The outside bar that has developed upon today’s stock market close may hint toward further bearish momentum over the next couple of days. It is way too early to consider this a “trend” reversal, BUT a significant retrace is within reason. Taking counter trend trades are risky BUT what makes them worthwhile is their high reward/risk ratio. We have been tracking relatively weak markets such as the IWM and DAX for some time and IF the major U.S. markets pull back, the DAX is in a position to outperform on the bear side.

Facts About Shorting The DAX:

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The U.S. stock market established a bearish reversal pattern upon today’s close. This type of candle (an outside bar) may be the beginning of the broader reversal that has been elusive in recent weeks.

So how to capitalize? We sent out aggressive swing trade short ideas before the close to our members (short IWM and long calls on UVXY). This is considered aggressive because they are counter trend trades. What makes them compelling though is the reward/risk as measured by the potential of the pull back.

Another market that has been relatively weak compared to the S&P 500 is the DAX index. That is why Andrew called it as the trade of the week on today’s podcast. The chart shows the DE30EUR CFD (DAX Index) as per Oanda’s pricing. Notice the very high reward/risk (R:R).

If you don’t have access to CFDs, then just paper trade it to get a feel for how our swing trade strategy works.

One way to compensate for the elevated risk of taking a counter trend trade is to reduce the position size. For a trade like this we would risk 1% of available capital in our account.

*disclaimer: this information is for educational purposes.

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