The definition of an uptrend is: a price pattern making a series ofhigher lows and higher highs.

As I said in the last chapter, trading stocks in strong uptrends is where you and I will spend most of our time. Swing traders target the two-to-five day breakouts in a stock that is beginning a hardy uptrend. Position traders scan for stocks breaking out of a Stage One base, then buy and hold for the duration of the uptrend, possibly four to six weeks.

When viewed on daily or weekly charts, moving averages are at best a secondary indicator when assessing the overall trend strength of a security. For the intraday charting used in day trading, the oscillators we will discuss next are better at showing moving average divergence.

Momentum and rate of change oscillators have similar uses for finding short-term changes in direction. They are essentially the same tool, except that rate of change oscillators give readings in percentage form, whereas momentum oscillators give readings in point form. Moving average oscillators are best for trading with a trend.

How it works?

1. Cost covering objective stop

For me, it is important that I cover costs. This single, simple idea has been one of the most important concepts of my success in the markets. I never allow myself the luxury of counting profits until I have covered my costs. As long as I take сarwе of that one detail, the profits seem to take care of themselves.

By covering costs, I mean taking care only of the immediate costs of the trade — **commissions and fees.

Dow Theory

Dow never actually wrote his observations down in one manuscript, so the principles of Dow theory gathered together here have come from several different locations, not from one comprehensive source. You will find different interpretations of what Dow theory is. Here, though, are the six key principles in what I believe to be the most convenient grouping of Dow's thoughts.

1. The market indexes cover the whole market and discount all market information.
2. Markets have three time horizons for trends: primary, secondary, and tertiary.

Volume is one of the most important indicators traders use to 'predict future price direction. The ability to read volume signals will be one of the handiest tools in your toolbox.

Have you ever gone to a party where few people showed up? Not very exciting, was it? In the same way, when you're buying a stock, you don't want to be the only person at the party! You want lots of people to attend so that the stock skyrockets right out of the gate (breakout).

Think of high volume as energy being directed at a stock. This energy may be positive or negative.

Can you hear your dentist telling you, „Only floss the teeth you want to keep?“ Makes sense. Keeping your teeth extra-clean means they'll stay healthier, longer. When you water and fertilize a plant, it flourishes happily. If you don't, it withers. During the weeks that you deposit money into your checking account, you have the funds to pay your bills. No deposit, no bill paying. Conclusion: Positive energy directed at an entity-huan or otherwise-causes it to flourish. Low or negative energy causes it to stagnate and atrophy.

Stocks, especially, respond to energy. Human energy translates into volume, or the number of shares traded in a specified period of time. By now you've spotted the volume spikes that run along the bottom of the charts we've observed. The spike below the candlestick represents the total number of shares traded during that session.

Stocks move in three directions-up, down, and sideways. The sideways moves can be divided into three basic categories: trading in a range, congestion, and consolidation.

When we say a stock is „trading in a range,“ that means it is bouncing up and down between a low price area, or support, and a higher price area, or resistance. It is not trending. Another term for trading in a range is „bracketing.“