Charting Patterns

Sandy Jadeja, chief technical analyst at City Index, says that it is important to focus on chart patterns. Sandy says that prefers to examine particular Fibonacci-based patterns that enable him to forecast potential price targets for support and resistance levels in advance. He says that the stock markets are three-dimensional – one can look at price, pattern and time. If you combine these three aspects, add in statistics-based seasonal aspects and the key psychological numbers, and it’s bewildering how much markets react in a non-random manner at specific price levels. Let’s take an example on the FTSE 100 for instance. After the high of 5,833 on April 16 (2010) and low of 4,790 on July 1, Sandy’s charts revealed that a potential rally towards 5,435 between July 30 and August 9 was a likely scenario. The actual high materialised on August 9 at 5,418 just before the FTSE fell 6 per cent to its next support target of 5,104. After this low, the index rallied 8 per cent, with the next price target at 5,610 by September 15. The capability to be able to forecast using favourable risk-reward ratios like these, as opposed to reacting to a price move, puts the odds in the trader’s favour.

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