Trading the SP500 Seasonality with the Open Range Breakout
After the US central bank Fed cut interest rates by 25 basis points on July 31, and the new imposed tariffs from US president Trump from September onwards one day later, resulted in a next round of trade dispute escalation the US and China.
As a result, volatility spiked to its highest levels since the beginning of the year, and the advantage could be clearly found on the short-side several days and also from an intraday perspective.
Source: Admiral Markets MT5 with MT5-SE Add-on SP500 CFD Daily chart (between May 18, 2018, to August 19, 2019). Accessed: August 19, 2019, at 10:00pm GMT - Please note: Past performance is not a reliable indicator of future results, or future performance.
In 2014, the value of the SP500 CFD increased by 11.39%, in 2015, it fell by -0.73%, in 2016, it increased by 9.54%, in 2017, it increased by 19.42%, in 2018, it fell by -6.24%, meaning that after five years, it was up by 36.8%.
With that said, you can imagine, that traders could profit from the resulting bearish price action several times, e.g. on August 14. If you want to learn more about the presented strategy below – register now for our Trading Spotlight series and learn about it under real market conditions!
But before you are given a deeper look into the trading setup and the trade of this specific day, let's recall the 3 steps of the S&P500 Open Range Breakout strategy:
- Define Open Range between 3:30pm and 4:15pm (CET)
- Identify the advantage: based on the 15-min-EMA (10)
SP500 CFD trades above > Long,
SP500 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: "Time Take Profit", meaning that the trade is taken out manually at 9:50pm (CET) if it wasn't stopped out before
In the following, let's go through these three steps and see how the setup would have performed on August 14:
- The high and low between 3:30 and 4:15pm (CEST) can be found between 2,872.8 and 2,888.5 points, so the Open Range is 2,872.8 - 2,888.5
Source: Admiral Markets MT5 with MT5-SE Add-on SP500 CFD 15 minute chart (between August 13, 2019, to August 15, 2019). Accessed: August 19, 2019, at 12:00pm 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 SP500 CFD initially traded below the EMA(10) on a 15-minute time frame (purple line). That resulted in the fact that only Short trades were taken and this only if the SP500 CFD breaks out on the downside of the Open Range.
Source: Admiral Markets MT5 with MT5-SE Add-on SP500 CFD 15 minute chart (between August 13, 2019, to August 15, 2019). Accessed: August 19, 2019, at 12:00pm 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 SP500 CFD broke out of its Open Range on the downside and started to move in the direction of the breakout in the minutes and hours to come.
The stop was placed at the high of the range, resulting in a risk of 15.7 points.
Since the setup works with a Time Stop Out/Take Profit in case of the trade not being stopped out during the trading day, it is taken out at 9:50pm (CEST).
Following this rule, we did so and took the trade out at 2,840 points, resulting in a profit for the day and for the setup of 32.8 points and a profit factor of 32.8 points : 15.7 points = 2.1 : 1.
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