Knowing Stock Market Technical Levels Make You Rich
Over and over again the markets reward those investors and traders that use technical analysis. I am not talking about nonsense like stochastics, MACD or RSI. I am simply talking about looking at the chart and using common sense to determine price, pattern and time. To 99% of the public, this is a foreign language. However, it is the way to become filthy rich.
Let's give a great example. Going into Tuesday of this week, everyone knew the markets were going to take at tumble. The previous day, when the markets in the United States were on holiday, Europe took a major hit, dropping almost 5%. Right away, smart traders go to the charts, trying to figure out whether or not the markets will dump to the August 9th, 2011 low of $110.27 on the SPDR S&P 500 ETF (NYSE:SPY) or just gap lower and reverse higher. A technical trader simply had to look at the chart and connect the pivot lows. If you connect all the lows from August 9th, they form a perfect trend line. The next step is to understand this line.
Understanding the line is simple. Should the market close below the trend line, the markets would be in break down mode and see the $110.27 SPY low within days. Should they rally back above that line, upside would follow for days.
Sure enough, the markets closed above the trend line and held off the bears. Traders who utilized this bought the market into the close yesterday. They are being rewarded with big time profits today.