FuturesTechs Blog

Technical Analysis is an essential tool if you are going to trade using CFDs or Spread Betting.

The vast majority of professional day traders use technical analysis in some way shape or form during their trading day. They are aware what the important technical levels are for the markets that they trade. some do this work themselves, some rely upon services like FuturesTechs, knowing that we’ve got an 8 year track record of providing this information to the bulk of the UK Pro trading community.

Many newbies to trading struggle with how to “structure” a trade. Hopefully we’ll shed some light on this with today’s blog post.

It’s all about the levels, and that’s what we do here at FuturesTechs each day: We look at the levels that the market may be looking at, where things may change, where the buyers may return after a sell-off, where the sellers may wake up if the market starts to rise. These are commonly known as support and resistance.

Support is the name given to downside levels; prices below here the buyers may have returned previously, or where they may return today. If we fail to hold support levels the bears are obviously dominating; not giving the buyers the chance to defend these key price levels.

Resistance is the name given to price levels above the market where there may be some”action”. Either we’re going to get to these levels and fall over, or the market should see a strong reaction if we break above them.

These levels are quite often something as simple as old highs and lows, however old they are. We have found markets reacting to levels from over 20 years ago. The market has a long memory, and with charts readily available to all and sundry there’s no excuse not to be armed with the important lines in the sand as you head into each trading day.

The best traders in the world react to a bunch of different things to put on their trades: They wait patiently for a piece of news to come out, or for a technical level to break or hold, or for the market to do a certain thing that they’ve been expecting. They wait patiently. Lots of money can be lost doing trades for the sake of it. Boredom or the need to be involved is a dangerous emotion that a trader has to deal with.

There is little point in trading in between technical levels. The levels are created because they are the prices where things changed previously. They are the “action areas”. Why mess around trying to put trades on in “no mans land”? If you want to buy the market, chose a support level and put your buy order at or above there.

If you need somewhere to put a stop order you can again use a technical level.

Here’s an example: We were bearish of the Eurostoxx 50 Futures today despite Friday’s gains. We had a bold resistance level at 2704. Our bold levels are the important ones. So if we’re bearish and the market rallies to a bold resistance we would suggest selling before the level with a stop above it. The high this morning was 2698….

If you had sold at 2690 with a stop ay 2710 (or our next resistance level at 2728, if you want to give it a bit more “breathing space”) you would have got short and never been far offside.

On the same report we have bold supports at 2640 (the overnight gap) then right down at 2467 and 2418.

So this is the bit that isn’t “harry hindsdight”, just in case you want to jump on the idea that I’m writing this after the event: I will look to cover the short trade at 2470, but if we hold 2640 today I would just get out and cover the trade for either a small profit or at worse nothing. I think we need to break 2640 today to give this trade credibility. In other words we are using another bold level (this time a support) to add weight to our trade. If we don’t break below 2640 then maybe the bears aren’t ready to push us lower just now.

IT’S ALL ABOUT THE LEVELS.

So If you’re just starting out trading, whether it be with a Spread bet account, or CFD’s, or DMA (Direct market access) I would urge you to make technical analysis part of your daily process, AND TO TRADE THE LEVELS.

Be Careful!

We are watching these markets very carefully right now as there is a confluence of events that suggest things may be changing. We don;t often start talking the funny-mentals, and we don’t often worry about relationships between markets, however close they may be. But I’m going to make an exception in this instance.

Price action in Oil is probably tantamount to the whole thing. Western economies are on the brink of recession, triggered by the Credit Crunch, but exacerbated by the soaring price of Oil. The Central Banks are meant to raise rates in response to rising inflation, but the current rise in inflation is nothing to do with people over-spending. Far from it. If Central Banks raise rates on this basis it will be disastrous.

We need Food and Energy prices to come down to take the inflationary pressure off.

So now we turn to our charts:

Just looking at the contracts we cover here at FuturesTechs we see the following:

Corn is well off it’s highs. We topped out at 799.2 in June. As I write this we’re trading 625. Pressure off.

Wheat’s all time high was set back in February. The recent high/failure was bang on a Fibonacci retracement level. So that’s going down as well.

Soybeans only topped out in early July and so far haven’t taken out any really big supports on the way back down, although price action in recent days has totally favoured the Bears.

Brent Crude Oil has dropped from a high of $147.50 on July 11th to 129.66 on Friday. We have posted a “Three Black Crows” Candlestick reversal pattern; a significant reversal. That was last Tuesday, Wednesday and Thursday (15th, 16th, 17th July). On Friday (18th July) and so far today (21st July) price action has favoured the Bears (Dolly could spoil the party, though).

So Ags are well off their highs and Oil has had a reaction lower that’s like nothing we’ve ever seen before. At the same time Bond prices are selling off hard (the “flight to quality” trade unwinding) and Equities are staging a recovery.

Most are calling this a “Dead Cat Bounce” (a rally in a Bear market that doesn’t last long!), but when you factor in everything else we’ve just highlighted you start to at least ponder this: Is the worst of the bad news over? Are we “all done” with this sell-off? One thing that favours this is the negativity of the popular press. You know things are about to turn when you can’t find a single bit of good news in the press, and I put the business pages down yesterday morning because it was putting me off my breakfast!!

Things have been a bit frantic since the last Blog post, both for myself and the markets! As well as speaking at the IX Investor Show and the Trading Symposium I have also finished the first draft of my up-coming book; “Candlestick Charts. An introduction to using candlestick charts”. I just hope there isn’t someone round at Harriman House right now pulling their hair out wondering how the heck they’re going to make it into a book!

The events were well attended and both pulled in a crowd of around 200 people to listen to my ramblings on Candlesticks.

Having spoken in front of these sort of numbers in seminars, surely today’s appearance on CNBC would be a walk in the park.

But my first appearance on TV turned out to be a rather nerve-racking experience! Let’s hope that was just because it was the first time, and let’s hope they invite me back again.

The other thing I hope is that the calls I made work out okay!

In the Eurostoxx 50 Futures I (rather nervously, with a waver in my voice) said that last weeks break of 3387 spelt trouble, especially since this level turned resistance and capped upside subsequently. This is a key line in the sand and if we can retake this level the hounds can be called off. Otherwise things still look very bleak.

In CME Group Wheat (still called CBOT Wheat by most people despite the recent merger) we’ve seen a failure at a key Fibonacci level (955) in recent days and this now looks set to head lower to retest the year’s low at 730 (trading 845 at the time of writing). I had managed to gather myself a bit by this time and was even starting to make some sense!.

Finally I looked at the Eurex Bund (by this time I was breathing normally and everything) where the short term has been a tad messy, but the Medium Term outlook remains firmly skewed towards the Bears.

Overall I think it went well, and I’m looking forward to the next time I get on there, and this time I’ll tell people beforehand. Today I was more than happy to keep it quiet!!!

Here’s a link if you want to view it…

http://www.cnbc.com/id/15840232?video=782776257

We posted a large red candle yesterday in ICE Brent Crude Oil and if you combine the 9th and 12th May on the Daily Candlestick Chart you get a Bearish Engulfing Pattern. Does this means we’ve seen a top? Hang on a second! The phrase “One swallow doesn’t make a summer” springs to mind!

If anything a bit of a pullback in Brent Crude and NYMEX Crude wouldn’t do any harm to the Bulls, as it’s not healthy to go up in a straight line. The buyers are bossing things right now and we don’t think any pullbacks will last long (4 days of weakness at the end of April were taken back in just 2 sessions).

On the other hand Equity markets look like they’re struggling, and the old adage of “Sell in May and go away” is being rolled out left right and centre.

The “full version” of this phrase is “Sell in May, Go away, come back on St. Leger’s Day”. St. Legers day is a horse racing festival in September, by the way! (It’s held in Doncaster, a place that will be feeling rather down in the dumps come September because they’ll still be playing League 1 football after Southend United beat them in the Play-offs this Friday).

I digress! Back to Equity markets: The Eurostoxx 50 Future is one of our favourite benchmarks. It’s a great contract to trade, with lots of volume, decent enough volatility, and no horrible periods of illiquid trade. We have broken trend support in this one today (13th May) and if we close below 3760 we’ll look for further weakness going forward. 3674 is our first target to the downside. Once we get through here 3545-75 is the next area of support to target.

We are planning to try out adding a few Individual Equity recommendations to the members area of our website, including daily technical analysis on Vodafone (far and away the most actively traded stock in the UK) and a “pick of the day” from elsewhere in the FTSE 100.