Trading the DAX30 with the Open Range Breakout: January 09, 2019

  • master
  • 10.01.2019
  • Comments Off on Trading the DAX30 with the Open Range Breakout: January 09, 2019

At the end of last month, the DAX30 CFD showed a loss of 6.2%, slightly behind its worst month in 2018 (October), with a loss of 6.53%. So 2018 resulted in a total loss of nearly 18%, nearly a third of which was lost in December.

DAX30 CFD Daily

Source: Admiral Markets MT5 with MT5SE Add-on DAX30 CFD daily chart (between 29 September 2017 to 04 January 2019). Accessed: 04 January 2019 at 10:00 PM GMT. Please note: Past performance is not a reliable indicator of future results, or future performance.

But things could have been worse. The weekend before Christmas, US Treasury Mnuchin called several CEOs of big investment banks on Wall Street and his plans to meet with the ‘Plunge Protection Team’ (PPT) resulted in significant uncertainty among market participants and a sharp drop in equities on December 24, with the SP500 CFD seeing its biggest loss in Christmas Eve trading ever.

The good news for the DAX30 CFD, there was no trading taking place on December 24. And when trading restarted on December 27, the DAX30 CFD marked new yearly lows but was held above 10,000 points with market participants knowing that the PPT was likely to step in again. This resulted in the DAX30 CFD trading back to its pre-Xmas close around 10,600 points. Interestingly enough for traders, it was possible to be positioned in this stint on the upside.

But before we go into further details, let’s recall the three steps of the DAX30 CFD open range breakout strategy:

  1. Define open range between 8:00 am and 9:05 am (CET)
  1. Identify the advantage: based on the 5-min-EMA (50)
    • DAX30 CFD trades above → Long
    • DAX30 CFD trades below → Short
  1. 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: 2R away from the entry point of the trade

In the following, let’s go through these three steps and see how the setup would have performed on December 28, 2018:

  1. The high and low between 08:00 and 09:05 am (CET) can be found between 10,416 and 10,462 points, so the open range is 46 points wide.

DAX30 CFD 5-minute

Source: Admiral Markets MT5 with MT5SE Add-on DAX30 CFD 5 minute chart (between 28 December 2018 to 28 December 2018). Accessed: 03 January 2018 at 1:00 PM CET. Please note: Past performance is not a reliable indicator of future results, or future performance.

  1. As you can see in the chart above, the DAX30 CFD traded above the EMA(50) on a 5-minute time frame (blue line). That means that only long trades will be taken and only if the DAX30 CFD breaks out on the upside of the open range.

DAX30 CFD 5-minute

Source: Admiral Markets MT5 with MT5SE Add-on DAX30 CFD 5 minute chart (between 28 December 2018 to 28 December 2018). Accessed: 03 January 2018 at 1:00 PM CET. Please note: Past performance is not a reliable indicator of future results, or future performance.

  1. As shown on the chart above, the DAX30 CFD broke out of its open range and started to move in the direction of the breakout.

The stop was placed at the top of the range at 10,416 resulting in a risk of 46 points.

Since the setup works with a take profit 2R away from the entry point of the trade, a buy limit was placed at 10,554 points, 92 points away from the entry point.

The target was hit within the next hours, resulting in a profit of 92 points and a profit factor of 92 points:

46 points = 2: 1.

In 2014, the value of the DAX30 CFD increased by 2.65%, in 2015, it increased by 9.56%, in 2016 it increased by 6.87%, in 2017 it increased by 12.51%, in 2018 it fell by 18.26%, meaning that after five years, it was up by 10.5%.

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