What goes up, must come down (in the case of the FTSE100)

FTSE100 Short Trade

Hi Traders,

If there ever was a perfect example of technical trading, then the FTSE100 has to be exactly that. I couldn’t have foreseen such perfect technical move’s when I decided to blog about it way back in December but it has gone to signify the power of trading, the potency of technical analysis, the beauty of being able to buy and sell and to highlight some brilliant lessons for trade entry, trade management and trade exit.

The FTSE100 has really given us the complete picture of why every trader (including myself) needs to work hard at becoming a master of technical trading. From way back in December all the way to the current day, we have seen just one asset class single handedly generate over +9%. +3% on the way up and now almost +6% on the way down. As we have seen in the last few trading days, the sell trade has generated a much more aggressive and speedy profit compared to the slow and steady buy trade. I often get asked which direction I have a preference on and that is always to sell as price falls quicker on fear than it does on greed. The phrase I love to illustrate this with is that ”the bull (up trending market) walks up the stairs, whilst the bear (down trending market) jumps out the window”! A phrase that typifies this sort of behaviour in the market perfectly. But irrelevant of my preference on direction, I will take a trade in either direction, so long as the technical clues are present and providing me with strong evidence to take a trade.

The clues we looked for to enter the buy, and then manage it, are exactly the same for the sell trade. We are not having to learn a new set of skills. We just keep applying the same analysis over and over again, only taking trades when enough evidence has presented itself to do so. This way, we get better and better at the process over time, and the prize will naturally follow.

So well done to the many of you whom took this trade, January is going to be a very strong month indeed. This trade could run a little further before bouncing, or it may even break the support level. Either way, we will let the charts tell us what to do and act accordingly.

Best wishes for the remainder of the month.

Tom

9 Comments

  • Andrew

    Thanks Tom!

    Reply
    • Tom

      Pleasure Andrew…Tom

      Reply
  • Steve

    Hi Tom

    I’m interested what you would do now on FTSE 100. It has hit the Trend Line with an inside bar today and also bouncing off the Daily 200ema. A nice Ascending Triangle wedge on the Weekly and also bouncing off the Weekly S2. One doubt if have is no Stochastic Divergence, which I like to see. Im not asking for advice, just interested on how you see it. I’ll probably take on the break of today’s high to the top of the Trend Line around 6850.

    Reply
    • Tom

      Hello Steve

      Thanks for the note. It’s an interesting one isn’t it, this asset has been playing ball so beautifully within that wedge pattern. You have pointed out some significant reasons to take the trade, excellent analysis. Added to this there is a smidgen of hidden divergence on the current low compared to the previous low (December’s bounce off support) and a seasonal bias for stocks to rally towards the back end of January. We are also back down in oversold territory. So there is certainly a strong argument there.

      Concern lies with the fact that we have just come off the back of significant divergence which essentially caused the topping out of the market but I feel there is still room for at least +1% by when we will be banking further profit before moving stop’s to b/e.

      So I look at it this way. This market is acting very technically right now against support and resistance levels. The best case reward is a healthy return to the top of the wedge (another potential +5%) whilst the worst case scenario is a losing trade). We have benefited so much from this one asset class alone to have margin for a little error 🙂

      Levels will break eventually, and who knows for sure when that will happen, it may happen this time but if this is the case we will then arm ourselves to then take advantage of that scenario too i.e. re-tests of the levels.

      I wanted to keep the answer brief and to the point, which I clearly haven’t 🙂 , but hopefully this gives a little extra to your own thoughts.

      Best wishes

      Tom

      Reply
      • Steve Coppock

        Thanks for the reply, Tom. Let’s see what happens….

        Reply
        • Tom

          Well the market has broken the key level now pretty convincingly so no long trade to play but potentially a short opportunity in due course if we get a clean retracement.

          Reply
    • Tom

      Also if you took the EURGBP short there is now a nice swing high to tuck your stop above around the 8315 level to lock in a bit more profit

      Gold also, I will be tucking my stop just under the horizontal support (as per last Sunday’s video) around 1230.00 area.

      Tom

      Reply
  • Tariq

    Hi Tom,

    Hope you are doing well. I was wondering how come you managed the trade differently on the way down? As you moved it by percentage terms rather than the retracement? Is it because the move was so rapid and heading towards the bottom of the channel? So locking in the profits just incase the trade turned? That’s my understanding of why you did it. Can you please correct me if I’m wrong? Thanks

    Tariq

    Reply
    • Tom

      Hello Tariq

      Thanks for your note. I am doing really well thanks buddy, hope you are too…

      You are spot on. I try not to let myself be fixed to 1 particular stop management as trades will act in different ways. With most trades, they slowly but surely weave their way up or down and you use these movements to trail. However the FTSE dropped so quickly and so aggressively without retracement and thus there was no technical landmark to trail behind. So the adopted method I used was the % trail to enable me to quickly lock in profit, whilst still having a mathematical methodology.

      One thing I will always do is move stop on trade 2 to breakeven once the market has moved 1% in my direction. This is to ensure I can get my trades to break even (and therefore reduce the potential of a loss to zero) once the market has started to move nicely in my favour.

      Hope this explains things 🙂

      Have a great trading week.

      Tom

      Reply

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