Sandy Jadeja explores upcoming trading opportunities. Market Snapshot raders aim to profit from three basic market environments: a trend, a consolidation or a trend reversal.
Figure 1: FTSE 100 wekly
As simple as this sounds, many people who attempt to trade the markets will find themselves caught often on the wrong side. Sometimes a trade starts in profit and ends in a loss. Why is it that something so simple can end up being so complicated?
In this bi-monthly YTE UK column we aim to identify profitable trading opportunities across various markets, including stock indices, commodities, currencies and stocks. Using a unique trend-trading model, we are seeking to be on the right side of a trade. The objective is to minimize risk and maximize profit by utilizing price action and risk management. But most importantly we want to be able to identify the correct phase of a market.
There are many different ways to trade in today’s markets. The key factor is to trade a method with which you are comfortable. Trading for riches is a nice dream: but the reality is that many newcomers to the markets do not make it to first base because they lack a trading plan, discipline and have no money-management skills.
Our objective then is to ensure we trade correctly with the right approach and minimal stress. There is no way of knowing what the market is going to do next. It is impossible to predict with certainty the outcome of a market move. No matter how confident you are, the only factor you can deal with is how much to risk on a trade. The rest is up to the market, which will do whatever it wants.
Figure 1 is a chart of the FTSE 100 index. The information we have from the chart is that from the low of 4096 the index headed higher before finding resistance at 5833 and falling to a higher low at 4790. During this phase the bars were mostly blue; they turned red during the decline. As these are weekly bars, this time frame can be used for trend direction. Using daily bars we can time entries and exits.
Sandy Jadeja is the Chief Technical Analyst for City Index, a leading provider for spread betting, CFDs and foreign exchange. He has been involved with the financial markets for more than 23 years and is a respected and widely recognized analyst and trainer in technical analysis and trading strategies. He appears weekly in the media and financial press and can be reached at firstname.lastname@example.org T
Figure 2: FTSE 100 daily
Currently the FTSE 100 index has found resistance at 6090 – 6117 and for six weeks this level has been a barrier for the index. That is a clear sign this price area is being rejected. Once we have this information, by selecting a shorter time, such as daily, we can use tools such as candlestick patterns, indicators or a preferred method to enter the market for a short trade.
pattern tools. There are those who prefer to use myriad indicators or news-related tools to find setups.
By switching to a daily chart (figure 2) we can obtain clearer information about trading opportunities. Figure 2 is a candlestick chart. Those who have experience with this method of trading can see that there were ‘Spinning Tops’ and ‘Doji’ patterns right at the resistance level.
Whatever method you choose to trade with, make sure you find a technique with which you feel comfortable. In future articles we will discuss market opportunities using simple price and pattern techniques.
The use of two different time frames makes it easier to identify the trend and make use of entry and exit techniques.
At present the bars are red, indicating the short-term trend remains bearish. If the index continues to trade lower we can apply Fibonacci tools to determine where the market may find support, before that support is found. At the time of writing the FTSE 100 may be looking for support at 5787 – 5702. If, however, the downside escalates, clearly these support levels will not apply.
Trading becomes less complicated for some when they use price and