5-Minute ORB System for Option Scalping

Option scalping is one of the most popular trading strategies followed by a trader, and the first few minutes of the market can help a trader in predicting the market momentum for the day by using a 5-minute opening range breakout strategy.

In today’s blog post, we will give you an overview of the 5-minute ORB along with the benefits of using it.

What is the 5-Minute ORB (Opening Range Breakout)?

The 5-minute ORB is a very popular trading strategy often used in an intraday trading strategy. In this strategy, the trader observes the first 5-minute candle from 9:15 a.m. to 9:20 a.m. and marks key levels such as the high of the opening candle and the low of the candle. A trader predicts that if the price breaks above the high, there will be an upside movement, and if it breaks below the low, it will indicate a downside momentum. In option trading, this strategy focuses on capturing quick movement after the market opens when the volatility is high, and the premium of the option moves fast.

How the 5-Minute Opening Range Breakout System Works

The step-by-step workflow of the 5-minute opening range breakout system is as follows:

• Market Opening: At first, the trader needs to wait for the market to open, as the first five minutes are highly volatile.
• Identifying the Opening Range: Once the first 5-minute candle is closed, you need to identify the highest price and the lowest price of the candle.
• Breakout: The next step is to wait for the breakout. If the price moves above the opening range high, it will suggest a bullish momentum, and if it breaks the opening range low there will be a bearish momentum.
• Enter Trade: Once the breakout is confirmed, a trader can enter into the trade based on the bullish and bearish breakout.
• Stop Loss: Risk management is a crucial part of intraday trading. One should set a strict stop-loss based on their risk profile.
• Profit Booking: Along with the stop loss, one can quickly book the profit based on the market movement.

Read Also: What are the Upper Circuit and Lower Circuit in the Stock Market?

Example of 5-Minute Opening Range Breakout Trade

Now we will explain to you how a 5-minute opening range breakout trade works through an example.

There is an option instrument known as the Nifty 50, which is traded in the derivatives market. And you want to trade it based on the market momentum. So when the market opens at 9:15 a.m., and in the first 5 minutes, it made a high of 23,000 and a low of 22,900.

So you marked these two levels and are observing the price movement of the next candle. And the next candle after 9:20, the market moves above the 23,000 level. Hence, you identify it as a
Bullish trend and entered a trade at 23,100 and paid a premium of INR 100. And suppose the market movement continues, and you exit the trade when the Nifty is trading around 23,500 and the premium rises to 150 INR.

Advantages of 5-Minute ORB Strategy

The key advantages of the 5-minute ORB strategy for options scalping are as follows:

• Easy Strategy: This strategy is one of the simplest strategies to learn. An investor just needs to mark the levels and wait for the breakout.
• Option Scalping: This 5-minute ORB strategy is considered ideal for option scalping because option premiums react very fast, and one can earn profit in the very short term.
• Less Screen Time: There are various strategies which required regular monitoring, whereas this strategy forms a setup within 5-minutes.
• High Accuracy in Volatile Markets: It works effectively during high market volatility because the opening range often captures the day’s initial momentum. This helps traders identify strong directional moves early and take quick trading opportunities with better risk-reward potential. 

Disadvantages of ORB Strategy

The key disadvantages of the ORB strategy are as follows:

• False Breakouts: There might be situations in which false breakouts occur. Once the trader takes the entry, there might be a quick reversal.
• Sideways Market: This ORB strategy works best during a volatile market. If the market is sideways, the price moves within the range.
• Fast Decision: During the first hour of the market, it moves very quickly, and traders must identify the setup, execute a trade, and manage risk quickly.
• Fewer Trading Opportunities: Strong breakout setups do not form in every trading session, which limits the number of quality ORB trading opportunities for active traders regularly.

Read Also: What is Scalping Trading Strategy?

Conclusion

On a concluding note, the 5-minute opening range breakout option scalping strategy is a powerful tool used by the intraday trader to earn profit from options premiums. A trader can easily identify the early market momentum and place trades based on it. This strategy does not require complex indicators, hence they are suitable for beginner traders. However, there is no strategy which works perfectly and guarantees profit. There are certain risks, such as a false breakout, emotional trade, trend reversal, etc. Therefore, it is advisable to consult your investment advisor before making any investment and doing option scalping.

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