Day Trading with an Opening Range Breakout Strategy

Can day traders reliably get rich quick? In their April 2023 paper entitled “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”, Carlo Zarattini and Andrew Aziz test the performance of a 5-minute Opening Range Breakout (ORB) strategy applied to Invesco QQQ Trust (QQQ), as follows:

• If QQQ rises (falls) during the first 5-minute interval of trading, buy (sell) QQQ at the start of the second 5-minute interval. Take no position if the first 5-minute open and close are about the same.
• For a long (short) position, set a stop-loss at the low (high) of the first 5-minute interval.
• Set a profit target (stop-gain) at 10 times the absolute difference between entry and stop prices.
• If neither stop-loss nor stop-gain trigger during the day, liquidate at the market close.

For testing, they use recorded trade prices at exactly 9:35AM, the stop-loss/stop-gain prices and recorded trade prices at exactly 4:00PM. They assume $25,000 starting capital, maximum 4X leverage and $0.0005/share commission (in the range 0.0001% to 0.0005% for QQQ), with no bid-ask spread, no impact of trading (slippage) and no other execution price uncertainty. They size each trade such that a stop-loss would deplete 1% of current capital. Their benchmark is buying and holding QQQ. They also test the same ORB strategy applied to ProShares UltraPro QQQ (TQQQ) to circumvent broker leverage constraints, plus a TQQQ variation with stop-loss equal to 5% of the 14-day average true range (ATR) and no profit target (exit at market close). Using the specified QQQ and TQQQ intraday price data during January 1, 2016 through February 17, 2023, they find that:

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