Hello and welcome to CantosCharts Masterclass. I'm Sandy Jadeja, Chief Technical Analyst for City Index. Welcome back to another lesson in technical analysis and of course this is simply for information and educational purposes only.

I'd like to continue by having a look at technical analysis, but having a look at the current markets and applying what we've learnt over this series of educational ideas on how to view charts.

So we're going to be looking at current markets which are happening right now and I want to really observe price action because we can get very caught up in applying lots and lots of indicators and then taking us off track. So we're going to observe price action as the key element and also the psychological numbers because that's really important, especially in the current markets right now. They're reaching levels which are providing good clues and good trading opportunities for short-term and intermediate term traders.

We also want to observe the multiple timeframes aspect. In other words, we want to look at two or possibly even three different timeframes to give us a better idea of what the markets are doing and what they're likely to do next.

So, have a look at this. This is crude oil. A lot of people are talking about crude oil right now as we speak and crude oil has moved higher. In fact it has moved higher by about 15 per cent in just the last two weeks.

So what information do we have? Well the key thing is I've obviously marked off the key highs and the important lows and with crude oil we had really been stuck in a range between $70 to $80, so there was really no price action indication that was telling us where the market was going to go next.

We had this range between $70 to $80, but price had been trading more towards the $80 side, so that was an early clue as to where we could be heading in the coming weeks. As you can see, recent price action has broken about the $80.82, so that's bullish.

So what can we expect right now? Now that it has broken out of the range, does that mean we are going to be heading higher?

Well we need to look at further evidence to give us an idea of how we can position ourselves in this trade.

So in this example here what I've done is add two indicators. One is a parabolic SAR and the other one is the stochastic and both of these indicators have been reviewed in our past lessons.

Well first of all let's look at the parabolic SAR. Recently, crude oil had been trading above the parabolic SAR which was suggesting that prices should remain strong, we should be moving towards the upside. But over the last week or so the commodity had broken through to the downside of the SAR. And as you can see, towards the extreme right-hand side of the chart just as it approached the green line, we had the parabolic SAR indicating that crude oil may be heading lower. And at the same time, the stochastic was trading in the upper region which was suggesting that maybe the commodity is overbought and we should be heading lower.

But in fact what actually happened was we saw a reversal. Crude oil then broke above the parabolic SAR, the stochastic remained in the overbought territory and we broke above the $80 channel.

So this is why price is important rather than indicators because even though the indicator was suggesting that prices maybe overbought, price itself concluded that actually we're going to head higher.

So one way to have traded is to probably have a buy stop order just about $80.82 and the market would have been triggered, your order would have been triggered just above there and as you can see, we have now been trading higher.

So what's the next piece of information that we could look at? Well this is the weekly chart. Now the first thing that I want to highlight is that the parabolic SAR had been pointing lower on the weekly chart, so this was really suggesting that the trend was more towards the downside.

But, if we take a look at price action, notice that I've labelled one, two and three. Now, one was the low, two was the high and three was a higher low. So we have now broken above two, so the weekly or the intermediate term trend is now suggesting that maybe prices are going to head towards the upside. We have, for the current moment, broken above the parabolic SAR indicating further strength. So right now the move looks bullish.

So if we come back to the weekly chart and look at the stochastic, that's crossed. That's giving us a bullish indication. So we've broken above the parabolic SAR, the weekly stochastic is suggesting that with a crossover we might be heading towards higher price.

So if we go back to our shorter term timeframe which is a daily chart, what I'd like to see is the stochastic come back down to the lower region and that would actually occur if the crude oil prices head back lower.

What we want to see however is prices stay above this green line. So in other words, we might see further price action over the next couple of days heading higher, but if we come back down towards the $80 mark and we can at least stabilise there, then that would indicate, once we get a crossover on the stochastic, that would indicate that we might be heading higher.

But what about the upside targets, what if we do continue higher? Psychological numbers. We've broken above the $80, so immediately we can look at $85, $90. These are key round numbers. And if we get towards the $85 area and then pullback, it would be nice to see crude come back down to the $80 with the stochastic down in the lower region, but the market trading above the parabolic SAR. So that would indicate short-term we might be heading higher.

So that's really the clues based on price and indicators as to what we should be looking for. Of course, what happens next is going to be determined by price itself. We can only trade price as it is actually occurring.

So in order to summarise, always focus on price action because that's important and then use multiple timeframes for the trend and the shorter term timeframe for the entry and exit and always pay attention to the important support and resistance levels. Previous highs, previous lows, psychological numbers, these are really important and the parabolic SAR is really a useful tool that we could use in order to determine what the short-term and the longer term trend is.

Well I hope this lesson has been useful to you. I look forward to seeing you in the next lesson. In the meantime, have a great trading week.