StockCharts.com’s Chief Technical Analyst, John Murphy has created another set of trading rules:
“Ten Laws of Technical Trading:”
“Which way is the market moving? How far up or down will it go? And when will it go the other way? These are the basic concerns of the technical analyst.
Behind the charts and graphs and mathematical formulas used to analyze market trends are some basic concepts that apply to most of the theories employed by today’s technical analysts.”
The following are John’s ten most important rules of technical trading:
• Map the Trends
• Spot the Trend and Go With It
• Find the Low and High of It
• Know How Far to Backtrack
• Draw the Line
• Follow That Average
• Learn the Turns
• Know the Warning Signs
• Trend or Not a Trend?
• Know the Confirming Signs
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.
