Here is a nifty trick for people who have a hard time following super complicated technical indicators.
Most people who use technical analysis to predict the movement of a stock price are often times over complicating things. Worst is that price patterns may not be the predictor of performance that many believe it is. But more likely a self-fulfilling prophecy in that if enough people use the same techniques they have a measured impact. So all that time staring at lines crossing is all too often a complete waste of time.
The Keep It Simple Silly (KISS) mantra has served many investors well. Remember that stocks, futures, and/or currencies can only go up, down, or do nothing for a period of time.
Technical trade indicators are relative and only give clues to where the markets might be headed. It takes discipline to be successful.
There is no holy grail indicator that will tell you when to buy or sell. If there was… everyone would use it. However, using an indicator that you understand and that is accurate more than 50% of the time can lead to better and bigger portfolio of winners.
Introducing the 50% KISS Rule
This technique couldn’t be simpler.
Step 1. Pick a Stock or Futures Contract
Step 2. Watch the halfway mark of the last major move. Calculate the midpoint of the low to high or high to low and see if it holds or folds.
The Key: How the price behaves at the 50% retracement will tell a lot about if this was just a pullback or a true reversal in the trend.
Action: If the stock or commodity holds then it was just a pull back and you should consider going long (buying). If it falls through the 50% level then look to short or exit your position.
The halfway measure can be used on any time frame from monthly charts to five-minute bars.
The time increment is irrelevant; it is the ability or inability to push past that level that is often eye opening.
Leave a comment below and let me know if this works for you.
Alan Knuckman is the Founder and Chief Market Strategist for www.BullsEyeOption.com a subscription trading service for his inner circle members. He has over 25 years of market experience that began in the pits of the Chicago Board of Trade as a runner and progressed to a Treasury Bond speculator. Each trading day Alan is the video host of the Morning Market Stir from the CME Group and the Pre Market Pulse on CBOEtv. He is also a frequent financial commentator appearing on television regularly with CNBC, CNN, Bloomberg, and Fox Business Network.