DAX40 - huge bullish explosion possible
Hello everyone. Despite the Ukranian-Russian crisis, I spotted a possibility for another quick and large bullish movement, which could be the first of a series. I would like to introduce something ... abstract to you.
My analysis is based on the famous W.D. Gann, and I am using the Square of the range. I will upload a seperate tutorial in which I will elaborate and explain how I set it up exactly. For this post though, I will limit it to the very basics.
Where do we start? I've been tracking and trading the DAX40 for an eternity, and after I got a bit bored of its non-directional, highly volatile ups and downs, I finally spotted another bullish build up, that looks very promising to me.
As some of you may know, and if you didn't, you will after reading this: W.D. Gann did not only rely on the price axis, but also on the time axis. Hence each square of range is divided in 5 "time" segments which are meant to influence the direction or intensity of the underlying assets moves. "Once time is up, price will be down." - W.D. Gann, but wat does that mean?
It's easier than it sounds: once price hits one of these time verticals, a move is likely to turn around entirely.
This theory is based on Gann's theory of waves, harmony, cycles and vibration - which is in all things, even in the stock markets, as he claims.
As can be seen, the graph did in fact turn around each time it hit one of the time cycle verticals:
Given the fact we just passed one of these time targets, that could leave us wondering if it will turn around again this time.
But, time targets are not the only method this analysis relies on. Which leads us to the more commonly known variable: price, or the y axis. What seems to be a mess of lines and angles, in reality is very simple and well structured. Let me break it down to its basics for you (a more detailed explanation will follow in the next "tutorial" post):
Each of these lines represents something very common: "Resistance", and "support". Nothing too crazy, right?
But how does it work? Basically, if price touches one of these lines, each of these lines is supposed to act as a (future) resistance or support line/level. In this case, there are quite a few obvious examples where said lines acted as resistance or support.
Since price is coming DOWN on this highlighted line, it is supposed to function as a support line.
And now this is where it gets interesting. We have:
A) a support line, that has already supported the price several times in the past.
B) our vertical time target, which is supposed to change the current bearish trend into a bullish one, AND
C) a second support line price has failed to penetrate in the last couple of days.
These crossings of (usually) two major support lines in combination with the time target tend to be very efficient and reliable. Of course, in this scenario, volatility is quite insane right here, as we've seen intraday volatility of roughly 3-5%. Which makes me cautious on this one. Usually I would just try and get in, but this time I will significantly lower my position size, and greatly extend my stop loss, in order to give my trade more space to manouver and to avoid getting stopped out too early and watching it take off without me later.
I'm using 10% position size here (1/10), and extended my stop loss by 1000% (10 times). In numbers (nominals) this trade is just like any other. I'm using a tenth of my usual position size, but ten times the stop loss i usually do, which nets me at the usual max risk, but with ten times more space before getting stopped out.
Now that we discussed the entry, let's move on to the final part of this analysis. The target.
My first target, is of course the 0.833 horizontal resistance price failed to penetrate twice in the past. Based on Gann's so called "seven times base" theory, my intermediate target is the 3-times-base and the final target would accordingly be the 7-times-base.
The idea behind this is very simple and it's easy to set up:
Gann's "base" is defined by the first eighth of the initial wave.
The green arrow represents the current wave we are in. The first impulsive move of that wave will define the base. It's the first eighth of the whole bullish wave.
In order to determine my final targets, I will just extend this base seven times, just like this:
Depending on the count people may refer to it as the 4th and 8th base, or the 3-times-base and the 7-times-base. Both mean exactly the same though. It just depends on whether you count from the very bottom of the first move, or from the very top of the first eighth. I know, this may sound confusing, so I uploaded one last screenshot for you.
At the end I wan't to provide a more commonly known, and conservative indication that we could in fact see a hard reversal here. I spotted a RSI(7) divergence in the daily timeframe, which can be seen here.
If you made it till here, I wanna thank you for reading all this, and I hope to inspire you a bit with Gann's abstract way of thinking. Feel free to critisize anything, we are a community, and communities should be constructive. Criticism is welcomed, especially if you are a fellow Gann-trader ;)
My analysis is based on the famous W.D. Gann, and I am using the Square of the range. I will upload a seperate tutorial in which I will elaborate and explain how I set it up exactly. For this post though, I will limit it to the very basics.
Where do we start? I've been tracking and trading the DAX40 for an eternity, and after I got a bit bored of its non-directional, highly volatile ups and downs, I finally spotted another bullish build up, that looks very promising to me.
As some of you may know, and if you didn't, you will after reading this: W.D. Gann did not only rely on the price axis, but also on the time axis. Hence each square of range is divided in 5 "time" segments which are meant to influence the direction or intensity of the underlying assets moves. "Once time is up, price will be down." - W.D. Gann, but wat does that mean?
It's easier than it sounds: once price hits one of these time verticals, a move is likely to turn around entirely.
This theory is based on Gann's theory of waves, harmony, cycles and vibration - which is in all things, even in the stock markets, as he claims.
As can be seen, the graph did in fact turn around each time it hit one of the time cycle verticals:
Given the fact we just passed one of these time targets, that could leave us wondering if it will turn around again this time.
But, time targets are not the only method this analysis relies on. Which leads us to the more commonly known variable: price, or the y axis. What seems to be a mess of lines and angles, in reality is very simple and well structured. Let me break it down to its basics for you (a more detailed explanation will follow in the next "tutorial" post):
Each of these lines represents something very common: "Resistance", and "support". Nothing too crazy, right?
But how does it work? Basically, if price touches one of these lines, each of these lines is supposed to act as a (future) resistance or support line/level. In this case, there are quite a few obvious examples where said lines acted as resistance or support.
Since price is coming DOWN on this highlighted line, it is supposed to function as a support line.
And now this is where it gets interesting. We have:
A) a support line, that has already supported the price several times in the past.
B) our vertical time target, which is supposed to change the current bearish trend into a bullish one, AND
C) a second support line price has failed to penetrate in the last couple of days.
These crossings of (usually) two major support lines in combination with the time target tend to be very efficient and reliable. Of course, in this scenario, volatility is quite insane right here, as we've seen intraday volatility of roughly 3-5%. Which makes me cautious on this one. Usually I would just try and get in, but this time I will significantly lower my position size, and greatly extend my stop loss, in order to give my trade more space to manouver and to avoid getting stopped out too early and watching it take off without me later.
I'm using 10% position size here (1/10), and extended my stop loss by 1000% (10 times). In numbers (nominals) this trade is just like any other. I'm using a tenth of my usual position size, but ten times the stop loss i usually do, which nets me at the usual max risk, but with ten times more space before getting stopped out.
Now that we discussed the entry, let's move on to the final part of this analysis. The target.
My first target, is of course the 0.833 horizontal resistance price failed to penetrate twice in the past. Based on Gann's so called "seven times base" theory, my intermediate target is the 3-times-base and the final target would accordingly be the 7-times-base.
The idea behind this is very simple and it's easy to set up:
Gann's "base" is defined by the first eighth of the initial wave.
The green arrow represents the current wave we are in. The first impulsive move of that wave will define the base. It's the first eighth of the whole bullish wave.
In order to determine my final targets, I will just extend this base seven times, just like this:
Depending on the count people may refer to it as the 4th and 8th base, or the 3-times-base and the 7-times-base. Both mean exactly the same though. It just depends on whether you count from the very bottom of the first move, or from the very top of the first eighth. I know, this may sound confusing, so I uploaded one last screenshot for you.
At the end I wan't to provide a more commonly known, and conservative indication that we could in fact see a hard reversal here. I spotted a RSI(7) divergence in the daily timeframe, which can be seen here.
If you made it till here, I wanna thank you for reading all this, and I hope to inspire you a bit with Gann's abstract way of thinking. Feel free to critisize anything, we are a community, and communities should be constructive. Criticism is welcomed, especially if you are a fellow Gann-trader ;)
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*** UPDATE ***