Trading Short with the DAX30 breakout
While breakout trading strategies faced some difficulties while approaching the yearly close due to the choppy market conditions in the DAX30 CFD, the start of 2020 seems to have turned luck around a little.
During the first two days of the year the strategy played out well, such as on January 3 on the short side, after geopolitical developments pointed to the possibility that the US and Iran could be on the road to war, increasing chances of a broad risk-off mode, pushing Equities and thus the German index lower.
Source: Admiral Markets MT5 with MT5-SE Add-on DAX30 CFD Daily chart (between 20 September 2018 to 03 January 2020). Accessed: 03 January 2020 at 10:00 PM GMT - Please note: Past performance is not a reliable indicator of future results, or future performance.
In 2015, the value of the DAX30 CFD increased by 9.56%, in 2016 it increased by 6.87%, in 2017, it increased by 12.51%, in 2018 it fell by 18.26%, in 2019 it increased by 26.44% meaning that after five years, it was up by 34.2%.
In the following we want to show how traders could have profited from the bearish price action that day with a strategy taught in one of Admiral Markets' educational webinars!
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Let's recall the 3 steps of the DAX30 CFD Open Range Breakout strategy:
- Define Open Range between 8:00am and 9:05am (CET)
- Identify the advantage: based on the 5-min-EMA (50)
DAX30 CFD trades above > Long,
DAX30 CFD trades below > Short - Trade the break of the Open Range in direction of the identified advantage,
Stop above/below the high/low of the range (= 1R), Take Profit: 2R away from the entry point of the trade
In the following, let's go through these three steps and see how the setup would have performed on January 3, 2020:
- The high and low between 08:00 and 09:05am (CET) can be found between 13,254 and 13,316 points, so the Open Range is 62 points wide.
Source: Admiral Markets MT5 with MT5-SE Add-on DAX30 CFD 5min chart (between January 2, 2020, to January 3, 2020). Accessed: January 3, 2020, at 11:35 GMT - Please note: Past performance is not a reliable indicator of future results, or future performance.
- As you can see in the chart above, the DAX30 CFD traded below the EMA(50) on a 5-minute time frame (blue line). That means that only short trades will be taken and only if the DAX30 CFD breaks out on the down-side of the Open Range.
Source: Admiral Markets MT5 with MT5-SE Add-on DAX30 CFD 5min chart (between January 2, 2020, to January 3, 2020). Accessed: January 3, 2020, at 11:35 GMT - Please note: Past performance is not a reliable indicator of future results, or future performance.
- As shown on the chart above, the DAX30 CFD broke out of its Open Range on the downside and started to move strongly in the direction of the breakout on the downside.
The stop was placed at the top of the range at 13,316 resulting in a risk of 62 points.
Since the setup works with a Take Profit 2R away from the entry point of the trade, a Take Profit was placed at 13,130 points, 124 points away from the entry point.
The target was hit within the next hours, resulting in profit of 124 points and a profit factor of 124 points : 62 points = 2 : 1.
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