The following is an explanation of a day trading strategy using the DAX 40 Index (DE40) – an index compiling the top 40 german companies.
This is a tradingview idea.
The concept is relatively simple. It is a break-out strategy that uses the momentum of the market that comes from the opening of the London market and the opening of the New York market.
There are many advantages to only trading the market open. One of them is the fact that we can create a routine around our strategy as we know that we only trade for a certain amount of time per day. We adjust our schedules to ensure that we are in front of our charts one hour before the market opens and we can scalp the opening for as long as we like. Creating routines and schedules like this helps immensely when trying to become a consistently profitable day trader.
The move that I look for usually happens around the London market open. I look for the 15-minute candle that opens up the London trading session. The movement itself does not necessarily have to be the actual 15-minute candle that opens up the London trading session, however, it generally occurs within an hour or two of the opening. Sometimes, the move happens before the London trading session opens and sometimes the action happens after the London market opens.
The idea is that we look for some sort of support or resistance zone that has formed overnight during the Asian trading session. This Support or Resistance zone should have a minimum of two taps to confirm the zone. Sometimes, the market will overshoot this zone by a few points or pips and then retrace back into the zone. This is ok. Support and Resistance lines are rarely perfect. Once we spot the zone on the charts, we then highlight the zone or area and we look for a break out from this zone once the London trading session opens.
Make sure that you are trading with the trend. Open up a higher time frame chart and discover what your bias is. Once you know what side of the market you are on, this will help confirm your entries.
This strategy only uses one indicator – a simple MA Line with the input (length) set to 9.
When we see a break out of the candle, we want to make sure that the beginning of the candle touches the 9 MA line, and then we want to see the rest of the candle break out of previous support or resistance.
The break-out should be one candle and should be rather impulsive as this is the candle that will set the momentum for the rest of the session.
Once we have identified the breakout candle, we will open up a position using either a market order on the close of the breakout candle or a stop order one or two pips above or below the breakout candle.
Our stop loss should be about ten pips above or below the beginning of the breakout candle.
We should always aim for a minimum risk to reward of one to two.
Sometimes, we want won’t see a breakout. A lot of the time, the market will just range from support to resistance without any support or resistance zones. There is a way to trade these ranges by buying the bottom and selling the top. However, this should be considered a different trading strategy.
The breakout strategy is purely for breakouts.
In the video above, I have explained exactly how I go about looking for setups.
Please note that you should always back-test a strategy before using it on a live account.
Backtesting gives you the confidence to enter into a position and neutralizes your emotions.
Trade safe out there.
The Vortex Trader