The bullish (and bearish) potential is not accompanied by the relative probabilities at this stage. What to do? Buy or leave it alone? Let’s try to figure it out together
By Fabio Pioli, professional trader and founder of CFI Independent Financial Advisory (www.cfionline.it).
Graph just at the beginning of the climb or too high is the price of the future on the FTSEMib, the main Italian index? Judging from Figure 1, there would still be a long way to go before reaching the objectives, if the lateral had been broken.
Fig 1. FTSEMib Future – Weekly chart
While if it were a false break, again from Figure 1, it would not be convenient to buy. However, if we narrow the graph to the last two years we realize that we are in a positive trend but that if you buy here, you buy on the upper edge of this trend or on the resistances (Figure 2).
Fig 2. FTSEMib Future – Weekly chart
We can therefore ask ourselves whether continuing to buy at the current resistance levels is better and more in favor of probability than buying at least on the first supports, which are now at 26,600 points, rather than on the latter, in the 24,000 area (Figure 3) .
Fig 3. FTSEMib Future – Weekly chart
There is no doubt that it is better to buy on these supports, if we look at the rational parameters, i.e. starting probability of a trend and risk / return ratio, for example. However, will it ever reach such supports or will it continue to rise? Not knowing the answers to these questions, we don’t buy.
However, the emotional element must also be weighed. So, repeating the question from last week, if it becomes too frustrating for you not to enter the beginning of a potential strong bullish movement (knowing that it is a speculative bubble as it would start from high levels to exaggerate levels) then revenue: the potential is there although the probabilities are not known.
And, in hindsight, this also applies for those who do not want to “miss” a strong bearish movement: if it becomes too frustrating for you not to enter at the beginning of a potential bearish movement (knowing that you are entering against the trend and therefore trying to guess the highs) then enter: the probabilities are not known here either; we only know that we enter against the trend. In both cases, however, we are in the realm of pure play, which is not my responsibility. Let me not participate in this phase. At least as long as don’t see the prices arriving at the stands.