UK100 Trading Guide

Why Trade UK100

The London Stock Exchange is one of the largest in the world, with nearly 3,000 companies listed from around the world. Now, traders all over look for good, cheap ways to trade a basket of UK stocks.

FXCM’s UK100 index is the answer. UK100 tracks the 100 top-performing companies in the London Stock Exchange. With FXCM’s low transaction costs, a good trading strategy, and the advantage of leverage (which can magnify gains as wells as losses), you’re ready for any market condition.

This UK100 Trading Guide gives you the ins and outs of two unique trading strategies and the technical indicators that help determine buy and sell signals.

Feel free to test these strategies on a free FXCM demo account, which has live UK100 prices, on our proprietary Trading Station platform.

Which UK100 Strategy is best for you?

Like the speed and excitement of day trading? Then the GBFalcon UK100 strategy may be for you. Or are you more of a long-term trader? Then RAPTOR for UK100 is your best bet.

GBFalcon UK100

Day trading on shorter timeframes can be beneficial, especially to those traders with busy schedules. The good news is the analysis itself also doesn’t have to be overly complicated. The GBFalcon UK100 strategy is designed to get you in on the right side of UK100 when it’s overbought or oversold, and then get you out before prices reverse.

The Strategy

There are four steps to finding opportunities in our GBFalcon UK100 strategy.

  1. Spotting – Use a 30-minute chart to find the direction of the UK100 trend
  2. Filtering – Confirm the trend by filtering with a 200-period EMA on a five-minute chart
  3. Focusing – Once the trend is confirmed, use MACD to find shifts in trend momentum
  4. Executing – Buy or sell using two orders for multiple exits

Step 1: Spotting the Trend

Looking for the trend is as straightforward as checking your graph for higher highs or lower lows—can you see an uptrend or downtrend from across the room? Use a 30-minute chart to see if UK100 is on a tradable trend (expand your chart out to a week or two).

Below is an example of a downtrend, where price moves consistently to lower lows. Note that the trend lasts more than
six trading days—this adds validity to your market bias (bullish or bearish). Once a trend is established, buying and selling decisions are easier: You want to buy in an uptrend and sell in a downtrend. If no upward or downward trend is found, now isn’t a good time to execute our UK100 strategy.

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Step 2: Filtering the Trend

We need to filter the trend further to support our strategy. A great tool to filter the trend is an Exponential Moving Average (EMA) indicator set to 200 periods. The 200-period EMA spots directional shifts in the market and can be used as a level of support and resistance.

Once the broader trend has been established from Step 1, switch your UK100 30-minute chart to a five-minute chart (click Chart, Show Data Range, Five Minutes, then 1 Day), then add an EMA (right-click on your chart, click Add Indicator, then select EMA and enter 200 in Periods).

In an uptrend, only look to buy UK100 if the current price is above the EMA line; in a downtrend, only look to sell if price is below the EMA line. If the price is exactly on the EMA line, then wait for better UK100 trading opportunities that meet these parameters.

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Step 3: Focusing on Trade Opportunities

With steps 1 and 2 establishing our trend, we can check the market for opportunities to find and execute a trade. Use the Moving Average Convergence/Divergence (MACD) oscillator (right-click on your chart, click Add Indicator, then select MACD).

Here’s how you use the MACD to find a sell signal. First, watch for MACD to move under the zero line that divides the oscillator horizontally. When the red MACD line crosses back below the blue line, execute your sell trade. Conversely, in UK100 uptrends, only buy when MACD is over the zero line and the red line crosses above the blue line.

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Step 4: Execution

When confirming signals for buying or selling, watch for all three conditions to occur:

Signal to Buy:

  1. UK100 trends upward
  2. The current price is above the 200-period EMA
  3. When MACD is above the zero line and the red line crosses above the blue line

Signal to Sell:

  1. UK100 trends downward
  2. The current price is below the 200-period EMA
  3. When MACD is below the zero line and the red line crosses below the blue line

If the three conditions within the signal are met, it’s time to execute the trade.
If neither set has matching conditions, wait for better opportunities. This strategy requires you to open two individual tickets—your lot size can vary to suit your risk tolerance.

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Execute the Trade and Manage Your Risk

  • Always have a defined risk tolerance when entering into a trade.
  • The GBFalcon UK100 stop price is always based on the current 200-period EMA price line. Use a little wiggle room and place stops below the EMA line when buying or above when selling.
    GBFalcon UK100 utilises a two-lot system with different limit points (where you take your profit).

Lot one: Use a 1:1 risk-reward ratio. Set the stop price and limit price each an equal number of pips from the entry price. If the stop is 50 pips from entry (based on the EMA price), the Lot One limit is set at 50 pips of profit.

Lot two: Set your stop at the same price as Lot One, but use a trailing stop (click Stop, click Trailing Stop, click Dynamic). The Trailing Stop automatically moves your stop price forward as the trade goes in your favour. Leave Lot Two open as the
position continues to trend. The position closes when the market price reaches the current trailing stop point.

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Raptor for UK100

Finding and trading long-term trending movements on UK100 can be beneficial to traders who prefer to monitor positions less intensely. The RAPTOR for UK100 strategy harnesses the stochastic oscillator to find trend pullbacks (changing directions), giving you an advantage in trading the trend.

The Strategy

There are four steps to finding opportunities in our RAPTOR for UK100 strategy.

  1. Spotting – Use a daily chart to find the directional movement of the UK100 trend
  2. Filtering – Confirm the trend by filtering with a 200-period MVA
  3. Finding – Once the trend is confirmed, use SSD to find overbought/oversold conditions
  4. Executing – Look for pullbacks on SSD lines for entry orders

Step 1: Spotting The Trend

When trading longer-term momentum, trend direction is crucial in determining whether
we buy or sell UK100.
Looking for the trend is as straightforward as checking your graph for higher highs or
lower lows. Use a daily chart to see if UK100 is on a tradable trend.

Step 2: Filtering the Trend

The Simple Moving Average (MVA) is an effective trend-filtering tool, used by a variety of traders to find the direction of the trend. Use a 200-period MVA (on your chart, click Insert, Add Indicator, then select MVA set to 200 periods), and look for a mature trend.

Consider buying if the current UK100 price is above the 200-period MVA. Likewise, sell only when price is firmly below the indicator line. Below is a scenario where you should only look to sell UK100.

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Step 3: Finding Trade Opportunities

Technical traders often use oscillating indicators to find pullbacks against the trend,
allowing them to buy or sell at a preferred price.

Use the Stochastic Slow Oscillator (SSD) on a two-hour chart (on your chart, click Insert, Add Indicator, then select SSD). Your SSD should have Parameter Calculations of 15,
5 and 5.

When buying in an uptrend, look for pullbacks on the stochastic line (blue line) underneath 20—an oversold condition. This signals a dip in price; you want to buy when momentum shifts back above the oversold line. Conversely, in a downtrend, look to sell when the stochastic line moves to overbought levels (80 or higher) and re-crosses the line heading lower.

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Step 4: Execution

When confirming signals for buying or selling, watch for all three conditions to occur:

Signal to Buy:

  1. UK100 trends upward
  2. The current price is above the 200-period MVA
  3. The SSD line (blue) has crossed below 20 and re-crossed back above 20

Signal to Sell:

  1. UK100 trends downward
  2. The current price is below the 200-period MVA
  3. The SSD line (blue) has crossed above 80 and re-crossed back below 80

If the three conditions within the signal are met, it’s time to execute the trade. If neither set has matching conditions, wait for better opportunities. This strategy only requires a single trade ticket for each buy or sell signal.

Execute the Trade and Manage Your Risk

  • Always have a defined risk tolerance when entering into a trade.
  • For our RAPTOR for UK100 strategy, if there is an uptrend and you are buying, then place your stop just below the low of the past 15 candles. If the market is in a downtrend and you are selling, then place your stop over the highest price of the last 15 candles.

Set your limit to take profit if UK100 moves in your favour. Use a 1:2 risk-reward ratio (twice the distance of your stop entry). For example, if risking 50 pips with a stop, at minimum, look for a 100-point profit target. Set your limit price 100 pips above your entry price.

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Any opinions, news, research, analyses, prices, other information, or links to third-party sites are provided as general market commentary and do not constitute investment advice. FXCM will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.