Last week, on Tuesday, we had a bullish outlook and the price action followed that plan very well. On Friday, the Dax closed in a horizontal resistance zone and you would imagine a lot of traders would have been happy with their profits, suggesting it would be time for a retracement. Today, we gapped through that resistance zone and this potentially offers a couple of options.
The most significant observation at the moment (on the Dax) is this expanding pivot setup (pictured above). The reason it is significant is that it may have reached a major pivot and this will interest a lot of sellers. Normally, an expanding pivot setup would offer a retracement towards the middle of the two most recent pivots. So in this example, it would be between pivot 6 and 7 (perhaps close to the 13100 level). Therefore we will be watching for a reaction up here because the reward to risk ratio would be attractive and it’s easy to believe that no major traders would want to buy at current levels (13367).
On the other hand, look at the US markets recently, specifically look at how aggressive the bullish momentum is. Perhaps the Dax will finally begin to catch some of that slipstream and continue building a major trend of its own, towards the all-time high. So if the Dax continues to gap higher, surely continuing to buy the dips would be a good strategy? If the gaps close (intraday), then why would you not want to buy into the momentum.
My personal preference
Before reading this paragraph, it’s important to direct you to the disclaimer and T&Cs on the site. In no way should this be considered financial advice or a trading recommendation. This purely my personal preference.
There is a good story for both sides at the moment. I personally remain on the bullish side and would like to see a break above this expanding pivot setup. The algo is Bullish, in line with the current swing, so any long trade requires 3:1 reward and any short trade requires 4:1 reward to risk.
08-01-2018 Dax Levels
|Value Area High *||13326|
|Value Area Low *||13288|
|14 Day ATR||149.84|
|*These are FXCM numbers, not futures numbers. Please be aware that FXCM can often be 5-10 points higher than futures prices|