Hello and welcome to CantsCharts Masterclass. I'm Sandy Jadeja, Chief Technical Analyst for City Index and welcome back to another lesson in learning how to use charts, technical analysis and price patterns. This is an ongoing series of educational lessons helping you to learn how to navigate through the markets.

There has been some really interesting movements in the markets recently, so what I'm going to do for this lesson is to focus on one of the indexes and have a look at how we could have utilised that information to hopefully make a profit and as always, this is simply for information and educational purposes only.

So we'll take a look at market reviews with the FTSE 100 index and the key thing that we really want to focus on is was there any information at hand that could have helped us potentially make a profit from the recent downturn?

Well, if we take a look at the weekly chart, there is a number of things that we could actually look at. We can look at technical indicators, we can look at the chart patterns and of course, we can look at momentum which we've really covered in a past episode.

At the moment, the FTSE 100 index has dropped off below the 20 period moving average, momentum has also fallen off suggesting that there is weakness in the markets and, of course, there are some candlesticks patterns which we could utilise.

So if really zoom in, the first thing that we notice that the FTSE 100 had given us a spinning top pattern and spinning tops really are indecision. It tells us when the market is in a state of fluctuation between the bulls and bears. At one point the market is going to break either to the upside or to the downside.

There has actually been a number of candlesticks patterns within this last few weeks and I would suggest that you look at the previous videos to try and work out what we were talking about and where the market is right now and what the clues would have been for you.

But at the moment, the recent one has been the spinning top and of course, we notice that the candlesticks have also turned red, so that's indicating that we have had lower closes.

Now on the daily charts, on the daily charts itself, so in other words we're looking at a lower timeframe, we also had a shooting star which was actually the point where the market started to fall off. So you will see that once we had that shooting star, a break below that shooting star with a stop at the high would have given us a position to establish a move, or prepare for a move towards the downside and that has really been a fantastic move over the last few trading sessions.

But right now, as we speak, the market seems to have stabilised and it has also given us a candlesticks pattern. This is one that we haven't really covered in past lessons but I'll point this out to you right now. There is something called the railroad tracks. This is where two candlestick bars are actually lined up together and on this case here, on the daily chart, we have a bearish candlestick followed by a bullish candlestick. So the way to trade this is that we might have a short-term reversal. We want to buy the breakout on the high of the blue candlestick with a stop at the recent low. So where are we going to target our prices towards the upside to get out? Now where we know where to get in, where to put our stop, what about getting out?

Well, first of all, the trend is bearish because the parabolic indicator is still negative and at the moment the parabolic SAR stands at 5,950. That's where the market needs to break out from in order to turn bullish and this will change as each day progresses.

But also notice that the recent lows are just hanging in there at 5,865 and quite often markets go back to retest previous resistance and previous support. In this case here, it's going to look towards the 5,865 as the previous support. So as long as we know that we've got that upside level there we could say to ourselves is this risk worth taking? Is the reward there for the kind of profit that I'm really looking for in terms of the risks that I'm going to take? Well that's a question that you really need to answer.

But for short-term traders they could look at this and then zoom in to the daily charts or even the two, three hour charts and say right now we know where the key support is right now just below that 5,600 and then of course we could be aiming towards that 5,865.

So there has been some clues from the market to tell us which direction it was going to break out in and it has also given us some clues right now. The interesting thing about the FTSE, though, is if we take a look at this decline, it has been a waterfall decline. So in other words, that's one of the steepest declines we've seen, in my view, since May 2010, so maybe the dynamics of the markets are changing here. Maybe we are now finally entering a bearish stage after the nice bullish stage that we had. Well all we can really do is watch the market and trade it as it actually happens and prepare for the moves.

So always look at the large degree timeframe to help you what the longer term trend is doing and use a lower timeframe for the entries and exits and then use the candlesticks patterns to assist with the reversals. I like to keep things simple and I hope you do to.

Well, I hope this lesson has been useful for you. I look forward to seeing you in the next class. In the meantime, have a safe trading week. This is Sandy Jadeja.