. Wait for price to trade into the Pivot

Range and then buy

Pivot Range

Open

Prior Day Close



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Answer to Question 9: either C or D - Waiting for price to trade into the Pivot Range orwaiting for the OR to complete is always the safest thing to do.


A. BuyB. SellC . Wait for 20-minute Opening Range to c ompleteD. Wait for price to trade out of the Pivot Range

and then buy

Pivot Range

Open

Prior Day Close



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Answer to Question 10: A Buy. Since the close of the prior day was above the PivotRange the Pivot Range should be support. You can buy anywhere inside a supportivePivot Range.

11. Since the answer to #10 was buy. Wherewould you place your stop?

A. Below the openB. Below the prior days closeC. Below the Pivot RangeD. Above the open

Pivot Range

Prior Day Close

Open



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Answer to Question 11: C - Below the Pivot Range. Either 1 tick below or a close of a5-minute bar below, whichever you are more comfortable with given your risktolerance.

12. What should your first target be once you havebeen filled from the OR?

A. 3 pointsB. 5 pointsC . 1 pointD. 2 points

OROrder Filled

First Target?



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Answer to Question 12: D - Because 2 points above the OR in the ES futures is a keypoint of price acceptance or price rejection. We want to get out of at least a portion ofour position here to insure a break-even trade should price roll over and sell off. Thesame is true for taking a sell signal.

13. What are the best targets for a trending day?

A. 1 3 8 PointsB. 2 4 6 PointsC . 2 5 8 Points

OR

1 st Target?

2 nd Target?

3 rd Target?

Entry

D. 3 6 9 Points



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Answer to Question 13: C - The best targets for a trending day are usually 2-5-8.

14. What does this price action suggest?

A. Add to your positionB. Move stopC. Buy with a limit order at the top of the

ORD. Chance for a trend day greatly

reduced

OR

First Target Hit



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Answer to Question 14: D - Once price has traded 2 points or more above the OR itshould not close a 5-minute bar back into the OR; this is usually a sign that we arenot going to have a trend day. Of course there are always exceptions to the rule, butodds favor exiting your trade.

15. If you missed this buy at the open whataction should you take next?

A. Buy right awayB. Sell right awayC. Buy with a limit order at the top of the ORD. Nothing

Pivot Range

Prior Day Close

Open

OR



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Answer to Question 15: C - Once price has closed a 5-minute bar above the OpeningRange and the Pivot Range then place your limit order to buy at the price of the top ofthe Opening Range and wait to be filled. If not filled in 15 minutes, cancel the order.

Pivot Range

Prior Day Close

Open

OR

16. What action should you take next?

A. Buy right awayB. Sell right awayC . Sell with a limit order at the bottom of

the O RD. Nothing



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Answer to Question 16: D Nothing. We closed a 5-minute bar below the OR;however our supportive Pivot Range is still intact.


A. Leave stop in placeB. Move stop to a close of a bar back into

the O RC. Move stop to open priceD. Nothing

OR

2 Pt. Target



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Answer to Question 17: B - After hitting the first target move your stop to a close of a5-minute bar back into the OR. This insures that you will have a break-even trade atworst. More aggressive traders can use the open for your stop; however a break-evenscenario is better.

OR

2 nd Target

3 PM

2 Pt. Target

18. What ac tion should you take next?

A. Leave stop in plac eB. Move stop to a close of a bar back into

the O RC. Exit tradeD. Nothing



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Answer to Question 18: C - At 3pm close out the trade. More aggressive traders canhold until the close, but a hard stop of entry should be used to insure a profitabletrade. The last hour does not conform to the OR theory.

OR

PivotRange

Prior Day Close


A. Buy right awayB. Sell right awayC. Sell with a limit order at the bottom of the O RD. Nothing



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Answer to Question 19: D Nothing. We closed a 5-minute bar above the ORhowever our resistant Pivot Range is still intact.

20. After taking this test what action should you take next?

A. Spend all the money you make on your wife or husbandB. Send all the money you make to The OR TraderC. Blame The OR Trader for all of your lossesD. Practice on a simulator to get good at recognizing and acting on

good signals until you can make money on paper

Answer to Question 20: D - Practice makes perfector should I say perfect practicemakes perfect



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Disclaimer

CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANC E RESULTS HAVE C ERTAINLIMITATIONS. UNLIKE AN ACTUAL PERFORMANC E RECORD, SIMULATED RESULTS DO NOTREPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THERESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OFCERTAIN MARKET FAC TORS, SUCH AS LAC K OF LIQUIDITY. SIMULATED TRADINGPROGRAMS IN GENERAL ARE ALSO SUBJ ECT TO THE FACT THAT THEY ARE DESIGNED WITH

THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY AC COUNT WILLOR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.

GOVERNMENT REGULATIONS REQUIRE DISCLOSURE OF THE FACT THAT WHILE THESEMETHODS MAY HAVE WORKED IN THE PAST, PAST RESULTS ARE NOT NEC ESSARILYINDICATIVE OF FUTURE RESULTS. WHILE THERE IS A POTENTIAL FOR PROFITS THERE IS ALSO A

RISK OF LOSS. A LOSS INC URRED IN CONNEC TION WITH TRADING FUTURES CONTRAC TSCAN BE SIGNIFICANT. YOU SHOULD THEREFORE CAREFULLY C ONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION SINCE ALLSPECULATIVE TRADING IS INHERENTLY RISKY AND SHOULD ONLY BE UNDERTAKEN BYINDIVIDUALS WITH ADEQUATE RISK CAPITAL.

ANY ADVISORY OR SIGNAL GENERATED BY THE OR TRADER IS PROVIDED FOREDUCATIONAL PURPOSES ONLY. ANY TRADES PLAC ED UPON RELIANCE ONWWW.THEORTRADER.COM SYSTEMS ARE TAKEN AT YOUR OWN RISK FOR YOUR OWNACCOUNT. PAST PERFORMANC E IS NO GUARANTEE OF FUTURE RESULTS. WHILE THERE ISGREAT POTENTIAL FOR REWARD TRADING COMMODITY FUTURES, THERE IS ALSOSUBSTANTIAL RISK OF LOSS IN ALL TRADING. YO U MUST DECIDE YOUR OWN SUITABILITY TO

TRADE OR NOT. FUTURES RESULTS CAN NEVER BE GUARANTEED. THIS IS NOT AN O FFER TOBUY OR SELL FUTURES OR COMMODITY INTERESTS.

TheORTraderEbook Revised (1)

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