Trading the SP500 with the Open Range Breakout, November 7, 2018

  • master
  • 08.11.2018
  • Comments Off on Trading the SP500 with the Open Range Breakout, November 7, 2018

On Monday October 29, the SP500 bears went for an attack at the region around 2,600 points, but lost their momentum shortly before a successful break could happen.

In the following days, the SP500 shot aggressively higher, closing the week not only around 1.8% in the green, but went also for three consecutive days (Tuesday to Thursday) with gains of more than 1%.

This situation has only happened
seven times since 1950. Based on those events, if the SP500 CFD hit a five-month low and was then up 1% on three consecutive days, three months later the SP500 would be up by 7.2%, with that average climbing higher every single time.

SP500 CFD Daily

Source: Admiral Markets
MT5 with MT5SE Add-on, Accessed: 03 November 2018, 9:00 AM CEST

Regardless, it was still possible to profit on the bearish intraday trend before the reversal occurred.

Before you are given a deeper look into the trading setup and the trade of this specific day, let’s recall the three 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

Now let’s go through these three steps and see how the setup would have performed on the 29th of October:

  1. The high and low between 3:30 and 4:15pm (CET) can be found between 2,687.5 and 2,707 points, so the Open Range is 2,687.5 – 2,707

SP500 CFD 15min

Source: Admiral Markets MT5 with MT5SE Add-on, Accessed: 03 November 2018, 9:00 AM CEST

  1. As you can see in the chart above, the SP500 CFD traded below the EMA(10) on a 15-minute time frame (purple line). That means that only short trades will be taken and this only if the SP500 CFD breaks out on the downside of the Open Range.

SP500 CFD 15min

Source: Admiral Markets
MT5 with MT5SE Add-on, Accessed: 03 November 2018, 9:00 AM CEST

  1. As you can see in the chart above, the SP500 CFD broke out of its Open Range on the downside and started to move strongly in direction of the breakout.

The stop was placed at the high of the range, resulting in a risk of 19.5 points.

Since the setup works with a Time Stop Out/Take Profit in case trade wasn’t 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 2,626.5 points, resulting in a profit for the day and for the setup of 60 points and a profit factor of 60 points : 19.5 points = 3.08 : 1.

Check out Admiral Markets’ most competitive conditions on the SP500 CFD and other
index CFDs and start trading a low 0.4 point spread during the main Xetra trading hours.

To test Admiral Markets SP500 offering in combination with the described strategy above,
register for a free demo account today and experience the live market risk free!

Live account

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.