The DAX looks interestingly placed tonight as it shapes up to another test of resistance before the IFO business survey indices

Daily Chart 

Although I haven't shown it in this post, the weekly chart is overbought. This makes my preference to sell German 30 if a set up can be identified in shorter term charts.

As you can see from the daily chart below, we are now parked just below the upper resistance of a triangle formation.  In this situation it's not uncommon for price to make a total of 5 tests of the triangle boundaries (2 of the support and 3 of the resistance). This means selling on the 3rd (and hopefully final) test of the resistance is often used as an early entry on pattern strategies, providing an opportunity to get in before price breaks under the lower support.

The first chart below shows a zoomed out view with potential support around 7900 where the 200 day moving average and blue trend line are close together. This support cluster may be a possible target for a sell trade if there is a set up.

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Entry Strategy

This strategy depends on price rejecting or peaking at or close to the triangle resistance. If it just sails strongly above the resistance there is no set up.

But one alternative is  a small false break above the resistance. This often happens. It's all the more likely in this case because the chart of the physical index and the CFD (which trades longer hours) look a little different. The resistance on the DAX is a little above current levels. In this case the entry strategy could be to sell if price makes a peak just above the resistance.

The other 2 alternatives on the chart assume the current resistance is rejected i.e price makes a peak at or just below the resistance and this is followed by candles making lower highs and lower lows.  This condition could be fulfilled by today's candle

The 2 alternatives for this on the chart are

  • Sell if today's candle closes under the low of yesterday's candle. For Aussie traders this means getting up a bit before 6am AEST
  • Placing a stop entry order well below yesterday's low. This assumes that if price gets down to this level, a peak at the resistance is likely and there is no need to wait for the close.

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A typical strategy for the initial stop loss would be to put if just above the peak that rejects the triangle resistance