This evening we are turning our attention to the EU indices. Firstly, the DAX and the CAC, the German and French indices, has a 0.98% correlation, meaning they both move very closely to one and other. When a large gap between them occurs we tend to see the lagging index follow in a similar trend (we teach divergence trading in our Trader X course). The German Index has already reached a new record high prior to the Covid-19 pandemic. Additionally, the US stock market is moving in a very bullish trend, suggesting we could see a continuation to the upside across the board.
German Index (DAX)
All global indices “gapped” down during the covid-19 pandemic, this creates a “gap” in the market. Generally speaking all gap downs are filled at some point. If you would like more info on gaps in the market jump in the live chat in the trading floor. The DAX is now moving into a new record high and most indicators are suggesting further upside.
CAC – FRA40 – Daily Charts
The French index on the other hand is lagging behind, and is yet to fill its gap down back in Feb 2020. I am not suggesting we trade all the way to 6100-6200, however there are resistance zones in-between we are looking to target with a nice risk v reward. Depending on market conditions we may look to let this trade run.
FRA30- CAC – 1 Hour Charts
The CAC is currently closed and will open during the EU open. We will not need to rush to place the position as there could be a gap up due to the rally in the DAX.
We are looking to go long on the market and we are looking to give our selves at least a 100 pip stop loss on the trade.
For example if we open a trade at 5616 our stop loss will be 5516, leaving the TP open to run.
Trade Setup (pending market open) BUY – 5616, stop loss 5516 and take profit open.
Stop loss 100 pips
When trading indices always check the specification and contract size. On focus markets, 1 contract = 10. Meaning 1 pip = 10 euros. We do not include the decimal place when trading indices.
For the more aggressive traders, also keep an eye on the UK FTSE, we are also setting up a possible inverted head and shoulders and a bull flag structure. This will potentially be a nice swing trade opportunity.