The following are John's ten most important rules of technical trading:

1. Map the Trends

2. Spot the Trend and Go With It
3. Find the Low and High of It
4. now How Far to !ac"trac"
5. #raw the Line
6. Follow That $%erage
7. Learn the Turns
8. now the Warning Signs
9. Trend or &ot a Trend'
10.now the (onfirming Signs
1. Map the Trends
Stud) long*term charts+ !egin a chart anal)sis with monthl) and wee"l) charts spanning se%eral
)ears+ $ larger scale map of the mar"et pro%ides more %isi,ilit) and a ,etter long*term
perspecti%e on a mar"et+ -nce the long*term has ,een esta,lished. then consult dail) and intra*
da) charts+ $ short*term mar"et %iew alone can often ,e decepti%e+ /%en if )ou onl) trade the
%er) short term. )ou will do ,etter if )ou're trading in the same direction as the intermediate and
longer term trends+
2. Spot the Trend and Go With It
#etermine the trend and follow it+ Mar"et trends come in man) si0es 1 long*term. intermediate*
term and short*term+ First. determine which one )ou're going to trade and use the appropriate
chart+ Ma"e sure )ou trade in the direction of that trend+ !u) dips if the trend is up+ Sell rallies if
the trend is down+ If )ou're trading the intermediate trend. use dail) and wee"l) charts+ If )ou're
da) trading. use dail) and intra*da) charts+ !ut 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 le%els+ The ,est place to ,u) a mar"et is near support le%els+ That
support is usuall) a pre%ious reaction low+ The ,est place to sell a mar"et is near resistance
le%els+ 2esistance is usuall) a pre%ious pea"+ $fter a resistance pea" has ,een ,ro"en. it will
usuall) pro%ide support on su,se3uent pull,ac"s+ In other words. the old 4high4 ,ecomes the
new low+ In the same wa). when a support le%el has ,een ,ro"en. it will usuall) produce selling
on su,se3uent rallies 1 the old 4low4 can ,ecome the new 4high+4
4. Know How Far to Ba!tra!
Measure percentage retracements+ Mar"et corrections up or down usuall) retrace a significant
portion of the pre%ious trend+ 5ou can measure the corrections in an e6isting trend in simple
percentages+ $ fift) percent retracement of a prior trend is most common+ $ minimum
retracement is usuall) one*third of the prior trend+ The ma6imum retracement is usuall) two*
thirds+ Fi,onacci retracements of 789 and :;9 are also worth watching+ #uring a pull,ac" in an
uptrend. therefore. initial ,u) points are in the 77*789 retracement area+
". #raw the Line
#raw trend lines+ Trend lines are one of the simplest and most effecti%e charting tools+ $ll )ou
need is a straight edge and two points on the chart+ <p trend lines are drawn along two
successi%e lows+ #own trend lines are drawn along two successi%e pea"s+ =rices will often pull
,ac" to trend lines ,efore resuming their trend+ The ,rea"ing of trend lines usuall) signals a
change in trend+ $ %alid trend line should ,e touched at least three times+ The longer a trend line
has ,een in effect. and the more times it has ,een tested. the more important it ,ecomes+
$. Fo%%ow that &'erage
Follow mo%ing a%erages+ Mo%ing a%erages pro%ide o,>ecti%e ,u) and sell signals+ The) tell )ou
if e6isting trend is still in motion and help confirm a trend change+ Mo%ing a%erages do not tell
)ou in ad%ance. howe%er. that a trend change is imminent+ $ com,ination chart of two mo%ing
a%erages is the most popular wa) of finding trading signals+ Some popular futures com,inations
are ?* and @*da) mo%ing a%erages. @* and A8*da). B* and ;C*da)+ Signals are gi%en when the
shorter a%erage line crosses the longer+ =rice crossings a,o%e and ,elow a ?C*da) mo%ing
a%erage also pro%ide good trading signals+ Since mo%ing a%erage chart lines are trend*following
indicators. the) wor" ,est in a trending mar"et+
(. Learn the T)rns
Trac" oscillators+ -scillators help identif) o%er,ought and o%ersold mar"ets+ While mo%ing
a%erages offer confirmation of a mar"et trend change. oscillators often help warn us in ad%ance
that a mar"et has rallied or fallen too far and will soon turn+ Two of the most popular are the
2elati%e Strength Inde6 D2SIE and Stochastics+ The) ,oth wor" on a scale of C to ACC+ With the
2SI. readings o%er FC are o%er,ought while readings ,elow 7C are o%ersold+ The o%er,ought and
o%ersold %alues for Stochastics are 8C and ;C+ Most traders use A?*da)s or wee"s for stochastics
and either @ or A? da)s or wee"s for 2SI+ -scillator di%ergences often warn of mar"et turns+
These tools wor" ,est in a trading mar"et range+ Wee"l) signals can ,e used as filters on dail)
signals+ #ail) signals can ,e used as filters for intra*da) charts+
*. Know the Warning Signs
Trade M$(#+ The Mo%ing $%erage (on%ergence #i%ergence DM$(#E indicator Dde%eloped ,)
Gerald $ppelE com,ines a mo%ing a%erage crosso%er s)stem with the o%er,oughtGo%ersold
elements of an oscillator+ $ ,u) signal occurs when the faster line crosses a,o%e the slower and
,oth lines are ,elow 0ero+ $ sell signal ta"es place when the faster line crosses ,elow the slower
from a,o%e the 0ero line+ Wee"l) signals ta"e precedence o%er dail) signals+ $n M$(#
histogram plots the difference ,etween the two lines and gi%es e%en earlier warnings of trend
changes+ It's called a 4histogram4 ,ecause %ertical ,ars are used to show the difference ,etween
the two lines on the chart+
+. Trend or ,ot a Trend
<se $#H+ The $%erage #irectional Mo%ement Inde6 D$#HE line helps determine whether a
mar"et is in a trending or a trading phase+ It measures the degree of trend or direction in the
mar"et+ $ rising $#H line suggests the presence of a strong trend+ $ falling $#H line suggests
the presence of a trading mar"et and the a,sence of a trend+ $ rising $#H line fa%ors mo%ing
a%eragesI a falling $#H fa%ors oscillators+ !) plotting the direction of the $#H line. the trader is
a,le to determine which trading st)le and which set of indicators are most suita,le for the current
mar"et en%ironment+
1-. Know the .onfir/ing Signs
Include %olume and open interest+ Jolume and open interest are important confirming indicators
in futures mar"ets+ Jolume precedes price+ It's important to ensure that hea%ier %olume is ta"ing
place in the direction of the pre%ailing trend+ In an uptrend. hea%ier %olume should ,e seen on up
da)s+ 2ising open interest confirms that new mone) is supporting the pre%ailing trend+ #eclining
open interest is often a warning that the trend is near completion+ $ solid price uptrend should ,e
accompanied ,) rising %olume and rising open interest+
011.0
Technical anal)sis is a s"ill that impro%es with e6perience and stud)+ $lwa)s ,e a student and
"eep learning+
* John Murph)
Definitions: Leonardo Fi,onacci was a thirteenth centur) mathematician who 4redisco%ered4 a
precise and almost constant relationship ,etween Hindu*$ra,ic num,ers in a se3uence
DA.A.;.7.B.8.A7.;A.7?.BB.8@.A??.etc+ to infinit)E+ The sum of an) two consecuti%e num,ers in this
se3uence e3uals the ne6t higher num,er+ $fter the first four. the ratio of an) num,er in the
se3uence to its ne6t higher num,er approaches +:A8+ That ratio was "nown to the ancient Gree"
and /g)ptian mathematicians as the 4Golden Mean4 which had critical applications in art.
architecture and in nature+
Stochastics * an oscillator populari0ed ,) George Lane in an article on the su,>ect which
appeared in A@8?+ It is ,ased on the o,ser%ation that as prices increase. closing prices tend to ,e
closer to the upper end of the price rangeI con%ersel). in down trends. closing prices tend to ,e
near the lower end of the range+ Stochastics has slightl) wider o%er,ought and o%ersold
,oundaries than the 2SI and is therefore a more %olatile indicator+ The term 4stochastic4 refers to
the location of a current futures price in relation to its range o%er a set period of time Dusuall) A?
da)sE+