I have every reason to be very confident in my most recent DAX trade because I’ve had a number of ducks line up.
One of my favourite tools is the moving average envelope on a 6hr chart. Price action is often contained within the bands. However, when the bands get pierced with conviction then more often than not the move continues in that direction as was evident in early August. It could happen again but I don’t believe that will happen right now a few good reasons.
Firstly, the envelopes I use are a vertical shift of a MA set at a percentage of price. Usually for the Germany 30 instrument I trade the level is at 2.2% which is one of the highest of all the instruments I trade. Right now the vertical shift is at 6.1% which is HUGE. What that means is although it could move out of the bands, the probability is very low. The highest probability is a reversion to the mean move back to the dashed line.
Secondly. at the bottom of the chart is an Average Range histogram. I have this set at 40 periods (10 days). You will notice that it is RISING. Increasing ranges are a sign of volatility and hence a bearish signal. So with price at an already extreme extreme based on the envelopes, and with volatility rising, AND spiking to reach the defined channel on NFP, my decision was easy. My short entry was 5744.
Now because the chart is swinging higher I’ll take some profit if I get 300pts and then see what happens. Yes, 5400ish is my first target. Que sera sera…