Australia 200 Trigger

In overnight trading the Australia 200 index touched 4,356, just shy of a key level. This presents traders with three clearly defined short term trades.

The Australian share market has underperformed the recovering US market over the last 3 months. Unusually, yesterday the index posted gains despite falls in other Asian markets. Analysts are waiting for the Australia 200 to break through the top of the 8 month trading range at 4,365. I posted on the drivers of a break out on 14 March – you can read it here:

http://blog.cmcmarkets.com.au/2012/03/14/australian-200-approaches-break-out/

My fundamental view remains that the market will break through – however, the wait is frustrating for investors. The situation is different for traders, with clearly defined trading levels. Here’s the daily chart from the CMC Tracker platform:

 

Given the repeated failures as the index approached the break out level in the past, I’ll stay away from predicting the market and let the price action tell all. As the chart shows, last night the market pulled back to a key intra-range level at 4,318. This rejection of the high at 4,356 gives me the following short term trade:

SELL Australia 200 at 4,316, stop loss above 4,324, targeting 4,245.

The potential risk / reward ratio on this trade is exceptional, at greater than 8:1.

Of course, if the market repeats yesterday’s stunning solo performance, and trades up through 4,365, I’ll be going long for a swing trade. For bullish traders, the recent price action also suggests a clearly defined trade for today:

BUY Australia 200 at 4,322, stop loss 4,314. Take half profit above 4,350.

 

About michaelmccarthycmc

Chief Market Strategist - CMC Markets and Stockbroking Regular on ABC, BBC, Bloomberg, Channel TEN, CNBC, SBS and SKY
This entry was posted in Market, Shares, Stocks, Trading and tagged , . Bookmark the permalink.

6 Responses to Australia 200 Trigger

  1. dv34 says:

    Totally agree Michael, With china slowing down reducing demand for raw commodities, lack lustre US reporting and I am currently shorting other worldwide indices I doubt this breakout has any legs… from a R;R perspective the bigger reward/ higher probability trade is a short… there is a gap of potentially 4:1 to the bottom of the triangle if it breaks down

    • michaelmccarthycmc says:

      Hi DV – think there are good arguments both ways here – that’s why I’m waiting for the price to tell me…

  2. Captain says:

    Hi, I am sorry this is not the proper place to ask but wanted to know how others use their charts. I always use a “sell ” chart and make adjustments for entry and profit/loss. Do others do this or do you swap between buy/sell charts depending which way you are trading. Sorry its in wrong place but not sure where else to ask,
    cheers

    • michaelmccarthycmc says:

      Hi Captain – the chart a trader uses will depend on personal preferences. Some look at only one type of chart – some use all three (buy, mid, sell). Some traders will look at the mid chart, but use the relevant chart in setting stop losses – for example in a bought position, the stop loss will be a sell order, and a trader may use the sell chart to set the level. I use the mid charts on most instruments, especially where the spread is small.

      Hope this helps, Michael

      • Captain says:

        Thanks Michael for such a quick response. I think I will just stay with what I use but was just checking if there was a specific correct way.
        Have a great day
        Captain

      • michaelmccarthycmc says:

        Thanks Captain

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