Does This Day-Trading Strategy Actually Work?
Previous studies have shown that stock pickers who use day-trading strategies are likely to fail to beat stock market averages. But a new study says there might be a big exception to that rule.
The opening range breakout strategy — in which traders try to cash in on volatility that often occurs at the beginning of the trading day — was consistently profitable during the years 2016 to 2023, according to two researchers.
In fact, using this strategy can help stock pickers outperform a buy-and-hold strategy, say Carlo Zarattini of the Swiss firm Concretum Research and Andrew Aziz, the founder and chief executive of Vancouver-based Peak Capital Trading.
Buying or selling within the first five minutes of trading can help investors profit on the volatility that occurs when a stock breaks out of its high and low range, Zarattini and Aziz say.
In fact, the authors say using the opening range breakout strategy resulted in an annualized return of a whopping 46% over the period of the study.
The strategy is more sophisticated than it sounds — if you don’t understand candlestick price charts and aren’t willing to use leverage, it’s probably not for you.
It is also worth noting that stock market history is littered with trading strategies that worked well for a period before flopping miserably.
But the authors insist that the opening range breakout strategy can yield good results. A MarketWatch report quotes the study as saying:
“Contrary to what is commonly believed by those who are skeptical about the usefulness of using day trading strategies, we believe that there may be great value in combining lower-frequency investments (such as long-term buy and hold equity indexes) with higher-frequency approaches. Further, those willing to also diversify in terms of trading frequencies should expect to generate better risk-adjusted returns.”
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