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 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.
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I have a favorite stock I have followed for about 5 years and sometimes trade Options when all looks good to me. I look at several quirky things that happen with the stock that tends to cause moves or reactions in the stock movement. Earnings, Gaps and now Half way Home 50% watch point. It also makes frequent moves that are some what reliable when it is trending up or down. I watch for a bottom on Friday or Monday to buy and look for a high on Tuesday or Wednesday to sell. This is a shorter trade that I don’t much like but I have hit on it many times. I prefer trades of a few weeks and try to push this signal when it looks like a turn around in direction. I have done some back testing of this Half Way Home trick and it looks really good with this stock over the past 10 years. I now plan to add it to watch on this stock. Look at Sony Corp, SNE and let me know what you think? SNE is not a slow moving stock but has lot’s of up and down action that can be played. I personally prefer stocks that have these definite up or down moves that tend to be sharper or longer that are between 5% to 10% moves in stock price. A 5% move in stock price seems to get my Options price over 100% and 10% seems to get my Option price over 200%. I usually get out the second day it confirms a reversal where ever it’s at.
Thanks, Skip