Tim Stout – Using Encyclopedia with the DAX 40

moving on to Tim Stout of using  encyclopedia with the Dax 40 so we've  got two European indices being talked  about which is excellent a lot of  requests for this kind of thing so I'm  bringing Tim in  thank you Richard so thanks everyone I  hope everyone is doing well  um what I wanted to cover  um today is how to use the encyclopedia  while trading another index other than  the es so the Dax 40 is the German  equivalent of it's the German index so  the F Dax is the future on the German  Stock Exchange  and the Dax 40 is the biggest Euro  nominated index in well in Europe so it  trades in Euro whereas the futsi that  Tim Fairways just presented trades in  British pounds so it's the biggest index  that trades in Euro and what I want to  mention here and what I'm going to show  as well is that price action patterns as  you learn them in the course bar 18 rule  opening wedges opening an open that  quickly runs to support the resistance  all of those standard rules and methods  apply to trading another index even in  another time zone as well  um for people that don't know the decks  the Dax trades in  um the normal fdax so that's 25 Euros a  point it trades in a mini  um contract so that's five euros a point  and it trades in a micro contract which  is a one Euro a point so you could  roughly say with the Dax trading at 16  000 that two e-mini contracts is sort of  equal to one fdax contract in terms of  size and volatility  so as I said the Dax is trading  currently around sixteen thousand it  moves around 120 240 points a day a  typical scalp would be a minimum of 10  points a typical swing would be a  minimum of 40 points but very often in  Europe mornings you can get 80 to 100  points in in good opening swings  so what I want to do is I've taken just  five random days out of the last month  or so to show you different opening  ranges or different midday ranges  um different patterns and then I'm going  to apply that to the encyclopedia to  show you what to look for when there's  an open and how then to find the  matching pattern in the encyclopedia  right so let's go into uh the screen  there  um open my chart  can I open my chart  yep so first example here is 5th of July  so that was two days ago  and we had as you can see yesterday  quite the normal bear Trend basically an  all-day bear Trend and today opens with  a big gap down so you have first Bear  bar  um after a big gap down but huge tail  above the Bear bar two is a big bull bar  and then bar three is a follow through  Bull Bar so in a situation like this you  could be confused about well we had a  gap down so I'm expecting a bear trend  from the open but instead I'm getting  two big bull bars  now do I go long do I go short what do I  do here  and so at this point I would say let's  look at the encyclopedia and follow the  context for big gap done  okay so when we open the encyclopedia  and I have that  ready here  we are looking for big gap down so gap  down has four common outcomes  and as you can see and I think this  slide was shown before  there are three outcomes that are  basically bearish and there's only one  outcome that is basically bullish so the  first outcome is sort of a double top  looking to sell close to the moving  average  the second example is a run up to the  moving average looking to sell close to  the moving average  and the third example is a wet Stop  close to the moving average and then  trying to sell close to the moving  average so in 75 of the cases  if they were all distributed equally  selling close to the moving average  would actually be the best idea if you  have a big gap down there's another  version here where there's actually a  get a good bull lag if you would get a  wedge  um no a wedge bottom opening  okay so what we're gonna do on the  particular chart is going to spin it a  little bit forward and trying to sell  close to the moving average right  because that was probably the best  pattern to follow so are we close to the  moving average on bar four I think we're  too far away here  and so we're waiting for the first bar  to get us close to the moving average  now if I show you guys what followed on  that day you can exactly see that we  went down  and we went back up and the first time  that we hit the moving average we had a  bear bar closing on its low so bar 17  here  and then bar 18 at bar 18 you know that  the high or the low of the day is  probably in that counts as well on the  Dax  so there's a good sell bar here on bar  on bar 16. it doesn't trigger so we  don't go below bar 16 the 17 we don't go  below bar 18 or 19 but here you can  trigger the cell we actually test the  lows so we don't hit the low but it is  already a nice 40 Point swing  so that is already a swing on the Dax  and you can see that you can actually do  that again so sell them close to the  moving average and this in this case the  first time that you have a bear bar  above the moving average you can sell  there the second time you have a bear  bar above the moving average you can  sell there and what follows there is a  new low of the day if you pay attention  here as well every time we hit  a new high it's a lower high okay so  throughout the day this bear trend is  basically intact  these bar These Bars two and three can  lead to confusion but the encyclopedia  in this case I think would help us to  say no in the case of a big gap down the  best thing to look for is actually  selling bear bars close to the moving  average so better to wait better to wait  until the moving average comes closer to  the price or Price comes closer to the  moving average both can happen and I  Look to sell here you've got one swing  already here you could have a second  swing here or just take a Walmart trade  you know put the trade on put your stop  on put your limit profit taking over the  room and just leave for a couple of  hours and then see where you are when  you come back  in this case you've got multiple loads  of the day and almost  um no good 60 point  um swing on on the decks  so I would say the encyclopedia in this  case gave us the hint to not look for  lungs despite bar two and three  um but keep looking for uh Four Shorts  there  okay so next example  um July 4th so July 4 uh of course was a  closing day on uh the us but you know  Germany is open  and so what are what type of opening are  we getting well yesterday was Big Bear  trend  but today's open is tight  um it's overlapping it's bull bars it's  bear bars it's an inside bar it's an  inside Bull Bar followed by an outside  Bear bar there's not really a trend but  it's a super tight trading range right  this range is about 30 40 points the  average range on the Dax is 120 to 160  points a day and so 20 points is an  extremely tight trading range so it's  better not to trade and certainly not  with stop orders but Traders are  wondering which pattern is likely to  follow this  um now this is clearly an example of  breakout mode and so at this point we  look at the encyclopedia and go through  some breakout mode patterns  so back to the  Expedia  let me make this smaller  and we go through breakout mode patterns  and I had this prepared  but it's not opening  breakout mode  and breakout mode is a 50 50 market so  we can have a bull breakout we can have  a bear breakout we can have a failed  bull breakout and we can have a failed  bear Breakout  and this is important the minimum what  you need is two reversals to have a  breakout mode and it can be small and it  can be very long so it can take a long  time it can take a short time so  um even a breakout itself one bar might  not be enough you might need follow  through  or a bigger sign of breakout because  small breakouts can actually just be  continuation of the breakout mode  and a breakup mode situation bulls and  bears are equal this is important you  need about two to three bull bars  closing on their highs and above the  trading range to expect a successful  breakout and about a measured move up  okay so back to our chart  what we have is a bull bar we don't have  a breakout yet but if we move to the  next bar we see a breakup so this is a  breakout above the breakout mode but  it's only one Bull Bar the next bar  is a bear bar and the next bar is a bear  bar as well so we know from the breakup  mode slide that you need about two to  three consecutive bull bars to speak up  a successful breakout so what could this  be now this could actually be a failed  breakout and we could get a successful  breakout below  um this range than down and that is  exactly what followed  so Traders could be mistaken here by the  big bull bar breaking up above that  range  but the encyclopedia in this case helps  you with that suggestion to say you need  about two to three bull bars to speak of  a successful breakout so 10 11 12 three  bull bars in a row should warn you of  the possibility that the breakout is  failing and that the range is more  expanding and you can actually get a  measured move down which we ultimately  got and even more than that right so  selling maybe 18 selling maybe 19  definitely selling uh somewhere 2021  expecting that measure moved down could  lead you to at least 40 points if you  sold higher you could even get maybe 80  points on just um  on just that that pattern alone  all right  um next example that I just want to  cover is June 30. so June 30. Market  opens with a small Gap up but within  yesterday's range  um starts to Rally directly from the  open  this might not be a clear Trend but it's  consistently going higher and it's  making higher highs and lows so you need  to wonder how strong is this breakout on  a higher time frame  and so we could actually dive into the  encyclopedia and look for Gap up bull  trend from the open  because we might be scared of buying up  here because we're thinking it's going  to reverse but let's just look at the  encyclopedia and say what are the  chances of higher prices versus the  chances on lower prices  and so when we go to encyclopedia we  have Gap up and bull trend from the open  so 91 tells us three possibilities this  was what Tim Perry weather was showing  as well so we're somewhere here at the  bull trend from the open right we're  somewhere in the beginning of that bull  trend so if it becomes a trend day we  can just enter almost anywhere and make  money  if it becomes a reversal we can just  enter anywhere and by the time the  reversal takes place we still have time  to just switch go from long to short and  make up at least what we lost and and  even more right if it involves into a  trading range let's say we buy here  then we can still buy lower and make  money as well so the best thing to do if  we look at the three possibilities is to  just hit the market and go along  and so if we go back to our chart and we  see how that progressed for the rest of  the day this is what followed right so  we could have bought anywhere in here  using our boot Gap trend from the open  pattern and just hold and indeed it  became a trading range later but if you  bought anywhere in here you would have  banked about 140 points on just buying  and holding and selling at the end of  the day  so again don't short anywhere in here  none of these patterns told you to short  one of those patterns said it could  evolve into a trading range or you could  get a reversal but by that time you're  somewhere here and you have lots of time  to exit Longs and switch to shorts next  example  um we're almost there is June 21 so June  21 I want to show maybe not an opening  example not an opening range example but  Traders are asking like if I trade Dax  or if I trade ftse or nikai or whatever  type of different index does it also do  midday reversals so midday reversals on  a mini are typically happening around  bar 40 bar 45  and so I have an example here on the Dax  of June 21  all the way up until bar 40 42. and so  we had a gap down Bear bar but we  reversed back up we had a cell climax on  bar one It reversed on bar three it  developed into some sort of a higher  trading range and bar 40 is now leading  up to a wedge top lower height so it's a  lower high with bar 15. it's a wedge  three pushes  um we're sort of at that wedge top and  we're wondering could this be a lower  high major Trend reversal on a midday  reversal  and so again we look into the  encyclopedia to find examples of midday  reversals so met the reversal down  let's look at this example  so you can see around bar 41 wedge top  small wedge within big wedge nested  wedge tops bar 41 midday Trend reversal  down now this is different of course on  the X because there are not 81 bars to  the day there are more than 100 bars  today on the German Market but there are  reversal patterns Around Bar 40 to bar  50.  and so another example could be here  nested wedge around the middle of the  day and then Big Bear bars selling the  third Bear bar is actually quite  profitable because you can see a lot  more down after three bear bars  so that tells us and it gives us an  indication that if we start to see  consecutive bare bars it could actually  be beneficial to start selling here and  so what do we get here well we're  getting three bear bars normally you  would be scared here to sell because  you're thinking oh my gosh I'm at the  low of a trading range  um we might bounce and we might go up  here but with the extra context of the  encyclopedia you could actually say no  this is going down further this is a  bigger reversal we're gonna be in here  for a new low of the day  and this is what followed so you had a  tremendous Big Bear Trend leading not  only to a new low of the day but many  many uh more points lower about 120  points you could make by just selling  bar 45 close and then hold until almost  the end of the day close to bar 100.  so another example here where  the midday reversal pattern applies as  well to the Dax it applies to the  footsie it applies to other indexes as  well and then selling and holding  actually based on the encyclopedia  patterns would help you to find a very  very nice trade there  example that we'll go through is opening  cell climax so here we have May 25  again on the Dax and we had a bear day  yesterday so we went down quite far  and  um  it was a big bear breakout but the day  closed not far from its low so usually  if you have a big bear day you don't  close very far from the low of the day  chances are that the next day we'll  actually test the low of that day  so bar one opens up a little bit above  so you actually have a gap up but it  immediately sells down so you have a big  up big down type of pattern on bar one  and it's a cell climax right it's a big  Excel climax with together with bars two  and three so the cell climax continues  there might be a little wedge here bar 7  is another huge cell climax  but eight is a sort of a flag and then  nine is another third big Excel climax  so you have an opening after a bear day  with consecutive cell climaxes now  consecutive cell climaxes is another  pattern that you can actually find in  the encyclopedia  so let's jump to the last example there  consecutive cell climaxes they're on  the part 42 here and consecutive  subclimb access maybe here on the open  so you're wondering what's going to  happen can we can we get more lower  after a cell climax what are the chances  of sideways what are the chances of  reversal  well consecutive cell climax is on the  open it could either have some sort of a  final plague and the final flag will be  a magnet if we go lower  or it could actually involve more into a  Channel or a trading range  and if it's really parabolic you could  actually get a bigger reversal our  opening reverse our opening looks a  little bit like this maybe our final  flag is not so many bars maybe it's just  one bar so what we're looking for is  some sort of a bar like this so  consecutive cell climaxes Flags into the  cell climb axis and then the big bull  bar  closing on its high or at least above  the midpoint and then by above that bull  bar  so what does the chart say  the chart says you have  a climax you have a little bit of a flag  here a little bit of sideways you have  another climax you have a final flag bar  eight and then another cell climax bar 9  and now you have a big bull bar closing  on its high almost on its High  completely and so you place a buy stop  one tick above bar ten  and this is what followed you catched  exactly the low of the day and it  rallied  um at least 90 points it rallied almost  100 points from your entry point so  another example of cell climb access  that might trigger you to find a short  but in this case it was actually a  reversal pattern with the encyclopedia  it would point you to exactly this bar  and you could fill your stop every time  you have a new high you throw your stop  to the next lower high and you would  only start taking profits around this  area or you would get yourself stopped  out at the next lower high  so those are I think a couple of  examples of how to effectively use the  enscopedia while trading both at the  open but also at the close of the day or  at the middle part of the day on another  index than just e-mini and that  positively convinced that encyclopedia  works and all of the pattern work on  Commodities on indexes on anything that  trades with enough volume to make price  action patterns happen  that was what I wanted to share Richard  um my name is Tim Stout thank you for  listening and I'll give word back to  Richard  thanks Tim much appreciated and see you  later