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How to trade Germany’s main stock index
The
DAX is a blue-chip stock market index which comprises of thirty major German
companies trading on the Frankfurt Stock Exchange (FSE). In this sense it is
similar to the Dow Jones Industrial Average which also shows how 30 large
publicly owned companies in the US have traded.
Some
of the leading companies in the DAX index are Siemens, Allianz, Adidas,
Deutsche Bank, ThyssenKrupp and Lufthansa. Germany is the largest economy in
the European Union and in the top 7 largest economies in the world. The DAX is
a capitalization-weighted index which means that the companies with a
greater market capitalization will have the greatest influence on the price.
The DAX’s history
The
DAX actually started it’s like known as the Börsen-Zeitung
and it was started by a German financial newspaper. If you had bought and held
the DAX from the 1960’s you would be in a very healthy profit now.
The
DAX has made strong growth since its inception and it went through 2000 points
in 1993, 5000 points in 1998 and during the financial crisis of 2008 the DAX
had made it above 7500. The Dax reached its record high this year peaking at
13,596.89 in January. Its current price is 12,346 and the chart below shows how
it’s value has increased since 1959 when it was priced at only around 300.
The
exchange for DAX futures is the Eurex which has a market opening time from
0700-2100 BST time. Trading the DAX can be done day to day as there are many
moves to be had. Trading
the DAX with SimpleFX is very easy. Here are some top tips for
trading the DAX.
1. Be aware of key fundamental drivers
At
the moment there is a crisis going on with the Turkish Lira. The reason this affects
the DAX is because the nation of Turkey runs on a currency account deficit the
worry is that they will end up defaulting on the loans that European banks have
made to Turkey.
As
a consequence, the DAX has been being sold off on the fear of contagion from
Turkey extending into Europe. On top of this crisis the US China Trade
war has been weighing on global sentiment and the DAX has felt the weight of
that recently too.
So,
since the start of August the DAX was sold off and tested recent daily support
levels at 12200. It is now looking at testing that level once again with the
Turkish situation far from resolved (the Lira is still really weak) and the US
China trade war shows a risk of heating up with Trump wanting to announce a
further $200 billion in tariffs.
2.
Use key technical tools to define and limit risks
Support
and Resistance
Arguably
the most widely followed aspect of technical analysis is support and resistant
levels. Support and resistance levels are key market levels where price has
shown reaction in the past. As price moves towards those levels, which price
has reacted at previously, they become significant as points in the market
dividing buyers and sellers.
For
example, price is now approaching the key daily support level on the DAX which
is a previous double bottom at 12200. If risk sentiment returns into the
market, the US China trade war recedes, and the Turkish Lira crisis is
controlled the DAX will likely rally on the fundamental shift. Traders could
place their stops on the other side of the support level in the 12000 region
for a play back to the 12900 region.
Moving
averages
Some
of the most popular moving averages are the 50, 100, and 200 moving averages.
These moving averages show what the average price has been over the last 50,
100, or 200 periods. These can be very useful in providing good places to enter
the market especially as they are widely respected technical tools that are
viewed by many traders.
It
is preferred to use the exponential moving average as it is more responsive
than the simple moving average. If you look at the chart below you can see how
price respected the 100 MA level on the 1-hour chart on the DAX. Knowing the
DAX was fundamentally weak would have given traders confidence to lean on the
100MA as a key place to define and limit risk.
Fibonacci
retracement
The
Fibonacci tool was named after a 13th Century Italian mathematician, Leonardo
of Pisa, known as Fibonacci. He was the son of a Pisan merchant and he traveled
widely and traded frequently. Fibonacci numbers are found extensively
throughout the natural world and they are also used in trading as one of the
most common trading tools.
The
way it is best used is in the instance when some news is released that is very
bearish for the DAX. Traders who missed the original move will wait for price
to retrace to a key Fibonacci level in order to rejoin the move
By
using these common technical analysis tools, traders are well equipped to identify
places to enter, exit and place their stops. Technical analysis should
not be used in isolation from sentimental and fundamental analysis when trading
the DAX, but when used in combination with them it becomes a powerful
component in successful trading.