How to Scalp The DAX40 Index With A Scalping Strategy
Find out how to trade with the DAX 40 (formerly DAX 30) index in this detailed guide covering: What is DAX trading?
How to trade CFDs on the DAX 40 index, and learn a new scalping strategy that you can use whenever you trade with DAX 40.
We would also like to bring to your attention that Admirals (Admiral Markets/The Admiral Markets Groups AS) is now a licensed partner of the DAX® 40. This means we are an official license holder of Deutsche Börse AG, the license holder of the DAX®. For this reason, we are able to offer the DAX® 40 CFD to our Admirals clients.
Table of Contents
What is DAX? & What is DAX 40 (Formerly DAX 30)?
The DAX (Deutscher Aktienindex, or the German stock index) is a blue chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. Blue-chip stocks represent companies that are financially stable, well-established, and which provide good returns for investors, making them desirable investments. The abbreviation for the DAX index on the MetaTrader 4 (MT4) and MetaTrader 5 (MT5) trading platforms is DAX 40.
As of the 20 September 2021, the DAX 30 admitted ten new companies and subsequently became the DAX 40
Tracking DAX Earnings
For tracking DAX earnings and gaining a deeper insight into the market capitalisation of each DAX company, there are two important website pages to refer to:
- The market capitalisation of each DAX company.
- The price/earnings ratios (KGV in German).
What is the Price/Earnings Ratio?
The price/earnings ratio tells us how many years of earnings it takes to pay back the price. A company with a price/earnings (P/E) ratio of 14 means that it will take fourteen years of earnings to re-pay the price. Remember, earnings is the amount a company earns in a year. The higher the P/E ratio, the more overvalued the stock. During recessions, the P/E ratio can drop below 10.
The FED and the DAX 40 Index
For trading the DAX 40 (formerly the DAX30), or, even better, scalping it, there is an interesting correlation between the FED (Federal Reserve) and the DAX. The DAX is usually bearish if the FED is hawkish because when the U.S increases interest rates, it means that investors can invest their money into bonds or fixed income for higher returns than before, causing investors to leave risky assets, such as stock markets.
If you are interested in trading straight away, why not trade with Admirals state-of-the-art trading platform - MetaTrader 5? Click the banner below to download MT5 and gain more information!
How to Trade CFDs on DAX 40
Have you ever wondered why traders prefer the term equities to indices? It's because the underlying asset in the index is the price of a basket of publicly listed company shares. In short, equities are merely a stock or any other security representing an ownership interest in the company (regardless of whether the company is public or private). You need to remember that the Forex market is strongly related to equities, and that equities and Forex can correlate in a number of different ways.
Economies with a strong manufacturing and exporting sector (e.g. Japan and Germany) can experience a currency's strength and/or weakness. Firstly, investment preferences largely relate to the longer-term positional trading, usually held for at least one year, which in most countries results in lower capital gains taxes, under a 'sit-and-hold strategy'. As for short-term trading, whether its intra-day or intra-week, the most tradable indices would be the Hang Seng, the Nikkei, the FTSE, the DAX, the Dow Jones, the Nasdaq, and the SP500.
This is largely due to good volatility, strong volumes, low spreads, and wide media coverage on these markets that allow traders to make informed trading decisions. The DAX 40 is surely one of the most popular ones, and traders prefer to use DAX scalping strategies. Bear in mind that not all DAX brokers are the same, so be sure to always check their conditions first.
Scalping the DAX 40 could be performed in various different ways. Bear in mind that there are a lot of DAX scalping strategies and DAX scalping systems. We will now discuss a particularly effective strategy that you should consider trying out on your demo trading account first, before trying it out on a live account. Make sure to also check out the Supreme Edition plugin for MT4 and MT5 when you are ready to make the move to live trading, as it can be downloaded for free!
The DAX Scalping Strategy
Timeframe: 5 or 15m
Indicators:
- MACD (12,26,1)
- Stochastic (14,3,3) with 50 level
- 6 SMMA (smoothed) set on HLCC/4 (red)
- 4 EMA set on close (blue)
- Admiral Pivots: Set on Daily (for higher targets) or H1 (strictly for DAX Scalping)
Source: MetaTrader 4 - Customer Indicator - Admiral Pivot - Checking inputs
Source: MetaTrader 4 - Editing the parameters for the Moving Average
Source: MetaTrader 4 - Editing the parameters for the Moving Average
Source: MetaTrader 4 - Editing the parameters for the Stochastic Oscillator
The graph below demonstrates how your chart should look like after you apply the indicators on the MT4 and MT5 trading platforms:
Depicted: MetaTrader 4 - DAX 40 Chart - M5 chart - Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admirals(CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.
Depicted: MetaTrader 4 - DAX 40 Chart - M15 chart - Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admirals(CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.
Rules for Entries
Long Entry:
- Stochastic > 50
- Blue MA > Red MA (4 EMA > 6 SMMA)
- MACD >0
- Targets are Admiral Pivot Points
- Stop-loss goes 5-10 pips below the last swing low
Depicted: MetaTrader 4 - DAX 40 Chart - Admiral Pivot set to D1 - (M15 chart) - Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admirals(CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.
Short Entry:
- Stochastic < 50
- Blue MA < Red MA (4 EMA > 6 SMMA)
- MACD < 0
- Targets are Admiral Pivot Points
- Stop-loss goes 5-10 pips below the last swing low
Depicted: MetaTrader 4 - DAX 40 Chart - Admiral Pivot set to H1 (M5 chart) - Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admirals(CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.
Because we are using a DAX scalping strategy, if you see that the price is not making any progress, you might want to take the profit before it gets to the pivot point. Bear in mind that DAX scalping tends to be very volatile at times, so you need to ensure that you protect your profits. Don't forget to test-trade first and get familiar with the scalping system! For successful trading, MT4SE should be used, as it offers unpreceded accuracy when it comes to market correlation. See the example below which reflects intraday correlation between the DAX 40, Yen pairs, and other equities:
Source: MetaTrader 4 & MetaTrader 5 - Correlation Matrix
The good news is that you can access the correlation table on both MT4 and MT5 trading platforms. Long gone are the days when you needed to search across various websites.
Correlation tables will always provide you with intermarket connection for any time frame within MetaTrader 4 & MetaTrader 5 Supreme Edition. The tools that Admiralsprovides you with are essential in your Forex trading journey – so make sure to use them to your advantage.
If you're interested in trading CFDs on the DAX 40 index right now, you can trade with Admirals by clicking the banner below to register a live account:
* As of 24 September 2022, the Apple App store has removed both MT4 and MT5 from their app catalogue; please be aware that you can still access these tools via the Admirals mobile app and Admirals Web Trader.
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