Even outside a Hunt Volatility Funnel [HVF] set up.
There is an inherent value, to ‘not’ ignoring a ‘squeeze’.
Here was the FTSE100 heading into a key day with Draghi of the ECB due to speak.
Smart technical traders should not be looking to buy into the FTSE100 on a sustained Rising wedge of some duration, as it approaches a previous high. In fact at this point the trade was to the ‘sell side’.
The Squeeze and sustained buying along the lower grind line and the tactical distribution into the buoyant buyers along the bottom, see’s the smart ‘Probability of Outcome’ [POUT] traders’, start stacking up near the resistance of the previous highs.
The ‘Exhausted’, ‘George Foreman’ buyers have punched themselves out, getting themselves fully priced for a perfect outcome. They are set up for being knocked over by anything but the ideal fundamental outcome.
Muhammed Ali in this scenario being the ECB.. doing what the ECB has generally tended to do… that is disappoint and underwhelm [Another General probability of outcome trade..]. The Bazooka is regularly brandished and rarely fired.
Being on the wrong side of the market, at key inflection points has additional problems, meaning items such as:
- Stop runs
- Substantial Slippage.. as all hit the cinema door simultaneously
- Re-Qoutes as momentum is against you
- as for those without stops and not paying attention… well oh dear.
Not that I don’t advocate trading news events per se, especially when you only have a gamble on likely outcome. But this was different, it had a ‘Technical Analysis’ based justification. Regardless of the actual news, the probabilities of a fall were high and it is a great speculative short, with high potential RRR with a low risk stop above previous high out top of the wedge.
Enter Mr Fibonacci ….We draw a full Fibonacci Retracement grid from the final High at ‘H’ to the absolute low ‘L’
Note the Rising Wedge, to previous resistance with a key news event due.
Then the Initial break prenews marked capital 1. this shows some already nervous traders for the potential upside, regardless of the news, then we get the ‘Return Move’ [Late Bulls].
The Trade is to short sell the failure to make a higher high as it runs the low of the hanging man at peak little ‘h’ of the return move in Mustard highlighted area marked 2. Entry Short 6434, Loss Stop 6449.
Cover at the 61.8% retracement 6203. A RRR of 1:15,4
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