Even though the first week of trading in October was a short one for the DAX30 CFD due to the bank holiday on Wednesday, the DAX continued with its weak performance, yet again presenting a good chance to profit from breakouts and develop an Intraday downtrend structure with the Open Range breakout approach.
After fears around Italy calming down a little, rising US yields are now starting to worry investors around the globe. If those fears manifest over the next few weeks, and with the DAX still trading below its SMA (200), the bears will still be in charge on a bigger timeframe; and it seems very likely that the DAX will end the year in the red for the first time since 2011:
But let's come back to our trading opportunity that came up on 5 October, when it was yet again possible to profit from a strong Intraday trend on the downside. A strategy based on such trend was presented in one of the Admiral Markets' educational webinars - check Admiral Markets' webinar schedule for the future events.
Before we go into further details, let's go over the three steps of the DAX30 CFD Open Range Breakout strategy (for a live coverage of a similar trade, watch Admiral Markets ESMA special webinar that used this trading setup to illustrate the regulatory changes for retail clients):
1) Define Open Range between 8:00am and 9:05am (CET);
2) Identify the advantage based on the 5-min-EMA (50):
- DAX30 CFD trades above - Long, DAX30 CFD trades below - Short
3) Trade the break of the Open Range in the direction of said advantage, Stop above/below the high/low of the range (= 1R), Take Profit: 2R away from the entry point of the trade.
Now let's go through these three steps and see how the setup would have performed on 5 October 2018:
1) The high and low between 08:00 and 09:05am (CET) can be found between 12,220 and 12,255 points, so the Open Range is 35 points wide;
2) 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.
The stop was placed at the top of the range at 12,255, resulting in a risk of 35 points.
Since the setup works with a Take Profit 2R away from the entry point of the trade, a buy limit was placed at 12,150 points, 70 points away from the entry point.
The Take Profit level was hit after around one hour later, resulting in a profit factor of 70 points: 35 points = 2:1.
If you are interested in trading yourself, make sure to check out Admiral Markets' most competitive conditions on the DAX30 CFD and Dow Jones CFDs 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, register for a free demo account and experience the live market risk free!
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.