Increasing the odds

Increasing the odds

As
we learned in the last section, the best trading opportunities present
themselves just after a breakthrough in price consolidation.

Not
every consolidation pattern; however, is tradable. There are additional
patterns, which significantly increase the odds of the trade following
through in the desired direction.

The tools, which we present, are 1) support/resistance 2) trends, 3) moving averages.

Support and Resistance

Support and resistance are general price areas that have halted the movement of stock in the past.

Support lines are horizontal lines that correspond with an area where stock previously bounced.

Resistance lines are horizontal lines corresponding with an area where stock resisted moving through.

Support and resistance lines are used to help access how much the stock price will remove before it is halted.

There are two main types of support and resistance; 1) Major price support/resistance, and 2) Minor price support/resistance

Major Price Support/Resistance

Major
Price Support is an artificial horizontal line representing an area
where a stocks downward movement was halted to give way to a new upward
movement (Figure 16).

Therefore, the price level is supporting the price of the stock.

Similarly,
Major Price Resistance is an artificial horizontal line representing an
area where a stocks u ward movement was halted to give way to a new
downward movement.

Therefore, the price level is resisting the price of the stock.

When
considering a stock as a trading opportunity it is important to note
the location of the nearest support and resistance levels.

Stocks
near areas of support make for better buy opportunities and stocks near
areas of resistance make for better short opportunities.

In the
same way, the trader should be more cautious about shorting stock above
areas of support, and buying stock near areas of resistance.



Minor Price Support/Resistance

Minor
Price Support is an artificial horizontal line representing an area,
which previously served as price resistance, but has now transformed to
price support ( Figure 17).

Likewise, Minor Price Resistance is
an artificial horizontal line representing an area, which previously
served as price support, and has now transformed to price resistance
(Figure 18).

When considering a stock as a trading opportunity
it is important to note the location of the nearest support and
resistance levels.

Stocks near areas of support make for better
buy opportunities and stocks near areas of resistance make for better
short opportunities.

In the same way, the trader should be more
cautious about shorting stock above areas of support, and buying stock
near areas of resistance.





Trends

Every stock is in one of three states: 1) Up Trend, 2) Down Trend, and 3) Sideways Trend (Figure 20).

An Up Trend is defined by a series of higher highs and higher lows.

A Down Trend is defined by a series of lower highs followed by lower lows.

A Sideways Trend is defined by a series of relatively equal highs and lows.





Even
the strongest stocks will need a period of rest through a pullback in
price or a period of marking time with little to no price movement.

A
strong stock will often pull back in price as short to medium term
traders take their profits off the table, and in the process, increase
selling pressure, which will temporarily push the stock lower.

A strong stock, after rest will often resume its rally after these slight pullbacks.

The trader has better odds in his favor by playing the stock in the direction of the trend.

For example, stocks in and up trend can be bought, and stocks in a downtrend can be shorted (Figures 21& 22).

A stock in a sideways pattern can be either bought our shorted if the stock ison strong price support or resistance.

In
otherwise, the trader should enter long positions only on up trending
stocks that have pulled back for rest ready to resume the rally.

Likewise,
the trader should enter short positions on down trending stocks that
have pulled back for rest ready to resume the decline.





Moving Averages

The most basic form of moving average, and the one we recommend to all our traders is called the simple moving average.

The simple moving average is the average of closing prices for all price points used.

For example, the simple 10 moving average would be defined as follows:

10MA = (P1 + P2 + P3 + P4 + P5 + P6 + P7 + P8 + P9 + P10) / 10

Where P1 = most recent price, P2 = second most recent price and so on

The term "moving" is used because, as the newest data point is added to the moving average, the oldest data point is dropped.

As
a result, the average is always moving as the newest data is added.
Moving averages can be used as support and resistance levels.

Stocks
tend to rebound off of moving averages much in the same way that they
rebound off major and minor support and resistance lines.

A
moving average can be plotted using any period; however, the periods
that seem to provide the strongest support and resistance for short
term trading are the 10MA, 20MA, 50 MA, 100MA and 200MA.





this are the link kategory :
| Forex | E-Currency | Merchant & Exchanger  | Affilate | Promotion |

all this post by caffein_blue
owner of www.belajarmarketiva.com