Trading the SP500 CFD seasonality with the open range breakout

From an "average return" perspective, the old saying "sell in May and go away, but remember to come back in September" seems to be true: since 1950, the period from May through October yielded on average only 1.5%, the weakest performance compared to all other 6-month windows.

Nevertheless, it still needs a potential bearish catalyst to get to see a sharper decline and to correct at least some of the gains the SP500 CFD has seen since January.

On May 5, Donald Trump delivered such a catalyst: he announced tariffs on Chinese goods up to 25% from Friday, May 10, even though markets had expected trade negotiations to be moving on well between China and the US so far, with a deal being close.

Following that, on Tuesday, the SP500 CFD saw its biggest intraday loss since January:

Source: Admiral Markets MT5 with MT5-SE Add-on SP500 CFD Daily chart (between February 12, 2018, to May 8, 2019). Accessed: May 8, 2019, at 10:00am GMT - Please note: Past performance is not a reliable indicator of future results, or future performance.

With that said, you can imagine that traders could profit from the resulting bearish price action once again on May 7, with a strategy outlined in Admiral Markets' educational webinars.

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:

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, let's go through these three steps and see how the setup would have performed on May 7:

1. The high and low between 3:30 and 4:15pm (CET) can be found between 2,892.3 and 2,912.3 points, so the open range is 2,892.3 - 2,912.30

Source: Admiral Markets MT5 with MT5-SE Add-on SP500 CFD 15 minute chart (between May 6, 2019, to May 8, 2019). Accessed: May 8, 2019, at 10:00am GMT - Please note: - Past performance is not a reliable indicator of future results, or future performance.

2. As you can see in the chart above, the SP500 CFD initially traded below the EMA(10) on a 15-minute time frame (blue 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 May 6, 2019, to May 8, 2019). Accessed: May 8, 2019, at 10:00am GMT - Please note: Past performance is not a reliable indicator of future results, or future performance.

3. 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 20 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 2,872 points, resulting in a profit for the day and for the setup of 20.3 points and a profit factor of 20.3 points :
   
   20 points = 1.01 : 1.

A final note: a profit factor close to and below 1 could be a warning sign that the move on the upside in the SP500 CFD could be a little extended and be a signal of becoming more careful in regards to intraday long engagements.

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%.

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