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Tonight we want to talk about the support line that the DOW has used
since October to continue it's rise higher. As you know, we base
most of our trades on either a trend, news, or a support or
resistance level. Although I am not a technical purest by any
fashion, it's simply insane to ignore key elements of chart
analysis. Why? Do the charts really foretell the future like so many
believe?
I don't think so, or we couldn't have gigantic market melt downs. If
the charts were so great at forecasting the future, everyone would
be in or out of the market depending on what the charts said.
Eventually, the market couldn't move much because the charts would
have to flatten out. But that all said, this isn't your daddy's
market. Program trades account for almost 70% of daily
action. That means black box computers, are set to fire off
depending on technical levels, volumes, etc. So, it's very very
important to keep an eye on things like important moving averages,
trend lines, and major support and resistance lines.
No they won't always tell the truth. Major supports do get violated,
major resistance's do get broken. That's the way breakouts and
breakdowns occur. But for road maps alerting us to possible
areas of change, we do need to keep an eye on such things. I will
never buy the idea of a purely technical trading philosophy, because
it's too limiting in scope. When oil was 30 dollars and we
said it was going to 50, no chart told us that. No chart told anyone
that. World wide supply and demand, coupled with Geopolitics told us
that.
Charting has a very very definite space in your investing regime.
Charting is not however the end all answer to everything. We need to
align good charts with good trends, and good news, to have the
best possible shot at seeing returns. Nothing is better for instance
than a stock that is at an upper resistance level, it's struggling
to get through, and then the company announces a major pact,
or something like a split. "Boom" the combination of the good news
and a chart poised for action will usually create the buzz that gets
us moving. This is what successful trading is about.
http://clix.to/wallmann
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