KLCI: Into the Rectangle Again

The index had managed to move into the rectangle again, breaking the support-turned resistance of 1766, thereby showing sign of bullishness. But hold on just a minute. As you can see from the chart, volume is declining as the index moved higher. This indicates that the trend is weakening. At the moment, we need more concrete evidences to determine the sustainability of the trend before we can establish huge long position. Breaking the recent high (the area highlighted in pink) with high volume would be a bullish signal. Otherwise, we should enter only after the recent low of 1743 is tested again or if a higher low is formed. That would be safer.

What if the intraday resistance level of 1775 is broken tomorrow, wouldn’t it be a buy signal? Yes it is, but it’s not a good one, or should I say its not a safe one since we are in the third day of an uptrend. Always remember, never ever take a position in the direction of the trend on the third day because it is very likely that a reversal will occur on the third day or on the forth, making the risk-reward ratio of the position to be unattractive. Unless the market is in an extreme bullish condition, this rule holds most of the time. Again, if you are eager to take a long position, wait for the market to provide you with more concrete evidences. Don’t rush in.