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Australia 200 Index - Update on short selling strategy

CMC Markets

I posted details of a potential sell set up in the Australia 200 index on 14 May with a follow up post on trading strategy on 16 May. This involved selling on a confirmed break below trend line support and the 200 day moving average.

Depending on the exact entry strategy this would have resulted in a short position at around 4190.

The down trend has now developed some structure that provides an opportunity to move the stop loss. We are also likely to get very close to the profit objective today so I thought a follow up post may be of interest to readers following this strategy.

The first target is at the blue trend line support. Interestingly this is also now close to the support line of a falling wedge or "diagonal terminal" type structure (red lines). The target is at around 3980. Some traders will apply a bit of a filter to this level e.g. taking profit at around 4000.

Australia 200 Daily - Source: CMC Tracker

The decline from the peak at 4458 in early May has now taken a potential 5 swing structure as outlined on the chart. A break above the red wedge resistance line would suggest that we are embarking on a correction of this whole 5 swing decline.

This represents a potential new failure point for the intermediate downtrend.  Following that logic the stop is now moved down above the red resistance line. Again a filter may be applied to the stop level to reduce the chances of a being stopped out on a false break of that level.

Big picture traders looking to stay in for the 2nd objective at around 3600 outlined in the 16 May post may only move the stop on half the position to this level. Typically they would need to ride through any correction from around current levels on the second half of their position on the way down to the extended target

Cheers

Ric


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