DAX Trade Idea Deep Dive

This one quote changed my view of the markets forever

This one line changed my view of the markets forever

Over a decade ago I remember reading a Linda Raschke quote.

It said:

“Think of the market in terms of concepts rather than specifics”

Huh?

WTF does that mean?

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Well, I interpreted that as don’t try and be too precise, think in terms of themes and broad ideas.

In other words, adjust the way you view the market, look at key pieces of information, and build trade ideas/themes from there.

Information like:

1. Price action around the previous day’s high/low
2. The length of the upswing relative to the downswing

These observations give you a very good insight into the market sentiment and who is in control.

Let’s dissect this DAX chart together and see if we can understand the idea.

Alright, what’s happened here?

  • Price goes bid right at the 8am bell
  • It tests the prior high immediately after a 41-pt drive. Straight up street.
  • Then pulls back 23 pts for 15 minutes or so before attacking and easily clearing the prior high yet again.
  • Now, the next drive-up is wider and longer at 57 pts.
  • Next, it settles at the 17500 round number for a touch over an hour. Price is happy here.
  • A small 21-pt retracement resets the extension.
  • This sets it up nicely for a powerful 70-pt push

And then that particular market sequence is over…

Alright, so looking at the chart in hindsight is one thing, but what clues could be seen in real-time?

  1. The quick drive off the open right to the prior day’s high = bullish
  2. The small rejection before the quick secondary attack = bullish

Price response at highs and the upswing relative to the downswing…

Ok, so using that framework we can both agree we are seeing bullish signals…

How do we create trade ideas in real time from that?

Let’s assume we aren’t Instagram hindsight traders and haven’t bought the open…

We’re observing the price action unfold as it goes and forming our ideas from there.

Let’s do it…

The market looks strong and starts to consolidate at highs. Check.

Which starts to sow the seed for a possible breakout trade, or a pullback Wyckoff spring-type move.

Agree?

Ah yes, but before we dive in let’s pause here for a moment and check a few things.

  1. Firstly we want to check the daily ATR before buying near highs right? There needs to still be some meat on the bone. We don’t want to buy a market at new highs if it’s already done its typical daily range.

    In this case, the ATR(10) is running at 150 pts and we’ve only done 80 pts range from low to high.

    So, still some juice left and a reasonable price target to the upside.

    Good.

  2. What was the length of the prior pullback? 23 pts.

    Ok, so that gives us a rough framework to play with for the pullback trade if it sets up.

Alright, let’s see how the price action unfolds.

So after the congestion, price starts to drift back very slowly for about 20 pts or so.

All bullish signs so far, the pullback is shallow and approaching the magnitude of the last.

Looks like we might have a Wyckoff spring buy setting up…

Ok, time to get ready for the entry.

A flush, a wick, an ignition bar… all would be reasonable triggers.

There we go, a bullish ignition bar to trigger us into the long.

(An aggressive trader would also add on the break of the high, grrrr)

The long was pretty much a ‘zero heat one-way street’ trade up to that high-range exhaustion bar. Even an exit trail under prior bar lows was a great play.

Here’s what we did.

  • Built a framework and concept based on price action
  • Created a few trade ideas to align with that
  • Entered into the trade when we saw a trigger

Job done.

And yeah I know we are doing this in hindsight, but if we don’t analyse how we intend to play the game after hours, we’ll never get good on match day…

See what you can spot this week using that “Think of the market in terms of concepts rather than specifics” framework.