|Key Reversal level||below 70|
|Key Reversal level||below 70|
The ESI (e-Yield Sentiment Indicator) measures market sentiment. Right now it is bearish which means, with the FTSE 100 still trading near the recent low, there is a chance the low at 6492 will be broken. This is the main risk especially if relations between Russia and the West deteriorate further.
But downside is limited, the FTSE 100 is already down 5% from its February high, prices are below the 200-day moving average and the timing indicator, 13-day BTI, is near oversold. Check the 13-day BTI on the following chart:
When the 13-day BTI is below -400 the FTSE is oversold and likely to bounce back. The indicator dropped below -400 last week but today the 13-day BTI is no longer below -400. It appears that a rally is underway. This is supported by the position of the S&P 500.
The S&P is still in a clear uptrend, the US index should rally, therefore there is potential for a rally here in the UK in the short term. Given the problems between the West and Russia and the bearish sentiment it is possible that the stock market is entering a new phase, one in which the stock market will go sideways or down in the long term.
In the short term I still expect a rally but it won't be back to new highs, the rally will be a counter trend move with limited upside because sentiment is still bearish.
The BTI was unchanged yesterday. The strength of the rally has boosted the bullish mood which is what you would expect after a long rally. The more the market rallies the more bullish investors become, this is why, when we see a bearish divergence (declining BTI, rising FTSE), the FTSE must decline soon otherwise if it does not, sentiment will turn bullish and the rally will extend.
This is where we are now, the rally has lasted too long and the BTI is no longer declining but it has yet to turn up. The 34-day BTI is still declining so before we turn bullish both BTI and 34-day BTI must be rising. While we are waiting for the indicators to turn bullish, we must not be fooled by the rally. The rally this month is not powerful because the fundamental data is improving, it is powerful because there are too many people doing the same thing i.e. buying at the same time.
As I said, we are in a period of first degree extreme in bullish sentiment. During this period the level of bulls is at record high so when the market declines sharply as it did in January, a small percentage will buy near the low but the majority will buy in the middle of the rally or near the end. These buyers are not smart or clever they are simply herding. In the meantime they have the power to push the market back to previous highs in a short period of time.
In a first degree extreme in bullish sentiment a rally that starts from oversold levels can be powerful. In this situation it is recommended to go short from high levels and not too early in the move. Whether or not sentiment turns bullish, the rally has been driven by the herd of bulls, once they are all invested we should see a decline.
I believe that 90% of bulls are invested at this stage of the rally which appears to be a counter trend move in three waves [(a),(b),(c)].
The bottom line is that there is nothing fundamentally sound to justify this rally, therefore I am confident a sell off is around the corner.
My FTSE 100 forecast service reported a stellar performance last week, in fact we had one of our best weeks on record. Traders following my calls would have banked a cool 240 points profit on the FTSE 100 in three trades alone. Our forecast offered one swing trade and 2 intraday trades. In addition I sent notification to my members to close a call option position yesterday for an additional 29 points profit.
It’s good to know that when I do well my members make money but there is a small minority of people who struggle to follow my calls and fail to bank those winning profits. Even when I make some great calls like I did last week, some still manage to lose money because they didn’t have the discipline to follow my trades by the book. They enter late or close early or do their own trades in addition to mine. This type of emotional trading triumphs over discipline and inevitably will lead to erratic trading and losses. It’s a vicious circle and common problem among traders, unless they address this issue they will continue down the same path oblivious to why they continue to lose money and laying blame on everyone except themselves.
There is another type of trader who also lacks discipline, this one trades with fear. The “fear trader” is fearful to press the buy or sell button. The inescapable result is that they will miss the big moves and profits that come with them. An example I can tell you about happened recently right at the bottom of the decline, I went long the FTSE 100 March at 6370, I informed my members to ‘make the trade’ and we made a tidy 170 points. So naturally I was saddened when I later received the following email from one of my members who was privy to this trade:“I am sorry to say that your system is really not for me. Please be good enough to cancel my subscription”. I suspect this person did not profit because he was fearful to press the buy button. It’s not the system that is not for them; trading is not for them.
If you don’t have the discipline to trade your system, or someone else’s system, it’s not going to work. It is often the impulse to trade from within that will invariably lead to a lack of discipline and patience. Traders should always pay close attention to their motivation and reasons to trade and detach these emotions from their trading decisions.
Following my trades by the book will help you to overcome your fear of hitting the button. Just simply follow my calls and trade my forecasts. By doing this and not what you think or feel you will be on your way to managing your discipline and patience then subsequently overcoming your fear and doubts. This will inevitably lead to success in trading. After all who wouldn’t want to bank 240 points profit in only one trading week?
To follow my intraday, swing and option trades click here
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In the last few days the FTSE has declined without any significant bounce. When the market falls a long way without bouncing, the risk of a crash increases. This is particularly true when we are in a first degree extreme in bullish sentiment. History shows that major crashes tend to occur when sentiment is extremely bullish. This does not mean a crash will happen next week or next month, the important thing is to know when the probability of a crash is high.
A first degree extreme in bullish sentiment occurs when the market has been rising for a few years or more and some sentiment indicators have reached extreme levels. For example the percentage of bullish advisors is at multi-year high, the Put/Call ratio (10-day average) is at multi-year low, and bullish articles appear on magazine covers. Since the moment the following magazine was published in March 2013 the market has been in a first degree extreme in bullish sentiment:
Note that despite the bullish message for equities on the front cover of Investors Chronicle, the FTSE 100 has made no progress since mid March 2013. Obviously many professionals are aware of this, when they see too much bullishness they are prepared to sell. The problem is that when there is bad news and the market starts to sell off as it has done in the last few days, those people who have been waiting for the major correction/crash really believe it’s happening now, so they sell.
This is why the market falls like a stone and this is why it is dangerous to buy this market right now. Too many people have been calling the top since April last year, and now they are selling.
Traders should be ready for a larger correction but in the near term a bounce is more likely. The FTSE 100 is on its 200-day moving average which is a support level and the RSI has fallen to a level previously associated with market bottoms. What the long term pattern is telling us is that the tide is turning, the bull market is coming to an end.
To receive regular research and trading alerts on the FTSE 100 click here
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By Thierry Laduguie
In my last article I wrote about the positive effects of exercising patience in your trading decisions, today I'd like to consider the importance of discipline, which is an equally essential factor to determine trading success or failure.
Far too many people lose money simply because they don't have the discipline to stick to their strategy. A trader could employ a winning strategy yet he could lose money as a result of not maintaining discipline.
I know this because I run a bespoke trading service where members gain access to my trading insights and can copy the trades that I place. My track record has proven to make money in all kinds of market conditions over time. Each time I trade I send a trading alert directly to my members. A disciplined trader should be able to copy my trades without hesitation. I have found that the members who lose money are the ones who hesitate, lose their discipline and consequently fail to copy my recommendations 'By the Book'.
Those who followed my trading plays with rigid discipline have made good money. Many of my members have remained with me since I first launched the service in 2006. As a testimony to their discipline, they are still following me and continue to make good profits from my trades.
Frankly, for those without discipline I cannot guarantee success. For example, if I send the same information to two groups of people - the group who follows my recommendations 'By the Book' succeeds and the other group fails, I conclude that the failure to remain disciplined by the second group is the reason why they didn't profit.
If you don't have a strategy or if you find you are losing money because of a lack of discipline, then I invite you to follow my trades 'By the Book'. It's an easier way to practice your discipline which will lead you to becoming a more seasoned and consequently more disciplined trader. I send you my entry and exit trades and you simply 'Make the Trade'.
My trading calls are up a massive 898 points on the FTSE 100 alone since July last year. You CAN replicate my performance but you will need to copy my trades 'By the book'. If you can consistently follow me and 'Make the Trade' using your inner discipline, bad trading habits will fade and your desire to remain disciplined will become second-nature.
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By Thierry Laduguie
In the book Market Wizards, Interviews with Top Traders, the author writes "many of the traders stressed the importance of having the patience to wait for the right trading opportunity to present itself".
I completely agree with the above statement and cannot emphasis enough its importance. I have been trading for many years and have a wealth of product experience, so I can tell you with the utmost confidence that next to discipline -patience is one of the most important factors that will lead to trading success. Why? Because there are many opportunities everyday but only a few trades have a high probability of success. A trader's task is to identify the high probability trades and be patient until the opportunities present themselves. These trades are the ones that will lead a trader to success and profits.
If you're struggling to find those high probability trades, I can help. My trading strategy focuses on market timing and has been sharpened over time to offer a consistent trading advantage. From the moment I published the following article in May last year I knew I was on the right track:
In May 2013 the stock market had gone too far too fast. So my analysis was spot on and the high of 6875 on the FTSE still remains intact today. At the base of any good trading service is a good forecast. That's what I provide to my members.
I constantly review and improve the service with new indicators and my results speak for themselves. From July 2013 to January my members made +861 points based on my forecasts. Here are the results by type of trade:
Intraday trades: +359 pts
Swing trades: +240 pts
Options trades: +262 pts
The good news:
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