The German DAX is one of the most influential markets in the world, yet 98% of U.S. traders do not use the DAX in their analysis. Because of the strength of the DAX, this can create a huge disadvantage. The Dax can forecast the U.S. markets as well as confirm trends as you go through your decision making process. Let’s talk about why this index is so influential on the U.S. markets.
The Deutscher Aktien Index or DAX is Germany’s primary blue chip stock index. Most similar to the Dow Jones in the U.S., the DAX consists of 30 of the largest companies traded on the Frankfurt Stock Exchange. Because Germany is the largest individual European economy, the DAX is considered to be the most important index in Europe which in turn makes it highly influential on U.S. markets. In recent years, a large portion of the companies on the DAX have become increasingly more important to the global economy as a whole. The global nature of the DAX’s influence is why it is such a crucial part of my analysis and application of the DTI method. The DAX futures are traded on the EUREX exchange. If you would like to learn more about the details of the contract, please visit www.eurex.com . Here are a few of the most familiar companies listed on the DAX:
BMW, Addidas, Merck Pharmaceuticals, Volkswagen, BASF, Siemens, Bayer, Daimler, ThyssenKrupp
I began trading the DAX because of one of the worst tragedies in U.S. history; 9/11. As a result of the day’s events, I was left with no market to trade. I was always aware of the DAX but had never traded it or watched it with any real intent. It was one of the only markets open to trade so I decided to do some research and look for an opportunity. I have traded the DAX actively and used it as an indicator ever since that day. I already had an understanding of the global nature of the market, but trading the DAX seemed to bring my accuracy up and suddenly the concept made more sense. Based on the premise of a truly “global” marketplace, I have found it to be extremely beneficial to consider who is in control based on time of day. It is very important to understand that the markets never stop moving. In fact, it’s so important I wrote my second book about this concept and titled it accordingly: “The Markets Never Sleep”. In my book, I illustrate the concept of the 24-hour global market and emphasize the region of the world that is in control of the market at 4 major time segments (see illustration below). Notice that Europe is in control directly prior to the U.S. Morning market. This brings us back to the DAX. If Europe has primary influence on the markets directly prior to our open in the U.S., why would you trade without knowing what the trend was during the European time frame? What better way to gauge this trend than watching the most influential European index; The German DAX. More often than not, the S&P 500 will follow suit with the DAX. If it doesn’t follow suit, then you should stay out or look for a reversal of the trend set in motion by Europe. By learning to use the DAX as a guide to the U.S. markets, you can instantly improve your odds of a successful trade.
There are a few things you need to focus on in 2013 pertaining to the DAX. On January 2nd, the DAX set a high of 7805. We have not been back to that number since then and we are currently trading around 100 points below it. Keep this number in mind as you consider overall trend going forward. Given the DAX’s history of forecasting, this is very important to know because it shows major divergence in the markets. So how can you use all of this information to improve your trading? There are several major principles that I focus on in order to trade effectively in the DAX and carry that success to other markets. One of the most important concepts I use as I start my day is the Global Handshake. The Global Handshake is a proprietary calculation that was developed at DTI. By taking the major European cash markets and recording the percentage up or down you can calculate an average move up or down for Europe as a whole. This average can then be used as a multiplier to predict a target for the S&P 500 based on the previous day’s close. Once you know where the S&P should be, you can also use it to find targets in other major indexes based on their correlation to the S&P.
At the end of the day, it’s all about putting the odds in your favor. When used in combination with DTI’s RoadMap™ Software, the concepts we’ve discussed can do just that. To be a successful trader, you must learn to do two things really well. Increase your accuracy and reduce your risk. Learning to trade the DAX and use it as an indicator will help you accomplish this. Trade to Win!
For more information on trading or formulating a trading plan, please contact DTI Partners, Inc. at:
DTI Partners, Inc.
1555 University Blvd. S.
Mobile, AL 36609
Tom Busby is the founder, President and Chief Instructor of the Day Trading Institute in Mobile, Alabama. Tom has traded the S&P 500 every day (but six) since its inception in 1982, and is well known throughout the trading community. In 1996, he founded the Day Trading Institute to teach others his unique method of using the S&P 500 as the market leader for trading futures, options, equities and other securities. The Day Trading Institute teaches its students how to approach the market using technical analysis combined with risk management techniques. More information about Tom Busby and the educational and informational services of the Day Trading Institute may be obtained by calling toll-free 800.745.7444 or by email to firstname.lastname@example.org. Visit their web site at http://www.dtitrader.com.