The top 30 companies trading in the Frankfurt Stock comprises the German Stock Index often called as the DAX. (Deutscher Aktienindex (German stock index)) .Professional trader prefers long-term investment in the DAX since the market tends to exhibit trending features most of the time. Though there are a number of ways to trade the DAX index but most of the long-term investor prefers Fibonacci retracement trading strategy.
The retracement level drawn by using the Fibonacci indicator gives the trader unique advantage to ride in the direction of the trend for further extended moves. The most important Fibonacci level used by the professional long term DAX (also known as blue chip trader) traders are 38.2%, 50%, and 61.8%. Let us see Fibonacci trading setup in the DAX:
Figure: Trading the DAX index with Fibonacci retracement level
In the above figure, the most recent swing high and swing low is used to draw the Fibonacci retracement level in DAX price. Professional traders wait for the price to retrace back to the important Fibonacci level to enter the trade in the direction of the trend. Though there are three major important retracement levels but while trading the germane DAX most long term traders only consider the 61.8% retracement level.
Professional traders look for price action confirmation signal in the 61.8% Fibonacci retracement level of the DAX index. The top most reliable candlestick confirmation pattern used by the long-term investors is the engulfing pattern, bullish morning star, bearish morning star and the pin bar. If this highly reliable price action confirmation signal is formed at the 61.8% retracement level traders take their trade with a minimum 1:5 risk reward ratio. This system tends to work more than 80% of the time when the 61.8% Fibonacci retracement level confluence with other important support and resistance level of the DAX Index.