FTSE Forms Bullish Hammer at 50% Fib
Having broken through long-term resistance and come within touching distance of the February 2023 highs, the FTSE took a pause for breath last week pulling back from recent highs.
Pullbacks provide excellent opportunities for traders to position themselves within established trends at attractive levels of risk/reward, and the FTSE’s recent pullback has put tend continuation traders on high alert.
FTSE Daily Candle Chart
(Past performance is not a reliable indicator of future results)
If we take a closer look at the FTSE’s recent price action, we can see that on Friday the market sold off in the morning only to rally back into the closing bell – forming a bullish hammer candle.
This simple price pattern provides a useful signal to trend continuation traders that the market may be ready to resume its uptrend.
The location of Friday’s hammer candle is also significant. The candle formed at the 50% retracement of the breakout move. It also closed back above the volume weighted average price (VWAP) anchored to the breakout lows.
Zoomed View: FTSE Daily Candle Chart
(Past performance is not a reliable indicator of future results)
Risk Management
The FTSE daily rolling futures average true range (ATR) is currently 64 – meaning the index tends to move on average 64 points each day. Swing traders looking to hold their positions overnight should place a stop loss outside of the daily ATR. The stop should also be placed below the hammer candle lows.
On the economic calendar this week, Thursday’s European Central Bank decision on interest rates is likely to generate volatility across European and UK equities.