"90% of the people in the stock market, professionals and amateurs alike, simply haven't done enough homework."
-- William J. O'Neil, Investor and Founder of Investor's Business Daily.
Here's two charts of the DOW Industrials that are approximately two weeks apart. The one on the left is from October 3, 2013 and the one on the right is from October 18, 2013. They are both very similar and yet exactly the opposite at the same time.
 October 3, 2013 |  October 18, 2013 |
The one on the left is falling while the one on the right is rising. A trader on the left should be short, a trader on the right should be long. Days after the chart on the left the INDU continued to fall as can be seen in the chart on the right. On the left the RSI was falling but not in oversold territory. The MACD was falling but there was no indication that a turn was imminent. The MACD Histogram was still expanding lower, and the ADX had flipped a week earlier and gaining momentum. All things looked like it was going to continue down, which it did.
About a week later everything reversed and the chart was telling you that everything was different, so any short positions needed to be reversed also. The RSI hit 30 and rose above it, the MACD Histogram turned up and the ADX reversed and crossed.
Now we're in a similar yet opposite situation from October 3rd. The RSI is rising but not in overbought territory. The MACD is rising but there is no indication that a turn is imminent. The MACD Histogram is still expanding higher and the ADX has flipped with the up momentum above the down momentum. Similar to two weeks ago the INDU will probably continue to move higher until there is an indication of a turn.
I have no crystal ball and this is not a recommendation but it really does appear that the INDU is continuing to move higher and will probably do so for awhile. A smart trader would be long in this market because being short would only get that trader in trouble. However, these things can change on a dime so they need to be followed at least on a daily basis. Otherwise gains will quickly turn into losses. Being on the right side of a trade will not guarantee success in the stock market but it will increase your odds of being successful.
Learn to read the charts. They'll usually tell you everything you'll need to know to give you the confidence to make your trades and more importantly will signal you when you need to exit those trades as well. Charts are a wonderful thing for a trader!
About a week later everything reversed and the chart was telling you that everything was different, so any short positions needed to be reversed also. The RSI hit 30 and rose above it, the MACD Histogram turned up and the ADX reversed and crossed.
Now we're in a similar yet opposite situation from October 3rd. The RSI is rising but not in overbought territory. The MACD is rising but there is no indication that a turn is imminent. The MACD Histogram is still expanding higher and the ADX has flipped with the up momentum above the down momentum. Similar to two weeks ago the INDU will probably continue to move higher until there is an indication of a turn.
I have no crystal ball and this is not a recommendation but it really does appear that the INDU is continuing to move higher and will probably do so for awhile. A smart trader would be long in this market because being short would only get that trader in trouble. However, these things can change on a dime so they need to be followed at least on a daily basis. Otherwise gains will quickly turn into losses. Being on the right side of a trade will not guarantee success in the stock market but it will increase your odds of being successful.
Learn to read the charts. They'll usually tell you everything you'll need to know to give you the confidence to make your trades and more importantly will signal you when you need to exit those trades as well. Charts are a wonderful thing for a trader!
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