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

Well, we're here with another lesson on technical analysis and trading with chart patterns. As always, everything is for information and educational purposes only.

In the last few episodes I've started showing you how we can apply what we've learnt so far in the current market analysis and we're going to continue that in this current lesson as well, but I'm going to do something a little bit different. I'm actually going to continue straight pretty much from where we left off. So we're going to take a look at one of the indexes that we've actually observed last time and the key thing is we want to do the review in almost real time. So you might be a little bit behind this, but we're actually seeing this as the market has developed over the last few days.

Now, I want to look at the direction of the trend because that's one of the most important focuses, is what are we doing with the current trend and of course we want to still include these psychological levels and I'll talk a little bit about candlesticks as well.

So, where we left off last time I mentioned that we had a bearish engulfing candlestick pattern on the FTSE 100 index on the weekly charts. So, as you can see indicated by the arrow, that was the bearish engulfing pattern.

Now, just after that we had a market breakdown. So, in other words, the following bar has taken out the low of the bearish engulfing pattern. And that suggests that the trend itself is quite weak, the pattern itself has actually worked. So what's going to happen next?

Well, the other thing that we really want to point out is if we take a look at the previous high of 5,600, notice how the candles were all red during those weekly bars. In other words, it was straight down. So we had four bearish down candles and compare that to where we are now. And take a look at this because we actually have eight mixed candles. In other words, we have bullish candles and bearish candles. So straight away we can see that the trend is actually stuck in a sideways range.

So what other information do we have? Well we have this 5,000 psychological level and this is the daily chart. A slightly different picture here. Did the market breach the psychological level? Yes it did. So the 5,000 level, this is now the third, almost the fourth time that it has been played with and the recent price action shows that the market had fallen right through the 5,000 level. So that could have given you a short-term potential opportunity just to get in on the short side and capture a small amount of profit there.

Now, what else do we have? The parabolics have actually changed since we last looked at this. Previously, the market had been rallying up on a short-term basis, but, with last week's price action we can see that the parabolic has been broken towards the downside.

So there are several factors that we need to consider.

We've looked at the weekly chart. We had a bearish engulfing pattern. That was the condition. That was setting us up for a potential short-term play towards the downside. So that was your condition. Your order was set there.

Then of course, if you had put a sell stop order just below that price bar, that would have triggered you into a short move and, of course, you would need to use money management techniques and that's where the daily timeframe comes in, the shorter term timeframe.

So here we can still see that the intermediate and the short-term trend is down, but the intermediate, in the immediate position, is actually stuck in a sideways range. So what do we need to see?

Well we need to see a breakout of the trading range. Now on the daily charts we can see that we're trading back towards the downside, so that's suggesting that we may see a potential bounce here, we may break through. Of course, the bears want to see a continuation towards the downside, so that would need to see a large degree thrust towards the bottom end.

So really, these are clues that you really need to look for when you're observing chart patterns.

So prepare for moves in advance with the pattern itself, see what the current chart pattern is telling you and then trade in the direction of trend. The longer degree trend has been towards the downside, intermediate stuck in a consolidation and short-term towards the downside. Then pay attention to important support and resistance levels. Watch out to see if there is any psychological levels by and then of course, see if the parabolic stop and reverse indicator can be used as a confirmation to you.

Now I haven't talked moving averages or anything like that because we've covered that in previous episodes. But you need to determine what indicators suit you and what you're comfortable trading with and we'll take a look at some of these ideas in the next trading lesson.

But in the meantime, have a great trading week. This is Sandy Jadeja.