FOLLOW THE LEADER

GETTING STARTED

First of all we must open our trading account.

A little about the markets we are going to trade.

FTSE 100 Explained

What is the FTSE 100 and how does it work? That's a question that plenty of people ask. After all, the FTSE 100 is quoted on the news and in newspapers on a daily basis but it's never actually explained. So here's an attempt at an explanation:

In the UK, shares in companies are traded on the London Stock Exchange (commonly known as the 'Stock Market'). Traders buy and sell shares on behalf of large corporate institutions and on behalf of small private investors.

The 100 companies that have the largest value on the stock market (that is the largest total value, not the largest price per share) are included in the FTSE 100. The list of 100 companies is updated on a quarterly basis to ensure that it (roughly) contains the largest 100 UK companies at any point in time.

An index is then created using the share prices of these top companies. The index can really be thought of as being representative of the average price of shares in all of the 100 companies. So, when you see it reported in the news that the FTSE 100 has gone up during the day, then what that really means is that, overall, the value of shares across the top companies has moved up that day. The reverse is also true (if the index goes down on a given day).

Since it is only a representative index, the stock market could be 'up' but some individual companies within the index may have seen their share price drop. So what use is the FTSE 100 index?

Well, it really offers little more than a guide to general trends across the stock market as a whole. There are many more specific indices that can be used to look at specific industrial sectors, but the main FTSE 100 index gives a very quick 'at a glance' view of the market's performance on a given day.

The footsie100 trading hours are between 8.00am on a morning until 4.30pm in the afternoon and this is key to ours strategy.

Here I just want to explain a little about the birth of the method we are going to use. A few months ago I realised that when the footsie100 opens on a morning (8.00) there was always some initial volatility. I also realised that if I could capture some of that volatility then surely there would be profits to be made.

I have used different methods trying to capture this but failed to make consistent profits. The reason being that I didn’t know if the market was going to shoot up or down, it was not until I stumbled on a crucial factor (the one factor that drives this method) that I realised there was a way to capture this movement consistently.

Now I have explained the Footsie100 market. The key factor that makes the footsie100 market move on a morning is that it follows the Dow Jones (the main American indices)

The Dow Jones Industrial Average also called the DJIA, Dow 30, INDP, or informally the Dow Jones or The Dow) is one of several stock market indices, created by nineteenth-century Wall Street Journal editor and Dow Jones & Company co-founder Charles Dow. It is an index that shows how certain stocks have traded. Dow compiled the index to gauge the performance of the industrial sector of the American stock market. It is the second-oldest U.S. market index, after the Dow Jones Transportation Average, which Dow also created.

The average is computed from the stock prices of 30 of the largest and most widely held public companies in the United States. The "industrial" portion of the name is largely historical. Many of the 30 components have little or nothing to do with traditional heavy industry. The average is price-weighted, and to compensate for the effects of stock splits and other adjustments, it is currently a scaled average. Not the actual average of the prices of its component stocks, but rather the sum of the component prices divided by a divisor, which changes whenever one of the component stocks has a stock split or stock dividend, so as to generate the value of the index. Since the divisor is currently less than one, the value of the index is higher than the sum of the componen

PUTTING THE PLAN INTO ACTION

Now we have established that the two markets of interest to us are the two main world Indices the FOOSTSIE100 and the DOW JONES.

The footsie100 opens at 8.00 and closes at 4.30 UK time

The Dow opens at 2.30 and closes at 9.00 UK time

It is a well known fact the Dow drives the Footsie100 i.e. the directional movement of the Dow ▲will be followed by the footsie100▲

When the London markets close at 4.30 obviously the American markets are still trading because of the time difference. The information we are interested in is the movement of the Dow after London closes.

Just say for instance that the Footsie100 closed at 4.30 and the value of the market was 4300

At 4.30 the Dow was worth 8200 and by 9.00 had closed at 8300. The Dow Jones had moved 100 points▲ whilst the Footise100 was closed in London. (note trading on the footsie continues until 9.00pm)

The gap in the market is normally made up by the footsie100 the following day.

Here is the calculation required to benefit from this information

Footsie100 closed 4300 (4.30)

Dow traded at 4.30 = 8200 and closed at 8300 (a difference of 100 points) The Dow Jones at this moment in time is worth roughly around double that of the footsie100 (8300 compared to 4300)

The market moved up 100 points this total. This must be divided by 2 (actual 1.93) to give us the probable upward movement of the footsie100 the following morning 100 divided by 2 = +50 ▲

WHERE TO ACCESS THE MARKET DATA

The best place to access the required information is the BBC teletext service. Press the red button on your remote go to the BBC index, business then markets (which I believe is on page 230)

I access this information once it is updated around 10.00pm

The page showing the footsie100 looks like this:-

Hourly Footsie100

0800 4286

0830 4305 +29

0900 4322 +36

1000 4350 +64

1100 4354 +68

1200 4355 +69

1300 4350 +64

1400 4355 +69

1500 4346 +60

1615 4330 +44

CLOSE 4350 +64

Note that it is only the closing figure that is of interest to us.

Again the Dow Jones can be accessed exactly the same on the teletext business pages and the movement is recorded in exactly the same way

Opening 8550

14.45 8557 +7

1500 8602 +52

1530 8608 +58

1600 8586 +36

1630 8599 +49

1700 8598 +48

1800 8577 +27

1900 8538 -12

2000 8514 -36

CLOSE 8470 -80

The important figures for us here are the figures at 4.30 when the Footsie100 closed 8599

And the figure when the market closed 8470

We now perform our simple calculation to get the figure for the footsie movement the next morning

8599 – 8470 = 129 half this figure (the footsie100 being worth half the value of the Dow)

64.5 is the figure I expect the footsie100 to fall the following morning.

Rather that having to wait for the market to open at 8.00 I place an order that night

The Footsie100 closed at 4350 then I expect it to drop to 4285.5 the following day.

Note that if the gap is less than 10 points I do not bother placing a trade. The gap has to be 10+ points

Also note that all markets close Friday evening for the weekend but I still place a trade over the weekend for the footsie100 open Monday morning.

PLACING AN ORDER

Open up your trading platform

Details are on my homepage and please note that only through my site will tradefair put £70 into your account.

When you log in,the popular markets will be on display

Above is the box we use to place our order.

If buying click in the buy circle

If selling click in the sell

The example I showed from the teletext pages showed the footsie had closed at 4350 and we were backing it to go down. (sell)

Click on the circle to sell

In the box that says level it would have been a red reading click on the minus button until the box turns white. This is at the level the order can be placed (the quote in brackets would have stated not between 4352 and 4348) Note the 2 point spread.

Click on the stop box and place a stop 20 points above the level if selling or 20 points below if buying

Our stop loss would be placed at 4570 so if the market was to rise instead of our calculated fall then we would be stopped out of the trade and lose 20 points.

NOTE: ALWAYS PLACE A STOP LOSS.

We expect the market to fall by 64.5 points. So we can place a limit on the trade. The market closed at 4350 and we expect it to fall to 4285.5 so a limit order can be placed at 4286.

And that is basically the system in a nutshell. It may sound difficult placing orders but believe me it is quite simple practice will make perfect. Read the information on the tradefair site about stop losses and limit orders. They go into more detail than I have and probably explain it clearer.

But basically our example shows the market close at 4350 we place a stop 20 points above that 4370 and a limit order for it to fall 64 points to 4286. Simple!!

Note: on the results sheet the variation in the strength of bets. I normally place bigger stakes when the gap in the market is above the 40 point mark.

WATCHING TRADES

Note that it is not necessary to watch the trade. It has its advantages and disadvantages. Once you have placed your order you don’t need to do any more until the following evening.

But sometimes watching the trade you don’t have to place a limit order you can close off the trade manually. Sometimes the market will fall or rise further than the level we have placed an order for. But of course if you see the candles bobbing up and down this may cause you to jump out of a trade sooner than you should have.

An example of a candle chart below, note again I recommend you read the technical information on the tradefair site explaining candlestick movement.

Note that our order for the footsie to fall at 4350 worked a treat and the market actually fell all day long down to 4223 (127 points)

But the fact is that we had a 64 point winning minimum.

www.forex-it.com

BEST OF LUCK Anthony Gibson