Pay Attention to These Three Trading Keys

by Markay Latimer

Remember the "Three Tenors?" During the height of their popularity in the 1990s, world famous opera stars Luciano Pavarotti, Placido Domingo and Jose Carreras joined forces to blend their voices and create a memorable sound that captivated the world. Each man was outstanding as a soloist, but when the three came together they produced the best-selling classical album of all time. One tenor was good, three were better.

The same basic idea is true when making a successful options trade. There are three keys to a successful technical trading system. If you have one component, you are likely to have limited success. If you have all three components working together, you have the potential to produce some spectacular results.

The three keys to success are: candles and price graph patterns, moving averages, and indicators.

The candles and price patterns will show whether the stock is moving up or moving down. By looking at the candlesticks and the patterns shown in the chart, I can see tell whether the stock should be considered bullish or bearish.

The bigger candle bodies show that traders have stronger emotions about the stock, whether bullish or bearish. A doji is a candle pattern that shows indecision and should give us a cause to pause and take a closer look. You need to be able to recognize and interpret both.

Chart patterns can indicate which stocks are ready to continue in the same direction, which are primed to reverse and go the other way, or which are ready to move into a continuation, or holding, pattern while traders decide on their next move.

The moving averages can help me identify which stocks are trending. I like to use three moving averages, a combination of simple and exponential moving averages, in my personal trades. The moving averages can often act as support and resistance levels. They are especially helpful when trading a stock that is trending.

The indicators are the last thing I use. They are one final way to double-check my trade and make sure it's the safest trade I can find. Indicators like Bollinger Bands, ADX, parabolic, MacD, RSI and volume are all very helpful when it comes to confirming a trade's status.

If all three keys are headed in the same direction, my trades tend to be more successful. If all three are telling me a stock is going down, those trades tend to be more bearish. If all three are telling me a stock is going up, those trades ten to be more bullish.

So take a closer look at your trades. Are the three keys in synch or are they sending different signals? If the keys are in harmony, you could be on the verge of making your own sweet music.

You can learn more about these keys in my two-day "Technically Speaking" class, coming up Feb. 23-24 in Chicago. We pack all the information you need into this workshop, which can put you on the road to understanding and being able to implement technical analysis in your trading program. It will be two of the most productive and informative days you could ever spend.