DAX Reverses to Test the Mother of All Resistances

The DAX loves horizontal supports and resistances and knowing where they are can make your life as a trader, a little bit easier.

For almost a year, the DAX was living 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 went significantly lower. 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 trying to test the broken support as a closest resistance. This kind of movement is not surprising, it happens all over the place.

The thing is that, usually it’s not so rapid. Such a V-shape reversal can be a great start for a false breakout. A false breakout would be accomplished if the price climbs back above the 14900 resistance level. That would mean a proper, long-term buy signal and would leave the bears absolutely crashed.

How to trade it? From a technical point of view, we should not overly complicate it. So usually, the attack of a resistance from the bottom is a good occasion to sell. On the other hand, the price breaking the resistance and climbing back above, would be an amazing occasion to buy. Let’s see how that will work out.

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