Many short-term players view trading as a form
of gambling. Without planning or discipline, they
throw money at the market. The occasional big
score reinforces this easy money attitude but
sets them up for ultimate failure. Without
defensive rules, insiders easily feed off these
losers and send them off to other hobbies.
Technical Analysis teaches traders to execute
positions based on numbers, time and volume. This
discipline forces traders to distance themselves
from reckless gambling behavior. Through detached
execution and solid risk management, short-term
trading finally "works".
Markets echo similar patterns over and over
again. The science of trend allows you to build
systematic rules to play these repeating
formations and avoid the chase:
1. Forget the news, remember the
chart. You're not smart enough to
know how news will affect price. The chart
already knows the news is coming.
2. Buy the first pullback from a new
high. Sell the first pullback from a new low.
There's always a crowd that missed the first
boat.
3. Buy at support, sell at
resistance. Everyone sees the same
thing and they're all just waiting to jump in
the pool.
4. Short rallies not selloffs.
When markets drop, shorts finally turn a
profit and get ready to cover.
5. Don't buy up into a major moving
average or sell down into one. See
#3.
6. Don't chase momentum if you can't
find the exit. Assume the market will
reverse the minute you get in. If it's a long
way to the door, you're in big trouble.
7. Exhaustion gaps get filled.
Breakaway and continuation gaps don't.
The old traders' wisdom is a lie. Trade in
the direction of gap support whenever you
can.
8. Trends test the point of last
support/resistance. Enter here even
if it hurts.
9. Trade with the TICK not against
it. Don't be a hero. Go with the
money flow.
10. If you have to look, it isn't
there. Forget your college degree and
trust your instincts.
11. Sell the second high, buy the
second low. After sharp pullsbacks,
the first test of any high or low always runs
into resistance. Look for the break on the
third or fourth try.
12. The trend is your friend in the
last hour. As volume cranks up at
3:00pm don't expect anyone to change the
channel.
13. Avoid the open. They see
YOU coming sucker
14. 1-2-3-Drop-Up. Look for
downtrends to reverse after a top, two lower
highs and a double bottom.
15. Bulls live above the 200 day,
bears live below. Sellers eat up
rallies below this key moving average line
and buyers to come to the rescue above it.
16. Price has memory. What
did price do the last time it hit a certain
level? Chances are it will do it again.
17. Big volume kills moves.
Climax blow-offs take both buyers and sellers
out of the market and lead to sideways
action.
18. Trends never turn on a dime.
Reversals build slowly. The first sharp dip
always finds buyers and the first sharp rise
always finds sellers.
19. Bottoms take longer to form than
tops. Greed acts more quickly than
fear and causes stocks to drop from their own
weight.
20. Beat the crowd in and out the
door. You have to take their money
before they take yours, period.
