DAX Reverses To Test The Mother Of All Resistances
Axiory | Feb 23, 2022 06:12AM ET
If you had to choose one index where a lot is going on and the situation is highly technical, I guess you would also choose the German DAX. The DAX loves horizontal supports and resistances, and knowing where they are can make your life as a trader a little easier.
For almost a year, the DAX lived happily above the 14900 points support (orange). During that year, this level was tested a few times, and the test always ended positively for buyers with a bounce and a further rise, sometimes leading even towards new all-time highs. This idyllic mood ended after the weekend when the price destroyed the 14900 support and decreased significantly. By all means, that gave us a sell signal.
Quite surprisingly, sellers backed out pretty quickly. Markets reversed, and so did the DAX. The price is still below the orange line, but it’s testing it as we speak; it’s currently testing the broken support as the closest resistance.
This kind of movement is not surprising. Such a V-shape reversal can be an excellent start for a false breakout. If the price climbs back above the 14900 resistance level, a false breakout will be accomplished. That would mean a proper, long-term buy signal.
How to trade it? From a technical point of view, we should not overcomplicate it. So usually, the attack of resistance from the bottom is a good occasion to sell. On the other hand, the price breaks the resistance and climbs back above, a great occasion to buy.
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