HAVE A ROCKING TUESDAY

10 RULES OF TECHNICAL TRADING (CONTD)

3. Find the Low and High of It Find support and resistance levels. The best place to buy a market is near support levels. That support is usually a previous reaction low. The best place to sell a market is near resistance levels. Resistance is usually a previous peak. After a resistance peak has been broken, it will usually provide support on subsequent pullbacks. In other words, the old "high" becomes the new "low." In the same way, when a support level has been broken, it will usually produce selling on subsequent rallies -- the old "low" can become the new "high."

Matt Bradbard: This helps a lot with stop placement and buying or selling breakouts.

4. Know How Far to Backtrack Measure percentage retracement. Market corrections up or down usually retrace a significant portion of the previous trend. You can measure the corrections in an existing trend in simple percentages. A 50% retracement of a prior trend is most common. A minimum retracement is usually one-third of the prior trend. The maximum retracement is usually two-thirds. Fibonacci retracement of 38.2% and 61.8% are also worth watching. During a pullback in an uptrend, therefore, initial buy points are in the 33-38% retracement area.

Matt Bradbard: If you’re not already watching Fibonacci retracement as part of your trading…start.  In fact, go back and look at past trades and insert Fibonacci levels and see how much easier the trades could have been had you used this type of analysis.

5. Draw the Line Draw trend lines. Trend lines are one of the simplest and most effective charting tools. All you need is a straight edge and two points on the chart. Up trend lines are drawn along two successive lows. Down trend lines are drawn along two successive peaks. Prices will often pull back to trend lines before resuming their trend. The breaking of trend lines usually signals a change in trend. A valid trend line should be touched at least three times. The longer a trend line has been in effect, and the more times it has been tested, the more important it becomes.

Matt Bradbard: Knowing whether or not you are above/ below support and resistance levels helps with stop placement.  

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