Market Structure Analysis – European indices

German Flag

Sharing some of my analysis of the price action of the European indices early in today’s trading session, particularly the slight differences I seem to have found between the DAX and the rest of the indices.

 

This morning I spent some time working over the charts of some of the European indices – namely the German DAX, the English FTSE100, the French CAC40 and the European Eurostoxx50.

As is usual, their chart formations look quite similar on the 4-hour timeframe.

At 11am London time, the 4-hour candle closed on my MT4 platform.  Each of the four indices showed strong bullish candles – a lot of buying pressure over the last four hours.  After first moving lower, price eventually closed significantly than the opening of the cash market levels.

I was looking to go long on these instruments.  There were various factors that I took into account in my trading decision – the shape of the candle, the size of the candle, and the location of the candles relative to recent price action.  Each of the candles look a bit different as shown in the slideshow below (if you look closely), but definitely all of them quite bullish.

Additionally, I also look at the bigger picture – the market context or trend environment – and I use (what I think is) ‘market structure’ to do this.  Here’s where I found a difference between the DAX and the other indices.  Initially I wasn’t sure why I would be more comfortable going long the DAX and not the others (in fact I shorted the FTSE on the daily timeframe earlier this morning!) – due to all the coding I have been doing in recent months, I forced myself to articulate specifically why I might have had this impression.  The answer, as shown in these slides, is that each of the indices (except for the DAX), have surpassed and traded well below the levels from late October, which I had marked as a swing point.  The DAX on the other hand, has not managed to break this support level and price is holding in this level from late October.  Thus, from a market structure perspective, the DAX appears to have more strength than its European counterparts.  Note all of the indices are still in an uptrend on the daily timeframe (as are the US indices).

This slideshow requires JavaScript.

=> Trading Decision: Long DAX @ 13037, stop 12920.  No trades on the other indices.

Some other factors to keep in mind – a fundamental backdrop – the German index is somewhat sensitive to what will ultimately happen in terms of the current German political situation (the difficulty for Merkel to build a coalition), the UK government released its budget yesterday, and the US market is on Thanksgiving holiday today which brings a lower probability of afternoon volatility.

 

Post-publishing note: 

Saying all that, the DAX now seems to be coming down much faster than any of the other indices. So what do I know – that’s trading for you!

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One Response to Market Structure Analysis – European indices

  1. FYI Exited the long DAX trade @13,067 (+30) around 6pm on Friday – my typical trade management is to not hold 4H-based trades over the weekend. MFE: +125, MAE: -81.

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