The Way Forward

Dynamic Rules

• Traders should go with the trend for as long as it lasts.
• The resistance line is the highest point a share price reaches and the support line the lowest. The more the lines are tested, the more effective they will be.
• A trend line may be drawn against three tops or bottoms in succession and it confirms the trend.
• A trend channel covers the area between a trend line representing resistance and another representing support. If the stock is volatile, it may be traded profitably inside the channel.
• Look for continuation patterns to confirm a trend, and reversal patterns to indicate that it is changing.
• A breakout should last for as long as the depth of the pattern that precedes it.
• Fibonacci ratios offer a numerical sequence claimed to define some stock market movements. A stock market trend is considered likely to retrace itself by 61.8, 50 or 38.2 per cent.
• Elliott Wave theory explains market cycles as an impulsive wave of five parts, reaching new highs, followed by a corrective wave of three parts. The theory is controversial and requires some subjective judgement.