Today, I plan to share the investment insights Benjamin Graham, Warren Buffet’s mentor, gleane...
Dancing with the Dax
06/28/2007 12:00 am EST
For the last six years, I have enjoyed dancing with the Dax. The Dax is a powerful German index that trades on the Eurex Exchange. My waltz began on September 11, 2001, when our financial markets suffered a brief but major hit. Shortly after the two hijacked jetliners flew into the Twin Towers, US exchanges, including the NYSE and the Chicago Mercantile Exchange (CME), shut down and stayed closed for a week. On that fateful Tuesday, I was teaching a class at my trading school in Mobile, Alabama. My students and I were long in the S&P 500 futures. I was not watching the news, I was trading and teaching, but I knew from the behavior of the market that something had happened. Prices began falling quickly. My students and I had already taken profits from our trade and had a protective stop in place on the remainder of our original position. Our stop was hit as prices headed south, and we were removed from the market. We checked the television and learned about the tragic event.
As a professional trader, with New York and Chicago shut down, I needed to locate a market that was active. It was important to have the ability to hedge positions and execute trades. After all, I am a trader and my market skills put food on the table and money in the bank. Therefore, I began searching for a foreign exchange that was operating. I looked to Asia and tried my hand at trading the Hang Seng and the Nikkei. My initial attempts were not profitable. Then I shifted to Europe and focused on the Dax. The Dax paid me and I continued trading it and making money. Today, the Dax is one of my favorite trading vehicles; I trade it almost every day. I also use it to gauge market sentiment. Over the last few years, I have seen the power of the Dax. I no longer consider taking a trade without using it as an indicator.
I trade the Dax equity index futures. These futures trade in .50 increments, and the value of each point is 25 euros (about $33.00 U.S. dollars as of 6/25/07). Currently, the average daily range exceeds well over 100 points. That wide range offers a number of profit taking opportunities.
My favorite time to trade the Dax is between 5:00 and 7:00 am Central time. The following basic steps listed here are the ones that I utilize.
First, I begin by getting a snapshot of the global action. How did Asia close out, and what is happening in the US and Europe? Specifically, I look at the Hang Seng (Hong Kong), Nikkei (Tokyo), FTSE (London), CAC (France), and SMI (Swiss) exchanges. Is the trend up or down? I use a problem solving technique that I learned in my law school days: I create a “T” square and list the pros of buying and of selling. Then, I evaluate the case for each and determine whether the bulls or the bears are winning the game. I want to join the winning team.
Second, once I identify the direction, I concentrate on the Dax. Where is short-term support and resistance? I use 30-minute charts and key numbers to make that determination. I bracket the nearest support and resistance levels and look to sell just after support is broken or buy just over resistance.
Third, I focus on volume and sales. I have a proprietary indicator, the V-Factor that helps me with this analysis. Without the V-Factor, it is possible to study time and sales figures, but admittedly that is harder to do. I want to use the momentum of the market so I need to know when a wave of activity is forming. Then, I step onto the dance floor and tap my way to profits.
Finally, I look at key numbers. Here is a personal rule of mine: I sell on the nines and buy on the ones. That is, if my support and resistance bracket is 7938 to the high and 7922 to the low, I look to buy at 7941 and sell at 7919. Once in the trade, I take some quick profits on a portion of my positions. However, if the move seems strong, I may hold a few contracts until just before the US begins its day session at 8:30 am Central time.
I enjoy my dance with the Dax. However, even if are not a dancer, I suggest you sit on the sidelines and follow the beat. The Dax is a good reflection of global market sentiment. Understanding it and using it as a market indicator should improve your trading. To learn more about the Dax Futures, visit the Eurex Exchange Web site at www.eurexchange.com. If you’re interested in educational courses or seminars, contact DTI at www.dtitrader.com.
*Items to note: Never risk money that you cannot afford to lose. Study and know your trading vehicle before you trade it. Always know and respect risk. Futures are unique and it is possible to lose more than your original investment.
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