John Murphy - Chief Technical Analyst StockCharts.com, John Murphy is a very popular author, columnist and lecturer on technical analysis. Ten laws of technical trading "John is the best guide, existing anywhere, for people who are beginners in this field. I recommend that you print this page and refer to it as often as possible.
In what direction the market moves? How far up or down it goes? And when it spread? This is a major technical analysis. For graphs and diagrams and mathematical formulas used to analyze market trends, there are some basic concepts that apply to most theories of today's technical analysts.
John Murphy used his thirty years of experience in this field to develop ten basic laws of technical trading: rules that are presented to help explain the general idea of technical trading for beginners and streamlined method of trading for the more experienced practitioners. These guidelines describe the key tools of technical analysis and how to use them to identify opportunities for buying or selling.
Prior to joining the company StockCharts.com John was over 7 years, technical analyst at CNBCTV on the popular show "Tech Talk" and is the author of three bestsellers on the subject - Technical analysis of financial markets, technical analysis of the international market and Visual investor.
His latest book demonstrates the essence of the visual elements of technical analysis. Basics of its approach to technical analysis show that the more important to determine where the market is going to move than to understand why this is so.
So, the ten most important rules of technical trading:
1. Create a map trends
Study of long-term schedules. Begin with a graphic analysis of monthly and weekly charts covering several years. Larger scale maps of the market "provides an overview of bigger and better perception of the long-term prospects in the market. After a long-term schedule is drawn up, checked against the daily and vnutridnevnymi schedules. Looking only at short-term the market may often bytobmanchivym. Even if you sell only in the short market, you'll do it better when trading in the mid-term or long-term trends.
2. Determine the trend and follow him
Determine the trend and follow him. Market trends come in several formats - long-term, medium-and short-term. First, decide what you are going to sell, and use the appropriate schedule. Make sure that the trading in the direction of the trend. Buy from the depth, if the trend is upward. Sell to the peak, if the trend is down. If you sell on the medium-term trend, use daily and weekly charts. If you sell during the day, use day and vnutridnevnye graphics. But in any case, decide on a large-scale graphics trend, and then use a short time to choose.
3. Look for his maximum and minimum
Find the support and resistance levels. The best place to buy at the levels of support. This support is usually the previous minimum. The best place for the sale of some levels of resistance. Resistance is usually a previous peak. Once the level of resistance was broken, it usually provides support for the movement. In other words the old becomes the new maximum minimum. Similarly, when broken the level of support it would normally support the sales of subsequent movement - at least the old could become the new maximum.
4. Determine how far to turn
Measure percentage returns. Market corrections up or down, usually return a large part of the previous trend. You can measure the correction of the current trend in the percentage. Half the return of the previous trend is most prevalent. The minimum return is normally a one-third of the previous trend. The maximum refund is usually - two-thirds. Returns Fibonacci 38% and 62% also deserve attention. During a rollback in the povyshatelnom trend, hence, the initial point of shopping in the area of return of 33-38 percent.
5. Draw a line
Draw trend lines. Trend line is one of the easiest and most effective graphic tools. All you need is a straight edge and two points on the graph. The lines are a rising trend over the next two levels. Lines downward trend held through two subsequent maximum. Prices are often returned to the trend line, before continuing their trend. Damage trend line is usually a sign of a change of trend. Reliable trendovaya line should be cut to at least three times. The longer trendovaya line and more than the number of times it is tested, so it becomes more reliable.
6. Follow the middle
Follow moving averages. Moving averages provide objective signals for buying and selling. It tells you if the current trend continues, and help to confirm the change of trend. However, moving averages do not tell you beforehand what nadvigaetsya change in trend. The combination of the two moving averages is the most popular way to get trading signals. Some of the most popular combinations of moving averages for the futures - 4 - and 9-day, 9 - and 18-day, 5 - and 20-day. The signals are served, when the average short line crosses the longest. Crossing the price 40-day moving average up or down is also a good trading signals. Since moving averages lines are following the trend indicators, they work best on the market trend.
7. Identify Facing
Track oscillators. Oscillators help determine perekuplennye and resell the markets. While moving averages confirm the change in market trend, oscillators often help warn us in advance that the market is rising or falling too fast, and soon spread. Two of the most popular oscillator is Relative Strength Index (RSI) and Stochastics (Stochastics). They both worked on a scale of 0 to 100. For RSI reading above 70 are perekuplennostyu, and below 30 pereprodannostyu. Values perekuplennosti and pereprodannosti for Stochastics, respectively, 80 and 20. Most traders use the 14-days or weeks for stochastics and either 9 or 14 days, or weeks for RSI. Differences oscillator often warn of razvorotah market. These tools work best in trading range market. Weekly signals can be used as filters for daily signals. Daily signals can be used as filters for intraday charts.
8. Learn the warning signals
Trade with MACD. Moving average convergence divergence (MACD) indicator (developed Gerraldom Appelem) combines a system of overlapping moving averages with the elements perekuplennosti / pereprodannosti oscillators. Buy signal occurs when the fast line crosses up slowly and the two lines below zero. Alert sale occurs when the fast line crosses slow down over the line of zero. Weekly signals are more important than day. MACD histogram shows the difference between the two lines and gives even earlier warnings about the changes of trend. This is called a "histogram" because vertical lines are used to illustrate the difference between the two lines on the graph.
9. There is a trend or not
Use ADX. Line average directional movement index (ADX) helps to define, is the market trend or not. It measures the degree of trend or direction of the market. The growing line ADX imply a strong trend. Falling line ADX imply the absence of trend. The growing line ADX helps moving averages; falling ADX helps oscillator. Displaying the direction of the line ADX, the trader can choose the style of trade and pick the most appropriate indicator of current market conditions.
10. Study confirming signals
Turn the volume and open interest. The volume and open interest are important confirming indicators in futures market. Volume precedes price. It is important to make sure that more is in the direction of the prevailing trend. During a rising trend, more should be in the days of recovery. Rising open interest confirms the arrival of new money to maintain the prevailing trend. Declining public interest are often warned about the near completion of the trend. Significant upward trend should be supported by the increasing volume and rising open interest.
Technical analysis is the skill that improves with experience and study. Always be a student and continue to learn.
Definitions:
Leonardo Fibonacci was a mathematician in the thirteenth century, which brought with accurate and almost continuous communication between the Indo-Arabic numbers in sequence (1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144 and up to infinity) . The amount of the previous two numbers in the sequence is the next larger number. After the first four, the ratio of any number in the sequence to the next larger number tends to 0.618. This attitude has been known to the ancient Greek and Egyptian mathematicians as the "Golden Section", which is used in art and architecture.
Stochastics - oscillator, promote George Lane in the article on the subject in 1984. It is based on the observation that with an increase in prices, closing prices tend to be closer to the top of the price range on the contrary, in descending trend, closing prices tend to be closer to the bottom of the price range. Stochastics has slightly wider border perekuplennosti and pereprodannosti than RSI, and hence more mobile display. Thus "stohastik estimates of the current price relative to its range for a specified period of time (generally 14 days).
John Murphy used his thirty years of experience in this field to develop ten basic laws of technical trading: rules that are presented to help explain the general idea of technical trading for beginners and streamlined method of trading for the more experienced practitioners. These guidelines describe the key tools of technical analysis and how to use them to identify opportunities for buying or selling.
Prior to joining the company StockCharts.com John was over 7 years, technical analyst at CNBCTV on the popular show "Tech Talk" and is the author of three bestsellers on the subject - Technical analysis of financial markets, technical analysis of the international market and Visual investor.
His latest book demonstrates the essence of the visual elements of technical analysis. Basics of its approach to technical analysis show that the more important to determine where the market is going to move than to understand why this is so.
So, the ten most important rules of technical trading:
1. Create a map trends
Study of long-term schedules. Begin with a graphic analysis of monthly and weekly charts covering several years. Larger scale maps of the market "provides an overview of bigger and better perception of the long-term prospects in the market. After a long-term schedule is drawn up, checked against the daily and vnutridnevnymi schedules. Looking only at short-term the market may often bytobmanchivym. Even if you sell only in the short market, you'll do it better when trading in the mid-term or long-term trends.
2. Determine the trend and follow him
Determine the trend and follow him. Market trends come in several formats - long-term, medium-and short-term. First, decide what you are going to sell, and use the appropriate schedule. Make sure that the trading in the direction of the trend. Buy from the depth, if the trend is upward. Sell to the peak, if the trend is down. If you sell on the medium-term trend, use daily and weekly charts. If you sell during the day, use day and vnutridnevnye graphics. But in any case, decide on a large-scale graphics trend, and then use a short time to choose.
3. Look for his maximum and minimum
Find the support and resistance levels. The best place to buy at the levels of support. This support is usually the previous minimum. The best place for the sale of some levels of resistance. Resistance is usually a previous peak. Once the level of resistance was broken, it usually provides support for the movement. In other words the old becomes the new maximum minimum. Similarly, when broken the level of support it would normally support the sales of subsequent movement - at least the old could become the new maximum.
4. Determine how far to turn
Measure percentage returns. Market corrections up or down, usually return a large part of the previous trend. You can measure the correction of the current trend in the percentage. Half the return of the previous trend is most prevalent. The minimum return is normally a one-third of the previous trend. The maximum refund is usually - two-thirds. Returns Fibonacci 38% and 62% also deserve attention. During a rollback in the povyshatelnom trend, hence, the initial point of shopping in the area of return of 33-38 percent.
5. Draw a line
Draw trend lines. Trend line is one of the easiest and most effective graphic tools. All you need is a straight edge and two points on the graph. The lines are a rising trend over the next two levels. Lines downward trend held through two subsequent maximum. Prices are often returned to the trend line, before continuing their trend. Damage trend line is usually a sign of a change of trend. Reliable trendovaya line should be cut to at least three times. The longer trendovaya line and more than the number of times it is tested, so it becomes more reliable.
6. Follow the middle
Follow moving averages. Moving averages provide objective signals for buying and selling. It tells you if the current trend continues, and help to confirm the change of trend. However, moving averages do not tell you beforehand what nadvigaetsya change in trend. The combination of the two moving averages is the most popular way to get trading signals. Some of the most popular combinations of moving averages for the futures - 4 - and 9-day, 9 - and 18-day, 5 - and 20-day. The signals are served, when the average short line crosses the longest. Crossing the price 40-day moving average up or down is also a good trading signals. Since moving averages lines are following the trend indicators, they work best on the market trend.
7. Identify Facing
Track oscillators. Oscillators help determine perekuplennye and resell the markets. While moving averages confirm the change in market trend, oscillators often help warn us in advance that the market is rising or falling too fast, and soon spread. Two of the most popular oscillator is Relative Strength Index (RSI) and Stochastics (Stochastics). They both worked on a scale of 0 to 100. For RSI reading above 70 are perekuplennostyu, and below 30 pereprodannostyu. Values perekuplennosti and pereprodannosti for Stochastics, respectively, 80 and 20. Most traders use the 14-days or weeks for stochastics and either 9 or 14 days, or weeks for RSI. Differences oscillator often warn of razvorotah market. These tools work best in trading range market. Weekly signals can be used as filters for daily signals. Daily signals can be used as filters for intraday charts.
8. Learn the warning signals
Trade with MACD. Moving average convergence divergence (MACD) indicator (developed Gerraldom Appelem) combines a system of overlapping moving averages with the elements perekuplennosti / pereprodannosti oscillators. Buy signal occurs when the fast line crosses up slowly and the two lines below zero. Alert sale occurs when the fast line crosses slow down over the line of zero. Weekly signals are more important than day. MACD histogram shows the difference between the two lines and gives even earlier warnings about the changes of trend. This is called a "histogram" because vertical lines are used to illustrate the difference between the two lines on the graph.
9. There is a trend or not
Use ADX. Line average directional movement index (ADX) helps to define, is the market trend or not. It measures the degree of trend or direction of the market. The growing line ADX imply a strong trend. Falling line ADX imply the absence of trend. The growing line ADX helps moving averages; falling ADX helps oscillator. Displaying the direction of the line ADX, the trader can choose the style of trade and pick the most appropriate indicator of current market conditions.
10. Study confirming signals
Turn the volume and open interest. The volume and open interest are important confirming indicators in futures market. Volume precedes price. It is important to make sure that more is in the direction of the prevailing trend. During a rising trend, more should be in the days of recovery. Rising open interest confirms the arrival of new money to maintain the prevailing trend. Declining public interest are often warned about the near completion of the trend. Significant upward trend should be supported by the increasing volume and rising open interest.
Technical analysis is the skill that improves with experience and study. Always be a student and continue to learn.
Definitions:
Leonardo Fibonacci was a mathematician in the thirteenth century, which brought with accurate and almost continuous communication between the Indo-Arabic numbers in sequence (1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144 and up to infinity) . The amount of the previous two numbers in the sequence is the next larger number. After the first four, the ratio of any number in the sequence to the next larger number tends to 0.618. This attitude has been known to the ancient Greek and Egyptian mathematicians as the "Golden Section", which is used in art and architecture.
Stochastics - oscillator, promote George Lane in the article on the subject in 1984. It is based on the observation that with an increase in prices, closing prices tend to be closer to the top of the price range on the contrary, in descending trend, closing prices tend to be closer to the bottom of the price range. Stochastics has slightly wider border perekuplennosti and pereprodannosti than RSI, and hence more mobile display. Thus "stohastik estimates of the current price relative to its range for a specified period of time (generally 14 days).
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