Trading Rules...
1. Whenever the trend you are riding approaches support or resistance, tighten your .protective stop. A protective stop is an order to sell below the market when you are long or to cover shorts above the market when you are short. This stop protects you from getting badly hurt by an adverse market move. A trend reveals its health by how it acts when it hits support or resistance. If it is strong enough to penetrate that zone, it accelerates, and your tight stop is not touched. If a trend bounces away from support or resistance, it reveals its weakness. In that case, your tight stop salvages a good chunk of profits.
2. Support and resistance are more important on long-term charts than on short-term charts. Weekly charts are more important than dailies. A good trader keeps an eye on several timeframes and defers to the longer one. If the weekly trend is sailing through a clear zone, the fact that the daily trend is hitting resistance is less important. When a weekly trend approaches support or resistance, you should be more inclined to act.
3. Support and resistance levels are useful for placing stop-loss and protect- profit orders. The bottom of a congestion area is the bottom line of support. If you buy and place your stop below that level, you give the uptrend plenty of room. More cautious traders buy after an upside breakout and place a stop in the middle of a congestion area. A true upside breakout should not be followed by a pullback into the range, just as a rocket is not supposed to sink back to its launching pad. Reverse this procedure in downtrends.
4. Many traders avoid placing stops at round numbers. This superstition began with off-the-cuff advice by Edwards and Magee to avoid placing stops at round numbers because "everybody" was placing them there. Now, if traders buy copper at 92, they place a stop at 89.75 rather than 90. When they sell a stock short at 76, they place a protective stop at 80.25 rather than 80. These days there are fewer stops at round numbers than at fractional numbers. It is better to place your stops at logical levels, round or not.
1. Whenever the trend you are riding approaches support or resistance, tighten your .protective stop. A protective stop is an order to sell below the market when you are long or to cover shorts above the market when you are short. This stop protects you from getting badly hurt by an adverse market move. A trend reveals its health by how it acts when it hits support or resistance. If it is strong enough to penetrate that zone, it accelerates, and your tight stop is not touched. If a trend bounces away from support or resistance, it reveals its weakness. In that case, your tight stop salvages a good chunk of profits.
2. Support and resistance are more important on long-term charts than on short-term charts. Weekly charts are more important than dailies. A good trader keeps an eye on several timeframes and defers to the longer one. If the weekly trend is sailing through a clear zone, the fact that the daily trend is hitting resistance is less important. When a weekly trend approaches support or resistance, you should be more inclined to act.
3. Support and resistance levels are useful for placing stop-loss and protect- profit orders. The bottom of a congestion area is the bottom line of support. If you buy and place your stop below that level, you give the uptrend plenty of room. More cautious traders buy after an upside breakout and place a stop in the middle of a congestion area. A true upside breakout should not be followed by a pullback into the range, just as a rocket is not supposed to sink back to its launching pad. Reverse this procedure in downtrends.
4. Many traders avoid placing stops at round numbers. This superstition began with off-the-cuff advice by Edwards and Magee to avoid placing stops at round numbers because "everybody" was placing them there. Now, if traders buy copper at 92, they place a stop at 89.75 rather than 90. When they sell a stock short at 76, they place a protective stop at 80.25 rather than 80. These days there are fewer stops at round numbers than at fractional numbers. It is better to place your stops at logical levels, round or not.
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