Want to know a trading secret that can make you rich? This secret has been used for a long time by some of the top traders. You might wonder why these traders would be so secretive, and not share their great knowledge with all of us. Well, to be honest, they have shared it with us. Many times they spoke about, and wrote about this trading rule.
W. D. Gann said “You can make a fortune by following this one rule alone.”
Burton Pugh called it “one of the most valuable of market habits and the trader should follow and profit by this most dependable of all market laws.”
So, why doesn’t everybody listen to these great sages of Wall Street? To tell you the truth I don’t know, it could be because this trading rule is so simple that it gets overlooked. I find that people often think that if something is this simple it couldn’t possibly work. Well, I have some advice for them. Don’t over complicate things, “KISS” (Keep It Simple Silly).
So, do you want to know what this great Stock Market secret is? It’s the 50 of the previous price movement. This rule works in both upward trending and downward trending markets.
Let’s imagine that ABC stock started its most recent run at $10 and moved up to $20 before it began to pull back. A buy order would be put at $15 (50 retracement. Some of you will recognize these as Fibonacci Retracement Lines, and you would be correct. Traders used the 50 mark. No, sometimes price might not make it all the way to the 50 and 62 rule will not apply.
Most charting services have a Fibonacci Retracement Tool that draws the 38, and 62 rule in mind. Check for it on historical charts. You will be amazed how often it occurs and how well it works.