Australia 200 Index - Convergence sell trade using price action
Taking a look at the Australian 200 Index, we have seen a good potential short term trading opportunity for a Sell.
As you can see from the 15 Minute chart we were watching to see what price did if it reached the 6000.0 level as this could potentially show a rejection here because its a psychological level in general.
This alone is not going to present a high probability trading opportunity so we look to the price action and the structure of the movement getting there that can help give us a clue.
Price was in an ascending channel on the way up which then turned into a more tighter ascending channel inside the larger one. This structure in price showed 3 hits on both of the channels topsides (marked with blue and pink arrows) creating two bearish 3 drive patterns in the process. What increases the probability here is that both of these patterns also converged and lined up with the 6000.0 level.
Once we saw price start to show signs of weakness and move lower we just had to be patient and use the lower inner trend line of the smaller channel as our trigger for the short trade if this trend line gets broken to the downside which occurred nicely.
For trade management we want to place a stop just above the 6000.0 level and the highest high and live with the result while taking profits along the way as price keeps going lower.
As you can see from the 15 Minute chart we were watching to see what price did if it reached the 6000.0 level as this could potentially show a rejection here because its a psychological level in general.
This alone is not going to present a high probability trading opportunity so we look to the price action and the structure of the movement getting there that can help give us a clue.
Price was in an ascending channel on the way up which then turned into a more tighter ascending channel inside the larger one. This structure in price showed 3 hits on both of the channels topsides (marked with blue and pink arrows) creating two bearish 3 drive patterns in the process. What increases the probability here is that both of these patterns also converged and lined up with the 6000.0 level.
Once we saw price start to show signs of weakness and move lower we just had to be patient and use the lower inner trend line of the smaller channel as our trigger for the short trade if this trend line gets broken to the downside which occurred nicely.
For trade management we want to place a stop just above the 6000.0 level and the highest high and live with the result while taking profits along the way as price keeps going lower.