Well FTSE certainly has done something interesting in the past two days. On Monday it gapped up and rallied right up to resistance, at this point I did think there is the possibility of a double top, keep the green count very much alive. Today, the green count has been negated as we have made a higher high...
However, this leaves us with some interesting conclusions to try and make. Yes it made a higher high, but the market absorbed all the buying and the final candle was not able to close about 4950. Readjusting the purple count from my last post, we are arguably in the last stages, the question is: will we see a candle stick sell signal tomorrow? There is still room for FTSE make slightly higher highs and touch the top of the expanding wedge. But a failed 5th in a pattern is common.
So, tomorrow if we see the market open gapped down, this could end up being an “evening start” bearish pattern. This could be taken as a sell signal as the top could be in. To confirm the top we would really need to see the price action break below the labelled purple 4 and the 25 daily moving average. The purple lines I have drawn are just an idea of the situation that could possibly play out, with several support line retests.
A trading strategy I may be looking to adopt is: IF a candlestick sell signal is given tomorrow, to take it with half my usual stake (perhaps even less), with a stop-loss just above today’s high. If the price action continues to play out accordingly and breaks the 25dma and the level of purple 4... then wait for the retrace/trend line retest, and double up to normal lot size when the retrace breaks down bellow the recent low, readjusting your stop-loss to just above the top of the retrace...and so on.
The above strategy is slightly more aggressive than just entering after a retrace, but with smaller stakes it is affordable (for me personally).
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