The German 30 or DAX if you prefer, is one of the most heavily traded markets. This is certainly true for day traders as it can be one of the easiest markets to predict spread betting price movement on from a day to day basis.
It also moves more than most currency markets from a daily point perspective. This adds to it as ideal market to spread bet.
There are many strategies and systems floating around online that can show you various ways on how you can make money from trading the German 30 DAX… I hope though, that none are going to be as simple and quick as this one.
Although this strategy is for financial spread betting [so you will need an account with one of the financial spread betting firms]. You could easily convert it to a binary trading system… I’ll show you how later.
Ok, with that said, lets get down to business and look at how we can trade the DAX.
DAX Trading System
I’m currently working on a day trading system for the DAX. It is looking very promising and I am now testing with real funds.
However, it has been whilst testing this new system that I spotted this little niche and I thought that I must share it with you now.
There are no technical indicators other than support and resistance lines to use.
All you need are some live charts.
NOTE: If it [this strategy] or something similar has already been published somewhere, then hey ho… I’m not claiming any rights to it.
The Rules of the DAX Trading System
Firstly, you need to open up your charting package and select the German 30 index.
Once selected you need to set the candles on the chart to 10 minutes.
I’m using the IG charts in these examples. They are good charts and are free even if you’re not trading on IG platform.
Now that I have selected the correct candles, I now need to look at the range of price movement from 7am – 9am
It is the price breakout from this range that we are going to be trading.
Whilst developing my new DAX trading strategy, I noticed that the first 2 hours of the DAX from 7.00am gave some major swings back and forth. Although you could try and trade this volatility alone, I thought it safer to trade the price breakouts from this range.
What is important to remember here is that we are not trying to get in on the start of any major movement and get out just as it finishes. Although a nice ideal it’s unlikely to happen with any regular occurrence.
Look at this chart image of the DAX German 30
Dax Trading Zones
This image is of the first 2 hours of price movement. You can see that from 7 am until 9 am that the price has consistently swung back and forth from 12418 to 12382. I have highlighted this with the blue support and resistance lines.
This price zone gives us a 36-point range. That is actually quite a small range for the DAX and we can realistically expect a price breakout at some stage over the course of the day.
NOTE: Sometimes when trading this system, you can easily [and regularly do] get a price range of 100 + points. When the range is this large it’s better to leave this strategy and trade moving average crossovers.
So, from here we are looking for the price [our 10 minute candles] to close over or under one of our blue support or resistance lines. To simplify this we can set a price notification.
So the next thing you need to do is set the price alerts. Doing this saves having to be at your pc all day or checking your phone every 10 minutes.
Here’s how you create the alerts.
- On the right hand side of the ig screen you’ll see the alert tab. Click that and then click the price level tab.
- Enter the price levels of where you have drawn your support and resistance lines.
- Click the set alert button.
Now when the price reaches one of these levels you can check to see if the candle will then close over or below the level, and if so we can then consider opening a trade on the following candle.
Opening a trade
To open a trade, we need to be clear and sure that the price has truly broken out of its trading range. It is important the price hasn’t just tested the levels and is going to reverse.
To do this and be confident that the price is breaking out from range, we are looking for a big bull or bear candle to break the S&R lines.
As you can see from our chart… the price continues to move sideways until we get a good bull candle that clearly breaks the resistance line.
Once you are ready to enter the trade, you just hit the buy or sell buttons in the top right hand corner of the IG screen.
With our breakout candle you can see that there is a small wick that formed at the top of the candle. Ideally you should enter the trade once the next candle has broken this level.
This can help ensure that the price will continue to move in our direction with minimal drawdown.
Using Binary.com to Trade
If you don’t fancy trading on IG by spread betting this DAX trading system, then you can still trade it on binary.com
To do so just trade the German 30 will be higher or lower in 2 hours’ time.
This 2 hour time frame seems to suit this strategy really well.
You can’t start the trade now on binary.com so you will need to set the time of the trade to start a minimum of 5 minutes into the future.
Using Resistance Levels Versus Moving Averages
Resistance levels are one of the key indicators for day traders, but as you know, moving averages are probably the most used indicator in any form of financial trading.
Moving averages are awesome… but if you look at our chart with one of the most popular short term moving averages set ups added, you can see the issues with this type of indicator in sideways markets.
Using moving averages that are this small has cut us to smithereens. In and out of the markets all day and paying the spread each time as well as having our banks battered.
As you can see we have had a 7 crossover signals [blue dotted vertical lines] in the morning session alone. Most of which didn’t materialise into anything noticeable.
A better moving average for the DAX Trading System.
However, if you use a longer moving average you can manage to stay out of most the noise and still get a clear entry point that can help clarify a breakout.
I have been looking at how effective the 10/50 EMA is on the DAX and currencies for a few months now and I can say that I have been impressed with the results.
The combination keeps you out of much of the sideways movement and noise but give a good buy or sell signal to boot.
Only 1 false signal out of 2 using the 10/50 EMA crossover and the 2nd signal [crossover] signified the start of the breakout.
Using a good reliable moving average can help anticipate the price movement as well as keeping you out of choppy unpredictable movements.
So the 10/50 EMA can be very useful, but you really do not need it for signalling an entry point when trading this strategy.
You can use it however [or another moving average] to exit the trade as I’ll explain shortly.
Closing the position.
How long will the trend last? I have absolutely no idea… but I do know that once you are in on it then long may it continue. But that doesn’t help you get out of the trade.
The best way to exit a trade using this strategy is following the moving average crossovers. So basically you are in the trade until the moving averages crossover. This is the easiest solution.
You can easily use a 10/50 Exponential moving average as an exit signal. This will keep you in the trend longer but can cost you more as the trend finishes.
If you want to keep your profits a little tighter then a 5/10 Exponential Moving average may work better for you.
You can also close the trade if the price moves back under/over S&R levels or if you are using trailing stops [I don’t use them very often] when and if your stop is hit.
You can also just manually close your trade when the London session closes at 16.30pm or even when the DAX closes, although much of the price movement is often over by then.
Using stop losses
Stop losses can be great… but also a great pain in the rear.
I occasionally use them and have done when testing day trading strategies.
The question always is and always has been, where do you put a stop loss? Stating how much you want to risk on any trade is not a great idea even though popular. If you say you are happy to risk 2% of your bank on any 1 trade then why let the stop get hit in the first place? If the price seems to be bolting in the opposite direction, why let the stop get triggered?
In my opinion every trade is different… even if you are trading the same market. So therefore stop losses and where you are placing them are too.
This means that they need to be adapted as such. Plus, if you’re day trading, you need to be around to trade anyway. So you can hit the stop [close position] button as and when.
Longer term Trading
Long term trend trading is a far slower moving game. Price rarely go boom or bust in a day. So stop losses are not needed as much.
Long term trading is easier if your stop loss is whatever you are risking on that trade. Let me explain briefly.
So [an example of this] I may buy SOSO stock at £2 a point but I may be willing to risk £500 on that trade… however, instead of using a stop that keeps getting triggered every minor retracement and costing me £100 each time it does, I have a set risk in my mind. And I use moving averages to exit positions so I rarely if ever lose my amount risked.
The times I have seen my trade get stopped out, only to then see the price continue in the right direction was so irritating. And maybe even more annoying is paying extra spread for the privilege to see it happen.
Personally, with this strategy I’d be using moving averages to signal my moves, all I need to do is admit I’m wrong if need be and go the other way if I choose.
Anyway I digress, if you want to use a stop with this strategy then you are probably best putting it just beneath or above the breakout S&R lines… since you are expecting the price to move from there anyhow it is obviously far better to cut your losses sooner rather than later.
How Profitable Can Trading the DAX Breakouts be?
These breakouts on this DAX trading system can be very profitable. In fact, I’d say that even if this was your only trading system that you ever used then you’d be realistically able to grab 300 + points each month as a complete beginner.
Let’s look at what happened to our trade.
Our breakout resulted in just over 50 points profit if we closed our trade as the market closes at 16.30.
Considering that this trade never had any losing periods or drawdown since opening the trade, it is a nice stress free result.
The awesome thing with this type of trading is that your downside is limited but the upside is unrestricted.
If you look at this next example of a breakout you can see that many more points can be made.
This trade resulted in 75 points profit if we had traded out when the 5/10 moving averages crossed over just before market close.
Often the breakouts can last a day and longer, and if the breakouts occur earlier in the day the you can ride the trend for longer if it is profitable.
In this next example you can see that the entry crossover candle was quite small but not once did the price move back over the morning support level.
This trade gave a very generous and easy 106 points profit if you had closed out at 16.30 or just over 110 points profit if you had waited and traded out at at the crossover.
Leaving Trades Overnight
If you are thinking about leaving a trade over night because you have been in a good winning move and you think that it is likely to continue, this is a one of the times it can actually be a good idea to add a stop loss.
You could add a 20 point trailing stop so that you can stay in the move should it continue over night, but you also get the safety and peace of mind that if it goes against you that you can lock in most of your profits from earlier in the day.
- Open 10 Minute chart of the German 30
- Draw support and resistance lines of highs and lows from 7am – 9am
- Wait for a strong 10-minute bull or bear candle to close past the S&R levels.
- Open trade on the start of the next candle if price movement continues.
- Exit trade when moving averages have crossed over or at close of day.
- Let profits run.
- If using a stop, place it just beneath or above the S&R levels.
This really is a great stand alone DAX trading system that can be used on a regular daily basis if the morning support and resistance levels are broken.
You might not get to trade every day, but when you do, the minor risk compared to the rewards will easily see you in profit over the months.