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Price Graphs Importance for BetterTrades

Trading stocks and options can be done easily and profitably as long as you use a proven system of technical analysis to time your trades. That system should begin by analyzing the price graph, first and foremost, and then confirming what you see in the price graph with a few reliable technical indicators. You have a trade when the indicators and the price graph are in agreement. The focus of this article is on the first part of a successful trading system . . . the price graph.

Analysis of the price graph includes reviewing price patterns, candlestick analysis, support and resistance lines and moving averages. Your first review of a chart should consider major support and resistance levels and the overall trend. I do this by looking at a chart with a 200 day simple moving average. The 200 day average shows the trend of the stock and may also act as a support or resistance level.

Basically, a stock in an uptrend will be above its 200 day moving average. Occasionally, however a stock may retrace near to this long-term average. That retracement provides an excellent opportunity to enter a bullish trade. Notice the chart of Whole Foods Market (WFMI) below. WFMI was in an uptrend but retraced to the 200 day moving average. The ideal bullish entry occurred the day following the retracement, at $81.50 when WFMI bounced off the average. Just nine days later (at the time of this writing) WFMI was trading at $94.50. That 14 point move is consistent with what generally happens when a stock bounces near a 200 day moving average.

View Frist Better Trades Chart

To see the power of the 200 day moving average you need look no further than eBay (EBAY) over the past few months. In August, EBAY retraced and formed a double bottom near the 200 day average. When EBAY completed its double bottom pattern we got our first entry signal at $75. The buying pressure that ensued has driven EBAY to $109 up $37 from our initial entry.

View Second Better Trades Chart

If you missed the initial entry near the 200 average the trade was not over! After a stock bounces and begins trending upward your attention should again be focused on the price graph. You need to read the candle patterns to find a safe entry within the trend. Those entries are marked with the red arrows on the chart above, and came after a continuation or retracement pattern was formed.

Another powerful chart pattern you should be alert for is when a stock, that has been bearish, is able to rally through its 200 day moving average. This will also mark a great time to enter a bullish trade. You can see that happening on the following chart of Goldman Sachs (GS).

View Third Better Trades Chart

When GS was able to rally through its 200 day average we got a very clear entry signal at $96. That led to a sharp uptrend and a quick 8 point profit to date.

Understanding how to read price graphs will give you the ability to successfully time your trades. A large part of reading the price graph is using the 200 day moving average to find key entries. Once those entries have been identified your focus should move on to analyzing price and candle patterns to pinpoint other entries within the trend. Using a systematic approach to technical analysis will make trading easy and profitable for you!

If you would like to learn more about technical analysis and profitable entry and exit points, join me in one of my free online trading seminars or come see me live in my informative and exciting two days seminar "Technically Speaking". Hope to see you soon!

Have a GREAT Day!
Markay with BetterTrades

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