Trade of the week: short DAX 40
Explore our strategic short position on the Germany 40 as it encounters key resistance levels after last week's rally. Learn entry points, stop-loss positioning and profit targets.
Current trade overview: short position
In the current market environment, a trading opportunity has been identified with the Germany 40 index. The strategy involves taking a short position based on recent price action and resistance levels forming on the chart.
Trade setup
- Entry point: short the Germany 40 at current market levels, as the index tests key resistance
- Stop loss: set at 23,230, positioned above the late March highs. This placement is approximately two Average True Range (ATR) values away from entry, offering sufficient room for market volatility while limiting potential losses
- Target: aim for a downside target around the psychological 20,000 level, representing a significant potential return on the trade
Risk-reward ratio
This trade offers an attractive risk-reward ratio, with a target move that could deliver substantially more than the risked amount. The positioning of the stop loss at approximately two ATR values (roughly 1000 points) from entry is designed to withstand normal market volatility while protecting capital.
Market context
The Germany 40 has experienced a strong upward movement last week during the four trading sessions. However, several technical factors now suggest a potential reversal:
- Diminishing upside momentum, with progressively shorter candles in recent sessions
- Price action testing a significant resistance level, where previous support has now converted to resistance (indicated by the dashed line on the chart)
- A cluster of previous lows forming an important resistance zone that has already contained upward price action on Friday and appears to be doing so again
Cautionary note: while this trade presents a structured opportunity based on technical analysis, broader market conditions remain volatile due to uncertainty surrounding President Trump's tariff policies. Traders are advised to consider their risk tolerance and market outlook before engaging in this trade.
The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.
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