The price-weighted average of the most significant 225 companies listed in the First Section of the Tokyo Stock Exchange comprises the Nikkei-225.This is over of the most popular stock market in the world for the long-term investor. Professional long-term traders use different trading strategy to trade the Nikkei -225.
SMI Ergodic Gap trading strategy is one of the most profitable trading strategy used by the top class investor in the Nikkei -225.Most of the time, trading the market gap in this generates huge potential profit for the long term traders. Let us see the short trade setup in Nikkei-225:
Figure: SMI Ergodic Gap trading strategy for Nikkei 225
This trading system requires triple top or triple bottom pattern formation which caps the upward or downward move of the stocks. In the above figure, a triple top pattern informed in the Nikkei -225.Professional traders wait patiently for the market to close at the same horizontal level often called as the neckline. After the closing of the price near the neckline region long term traders for the next opening of the stock market. If the market opens with a gap down after the formation of the triple top pattern, traders look for Ergodic indicator value. If the signal line in the Ergodic indicator crosses below the baseline 0 than traders opens short in the market. They set their stop loss just above the neckline of the triple top pattern.
Most of the time once this pattern is formed in the Nikkei-225 the market change the direction of the trend for at least two months period. In the above figure, the bearish trend reversal confirmed by the SMI Ergodic Gap trading strategy for Nikkei 225 sustained for more than eight months in the market. It’s a Perfect short trading opportunity for the long term investor. To be precise this system is applicable for the professional long-term Nikkei -225 traders.