Look at trend and market psychology from price action

Illustrating price action with SG30 Index (SiMSCI)

When you know what to look out for in price action, an empty chart can reveal a host of information that can be used to trade. We look at Oanda’s SG30 Index on MT4. SG30 Index is a market-made product that emulates SGX SiMSCI Futures.

SG30 Index chart from OANDA

Follow numbered labels in the chart with this bullet list:

  1. Index rallies in March 2014 following a bottom in February. Price action shows higher-high and higher low. This is the signature of an uptrend. Strategy for following month: go long.
  2. Subsequent months print higher-highs and higher-lows which tell us that the index is still in an uptrend. Strategy: continue going long.
  3. A one-day ‘blip’ shows up at the beginning of July in the form of a ‘lower-low’. This is a one-day action that quickly takes off and leaves only a ‘tail’ in the candlestick. It is a false break. Actions like this can happen because bears become overzealous. The tail is a sign of regret that also tell us that sellers met a bear trap and got slaughtered. Strategy: Fade the false break by going long.
  4. Index rallies to new high telling buyers that the trend is intact.
  5. The index consolidates in August by going sideway. It makes a higher-low but fails to confirm with new high. Strategy: presume that the uptrend will continue by preferring long positions but apply caution since index hints it is weakening.
  6. Index breaks August-low in September decisively. We called this a bearish expansion and it is a solid signal that trend is reversing. Strategy: go short.
  7. Index continues downtrend in October.
  8. Steep movement Northwards late-October is presumed to be a retracement if it does not do a bullish expansion (see point 6).
  9. November begins with the sign of another false break (see point 3). Buyers are at loss since the break did not carry through. Strategy: Fade the false break and stay short unless the lower-high, lower-low sequence is terminated by a decisive up-move. There is a perfect example here.
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