What Next?


Let’s take a walk through the recent price movements of the FTSE100 index – this is the leading index for the UK market – I don’t trade it that often as I prefer to trade the individual shares within it – unless I’m doing something mega wrong, to me and my mind it’s far easier for an individual share to move 5-10% than it is an entire index.

Take a look at Figure 1 below, something really made the market drop in August (I didn’t get chance to trade that as I was on holiday) but you can clearly say that the bears won the fight

(Please click on the charts for clearer images)

Figure 1

Can we know IN ADVANCE the approximate levels that the market might fall to?  You bet – see Figure 1a below – fib levels created from extreme low to extreme high and projected down for support levels and look what stopped price!

Figure 1a

Now when it hits support we don’t know if it’s going to hold up or not – the main thing is that we were AWARE of those support levels the day AFTER the high was put in – many months in advance!

Here’s the weekly chart of the FTSE100 in Figure 1b – price is bang on the 50% fib level with a oversold DTosc – the question I now have is; what is the position of the DAILY DTosc?  it could be time to go long if the daily is also oversold or just about to make a bullish reversal.

Figure 1b

Consider this also – there is an additional trade to look at (on figure 1b – (there’s so much going on and to consider!) could you have known the market was going to tank? Yes, yes, yes – how?   3 bars after the last spike high (July 2011) the WEEKLY DTosc turns bearish – from now on all you’re looking for is bearish DAILY DTosc reversals to go short, look what coincided around July 23/24 – a BEARISH daily DTosc – I rest my case!)

I’m telling you 9 times out of 10 these things do not happen out of the blue.

Ok back to the main post – Figure 1c at point 1 shows the exact position – A long would have been ok – as I said I didn’t act on this as it all happened when I was on holiday.  See the 2nd bar to the right of point 1?  I bet you that on a 60 min chart that would have triggered a 60 min DTosc bullish reversal – then you would have had 3 time frames ALL with bullish DTosc positions! and look what price did.

I take these trades all the time, but it’s suddenly dawned on me that this might look wrong to some people as it could be classed as “catching a falling knife” – if I had taken that trade then I’d have sold off some of my position when price reached the 38.2% fib level and the rest at the 50% level – why?  Because the daily DTosc reached the overbought zone – I’m happy taking profit at those levels, would I have known price would stop at the 50% fib level – no, the usual level is the 61.8% fib level, but by being greedy look what might have happened!

Figure 1c

Let’s take a look at the chart in Figure 1d:

I’ve moved price on a few weeks, the notes on the chart tell the story.

Figure 1d

Let’s move onto another chart, let’s look at Figure 1e:

Info on chart – What happens if something changes, let’s say the WEEKLY DTosc makes a bearish reversal by the time price gets to those support levels? – The simple answer is I DON’T take the trade, the trade is cancelled

In order for me to commit my money to a trade like this EVERYTHING has to be in place, if one thing is missing = no trade.

Figure 1e

This is a live potential trade, it’s not in a position to trigger yet, and I’m only prepared to post the result after the fact – It it not my intention to recommend trades to you.

But over the course of the next few days this is what I want to see, price falls to a key fib level, Daily DTosc bullish reversal and the weekly DTosc still bullish – if any of those 3 filters aren’t in place I’ll not take the trade and re-work my analysis.

So my current assessment of the market is that it’s BULLISH, even though the markets moved SIDEWAYS since August 2011 (3 months) I’m looking for a pullback to get long.

Looking at it another way I’m “predicting” in ADVANCE that price might fall by 200-400 points over the next few days! It might not though – we just don’t know exactly what will happen, price might react as it did in the point 2-3 swing during October 2011 when price moved sideways and the DTosc moved down.  This is always a possibility, during a bullish phase, the DTosc might turn bearish and price just remains stagnant and sideways – the real thing we are looking for is for the Daily and weekly DTosc’s pointing in the same direction.

Another consideration is that I’m completely wrong about the market now being bullish and price takes out the bottom level of point A.

Key Thought:  “I’m not looking to be right in my prediction on where and what the market will do, I’m looking for the market to get into a position that I am comfortable trading from – regardless of whether my analysis is right or wrong”

I’ve also not taken any of what’s in the news into account, all I’m interested in is whats happening to price action.  I have no interest whatsoever in the news.

We’ll find out in the next week or so how it turned out – I’ve tried to keep this post as simple as possible to explain my reasoning for a trade consideration – there are other ratios within the 3 – A swing that I will add from point B – by doing so I have 2 tight fib zones that stand out – 5350 & 5188 levels, my preference is for the 5350 area as that coincides with the (red) 50% fib level.

Here’s the final chart – the green fib levels are the swings (3 – a) & (b-c) projected down from B?

Figure 1f

For now don’t worry too much on the ratio’s – I’ll provide clearer posts on this in the future, what we have identified all in advance is POSSIBLE support levels, we won’t know that they’ll hold until price gets there, but I tell you one thing:  Just being aware and alert to these facts puts us one step ahead of the pack.

Until the next post

Happy Trading & Investing

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