A Profitable Day Trading Strategy For The U.S. Equity Market

25 Pages Posted: 15 Mar 2024

See all articles by Carlo Zarattini

Carlo Zarattini

Concretum Research

Andrea Barbon

University of St. Gallen; University of St.Gallen

Andrew Aziz

Peak Capital Trading; Bear Bull Traders

Date Written: February 16, 2024

Abstract

The validity of day trading as a long-term consistent and uncorrelated source of income for traders and investors is a matter of debate. In this paper, we endeavored to answer this question by conducting a thorough analysis of the profitability of Opening Range Breakout (ORB) strategies, with a particular focus on the 5-minute ORB. Using a large dataset that covered more than 7,000 US stocks traded from 2016 to 2023, the research aimed to assess how effective this strategy was in producing consistent and uncorrelated returns. A new aspect of our study was the focus on Stocks in Play, which are stocks that show higher than normal trading activity on a specific day, mostly because of fundamental news about the company. Our results showed a significant benefit in limiting day trading only to those Stocks in Play (even after considering transaction costs). A portfolio that consisted of the top 20 Stocks in Play achieved a total net performance of over 1,600%, with a Sharpe ratio of 2.81, and an annualized alpha of 36%. Passive exposure in the S&P 500 would have achieved a total return of 198% during the same period. Furthermore, this paper expanded the analysis to compare the return profile of the ORB strategy applied to different time frames, such as 15, 30, and 60 minutes. In the last part of the paper, we presented detailed stock-specific statistics for the 25 best and worst performers of an ORB strategy over all the time frames.

To the best of our knowledge, this is the first public paper with such intraday granularity and comprehensive stock-level database.

Keywords: Day Trading, Day Trading Systems, Opening Range Breakout, Algo Trading, Stock in Play, News Trading

JEL Classification: C00, C10, C50, G00, G11

Suggested Citation

Zarattini, Carlo and Barbon, Andrea and Aziz, Andrew, A Profitable Day Trading Strategy For The U.S. Equity Market (February 16, 2024). Available at SSRN: https://ssrn.com/abstract=4729284 or http://dx.doi.org/10.2139/ssrn.4729284

Carlo Zarattini

Concretum Research

PIAZZA MOLINO NUOVO 8
LUGANO, 6900
Switzerland

Andrea Barbon

University of St. Gallen ( email )

Bodanstrasse 8
SIAW-HSG
St.Gallen, 9000
Switzerland

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

University of St.Gallen ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

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

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

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