FTSE 100 Technical Analysis: Taking a Range-trader’s Approach
- Response by market has been surprisingly strong
- The FTSE 100 is stuck in range-bound price action
- Need to take a ‘range-trader’ mentality to give yourself an edge
The response so far by the market has shown the initial reaction to the Briton’s choice to leave the EU was a dramatic overreaction. The FTSE 100 sits a lot closer to the highs established prior to the vote than it does to the lows when it was down 8% on Friday. It has been a surprisingly sharp rebound, but will it last?
The price action in recent months has been very indecisive, overall, with the market now trading at the same levels seen in March. If you want to broaden the range even further, we can go back to August of last year; the FTSE has been in one big side-ways range.
So how do we trade a market when it lacks the ability to sustain a trend in either direction? For starters, chasing momentum in either direction in this type of environment is a recipe for losses. We need to take a mean reversion or ‘range-trader’ mentality.
With that approach in mind, the next trade will be shorting the current up-move once it runs out of steam, preferably at a zone of resistance. From the mid-6300s up towards the middle of 6400 lies a reaction zone we will focus on should the current advance carry the FTSE that high. Establishing a trade at current levels in either direction doesn’t hold the best risk/reward with support and resistance a good distance away.
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---Written by Paul Robinson, Market Analyst
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.