Chris Rowe

Start 'Charting' Your Path to Profits With the 50% Retracement Rule

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Since early March, demand has been in control of the stock market, and this trend is set to continue for the intermediate term (i.e., weeks to months).

To stay ahead of the market curve, I've been reducing bullish exposure lately, as I have seen signs of weakness in the stock market. But, nonetheless, demand is still in control until further notice. So, if there are some stocks that you want to take a bullish position in, you might be asking yourself when the best time to buy would be.

You Don't Have to Wait for a Bull Market to Be a Buyer

First of all, what you want to do, if you are going to be bullish, is to buy the strongest stocks within the strongest sectors -- but you want to buy them on a pullback.

But, how do we know how much a stock is going to retreat before its next advance?

There are a number of ways to predict a stock's behavior, most having to do with past support levels.

A stock's support level is exactly what it sounds like -- a floor through which the stock has trouble breaking. The opposite term is resistance, which is a ceiling through which a stock has difficulty penetrating. When a stock is trading between these two levels, it is said to be in a trading channel.

I have a number of simple indicators that I use to decide what to trade and when, some of which come in the form of popular moving averages and trendlines.

But today I'm going to go over one of the most basic "technical analysis 101" principles that will lay down a foundation for understanding how far a stock is likely to retreat before the next bull run.