Instrument : DAX CFD
Date : 2021.06.09 16h35 (UTC+2)
As usual, I will take the opportunity of a trade I took yesterday to explain how I found a high probability trade by identifiying a seller trap.
1. The chart before the trade
This chart is from DAX June the 09th 2021. Actually it’s a CFD chart, I didn’t need any futures data feed to take this trade.
What you can see here is a down trend since london open (at 9h00). This down trend broke a major uptrend line that I had from higher timeframe. Then the price stopped and reversed at 15500, came back to retest the trend line and began to go down again.
Would you buy or sell at this point?
Warning : well, first let me say that there’s no right answer. There’s a higher probability side that you could know because you studied the DAX price action a lot, but that’s all. You must have a stop loss and understand that the market does whatever it wants to do, accept the loss if it hits your stop loss.
2. Everything said SELL to retail traders but…
I think you would agree that everything said SELL on this chart if you look at the price candles only. The down trend is clear as day, the selling candles are pretty big, and the price even retested the major trend line (retail traders often learn to sell a retest of a broken trend line).
But… depending of the brokers, they say 73% to 95% of retail traders are loosing money trading.
3. The buying clues
Now let me show you on the chart why I bought for a short term trade there:
- At 13h35, price made a low at 15500 with some decent stopping volume. Stopping volume explanation would need a full article but understand that when volume is increasing, there is more interest at the corresponding price. Here, the most probable scenario is that there are some buyers.
- The down trend channel was broken…
- Price went down again aggressively and then a stopping volume appeared again. It didn’t broke the previous low, it can mean that some sellers are trapped at the previous low and market makers don’t want to give them the opportunity to exit flat.
- And then we had a suspect consolidation that lasted about an hour. If price wanted to continue the drop, it wouldn’t let you 1 hour to enter a sell position. The markets need your money, it doesn’t need to give you money 🙂
This consolidation above the “3.” pin bar probably means that some sellers were trapped again and they are waiting for more sellers to take this nice down trend (I’m ironic of course…).
4. Where to exit the trade?
If you bought at the consolidation, the stop loss below the consolidation + a little margin is quite obvious. But where to exit this trade?
Well, do you remember this major trend line we saw at the beginning of the article?
It looks like a nice exit point because we have a confluence around 15580 with a high volume node (that you can see on the left of the chart). Also it’s an interesting level where there is some liquidity to grab for market makers because retail traders may have some stop loss orders there.
5. The final trade
As a result, this buy trade gave us a a nice risk/reward of minimum 1:2 because the stop loss could have been more aggressive on this trade.
As usual, I hope you will learn something from this analysis, that’s all I want.