Book Huge Gains with MY “50% KISS” Rule

Most people who use technical analysis to predict the movement of a stock price overcomplicate the process…

You see, price patterns may not be the predictor of performance that many believe. In truth, many of the price patterns you’ve heard about are more likely self-fulfilling prophesies.

Think about it… If enough people use the same techniques, they can have a substantial impact on the markets. Many times, staring at a bunch of lines crossing on a chart is a complete waste of time.

On the other hand, 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.

There is no holy grail indicator that will tell you when to buy or sell. If there was, everyone would use it. But 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. It takes discipline to be successful!

Here’s a way you can cut through the clutter and pinpoint your next winning trade…

Just use my 50% KISS Rule.

This technique couldn’t be simpler:

Step 1: Pick a Stock or Futures Contract

Step 2: Look for 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, it was just a pullback and you should consider going long (buying). If it falls through the 50% level, 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 timeframe is irrelevant. Learn to spot these key levels and you’ll be well on your way to finding your own profitable plays.

Keep it In the Money,

Alan Knuckman

Alan Knuckman
Editor, In-The-Money

Chart of the Day: The big get even bigger

Greg GuenthnerBy mid-afternoon Friday, the major averages were all perched in the green. The Dow was up a modest 60 points, while the Nasdaq hovered near breakeven, posting gains of less than 0.2%.

But the averages weren’t telling the whole story last week.

While the Dow, S&P, and Nasdaq hung out around breakeven most of the day, more than 70% of all stocks on the market were in the red!

How is this possible?

Blame the market’s soaring mega-caps. Apple Inc. (NASDAQ:AAPL) just crossed the $2 trillion market-cap threshold last week, gaining more than 3% on Friday alone. Due to Apple’s size (and a couple of other big, popular tech stocks that managed to post strong gains) much of the damage to the market wasn’t apparent if you were just looking at the averages.

aapl chart

Weak breadth doesn’t mean the market has to drop right away. But it can be a sign that this rally is starting to get ahead of itself. Remember this if you’re considering chasing any of these high-flying stocks heading into the final weeks of summer trading…

Trading Tip of the Day

Every trader needs to know his limits. So you need to ask yourself… what stocks should I avoid at all costs?

Maybe you think buying stocks below $1 is too risky. Or maybe you have volume requirements so you don’t get stuck in a name that’s too thinly traded. Perhaps you trade only domestic equities. Or you have a particular sector or industry group you prefer to avoid.

Whatever your preferences, you need to eliminate your negatives. It’s essential to know what you won’t trade – then put it in writing. Writing it down forces you to commit to your rules in a way you might not otherwise do. So if the market ever tempts you, you’ll be less likely to throw a bet down on a trade that you know, deep down, is a long shot.

— Greg Guenthner

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Is the Rally Really Finished?

You can’t have a powerful momentum move without encountering some bumps in the road, as we saw during yesterday’s hard reset. That’s why you always need to remain strategic with your trades. Over the past week, I’ve used the market rally to my advantage by taking profits on my positions that have posted the more extreme upside moves, including big tech plays, semiconductors, and even energy stocks.

Alan Knuckman

Alan hails from the home of options trading in Chicago, where he began working as a clerk on the floor of the Chicago Board of Trade (CBOT). Beginning with his days on the floor, Alan’s worked with all aspects of the options markets for the past 25+ years.

Transitioning from a clerk to a floor...

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