We will continue by taking a look at market analysis. We've used various tools in the past and as always I do like to keep things very, very simple. We've had some very good feedback from you viewers saying that your enjoying these classes, and that you find these useful and the fact that we are keeping this simple has really helped your analysis, so we are going to continue that theme.

Well, today I want to take a look at this chart here and I want you to have a think about what it is that this market is actually telling, because sometimes we over-complicate markets. And this is the FTSE100 on a daily chart. And the number one question on people's mind has been where is this market going to turn.

Now, as always stay with the trend, so clearly we can see that this market recently has been in a very nice up trend, we've seen higher highs and higher lows. And it's just recently that we saw a consolidation of the FTSE and what did the market do? It broke higher, and yet again we've got these new highs. But right now it seems to be getting really interesting.

So let's take a look at this next chart. We've added indicator here, and this is the momentum indicator and this is an RSI. Nothing fancy here this is just telling us that at the moment the RSI has been trading sideways. So could we have look towards the indicators to give a suggestion as to what the market is going to do next?

And as you can see that the market itself has been going higher, but the indicator had stopped. And you must remember that a lot of these technical tools were created quite some time ago. And the indicator has reached a point of exhaustion, so there is really nowhere else left for this to go except sideways or it's going to turn down.

So what could we do to look for a clue? Well here I've point out in terms of 1, 2 and 3 as to what's happened. We can see that the market closed below the moving average. What was the position of the indicator? So as you can see from point 1 the market closed below the [20 day] moving average and the indicator had traded lower. And at point 2 yet again the market had traded below the moving average and then the indicator also traded slightly lower.

But at point 3 something different happened here, we had an extended sideway move. So in the previous examples, yes, the market did close a bit lower. We managed to get, well, just a few points of profit on these but then the market reverted back to its normal trend which was to the upside. But what about now is there something else that's actually happening out there?

Well what I've done, and this is something quite unusual because a lot of people tend to use trend lines on the market. And for many years I've been saying that it does work, not always, but how about trying trend lines on indicators because that's a different approach. We've always got to think outside the box. We've got to try and see something which other people aren't seeing.

So here what I've done is drawn a trend line, a horizontal trend line below the lowest point on the indicator. In other words the indicator was going sideways, the market was going up, we picked the lowest point during that sideways range on the indicator, and as you can see as we speak the FTSE has dropped and the indicator has also dropped below the trend line. So this could suggest that we might be about to see a further decline in the FTSE.

Now this has happened before but also the indicator then started to head back up, in other words the indicator started going back above the trend line, and as you can see the market reversed its trend. So we've got to be careful here. With this trend line that we've got, the horizontal trend line, as long as the indicator doesn't get back above that horizontal line then we could expect a drop lower. If it does go back above then this is a false break out.

So, always trade with the trend and keep it simple and clutter free. As you can see with these charts, we haven't added too much information there. And pay attention to the important support and resistance levels, and you can view some of our previous lessons to understand what we mean by that. And then watch for fourth break outs. In other words if the FTSE does revert back up again then this would have been a fourth break out.

Well I hope this lesson has been useful to you. I'll look forward to seeing you in the next lesson. Have a great trading week. This is Sandy Jadeja.