Hello. Welcome to CantosCharts Masterclass. I'm Sandy Jadeja, Chief Technical Analyst for City Index.

Welcome to another lesson in learning how to use technical analysis and charts in order to make profits from the financial markets. But, as always, this is simply for information and educational purposes only.

Well, we want to continue by taking a look at what we've learnt over the recent episodes of technical analysis and chart reading and see if we can apply it to the current market movements.

Today I'm going to talk about the FTSE 100 Index and what I want to focus on is how to understanding current price action. In other words, let's take a look at what is actually happening in the market by price alone and then combine that with candlestick patterns and of course, trade with the trend.

So here we are with a FTSE 100 chart. This is a weekly chart and what I've done for you is to mark off all the important highs and lows.

But we'll move straight towards the right hand side of the chart. We notice that there was a major high at 5,833 followed by quite a serious decline, a consolidation, and then we had another high at 5,331 followed by a low at 4,790. And we've moved up slightly from that point there.

So what information, what evidence do we have from the markets? What is it telling us?

Well, in a previous episode, I did point out that there was a particular candlestick pattern that we were looking to pay attention to and that candlestick pattern was actually a bearish engulfing pattern as you can see, which is highlighted by the blue arrow.

What that told us was that the current price bar at that point was engulfing the previous white bar and it was saying that there was a potential move towards the downside.

So we could prepare ourselves by trading the break of the low of the bearish engulfing candlestick and then the market declined 241 points.

Now, what I'm going to do here is to zoom in to a daily chart (so we're changing our timeframe) and the blue line indicates where the market had broken through the bearish candlestick pattern, again, as indicated by the arrow, so we were prepared for the move in advance.

Then what happened was that the market declined 241 points. We didn't actually catch the whole move 241 points. We did enter correctly and we were monitoring the trade and as you can see that the green arrow indicated that there was a potential reversal. Why?

Well here again, price action, the candlestick pattern, told us that we had an inverted hammer and what we would have done is to place a stop just above the high of that candlestick and then the market then of course broke through the high and then continued towards the upside. So in the end, what we did was collected 151 points.

Now, if you were a short-term trader, you could have actually have reversed that position and caught a very nice move towards the upside.

So again that's two very, very nice moves that we've seen on the FTSE 100. But what other information did we have?

So we had the inverted hammer. The markets moved towards the upside. Where could we have exited this position?

Well this particular chart shows us that there was another candlestick pattern and that was the hanging man and we would have placed our stop just below 5,205. Here, from that point, you can see that the market has then again started to drop off. So again, a very nice move on the upside. We've collected some decent amount of points there and right now you could be short below 5,205 and looking for a potential reversal.

So what other information do we have? Well I've added some indicators which we've discussed in the previous episodes, so I suggest you take a look at cantos.com and have a look at our previous lessons where we've looked at moving averages and the parabolic SAR.

Now the FTSE 100 is very close to approaching the 20 day moving average, so it could find potential support there. But also notice that the parabolic SAR is still bullish. It's not actually negative, so it's probably suggesting that maybe the FTSE is in a correction mode towards the downside.

What possible areas could we look for, for a market reversal? Well previously, 4,986 was a low and it's possible that we may come back down towards that support level.

But what is the 4,986 close to? 5,000. That's a psychological and a round number. So right now we could potentially be looking for the FTSE to come down towards the 5,000. So from 5,205 to 5,000, that's a fairly decent move. Again, we have to wait and see. We have to see what the FTSE is going to tell us. We have to wait and see if there is going to be any potential price reversal patterns there.

So what we've done in this lesson is to really take a look at price action itself, candlestick patterns and of course, looking at the overall trend and of course the two timeframes.

So in summary, try to focus. Keep it simple by looking at price action and of course, use multiple timeframes for trend and entry and of course, pay attention to the important support and resistance levels and of course the psychological numbers and round numbers and the parabolic SAR, in my view, can be used as a useful confirmation to the current trend.

Well, I hope you've enjoyed this lesson. I look forward to seeing you in the next educational lessons. In the meantime, have a great trading week.