Applying the open range breakout strategy when trading the DAX30 CFD

February 27, 2019 11:30

Since the beginning of the year, equity markets have seen a sharp rebound since December's elevated volatility. Nevertheless, over the last two weeks or so, the price action in the German DAX30 CFD has become somewhat of choppy (even though a drift upwards could still be recognized) with some sharp stints on the up- and downside which was completely erased several minutes to hours later.

In such a choppy market environment, it is important to not just have a clear trading system to adhere to, but also to create and follow a strict risk and money management plan.

On February 20, right around the market open, the DAX30 CFD started another attempt to break to new yearly highs and above 11,400 points – and succeeded.

Source: Admiral Markets MT5 with MT5-SE Add-on DAX30 CFD daily chart (between November 10, 2017, to February 22, 2019). Accessed: February 22, 2019, at 10:00pm GMT - Please note: Past performance is not a reliable indicator of future results, or future performance.

As you can imagine, it was possible to be positioned on the upside in this stint to new yearly highs, thanks to a strategy presented in one of Admiral Markets' educational webinars. These aim to help and inform traders on their way to success in trading from bearish action such as this (check Admiral Markets' webinar schedule for all events).

But before we go into further detail, let's once again recall the 3 steps of the DAX30 CFD open range breakout strategy (for live coverage of a similar trade, check out Admiral Markets' ESMA special webinar which used this trading setup to illustrate the regulatory changes for retail clients):

  1. Define Open Range between 8:00am and 9:05am (CET)
  1. Identify the advantage: based on the 5-min-EMA (50)

    DAX30 CFD trades above → Long
    DAX30 CFD trades below → Short
  1. 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 February 20, 2019:

  1. The high and low between 08:00 and 09:05am (CET) can be found between 11,320.5 and 11,350.6 points, so the Open Range is 30.1 points wide.

Source: Admiral Markets MT5 with MT5-SE Add-on DAX30 CFD 5 minute chart (between February 20, 2019, to February 20, 2019). Accessed: February 21, 2019, at 1:30pm CET - Please note: Past performance is not a reliable indicator of future results, or future performance.

  1. As you can see in the chart above, the DAX30 CFD traded above the EMA(50) on a 5-minute time frame (purple line). That means that only long trades will be taken, and only if the DAX30 CFD breaks out on the up-side of the open range.

Source: Admiral Markets MT5 with MT5-SE Add-on DAX30 CFD 5 minute chart (between February 20, 2019, to February 20, 2019). Accessed: February 21, 2019, at 1:30pm CET - Please note: Past performance is not a reliable indicator of future results, or future performance.

  1. As shown on the chart above, the DAX30 CFD broke out of its open range on the upside and started to move in the direction of the breakout on the upside.

    The stop was placed at the low of the range at 11,320.5 resulting in a risk of 30.1 points.

    Since the setup works with a take profit 2R away from the entry point of the trade, a sell limit was placed at 11,410.8 points, 60.2 points away from the entry point.

    The target was hit within minutes, resulting in a profit of 60.2 points and a profit factor of 60.2 points : 30.1 points = 2 : 1.

In 2014, the value of the DAX30 CFD increased by 2.65%, in 2015, it 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%, meaning that after five years, it was up by 10.5%.

Check out Admiral Markets' most competitive conditions on the DAX30 CFD and start trading on the DAX30 CFD with a low 0.8 point spread offering during the main Xetra trading hours. To test Admiral Markets DAX offering in combination with the described strategy above register for a free demo account today and experience the live market risk-free!

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