Australia 200 - Short Term Sell

CMC Markets

Today's high in the index looks to me as though it could be forming part of a pattern resistance with potential for another move down to recent supports

4 Hour Chart

I've put some preliminary trend lines on what looks to me as though it could be an expanding triangle or might become a rising wedge.

The clues that lead me to think a pattern is developing here are:

  • Each of the swings inside the pattern consist of 3 minor swings which is typical for this sort of pattern
  • The latest candle closed under the recent minor peak (dashed black line). This makes today's high look like the end of the latest minor 3 swing pattern
  • Price is begining to chop backwards and forwards through the 50 period moving average. The average itself is beginnning to flatten out. These are both indicators of the falling momentum and sideways movement typically seen inside these patterns.
  • The slow stochastic indicator shown at the bottom of the chart peaked with each of my trend line peaks and then dropped out of the oversold zone above 80.

Australia 200 CFD - 4 Hour. Source: CMC Tracker

Strategy Approach

This strategy below is one approach to using these "clues" to act early on a short term pattern trade

Having made only 2 touches of the trend line resistance and support (or only 1 if this becomes a wedge), this pattern may have more work to do before price breaks out. Even so a return to the support level would provide enough scope for a reasonable risk: reward strategy.

The 50 day moving average could also be employed in a strategy such as:

  • Sell to open around current levels
  • Place the initial stop behind today's high.
  • If price moves  20 points under the 50 day moving average move the stop loss down to 20 points above the average. (this uses 20 points as a noise filter around the average)
  • Use the pattern support line as a profit objective

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