Breakaway gaps don't get filled. I posted this either last night or this morning but here it is.
20 GOLDEN RULES FOR TRADERS
Want to trade successfully? Just choose the good positions and avoid the bad ones. Poor trade selection takes a heavy toll as it bleeds your confidence and wallet. You face many crossroads during each market day. Without a system of discipline for your decision-making, impulse and emotion will undermine skills as you chase the wrong stocks at the worst times.
Many short-term players view trading as a form of gambling. Without planning or discipline, they throw money at the market. The occasional big score reinforces this easy money attitude but sets them up for ultimate failure. Without defensive rules, insiders easily feed off these losers and send them off to other hobbies.
Technical Analysis teaches traders to execute positions based on numbers, time and volume.This discipline forces traders to distance themselves from reckless gambling behavior. Through detached execution and solid risk management, short-term trading finally "works".
Markets echo similar patterns over and over again. The science of trend allows you to build systematic rules to play these repeating formations and avoid the chase:
1. Forget the news, remember the chart. You're not smart enough to know how news will affect price. The chart already knows the news is coming.
2. Buy the first pullback from a new high. Sell the first pullback from a new low. There's always a crowd that missed the first boat.
3. Buy at support, sell at resistance. Everyone sees the same thing and they're all just waiting to jump in the pool.
4. Short rallies not selloffs. When markets drop, shorts finally turn a profit and get ready to cover.
5. Don't buy up into a major moving average or sell down into one. See #3.
6. Don't chase momentum if you can't find the exit. Assume the market will reverse the minute you get in. If it's a long way to the door, you're in big trouble.
7. Exhaustion gaps get filled. Breakaway and continuation gaps don't. The old traders' wisdom is a lie. Trade in the direction of gap support whenever you can.
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