Hello and welcome to Cantos Charts Masterclass. I'm Sandy Jadeja, Chief Technical Analyst for City Index. Welcome back to another lesson in technical analysis and looking at financial markets. As always these are simply for information and educational purposes only. We will continue by taking a look at current market movements and using very simple techniques in technical analysis.

Well, have a look at this chart here. No prizes for guessing what this is. This is gold. Of course we've had this fantastic move to the upside. And in recent lessons I've talked about the 1380 being a resistance level. Well just recently we did see the December contract trade at the 1380 level and we've now seen this pull-back.

So what does that suggest? Does that mean that the market's going to head much lower for price of gold? Well, right now on this particular chart we've seen a drop lower and what do we see right now? It's a consolidation. So if we are going to see a move to the downside we would need to see a breakout from that consolidation pattern.

Now, what I've done here is added a very simple 20-period moving average. This is something we tend to use in most of the charts that you've seen here at Cantos. And at the moment the market is traded just a little bit back above the moving average so that's suggesting that we're getting this choppy price action - one day it closes below, the next day it closes back above. So try not to read too much into the moving average when the market's going sideways as is the indicator.

Let's wait for a break below the consolidation or a break above the consolidation. What is the trend? The trend is towards the upside. What are the financial markets doing in terms of FTSE, Dow. These are starting to show signs of exhaustion. This may suggest that this is a consolidation and that we might even continue to see a move towards the upside. But that's something we're going to have to wait and see and that's why we will trade the breakouts from the consolidation.

But another piece of information. Well, the momentum index had been obviously moving to the upside. But if we draw a trend line connecting the lows we can see that once the price of gold had reached an exhaustion point the indicator had first started to break below the trend line. So as soon as the indicator broke below that trend line we could say that we might want to be going short here, we don't want to see the market trade above the indicator line. And as you can see, so far it's worked quite well. And so it's useful at times to apply the trend lines to indicators as well as the market itself.

Now here what we're doing is I've always mentioned about looking at two timeframes or sometimes three timeframes. This one here is a weekly chart. Now this is something for you to work at. I've highlighted the three areas, one, two and three, and you can see that there's been some shallow retracements here, they may look shallow on the weekly chart but on the daily charts there were quite some significant moves.

What I want you to do is to have a look at the previous Cantos lessons in the candlesticks arena and figure out what exactly happened at these levels, at point one and point two and what is happening at point three. I will give you the answer for 0.3. We have a bearish engulfing pattern. So in other words the red candlestick has engulfed the body of the previous candlestick and that's suggesting that we could potentially see a move towards a downside. It hasn't happened just yet. How do we trade it. Take a look at the weekly low of the red candlestick and if we see a break below that low we could say that we would put our stop above the high of either point three or at the high of the candlestick.

And if we do take out that low, that would be a market indication that we're heading towards a downside. And where would we go? Well, take a look at point two, that's previous resistance, that could become potential support. So at the moment we are in a very nice situation to have a potential trade. Of course we have to wait and see what the market does and that's why we would use buy-top and sell-stop orders.

I hope this lesson's been useful for you. I look forward to seeing you in the next trading lesson. In the meantime, have a great trading week. This is Sandy Jadeja for CantosCharts Masterclass.