Two hundred dollars is the standard risk amount. The ratio of volatility is calculated as the notes at orb trading sizing niacki describe. This specific method for sizing an intraday position uses the relationship between the opening range and the previous day's movement. A small ratio suggests a tight consolidation period. A high ratio implies a significant breakout is underway.
Defining the Volatility Ratio
The mechanical process begins at the market open. The distance between the session high and the session low during the first fifteen minutes provides the numerator. The total price range from the previous day provides the denominator. This quotient determines the weight of the trade. A fifteen minute range that covers only five percent of the previous day's total movement indicates low relative volatility. A fifteen minute range that covers twenty percent of the previous day's range indicates high relative volatility. The math dictates the size of the trade to prevent overexposure during erratic price action.
The Breakout Mechanics
An opening range breakout occurs when price clears the high or low established during the initial period. The timeframe chosen for this calculation changes the math. Using a 5 minute candle provides more frequent data points but less stability. A 30 minute range offers a more robust look at the initial direction. The ratio remains the same regardless of the timeframe. It is a comparison of current expansion to historical expansion. High ratios often lead to larger position sizes because the momentum is backed by a significant shift in relative volatility. Low ratios require smaller sizes because the move lacks the necessary energy to sustain a trend.
Calculating Position Size
The calculation follows a linear scale. If the ratio of the five minute range to the previous day is 0.10, the position size is reduced. If the ratio is 0.30, the position size is increased. This prevents the loss of capital during low volume periods. It also prevents excessive drawdowns when the opening bell triggers a massive, uncharacteristic spike. The risk is managed by looking at the ratio rather than just the price action. The math is objective. The numbers do not change based on the direction of the move.
Managing the Intraday Move
Price action after the first hour often follows the trend established by the ratio. If a breakout occurs on a high ratio, the trend is likely to persist through the mid day session. If the ratio is low, the market often returns to a mean. A trader monitors the session high to confirm the breakout. The ratio provides the blueprint for the capital allocation before the trade even executes. This mechanical approach removes guesswork from the sizing process. The work is done during the premarket setup. The execution is a simple matter of following the math derived from the ratio.