Trading The SPX500 With The Open Range Breakout
The SP500 CFD made a new 'All Time High' into the end of August, and in the first week of trading it looks as if it will become a struggle to keep the bullish momentum into the last month of trading in the third quarter of 2018. Some might say that this does not come as such a big surprise, since September is known to be the worst month of the trading year historically, in terms of performance for the SP500 CFD. That being said, the pullback was not very significant, and was slightly below 2%, and going into the second week of trading on September 11, the SP500 CFD levelled the path for a weekly close above 2,900 points.
It seems to be only a question of time as to when the SP500 CFD will make new 'All Time Highs'. With volatility still remaining at low levels, chances are good. And there is another good reason to see the SP500 CFD closing 2018 most likely above 3,000 points: when the SP500 was up in April, May, June, July and August (between 1950 – 2018: this happened five years before 2018), the SP500 was trading higher every time after the final four months of the year, gaining on average 10.9%.
Source: Saturday 15 September 2018 11am CEST - Admiral Markets MT5 with MT5SE Add-on
On 11 September, it was possible to capitalize on a bullish intraday trend in the SP500 CFD, based on a presented strategy in one of Admiral Markets' educational webinars; which helps traders to reach the next level on their journey to profitability in trading, it was possible. 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 the 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 the 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
Now let's go through these three steps, and see how the setup would have performed on 11 September:
- The high and lows between 3:30 and 4:15pm (CET) can be found between 2,866.5 and 2,878.8 points, so the Open Range is 2,866.5 - 2,878.8
- As you can see in the chart above, the SP500 CFD traded above the EMA (10) on a 15-minute time frame (purple line). That means that only Long trades will be taken, and this will only occur if the SP500 CFD breaks out on the upside of the Open Range.
Source: Friday 15 September 2018 3pm CEST - Admiral Markets MT5 with MT5SE Add-on
- As you can see in the chart above, the SP500 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 of the range, resulting in a risk of 12.3 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 is taken out at 9:50pm (CET). Following this rule, we did so and took the trade out at 2,890.0 points, resulting in a profit for the day, and for the setup of 11.2 points, with a profit factor of 11.2 points : 12.3 points = 0.91 : 1. The profit factor below 1 is a warning sign. The day showed a distinct profit, nevertheless a profit factor smaller than 1 indicates that the risk taken in the trade was quite high compared to the resulting profit.
The profit factor can be calculated by summing up all gains and dividing them by the sum of all losses. A profit factor of 0.91 says that we are risking 1 Euro to earn 0.91 Euro, even though we are only talking about a one day result, it is important to keep this number in mind, and give it a closer look if we see a series of results stabilizing the profit factor below 1. This could be a sign that market conditions begin to turn unfavourable for our trading approach, and that changes need to be implemented.
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.
