Sandy Jadeja explores upcoming trading opportunities. Market Snapshot he start of 2012 has been positive for the markets. Disregarding the financial mess in Europe and the unemployment situation worries in the USA (which have improved slightly), the markets are at higher highs.
As the markets continue to refuse to break through resistance, there are two ways to get on board. One is to buy the breakout above recent highs; the other is to buy on a pullback. The techniques have different risk profiles, but both have managed to catch the current trend.
Since the trend reversal at 5469, the FTSE 100 has progressed higher, moving past several resistance targets (figure 1).
If the index manages to stay on track, 6000 may be reached as the next upside objective. However, the index will need to stay above 5820 or at least 5690, which has
Sometimes it is easy for a trader to get caught up in what he or she thinks the market will do. It is important to be detached from what we think will happen; we must focus on what is happening now. That is easier said than done – we must trust only what we see on the chart.
One problem is that when we look at the chart of a market experiencing higher highs we can easily be led to believe that we can enter at a better price and wait for a pullback. Currently, the markets having rallied from October 2011, there have been only two pullbacks. They occurred each time the markets broke above the highs, causing the bulls to think that a top was nearby.
Fibonacci, and even Elliot Wave in certain situations, is a useful tool. Using price tools to forecast future support and resistance areas gives a trader the advantage of using a leading indicator rather than a lagging one. However, the problem that traders face is one of belief.
Figure 1: FTSE 100 Daily provided recent support. The trend remains bullish until we see a change in the colour of the bars. Momentum is still strong to the upside, and on the weekly charts there is no T
Holding a belief that something is going to happen places us in a dangerous position. The markets have a mind of their own. They do not concern themselves with what we want to happen. Therefore it is necessary to be flexible. When we believe an outcome will happen, rather than that it might happen, we will not be as flexible as we should be.
Once the market makes a meaningful reversal it will show its hand through price patterns. But until such a reversal takes place we will respect the trend and stay on course.