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Australia 200 - Buy Triggered

CMC Markets

Yesterday, I argued that the Australia 200 Index is at oversold levels - you can read it here:

http://blog.cmcmarkets.com.au/2012/05/23/australia-200-oversold/

This blog sparked a "robust discussion" on twitter, with a number of very bearish twitterers questioning not only my call, but my intelligence, experience, integrity and sanity.

Overnight, my BUY entry was filled - I'm long at 4048, with a stop loss order at 4022. the chart action was  particularly pleasing, with the market turning at the previous support level:

This support level also corresponds with a low from the end of 2012.

Whatever opinion traders have of markets, trading is not about being right 100% of the time. Trading is about about seeking higher probability trades with attractive risk to reward ratios. This trade is particularly attractive to me because it ticks both the risk and reward boxes - the risk is contained to 26 points (4048 - 4022).

However, its the reward aspect that really drives the value here. When the whole world is bearish (and prepared to abuse any traders making bullish calls) the potential for a strong move upwards is magnified, should sentiment swing. The potential move here is back towards 4317 - a possible profit of 269 points, giving a risk to reward ratio better than ten to one.

In my view, this sort of risk/reward is worthwhile, even if there's a greater than 50% chance I'm wrong. And at this stage, the support has held.


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