At an index Price to Earnings ratio between 19 and 20 times, I’m looking for sell signals in the Australia 200 index. The failure at resistance this morning has tipped me in:
My colleague, Ric Spooner, regularly writes about the usefulness of using charts of different time frames to find better trade signals. While he and I have different trading styles (naturally) this is a good example of the higher time frame (daily) chart guiding the overall direction (despite starting with a fundamental view) and the lower time frame (4 hour) chart defining the entry:
The combination of the failure at resistance and an RSI reading over 70% is the technical signal I’m looking for to allow me to trade my fundamental view:
Note the Profit to Loss ratio of the trade 68 to 15, or better than 4 to 1 – this fits my trading plan.