would enable you to enjoy an array of other services such as Member Rankings, User Groups, Own Posts & Profile, Exclusive Research, Live Chat Box etc.. 
Home
Posted by JC Parets on July 3rd, 2013
John Murphy is the Author of a few of my favorite books. He is a legend
in the field of Intermarket Analysis. And his website, Stockcharts.com
is one of the best out there – I use it everyday.
When people ask me what they can do to start learning some Technical
Analysis – I always say the same thing, “Read Technical Analysis of the
Financial Markets and then read Intermarket Analysis“, both by John
Murphy.
He is, in my opinion, one of the best that ever did it. These are his
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.â€
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 retracements 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. 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.
6. Follow that Average
Follow moving averages. Moving averages provide objective buy and sell
signals. They tell you if 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. Signals are given when the shorter average line
crosses the longer. 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.
7. Learn the Turns
Track oscillators. Oscillators help identify overbought and oversold
markets. While moving averages offer confirmation of a market trend
change, oscillators often help warn us in advance that a market has
rallied or fallen too far and will 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 overbought while
readings below 30 are oversold. The overbought and oversold values for
Stochastics are 80 and 20. 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.
8. Know the Warning Signs
Trade MACD. The Moving Average Convergence Divergence (MACD) indicator
(developed by Gerald Appel) combines a moving average crossover system
with the overbought/oversold elements of an oscillator. A buy signal
occurs when the faster line crosses above the slower and both lines are
below zero. A sell signal takes place when the faster line crosses below
the slower from above the zero line. Weekly signals take precedence over
daily signals. An MACD histogram plots the difference between the two
lines and gives even earlier warnings of trend changes. It’s called a
“histogram†because vertical bars are used to show the difference
between the two lines on the chart.
9. Trend or Not a Trend
Use ADX. The Average Directional Movement Index (ADX) line helps
determine whether a market is in a trending or a trading phase. It
measures the degree of trend or direction in the market. A rising ADX
line suggests the presence of a strong trend. A falling ADX line
suggests the presence of a trading market and the absence of a trend. A
rising ADX line favors moving averages; a falling ADX favors
oscillators. By plotting the direction of the ADX line, the trader is
able to determine which trading style and which set of indicators are
most suitable for the current market environment.
10. Know the Confirming Signs
Include volume and open interest. Volume and open interest are important
confirming indicators in futures markets. 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 open interest confirms that new money is supporting the
prevailing trend. Declining open interest is often a warning that the
trend is near completion. A solid price uptrend should be accompanied by
rising volume and rising open interest.
Technical analysis is a skill that improves with experience and study.
Always be a student and keep learning.
- John Murphy
source-http://investors.lk/13593
John Murphy is the Author of a few of my favorite books. He is a legend
in the field of Intermarket Analysis. And his website, Stockcharts.com
is one of the best out there – I use it everyday.
When people ask me what they can do to start learning some Technical
Analysis – I always say the same thing, “Read Technical Analysis of the
Financial Markets and then read Intermarket Analysis“, both by John
Murphy.
He is, in my opinion, one of the best that ever did it. These are his
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.â€
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 retracements 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. 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.
6. Follow that Average
Follow moving averages. Moving averages provide objective buy and sell
signals. They tell you if 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. Signals are given when the shorter average line
crosses the longer. 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.
7. Learn the Turns
Track oscillators. Oscillators help identify overbought and oversold
markets. While moving averages offer confirmation of a market trend
change, oscillators often help warn us in advance that a market has
rallied or fallen too far and will 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 overbought while
readings below 30 are oversold. The overbought and oversold values for
Stochastics are 80 and 20. 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.
8. Know the Warning Signs
Trade MACD. The Moving Average Convergence Divergence (MACD) indicator
(developed by Gerald Appel) combines a moving average crossover system
with the overbought/oversold elements of an oscillator. A buy signal
occurs when the faster line crosses above the slower and both lines are
below zero. A sell signal takes place when the faster line crosses below
the slower from above the zero line. Weekly signals take precedence over
daily signals. An MACD histogram plots the difference between the two
lines and gives even earlier warnings of trend changes. It’s called a
“histogram†because vertical bars are used to show the difference
between the two lines on the chart.
9. Trend or Not a Trend
Use ADX. The Average Directional Movement Index (ADX) line helps
determine whether a market is in a trending or a trading phase. It
measures the degree of trend or direction in the market. A rising ADX
line suggests the presence of a strong trend. A falling ADX line
suggests the presence of a trading market and the absence of a trend. A
rising ADX line favors moving averages; a falling ADX favors
oscillators. By plotting the direction of the ADX line, the trader is
able to determine which trading style and which set of indicators are
most suitable for the current market environment.
10. Know the Confirming Signs
Include volume and open interest. Volume and open interest are important
confirming indicators in futures markets. 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 open interest confirms that new money is supporting the
prevailing trend. Declining open interest is often a warning that the
trend is near completion. A solid price uptrend should be accompanied by
rising volume and rising open interest.
Technical analysis is a skill that improves with experience and study.
Always be a student and keep learning.
- John Murphy
source-http://investors.lk/13593
