DAX 2 January 2007
We started 2007 strongly with DAX breaking out of the range of last week.
Although last couple of weeks were characterized by low volume, today's break above 6675 could be signaling the continuation upwards.
We opened the day with a gap. This most likely created a vacuum as those who had a short position overnight, expecting 6650 to break, closed their positions creating in turn buying pressure. This buying pressure caused price to rise, which in turn attracted new buyers making price rise even further.
Thebull27 asked me to give me some personal analysis, but anyone who wishes to comment on this, please feel free to do so.
I don't feel comfortable trading breakouts personally, but anybody who was on the lookout could have gone long at the first green dot at around 6685. Price traveled up without many hesitations (only a slight pause at the probably psychological level 6700). It moved sideways until dropping off, down to 6702ish. Price decisively reversed from this point making it a swing point where price potentially found support.
Now, along the way we have established a higher high and a higher low, making this an uptrend. At the red dot however, there is a failure to go higher, which made me short. This is a risky short, as it is obviously counter-trend and one should consider a lesser risk:reward. A better trade was my long at 6705 (second green dot), where the first swing point confirmed that we have some support there. A close stop slightly below 6700 would have covered you in case you were wrong. On the next upmove we broke above the little intraday resistance found around 6718. This is a already a relatively late entry, but for those who want to catch the train it still offers a nice profit (as we speak price is already at 6740).
This is actually one of those times I wish I did trade breakouts. There is no reason to exit your position unless you have a lower low and a lower high, which has yet to occur.
But breakouts can be tricky... they offer a low win ratio, that's why it's very important you can get the most of those that do turn out as a valid breakout.
