Open Range Breakout
By Ernie Varitimos
July 23, 2022
0:00 / 25:47
Open Range Breakout

This is the zero days to expiration podcast. This is episode number 98, only two more episodes until 100. Unbelievable. I have slowed down the podcast a little bit compared to the way it started, but we're gonna ramp that up today. We're gonna talk about the open range breakout and whether or not it's something that you can actually use in zero DTE to determine market direction.

Now, I, I want to, be very clear here about what the open range breakout is or was how it's been supported or advertised or promoted. Now, first of all, the open range breakout a stalwart strategy for the Chicago mercantile exchange, open floor trader, right. And the open cry, the guys with the fancy coats and everything and yelling at each other.

That was the standard trade for a lot of the old timers. And it went something like this. They would wait for the first five minutes. Sometimes they would do it for 10 minutes, but the first five minutes they would see what the high and the low was. And then if it, after five minutes, They would give it another requisite period of time, maybe a minute or two, if it broke out of one of those highs or lows, they would go with that trade.

Right. And of course, these guys are super short term and. They don't really play very much on technical analysis or any other kind of analysis. Mainly their style of trading is whoever's yelling the loudest and whoever, whatever group is yelling the loudest and they're going in a particular direction.

That's the way they go. . So, anyways, so that, that's basically how the open range breakout went, on the floor. Now when the floor closed, all these traders needed to do something with themselves. They were some of the most experienced people, but their style of trade on the floor was completely different from up on the desk.

Or behind their own personal computer. So they had to learn a new way of trading and it was very difficult for a lot of them. Most of them, as a matter of fact, a lot of them wanted to use their experience, their chops as being a floor trader for many, many years or even decades, to be able to promote themselves and maybe sell a strategy, this open range, breakout strategy.

And a lot of them did that's you know, it was, it became very popular. Right after the big market crash in 2008, there were a bunch of people that were doing this and they know who they are anyways. They would use their moniker, their experience and their years on the exchange as social proof that they knew what the hell they were talking about.

And so people bought their stuff. Maybe some people found some success with it for a period of time, others didn't, but they had a lot of marketing muscle behind them. So they kept on pushing it, pushing, pushing, pushing, and it became a thing. And then that sort of filtered out, down to other people who were doing the open range, breakout who weren't floor traders, but they saw the opportunity to sell this idea to the masses and try to make a buck.

Right. I always was fascinated by this because, I have a lot of experience, not actually as a floor trader, but being on the floor of the exchanges because I was very involved with the development of their systems and so forth. I'd seen a lot of these systems come through.

And of course also as a fund manager in the past, I wanted to test out these systems and whether or not they had any efficacy and would it be something that I would wanna commit real money to? I quickly found out that no, it doesn't work in the real world. We don't have a bunch of traders sitting around us yelling at the top of their lungs, basically indicating where the market is going, that I can follow. All of the criteria or whatever statistics that they came up with, they were invalid. They just didn't work. Really. The reason why they made money was through their intuition, their experience on the floor, and basically following the crowd.