Market Wizard Linda Raschke's Technical Trading Rules

1. Buy the first pullback after a new high. Sell the first rally after a new low.
2. Afternoon strength or weakness should have follow through the next day.
3. The best trading reversals occur in the morning, not the afternoon.
4. The larger the market gaps, the greater the odds of continuation and a trend.
5. The way the market trade around the previous day's high or low is a good indicator of the market's technical strength or weakness.
6. The previous day's high and low are two very important "pivot" points, for this was the definitive point where buyers or sellers came in the day before. Look for the market to either test and reverse off these points, or push through and show signs of continuation.
7. The last hour often tells the truth about how strong a trend truly is. "Smart" money shows their hand in the last hour, continuing to mark positions in their favour. As long as a market is having consecutive strong closes, look for up-trend to continue. The uptrend is most likely to end when there is a morning rally first, followed by a weak close.
8. High volume on the close implies continuation the next morning in the direction of the last half-hour. In a strongly trending market, look for resumption of the trend in the last hour.
9. The first hour's range establishes the framework for the rest of the trading day.
10. A greater percentage of the day's range occurs in the first hour then was the case in the past, and thus it has become increasingly important to trade aggressively if there are early signs of a strong trend for the day.
11. There are four basic principles of price behaviour which have held up over time. Confidence that a type of price action is a true principle is what allows a trader to develop a systematic approach. The following four principles can be modelled and quantified and hold true for all time frames, all markets. The majority of patterns or systems that have a demonstrable edge are based on one of these four enduring principles of price behaviour.
12. Charles Dow was one of the first to touch on them in his writings:-
Principle One: A Trend Has a Higher Probability of Continuation than Reversal
Principle Two: Momentum Precedes Price
Principle Three: Trends End in a Climax
Principle Four: The Market Alternates between Range Expansion and Range Contraction!
13. In the world of money, which is a world shaped by human behaviour, nobody has the foggiest notion of what will happen in the future. Mark that word - Nobody! Thus the successful trader does not base moves on what supposedly will happen but reacts instead to what does happen.

10 Signs of a Reversal

This is not a prediction it is just a list of things to look for as possible signs before a market rolls over. Alone these are just possibilities but the probabilities increase as more of the signs are in place.
1. When the RSI goes over 70 on the daily chart for a stock index ETF, the price momentum slows, and the the price settles into a trading range.
2. A shooting star Doji candlestick.
3. If the market opens higher but fails to go over the opening price level for the entire trading day, this is a sign that buyers are rejecting higher prices.
4. The market opens below the previous days trading range and never gets over the previous dayslow, that is an early sign of a new trading range.
5. The market starts to open higher but closes lower, that is a sign of distribution.
6. The average daily trading range increases and volatility starts to grow.
7. A huge volume day that gaps way up and then sells off into negative territory on high volume.
8. An index is far extended from all major moving averages.
9. A major "good news" event is passed with little up movement, and the market is out of catalysts.
10. When the majority is against you short selling the market..

John Murphy's Ten Laws of Technical Trading

1. Map the Trends

Study long-term charts. Begin a chart analysis with monthly and weekly charts spanning several years. A larger scale map of the market provides more visibility and a better long - term perspective on a market. Once the long - term has been established, then consult daily and intra-day charts. A short - term market view alone can often be deceptive. Even if you only trade the very short term, you will do better if you're trading in the same direction as the intermediate and longer term trends.

2. Spot the Trend and Go With It

Determine the trend and follow it. Market trends come in many sizes - long - term, intermediate - term and short - term. First, determine which one you're going to trade and use the appropriate chart. Make sure you trade in the direction of that trend. Buy dips if the trend is up. Sell rallies if the trend is down. If you're trading the intermediate trend, use daily and weekly charts. If you're day trading, use daily and intra - day charts. But in each case, let the longer range chart determine the trend, and then use the shorter term chart for timing.

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."

4. Know How Far to Backtrack

Measure percentage retracements. 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 fifty percent 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 Retracements1) of 38% and 62% are also worth watching. During a pullback in an uptrend, therefore, initial buy points are in the 33 - 38% retracement area.

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. Uptrend 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.

6. Follow that Average

Follow moving averages: Since moving average chart lines are trend - following indicators, they work best in a trending market.

7. Know the Confirming Signs

Don’t ignore volume. Volume is a very important confirming indicator. Volume precedes price. It's important to ensure that heavier volume is taking place in the direction of the prevailing trend. In an uptrend, heavier volume should be seen on up days. Rising volume confirms that new money is supporting the prevailing trend. Declining volume is often a warning that the trend is near completion. A solid price uptrend should always be accompanied by rising volume.

8. Keep at it.

Technical analysis is a skill that improves with experience and study. Always be a student and keep learning

10 Great Technical Trading Rules

We learned just to go with the chart. "Why work when Mr. Market can do it for you?" - Paul Tudor Jones

Only price pays. In trading, emotions and egos are expensive collaborators. Our goal as traders is tocapture price moves inside our time frame, while limiting our drawdowns in capital. The longer I havetraded, the more I have become an advocate of price action. Moving away from the perils of opinions and predictions has improved my mental well-being, and my bottom line.

In developing a trading system of your own, you must begin with the big picture. First, look at the price action and then work your way down into your own time frame. You need to create a systematic and specific approach to entering and exiting trades, executing your signals with the right trailing stops, setting realistic price targets and position sizing, and limiting your risk exposure. Relying on fact, rather than being tossed around by your own subjective feelings, will insure your long term profitability.

Here are 10 great technical trading rules that will help you build a systematic approach to trading:

1. Start with the weekly price chart to establish the long term trend, and then work down through the daily and hourly charts to trade in the direction of that trend. The odds are better if you are trading in the direction of the long term trend.
2. In Bull Markets, the best strategy is to buy the dips. In Bear Markets, the best strategy is to sell short into each rally. Always go with the path of least resistance.
3. Support and resistance levels can hold for long periods of time; the first few breakout attempts usually fail.
4. The more times a support or resistance level is tested, the greater the odds that it will be broken. Old resistance can become the new support, and the old support may become the new resistance.
5. Trend lines are the easiest way to measure trends by connecting higher highs or lower lows, and they must always go from left to right.
6. Chart patterns are visible representations of the price ranges that buyers and sellers are creating. Chart Patterns are connected trend lines that signal a possible breakout buy point if one line is broken.
7. Moving averages quantify trends and create signals for entries, exits, and trailing stops.
8. Moving averages are great tools for a trader to use, but they are best used along with an overbought/oversold oscillator like the RSI. This maximizes exit profitability on extensions from a moving average.
9. 52 week highs are bullish, and 52 week lows are bearish. All-time highs are more bullish, and all-time lows are more bearish. Bull Markets have no long term resistance, and Bear Markets have no long term support.
10. Above the 200 day is where bulls create uptrends. Bad things happen below the 200 day; downtrends, distribution, bear markets, crashes, and bankruptcies.

Technical Guides:

1. A move followed by a sideways range often precedes another move of almost equal extent in the same direction as the original move. Generally, when the second move from the sideways range has run its course, a counter move approaching the sideways range may be expected.
2. Reversal or resistance to a move is likely to be encountered 0n reaching levels at which in the past, the commodity has fluctuated for a considerable length of time within a narrow range on approaching highs or lows
3. Watch for good buying or selling opportunities when trend lines are approached, especially on medium or dull volume. Be sure such a line has not been hugged or hit too frequently.
4. Watch for "crawling along" or repeated bumping of minor or major trend lines and prepare to see such trend lines broken.
5. Breaking of minor trend lines counter to the major trend gives most other important position taking signals. Positions can be taken or reversed on stop at such places.
6. Triangles of ether slope may mean either accumulation or distribution depending on other considerations although triangles are usually broken on the flat side.
7. Watch for volume climax, especially after a long move.
8. Don't count on gaps being closed unless you can distinguish between breakaway gaps, normal gaps and exhaustion gaps.
9. During a move, take or increase positions in the direction of the move at the market the morning following any one-day reversal, however slight the reversal may be, especially if volume declines on the reversal.