Breakouts are one of the most widely traded strategies among day traders, as well as longer-term traders. While breakouts can lead to powerful moves, false breakouts also occur frequently. Breakouts can be traded based on chart patterns, price levels, or time.
The First Hour of Trading
The first hour of the day can be volatile and sloppy as a market or stock opens, and trading begins. This first hour of trading can see some wild swings as the market attempts to decide on its intentions for the day. There may be large institutional buy and sell orders waiting for the opening bell. Action can be intense as these orders get filled.
There comes a point, however, when the initial buy and sell orders have been filled, and the market may find a sense of balance. This apparent state of equilibrium may often be seen within the first hour of trading whether in a stock, commodity, or other markets.
The 60-minute breakout strategy looks to try to take advantage of a move away from equilibrium until a new level of equilibrium is found. This may occur after the first hour of trading and could be the result of several factors, such as the news, new information coming to light, or heavier volume on the buy or sell side. Whatever the case may be, a market may decide to move away from its first hour’s trading range and can sometimes do so quickly and convincingly.
How to Trade a 60 Minute Breakout
Trading a breakout of the first hour’s trading range is relatively straightforward as far as strategies go. Here’s a quick example of how to do it:
Step 1: As a stock opens the day session, make note of the first hour’s high and low. Once the first hour of trading has been completed, place a buy stop just above the opening hour’s high and place a sell stop just below the opening hour’s low.
Step 2: Wait to see if either order is triggered.
Step 3: If either your buy stop or sell stop is triggered, place a stop-loss order just inside the first hour’s range.
Step 4: Manage your position.
It’s important to keep in mind that such breakout trades will likely be triggered often and will likely result in stop-outs quite often as well. There is the possibility of catching some significant market moves that can potentially make your trading day or week.
