Can Day Trading Really Be Profitable? Evidence of Sustainable Long-term Profits from Opening Range Breakout (ORB) Day Trading Strategy vs. Benchmark in the US Stock Market

18 Pages Posted: 24 Apr 2023

See all articles by Carlo Zarattini

Carlo Zarattini

Concretum Research

Andrew Aziz

Peak Capital Trading; Bear Bull Traders

Date Written: April 10, 2023

Abstract

The validity of day trading as a long-term consistent and uncorrelated source of income for traders and investors has always been a matter of debate. In this paper, we investigate the profitability of the well-known Opening Range Breakout (ORB) strategy during the period of 2016 to 2023. This period encompasses two bear markets and a few events with abnormal volatility. Our results suggest that with the proper use of leverage or leveraged products (such as 3x leveraged ETFs), day trading can empirically produce significant returns when compared to a standard buy and hold strategy on benchmark indexes in the US public equity markets (Nasdaq or NYSE). Without any loss of generality, we studied the results of an ORB strategy implemented in QQQ. By comparing the results of the active day trading approach with a passive exposure in QQQ, we prove that it is possible for the ORB portfolio to significantly outperform the passive investment. In fact, the day trading portfolio produced an annualized alpha of 33% (net of commissions). Nevertheless, due to leverage constraints enforced by brokers, an active trader would have capped the full upside potential given by the ORB strategy. To overcome this issue, we introduced the use of TQQQ, a leveraged ETF of QQQ, which allows day traders to fully exploit the benefit of the active strategy while adhering to leverage constraints. The resulting portfolio would have earned an outstanding return of 1,484% during the same period of 2016 to 2023, while an investment in the QQQ ETF would have earned 169% annualized.

Keywords: day trading, stock market, investment, modelling

JEL Classification: G11

Suggested Citation

Zarattini, Carlo and Aziz, Andrew, Can Day Trading Really Be Profitable? Evidence of Sustainable Long-term Profits from Opening Range Breakout (ORB) Day Trading Strategy vs. Benchmark in the US Stock Market (April 10, 2023). Available at SSRN: https://ssrn.com/abstract=4416622 or http://dx.doi.org/10.2139/ssrn.4416622

Carlo Zarattini

Concretum Research

PIAZZA MOLINO NUOVO 8
LUGANO, 6900
Switzerland

Andrew Aziz (Contact Author)

Peak Capital Trading ( email )

120 744 W Hastings
Vancouver, BC V6G 3K1
Canada

HOME PAGE: http://www.peakcapitaltrading.com

Bear Bull Traders ( email )

120 744 W Hastings
904
Vancouver, BC V6G 1A5
Canada

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
11,856
Abstract Views
21,731
Rank
688
PlumX Metrics