| There are many different strategies to use when | | | | daily bar will have a high and low representing the |
| you are investing or trading in stocks. The important | | | | high and low prices reached during the days trading. |
| thing is that you have a strategy and stick to it. It | | | | It also contains 2 horizontal dashes, one on the left |
| doesn't matter whether you are a short or long term | | | | representing the opening price and one on the right |
| investor - discipline is the key to success after picking | | | | representing the closing price. |
| what stocks to invest in. What you also need to | | | | The rule to apply here is to only buy after 3 |
| understand is that there is no perfect system out | | | | consecutive bars show a higher 'low'. The low is the |
| there. Any system you use will have its limitations but | | | | bottom of the bar, and not the lower horizontal bar |
| at least if you have a system you have a set of | | | | or closing price. What we are looking for here is to |
| rules to apply for knowing when to buy and sell. | | | | only buy on an upward trend. The number of |
| A system I use regularly for knowing when to buy | | | | consecutive days can be changed to your preference |
| and sell stocks is based on 3 rules and makes the | | | | but 3 days was also used successfully by Nicolas |
| task of buying stocks easy to use and understand. | | | | Darvis in his famous 'box theory' which he used to |
| The 3 rules to the system are: | | | | make over $2 million. |
| 1. Only buy when the volume is above the long term | | | | 3. Only buy when the price is above the 100 day |
| average. | | | | moving average. |
| It's important when buying stocks that you buy a | | | | The 3rd rule is to apply a 100 day moving average to |
| liquid stock. That is a stock that you can sell easily | | | | you bar chart. A 100 day average is fine for most |
| when needed. To do that you need to make sure | | | | investors except perhaps for day traders who may |
| there is good consistent volume. Many investors will | | | | want to use a shorter moving average. Again, the |
| trade on volume indicators alone, particularly for | | | | rule is simple to follow. You only buy when the price |
| smaller stocks as market announcements will often | | | | is above the moving average. The idea is to only buy |
| follow increased activity in volume. If you think this is | | | | stock when they are in an upward trend. You do not |
| insider trading, then you are right and its alive and | | | | want to buy when they are in a downward trend. |
| well and happening every day at all different levels. | | | | That's when you sell. |
| You will need a chart to apply this rule and all that is | | | | The rule for selling is also simple. In addition to the |
| needed is to apply a long term average to the | | | | 100 day moving average you apply to your bar chart, |
| volume chart. If you are a short term trader then | | | | you also include a 10 day moving average. This line |
| applying a 100 day average is a good indicator. The | | | | will reflect any price movements faster than the 100 |
| rule is to only buy when the price is above the 100 | | | | day line. The rule is to sell if the price falls below the |
| day moving average line. | | | | 10 day moving average. |
| 2. Only buy when 3 consecutive higher 'lows' have | | | | Remember, the secret to knowing when to buy and |
| been reached. | | | | sell stocks is to be consistent in applying your rules |
| To apply this rule, you need a bar chart showing daily | | | | and understanding that they will not work every |
| open and close prices. The great thing about a bar | | | | time, but it's a whole lot better than not having any |
| chart is the information contained in each bar. Each | | | | system at all. |