Drip's 11am rule breakout/breakdown (OG)

The Drip's 11am rule breakout/breakdown indicator identifies high-probability breakout and breakdown zones based on price action established during the first two hours of the New York trading session.

Usage

The script is designed to capitalize on the "11:30 AM rule," which suggests that if a trending stock sets a new high or low after the morning volatility (11:15–11:30 AM EST), it has a higher statistical probability of closing near that extreme.

• Breakout Trading: When price breaks above the established High of Day (HOD) zone after the cutoff time and is supported by bullish momentum (EMA alignment and ADX), the script highlights the trend with neon-colored candles and upward arrows.
• Breakdown Trading: When price breaks below the established Low of Day (LOD) zone after the cutoff time and is supported by bearish momentum, the candles change color and downward arrows appear.
• Support/Resistance: The HOD and LOD zones can also be used as supply or demand levels in range-bound markets where a clear breakout has not yet occurred.
• Trend Cloud: An optional EMA-based cloud appears during active trends, which can be utilized for trailing stop losses or identifying secondary entry points.

Details

The indicator functions through a three-step process:

1. Zone Identification: It tracks the highest high and lowest low during the "Criteria" period (typically 9:30 AM to 11:30 AM EST).
2. Momentum Filtering: It utilizes the Average Directional Index (ADX) to filter out sideways price action. Signals are only generated when the Directional Movement Index (DMI) indicates a strong trend (values > 25/30).
3. Trend Confirmation: The script checks for EMA alignment (Fast, Mid, and Slow EMAs) and ensures the price is trading above or below the daily open to confirm directional conviction.

Settings

Main Settings

• Cutoff time: Choose between 11:00 AM and 11:30 AM EST for identifying the HOD/LOD zones. 11:30 AM is recommended for higher win rates based on backtesting.
• Fast/Mid/Slow EMA Period: Adjust the periods for the exponential moving averages used for trend confirmation and the support/resistance cloud.
• Source for Highs/Lows: Defines the price source (defaulting to High/Low) used to calculate the session zones.

Visuals

• Show HOD/LOD breakout zone: Toggles the visibility of the shaded morning range extremes.
• Show cloud: Toggles the EMA-based trend cloud for breakout/breakdown moves.
• Show trend arrows: Enables or disables conviction arrows under/over candles.
• Show candle momentum: Toggles the custom bar coloring based on ADX and trend strength.

FAQ

How do I access Drip's 11am rule breakout/breakdown?

You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.

Which assets work best with this rule?

While it can be applied to various stocks, it is optimized for high-volume assets (Average Daily Volume > 2M) and mega-cap stocks. It shows the most consistent results on $SPY and $SPX.

Why does the indicator use 11:30 AM instead of 11:00 AM?

While the concept is commonly known as the "11 AM rule," historical backtesting often shows a higher win rate and better trend stability when using the 11:30 AM EST cutoff.