Getting Started in Chart Patterns, 2nd Edition

Chapter 10

The Art of Trading

Checklists

This chapter is a combination of trading checklists and what we've learned in this book. The checklists are helpful tips from my market experience. The second are the bullet items highlighted in the chapters and listed here for reference.

Before Buying

In the checklists that follow you'll see duplicate entries. The rules for not buying a stock are sometimes the same as for selling.

Here's what I look for before buying a stock:

• Check the averages. I review several each day: the S&P 500, the Dow Industrials, transports, utilities, and the NASDAQ composite. I use the S&P 500 as the proxy for the general market. If the stock I'm interested in is a tech firm, I'll look at the NASDAQ.

  If the averages are climbing, that's a good sign. If the averages are trending lower, then wait for them to bottom before buying. A simple moving average may help call the turn. Many use a 200-day moving average. Before it turns up, have a shopping list ready so that when the turn comes, you can buy immediately. Be aware that when you add an indicator (such as a moving average) to the mix, you'll be buying late. Buying late is better than buying too soon.

• Check the market trend. Trade in the direction of the market trend. For me, that means buying when the market is rising and sitting in cash or collecting dividends from utility stocks in a down market.

  When reviewing the general market, I look for support and resistance zones, then project price movement into the ...