Today I’m going to highlight some interesting trades on the DAX one minute timeframe.

There are three trades that we took and that are contained in the chart above. Two of the trades worked perfectly and the third worked out ok but didn’t reach target.

As always the idea in highlighting our trades is to enable you to start recognising the price action patterns that reoccur constantly on charts of all markets. Learn from the past and when you recognise the same thing occurring in the present then you will have the confidence to take the trades and to profit from them.

The first thing of note on the chart above is the bigger picture. The market is in a trading range. It is moving up and down the chart in a range. Theoretically it is in a down sloping range, so it could also be a bear channel, but the way that we trade it is the same.

When the market is in a large swinging range like this we look to take trades from the highs down to the lows and from the lows up to the tops.

On the chart we have three moving averages, the 90 period (black line), 20 period (red line) and 8 period (blue line).

Double Top premarket

As we join the price action on the chart the market makes a double top above the 90 period moving average. This double top formed premarket so we didn’t take this trade. The market then plummeted down to our support level at 12100 (black horizontal line).

Micro Double Bottom

When mini double bottoms occur at an important support level then they often give us a good risk and reward trade. The most important thing to look for is a good signal bar.

The support level gives us the context and the signal bar gives us the trade entry signal.

In this case we are looking at bars 1 and 2 on the chart. The move down to support was very strong and when these two bars formed the market is a long way down from the 20 period moving average. I always see the 20 bar moving average as the value line and when the market pullback after being extended in this way then it often pulls back to the 20 bar moving average.

Bar 1 and bar 2 are pin bars and so are excellent signal bars. Although they have bear bodies they have large pins on the end and therefore show rejection of lower prices. Bar 2 closes up above its mid-point and therefore is an excellent signal bar.

My entry for micro double bottoms is just above the high of bar 2. My target was at the 20 period moving average. This is a moving target but is likely to remain roughly where is it when the trade triggers as long as the trade starts off going in our favour. In this case we reached the target easily and within four minutes.

This trade gave us a risk to reward of about 1:1.5. Since it was a very high probability trade (micro double bottom at support with a pin bar entry) these odds are acceptable.

Bear Trap

After the market reached the 20 period moving average we got a few minutes of price consolidation before the market started moving higher once more.

Bar 3 was a bullish engulfing candlestick that stretched right up to the 90 period moving average. You will note that the 90 period moving average was tracking downwards when price reached it, so it was almost inevitable that price would bounce downwards from here.

We then had a number of inside bars (inside the engulfing candle) that were pressed between the 90 period and 20 period moving average.

The 20 period moving average was pressing price upward and the 90 period moving average was pressing price downwards. This is what we refer to as a price squeeze. Something had to give.

In this case price broke down from the 20 moving average in bar 4. This was an unexpected move since the mini trend was upwards. You can also see price tracking up the 20 period moving average. This is a very bullish signal.

It was a perfect bear trap. Bears saw price break through the 20 period moving average and move below the low of the previous engulfing candlestick. Seeing this, lots of bears got in short.

The bulls were waiting in anticipation of this candlestick failing. It did fail and in fact it closed back above the 20 period moving average.

Bar 4 was a perfect bear trap and a perfect bullish pin bar and signal bar. As bulls pushed price above the highs of bar 4 just think about what the bears who were short were feeling at this time. They were panicking, they were losing money. They all covered (exited) their shorts at once.

As bears exit their short positions and bulls enter long positions this gives us a double pressure move. I normally look for 1:2 risk to reward on these moves. Stop below the signal bar 4. We reached target easily here.

Failed target on Double Top trade

As we exited our bear trap trade the market stalled. It stalled at 12140. There is nothing significant about this level other than the fact that this was the very level where price broke out lower earlier in the day. It was also the opening price of the day. This made it a perfect reversal level.

The market made a lower high just below 12140. The high of this second low also contained a bearish pin bar. This is a perfect double top setup.

There are a few ways of trading double tops. My entries on double tops are when price breaks the low in-between the two tops. My target is the height of the double top pattern as illustrated on the chart.

On this occasion we did not make my target before I exited. Bar 6 was a perfect bullish pin bar. This triggered my exit. I still exited for a profit but it was about halfway to target.

I hope that you found this analysis useful. If you wish to learn to take trades with confidence and manage your risk like in the trade above then I would be delighted to teach you all that I know in our Trading training course. Join us today.