HAVE A TREMENDOUS WEDNESDAY

10 RULES OF TECHNICAL TRADING (CONTD)

6. Follow that Average Follow moving averages. Moving averages provide objective buy and sell signals. They tell you if the existing trend is still in motion and help confirm a trend change. Moving averages do not tell you in advance, however, that a trend change is imminent. A combination chart of two moving averages is the most popular way of finding trading signals. Some popular futures combinations are 4- and 9-day moving averages, 9- and 18-day, 5- and 20-day. The shorter average line crossing the longer is a key signal. Price crossings above and below a 40-day moving average also provide good trading signals. Since moving average chart lines are trend-following indicators, they work best in a trending market.

Matt Bradbard: Some averages work better depending on the market and time frame but for position trades, the 40-, 100-, and 200-day moving averages are critical as those are usually what the “big boys” follow.

7. Learn the Turns Track oscillators. Oscillators help identify overbought and oversold markets. While moving averages offer confirmation of a market trend change, oscillators help warn us of markets that have rallied/ fallen too far and that may soon turn. Two of the most popular are the Relative Strength Index (RSI) and Stochastics. They both work on a scale of 0 to 100. With the RSI, readings over 70 are indicative of a market that is overbought while readings below 30 point to an oversold market. The overbought and oversold values for Stochastics are 80 and 20 respectively. Most traders use 14 days or weeks for stochastics and either 9 or 14 days or weeks for RSI. Oscillator divergences often warn of market turns. These tools work best in a trading market range. Weekly signals can be used as filters on daily signals. Daily signals can be used as filters for intra-day charts.

Matt Bradbard: Many a time RSI and Stochastic have kept me from taking on a loss-making position in the first place, or helped with making a timely exit. Knowing when markets are either overbought or oversold is important because it is generally an early warning sign of a trend reversal.

                                                                                                                                                                                 (to be contd)