Hello and welcome to CantosCharts Masterclass. I'm Sandy Jadeja, Chief Technical Analyst for City Index. Well we've got 2010 behind us and we're upon 2011 already and a lot of traders are wondering what's in store for the year ahead.

Well, in one aspect nothing's really changed because when you're looking at charts and technical analysis you're really viewing the markets as they unfold. So there's nothing really different that's going to happen in January versus say in December or November. The charts are just continuing from where they've left off.

Well, if we take a look at the markets. Of course everything we're going to teach you in this session is going to be for educational purposes only so I'm going to try and give you some hints as to what I think's going to happen, at least in the first quarter.

Now, we'll also use multiple timeframes analysis as always because we want to look at the markets in different dimensions. But take a look at this chart over here. What is the first thing that we see? This is taking a look at the wider view. In other words we've zoomed out and we take a look at the charts from a much broader perspective.

What is the trend? We can see that actually from 4790 the market's just got higher highs and higher lows. And at the moment we have seen the FTSE 100 make a high at 6090. So the question really on traders' minds is as we enter 2011 is this pattern going to continue? Well, we're just going to have to wait and see but in the meantime as a trader we're going to focus on the now.

Now the next chart shows us the market and it's just overlaid with a 20-day moving average. We want to try and keep technical analysis and charting very simple and clutter-free.

So here we can trade this market by saying every time the market dips below the moving average we would probably stand aside. And that's simply because the current trend is in an up-trend. But once the market gets back above the moving average we could potentially enter a long position. And of course we stand the danger of when the market gets back above the moving average it could completely fail and then just change the whole trend. That is something we would never know what's going to happen. There are other tools that we can use to determine what the likelihood of a market going up is going to be and we're going to take a look at that as we progress.

So the main thing is noting what the market is actually doing rather than trying to predict or trying to guess what the market's doing. We should always try and stand back and see what the bigger picture is. We can't predict markets. We can assess and we can forecast but we can never say with certainty that this is definitely going to happen so we want to try and avoid that.

And if the market's trading towards the upside we want to buy the breakouts on the highs and if the market's trading towards the downside, in other words we've got a bearish move, then we want to sell the breakouts off the low. That's one way.

Otherwise we can use the technical indicators which we've just discussed with the moving average. And of course there are other tools which we're showing you in this series such as the Parabolic SAR and we can use the MACD and several momentum indicators and of course chart patterns as well.

So this FTSE 100, we're now going to zoom to a slightly different timeframe so instead of looking at the daily chart this is the weekly chart. Same market, same period of time but just a different timeframe.

So on this weekly chart is there anything that stands out to you? Well, you're probably not going to see anything unless you know what you're looking for. And the one thing that markets tend to do is they trade in structure. In other words we often see markets move in a very defined structure. So if we start adding certain elements, if we start observing what the market itself is doing, then that could help us in a very, very different way.

So that's what I've done over here. Notice that the market from the March 2009 low started to head towards the upside. In other words we were in an up-trend.

So what actually happened there? It made a high at 0.1, then declined at 0.2 or a pull-back, and then we saw this big move which we classify as a wave three before we saw a pull-back which was classified as wave four and then finally a move towards the upside of five before we saw an 18 per cent decline into the July 2010 low.

Can you see the same structure occurring again but on a smaller scale? So right now, in the month of January, we're actually forming a wave five. So there could be a potential decline coming up over the next few weeks. So we really want to watch out for this because markets do move in defined wave structures, three waves, five waves, and that's what we're seeing here.

Now in this particular example what we're looking at is candlesticks. So what we've done is zoomed right in and to try and see if there's anything that can help us to determine when that particular decline is about to start. And at the moment with the FTSE at a high of 6090 we notice that on the fifth wave the candlestick pattern was a shooting star. Now that doesn't mean that the market will decline. We have to wait and see. We don't want to predict that it's going to happen, we want to assess and forecast.

So the best way to trade it is if this shooting star is going to work then we would really ideally wait for a breakout below the low of that particularly weekly bar. And if that occurs then our stop would go at the high. If that doesn't occur then we're going to have to wait for the next pattern to develop and that could be a bearish engulfing, a bearish harami, a spinning top, it could be a doji. It could be a multitude of patterns. So this is why we need to be patient and disciplined enough to wait for the pattern to develop and then wait for a breakdown of that pattern before entering the market.

So this is a good way of looking at the markets, taking it from the daily chart into the weekly chart, seeing what the overall picture is, seeing what the wave structure is and then using simple tools like candlesticks charts and of course the technical indicators to help us become a better trader.

So always look at the bigger picture. Enter on the shorter timeframe in line with the main trend which is the weekly or the monthly charts. And then we can use candlesticks patterns to assist with the reversals. And of course always keep it simple.

Well I hope this has helped you to assess what the FTSE is doing right now and then helping us to determine what is likely to happen over the next few weeks in the month of January. And as always I look forward to seeing you in the next lesson with CantosCharts Master Class. Have a great trading week. This is Sandy Jadeja.