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