The DAX Breakfast Club​ aims to simplify early morning trading

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The DAX Breakfast Club is a trading strategy that is supported by daily tweets of a target price. The target price is valid between 7.00-8.00 am London Time.

 

​The trade is a morning gap trade based on the price of the index at the time the real shares in the index stop trading on the day before.
 

Traders may use the target price to place trades in the direction towards the target price. If the price is below the target price traders can buy into the target, if the price is above the target traders may sell into the target.



Execution of the trade can be made at any time after 7.00 am and before 8.00 am. Price touching or crossing the target price before 8.00 am does not invalidate further trades back into the target price. After 8.00 am no further trades to the target price should be taken if the target has been hit. Trades into the target may be taken after 8.00 if the target has not been hit between time of trade and 8.00. 



The potential gain from the trade depends on the distance the price is away from the target price at the time of trade placement and can range from 5 to 100 pts or more.

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Usually the target price will be reached by 8.30 am but sometimes this can take longer. The target price is a mid range price and the tolerance for FXCM traders is 1 pt either side of the target. Best practice is to set the target price - 1 pt as a limit order for buy trades and target price +1 for sell trades.



Price action may pass through the target price or it may reverse immediately and therefore it is good practice to use limit orders. In practice this often means that the trader places one or two trades with limit order set in the first half hour and then leaves the trades to complete. This is of course the big advantage of this trade - there is a defined exit and the trader does not need to stop the trade until it is hit.



There are two potential approaches to stop placement. The first is to use previous support and resistance levels as a guide to stop placement and the second is to use a 50 pt stop. My personal preference is to use 50 pts stops as although large it does allow the trade room to breath and will be stopped out less often than a tighter stop distance.  When using previous support and resistance stops for sell trades should generally be placed above the next resistance level from the previous days trading or the overnight out-of-hours high whichever is higher. Stops for buy trades should generally be placed below the next support level from the previous days trading or the overnight out-of-hours low whichever is lower.

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Your maximum stop distance should not exceed your maximum risk for this trade. If the stop distance equals a potential loss that is greater than you would wish to have then you need to review your trade size strategy. Always use a stop and accept the loss before placing the trade.



If you are unable to locate the appropriate stop positions then I recommend that you join a trading room to learn about support and resistance. See Trading Resources.



Note: A 50 stop is a statistical stop, and as such will be hit less times than a smaller stop. A 10 stop for example will have a much higher chance of being hit and a 20 stop will also be stopped out more often than a 50 stop but less times than a 10 stop. It is probable that a 20 stop may be stopped out 4 or 5 times more than a 50 stop and will therefore be less profitable than a 50.



I use the previous day index price at 9.00 pm as an indicator of potential failure of this trade. I expect to see the market open at 7.00 am at or close to the previous 9.00 pm price and if the price does not move from this price towards the target price, I will consider not trading.



The best trading can often be had when the 7.00 am price opens at or close to the target price. A bit of patience to allow the price to move away a sufficient distance will often then allow more than one trade back to the target price. The ideal distance is 10 or more pts but I will often place a trade 8 pts away and then a further trade if it moves 14-15 pts away.

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I recommend demo trading this strategy and getting a feel for Dax price action before taking any further action.



Trade Safe