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

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.