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Trading the SPX500 CFD with the Open Range Breakout Strategy

August 15, 2018 14:13

Over the last few days and weeks volatility has again dramatically pushed lower within US equities. The VIX, the "fear barometer" on the SPX500 is currently trading at its lowest levels since January 2018. We all know what happened at the beginning of February when short bets on volatility were aggressively cut, resulting not only in the sharpest rise on a day-to-day basis in volatility, but also in a flash crash within US equities.

Source: Sunday 7 August 2018 1pm CEST - Admiral Markets MT5 with MT5SE Add-on

Nevertheless, thanks to low volatility, occasional strong intraday trending moves on the upside, together with, a previously presented strategy in one of Admiral Markets' educational webinars that help traders to reach the next level on their journey to profitability in trading, it was possible to capitalise on such strong intraday trends in the SPX500 CFD over a period of several days.

This was also true on 2 August. But before you are provided with a deeper look into the trading setup and the trade of this specific day, let's recall the 3 steps of the SPX500 CFD 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)
    • SPX500 CFD trades above → Long,
    • SPX500 CFD trades below → Short
  3. Trade the break of the Open Range in the direction of the identified advantage, Stop above/below the high/low of the range (= 1R), and Take Profit: "Time Take Profit", meaning that the trade is taken out manually at 9:50pm (CET) if it wasn't stopped out before.

Now let's go through these three steps and see how the setup would have performed on 2 August:

  • The high and low between 3:30 and 4:15pm (CET) can be found between 2,795.1 and 2,808 points, so the Open Range is 2,795.1 - 2,808.

Source: Sunday 12 August 2018 1pm CEST - Admiral Markets MT5 with MT5SE Add-on

  • As you can see in the chart above, the SPX500 CFD traded above the EMA(10) on a 15-minute time frame (blue line). That means that only Long trades will be taken, and this will only occur if the SPX500 CFD breaks out on the upside of the Open Range.

Source: Sunday 12 August 2018 1pm CEST - Admiral Markets MT5 with MT5SE Add-on

  • As you can see in the chart above, the SPX500 CFD broke out of its Open Range on the upside (black) and started to move strongly in the direction of the breakout.

The stop was placed at the low point of the range, resulting in a risk of 12.9 points. Since the setup works with a Time Stop Out/Take Profit in the case of the trade not being stopped out during the trading day, it was taken out at 9:50pm (CET). Following this rule, we did so and took the trade out at 2,827.1 points, resulting in a profit for the day, and for the setup of 19.1 points with a profit factor of 19.1 points : 12.9 points = 1.48 : 1.

If you are feeling excited or a little inspired by what you've read, why not consider checking out Admiral Markets' most competitive conditions on the DAX30 CFD and Dow Jones CFDs? Start trading on the DAX30 CFD with a low 0.8 point spread offering during the main Xetra trading hours! To test Admiral Markets DAX30 CFD offering in combination with the described strategy above, register for a free Demo account today, and experience the live markets 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.

Risk Warning

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 83% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.