Posted by forex at 7:45 AM
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1.
Compute volume and price tops and bottoms
Examine the monthly, weekly and daily charts of the stock under review. Use the monthly time frame as the main indicator of the stock's trend. Use the weekly chart as confirmation of the long trend. The monthly and weekly chart must agree in direction in order to proceed with a trading plan. Note the recent lows and highs from the weekly chart. Pay particular attention to the volume of shares traded at the weekly highs and lows.
2.
Use stochastic indicators to indicate the precise buy and sell signal
Note that large volume at low and high prices act to confirm the strength of the trend. Use weak volume trends as indicators that recent high and low prices are nearing a turning point. Plot the daily stock prices and draw horizontal lines at recent weekly high and low prices. These horizontal lines become your buy and sell points for the daily charts. Ascertain that volume consistently rises and falls with lows and highs in price.
3. Use a momentum indicator--such as a stochastic indicator--to confirm, along with volume, a recent high or low stock price. If a stock is bottoming, wait until it has exceeded the recent weekly low and the momentum indicator has also turned up. If the momentum indicator does not turn up, or if volume is weak, then the stock should not be bought. Use the opposite reasoning when stocks are approaching highs. Range trading involves patience. Sell your positions once they have become buy candidates in the opposite direction.
4.
Use the monthly trend to know the range bound pattern is over
Trade the daily price only in the confirmed direction of the longer trend. Trading both tops and bottoms of trading ranges is dangerous since, if the major trend is up, the price movement of the stock in the opposite or contra direction is likely to be muted and without the reward possibilities of trading with the trend. When commissions and the spread between the bid and asked quotations are included, contra trading will not contain the good risk and reward characteristics of a trade that follows the longer trend.
5. Use the monthly chart data to know when a trading range has been exited. If the current stock price drops below the most recent monthly low, the trader should assume that the stock has emerged from the trading range and is headed lower. Stock prices above the monthly high should indicate that a bullish trade is now underway and a long position in the stock is called for.