Trading Lesson of the Week

Check back weekly for another free trading lesson:

7 Important Trading Techniques

In This Week’s Issue:

  • Live Training in June
  • Upgrading Stockscores Training Courses
  • Recent Webinar Video
  • Stockscores’ Market Minutes Video – Know Your Edge
  • Stockscores Trader Training – The Expected Value of the Trade
  • Stock Features of the Week – Action Breaks

 

Live Training in June

I am doing an Overview class for all Stockscores Investor and Active Trader students, new or from the past, on Saturday Jun 9 from 9 – 11am PT (we may go longer if necessary). Current students can register on the Upcoming Events page on Stockscores.com provided your membership to Stockscores is current. If not, renew before registering.

If you register for the Investor or Active Trader course before Thursday Jun 7, you will get this class included. You also receive the market scanning webinars that I will do on Monday Jun 11 – Wednesday Jun 13.

Upgrading Stockscores Training Courses

If you are a Foundation or Investor member and would like to upgrade to a higher-level course, you can do so from the Education Center on Stockscores.com. Log in to Stockscores, go to the Education Center and you will see the upgrade fee and link to do the upgrade. Upgrade before Thursday Jun 7 for the bonus training that I am doing starting June 9.

Recent Webinar Videos

I have uploaded videos of my recent webinars to Youtube. Click on the link below to watch:

How to Become a Successful Day Trader – Click here to watch

How to Become a Successful Stock Investor – Click here to watch

Stockscores Market Minutes – Don’t Have Remorse

Good decisions can lead to bad results. This week, I discuss why you shouldn't have remorse every time you get a bad outcome. Then my regular weekly market analysis and the trade of the week on LULU. Click here to watch this week's Market Minutes video

To get instant updates when I upload a new video, subscribe to the  Stockscores YouTube Channel

 

Trader Training – 7 Important Trading Techniques

Charts are useful for predicting the future but they are also dangerous. I have seen many chartists take their analysis to such a complex level that it becomes ineffective. The simple things work the best.

Whether you build your approach to trading and investing around charts or make it just a small component of the decision-making process, here are 8 simple chart reading techniques that will make a difference to your performance.

 

1. Prices That Fall in to Support Will Bounce at Support

First, a definition of support. Draw a line on the price chart across the recent lows that have been touched at least once, but more is better. This is horizontal support. Draw a line across the rising bottoms on the chart and you have a trend line of support.

When price falls for many days, it will likely find a floor at support and reverse the downward move.

 

2. Breakouts from Low Price Volatility are Reliable

What does it mean when stocks trend sideways with very little price volatility? It is more than just a boring chart, it means that buyers and sellers agree about what the stock is worth. It is a display of confidence in the value given to the stock.

Therefore, if the stock price breaks from this period of confidence, it implies that there is new information that justifies the price move. This usually comes in the early stages of a trend; as more investors learn about the new information, more people will jump in to the stock and carry it farther along its trend.

This means that identifying breaks from low price volatility is an important way to catch market beating trends early.

Don’t believe me? Go look at 100 stocks that have done very well in the last year. You will find most started their upward trends with a strong price and volume break after a period of boring, sideways trading.

 

3. Prices That Run Away from the Trend Line Come Back to the Trend Line

In the long term, prices tend to trend in a linear fashion. That means you can draw a straight line across the bottoms of an uptrend or a straight line across the tops of a down trend.

However, along the way, prices will often move away from this straight line. This happens because investors get emotional and either chase the stock higher with greed or force the stock quickly lower with fear.

The emotion eventually comes out of the market, bringing the stock back to that linear, straight trend line.

This means that we should be aware of a short-term price reversal the farther prices get from the linear trend line. A stock that runs away to the upside will eventually come down on a pull back. Prices that fall too quickly will bounce and come back up to the trend line.

 

4. All Available Information Is Shown in the Chart

Traditional investors who have heard me talk about the markets often shake their heads when they hear that I do not do any research in to what the company does before I buy a stock. They find it hard to believe that I can make money trading nothing more than the chart.

The chart of price change shows us every bit of fundamental information that is known by the market. Since most investors are acting on information to make their decisions, reading a chart is essentially reading their perceptions of the information that they have.

A company that is doing well within their business will have a good-looking chart because investors are pricing in the positive new information.

To beat the market using information requires using information that most people are not aware of. There are people who get this information but most of us do not. When those with better information act in the market, they paint the picture that we call the stock chart.

 

5. Falling Tops Are a Sign That Investors Are Pessimistic

If investors believe that there is something wrong with a company's ability to make money in the future, they will drive prices lower over time. This pessimism is best seen visually in a chart by looking for falling tops.

The falling tops on the chart show that every time the buyers are able to push prices up, they are unable to push prices as high as they had the previous time. That is a sign that the sellers are in control of the market.

Avoid buying a stock, or market, when the trend is down. Wait for the trend to be broken and consider it then.

 

6. Rising Bottoms Are a Sign That Investors Are Optimistic

Conversely, if the bottoms are rising on the chart, investors are optimistic and the buyers are in control. Each time the sellers are able to push prices down, they are unable to push them down as much as they had the previous time.

It is best to only buy stocks that are in the buyers' control and avoid those that don’t have rising bottoms.

 

7. Up Trends Start Slowly

A stock that has been an under or non-performer will have investor's doubt any time it shows some strength. Investors tend to judge a stock by what has happened in the past rather than what they expect for the future. The result is that stocks that are starting upward trends tend to do so slowly because investors doubt that the company deserves to go higher.

 

This means you have to be patient with up trends that are in their early stages as they will often have false starts. Doubting investors who own the stock will sell in to strength, not realizing that the company's future is brighter than it has been.

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