Trading the SP500 CFD with the Open Range Breakout: October 17, 2018

The first two weeks in October can be considered the most volatile weeks of the year following the mini-crash in US equities at the beginning of February 2018. The reason for the current turmoil in US equities is largely due to rising US yields, which seem to worry investors around the globe.

Before October 10, the SP500 CFD had 74 consecutive trading sessions without a 1% change (up or down) which comes down to one of the longest streaks in history. On the 10th, the SP500 CFD ended this streak – with a drop of more than 3%, while tech stocks saw their biggest drop since 2011.

Source: Admiral Markets MT5 with MT5SE Add-on, Accessed: 13.10.2018, 9:00 AM CEST

Thanks to the strategy presented in one of Admiral Markets' educational webinars to help its traders reach the next level on their journey to profitability in trading, it was possible to profit on the huge bearish intraday trend.

Before you are given a deeper look into the trading setup and the trade of this specific day, let's recall the three steps of the S&P500 Open Range Breakout strategy:

1. Define Open Range between 3:30pm and 4:15pm (CET)
2. Identify the advantage: based on the 15-min-EMA (10)
   • SP500 CFD trades above → Long,
   • SP500 CFD trades below → Short
3. 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 example, let's go through these three steps and see how the setup would have performed on October 10:

1. The high and low between 3:30 and 4:15pm (CET) can be found between 2,845.9 and 2,874.5 points, so the Open Range is 2,845.9 - 2,874.5

Source: Admiral Markets MT5 with MT5SE Add-on, Accessed: 13.10.2018, 9:00 AM CEST

2. As you can see in the chart above, the SP500 CFD traded below the EMA(10) on a 15-minute time frame (this is indicated by the purple line). That means that only Short trades will be taken and this only if the SP500 CFD breaks out on the downside of the Open Range.

Source: Admiral Markets MT5 with MT5SE Add-on, Accessed: 13.10.2018, 9:00 AM CEST

3. As you can see in the chart above, the SP500 CFD broke out of its Open Range on the downside (black) and started to move strongly in direction of the breakout.

The stop was placed at the high of the range, resulting in a risk of 28.6 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 (CET).

Following this rule, we did so and took the trade out at 2,782.0 points, resulting in a profit for the day and for the setup of 63.9 points and a profit factor of 63.9 points : 28.6 points = 2.23 : 1.

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.