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Virtual CFD Example

BP Plc- Short Trade

The stock has enjoyed a healthy move forward in recent weeks as a result of the market momentum and the news flow regarding the find of a new oil field in the Gulf of Mexico.

However as this news has now been factored in to the share price of the company, in recent days the stock has been lagging the market as it approaches traffic at the 560-563 level.

From a technical perspective we note that last week the bulls tried to capture the 560 level but failed with their conviction to be turned over by the bears giving us the candlestick formation entitled a Bearish Belt Hold (depicted on the second graph with the red tab with a j in it), as the name suggests this is a story that tells how the bulls were initially in control gapping higher upon the open but the bears came into force taking the company lower through the day’s trading activity and finishing down over 2% on the day. The Relative Strength Index(RSI) is well above the neutrality area of 50 showing data of 68 indicating the company is overbought, in this instance we can take two outcomes from this story i)The stock is overbought and therefore expected to correct towards the downside ii)The stock is in a lasting uptrend.

Taking into consideration the failed attempt to capture the 560-563 level last week we believe the former to be more accurate than the latter of these two instances. We also note the Parabolic SAR (the blue and red dots above and below then candlesticks) have recently posted sell signals, giving further clarification of the downside potential the stock has the ability to exhibit.

Therefore we enter into a Short trade at a level no worse than 552 with the 563 level existing as our stop loss to control risk, and targets placed at 542 initially with the opportunity of a leg down to stronger support at 530.