Is this the perfect short trade?
I have set some trendlines on the daily FTSE 250 chart:
Three reasons for a short trade:
1. There seems to be a reasonable upper tramline creating resistance through which the price has failed to rise.
2. The price has just hit the Fibonnachi 63% retrace up from the low of September, and failed to rise up through it.
3. There is momentum divergence, suggesting that the current rise in price is running out of steam.
I am therefore placing a short trade - selling the FTSE 250, for a relatively low risk trade, with my stop loss just above the tramline, and a target price around the September low, just above the lower tramline. This gives me a risk:reward ratio of approx 1:4. If all of my trades had that ratio, I could still make a good profit if only half of my trades worked.
Why dont I wait to see if the price does actually move down? Well, that increases the distance to my logical stop-loss and changes my risk:reward ratio. Traders have to sometimes be bold!
When/if the position moves into profit by the same amount as my current stop-loss, I will move the stop to breakeven, and of course I am keeping my position size small enough that if the trade does not work, I will not lose any sleep. Thanks to John Burford's MoneyWeek Academy for this technique. Please don't take this as trading advice, I am just telling you what I am doing!
Three reasons for a short trade:
1. There seems to be a reasonable upper tramline creating resistance through which the price has failed to rise.
2. The price has just hit the Fibonnachi 63% retrace up from the low of September, and failed to rise up through it.
3. There is momentum divergence, suggesting that the current rise in price is running out of steam.
I am therefore placing a short trade - selling the FTSE 250, for a relatively low risk trade, with my stop loss just above the tramline, and a target price around the September low, just above the lower tramline. This gives me a risk:reward ratio of approx 1:4. If all of my trades had that ratio, I could still make a good profit if only half of my trades worked.
Why dont I wait to see if the price does actually move down? Well, that increases the distance to my logical stop-loss and changes my risk:reward ratio. Traders have to sometimes be bold!
When/if the position moves into profit by the same amount as my current stop-loss, I will move the stop to breakeven, and of course I am keeping my position size small enough that if the trade does not work, I will not lose any sleep. Thanks to John Burford's MoneyWeek Academy for this technique. Please don't take this as trading advice, I am just telling you what I am doing!
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