11 Oct Day Trading The FTSE 100; 10th October 2013
Although my concentration lies with swing trading, there are times when a great trading set-up makes day trading worthwhile so here’s a quick synopsis of a trade I took earlier today.
On the Daily timeframe my system has remained short on the FTSE 100 since May 2013, although the Hourly time frame has switched between short and long on a few occasions. However, today’s trade was based on the simplest form of T.A but keeping in mind that I find FTSE a quirky index that has its own characteristics.
One of those characteristics is that FTSE will seemingly ignore intraday Fibonacci levels as resistance and overshoot past them but later return to test those levels to find support and that’s exactly what happened today.
As you can see from the chart today’s rally was initiated with positive MACD divergence at the overnight lows. That in itself isn’t a good enough reason to get long because the divergence could just be corrective, therefore I’d normally look for a combination of MACD divergence followed by a break of resistance on the specific time frame being traded.
Next up I drew a Fibonacci level between the previous swing high and the lows, and then I waited.
Price rallied straight past the 61.8% Fib level which is quite common on FTSE but to the left of the chart you can see a fair amount of consolidation from last time price traded at that level so its highly unlikely the intraday rally would have continued without a retest of both the over-shot Fib level and the previous consolidation level in the 6385 area.
The worst mistake here is to get carried away with the momentum and end up buying the intraday high! You must wait for price to come to you, and if it doesn’t, you must forget the trade idea.
Sure enough that re-test soon took place so I entered a long position bang on the fib level retest at 6385 (in the small red circle) and in this case I held a 20 point stop allowing for a fake-out dip below the previous consolidation level and also allowing for a possible retest of the 50% fib at 6370
Within an hour of entering the trade a fair 50 point profit was showing and I eventually exited the position for a 48 point profit.
All in all a simple yet effective day trade, and a high quality intraday set-up that doesn’t come along too often.