Copywritten by Peter Woodhead in 2006
People always ask the same two questions:
- What should I do if I start to feel weak?
- What do I do when I see signs that I'm getting stronger?
Before you can answer these two important questions, ALWAYS remember that real weakness shows up on an up bar and....
REAL strength is ALWAYS shown on DOWN bars.
If you really feel weak, you should:
a) Start a new short trade (s)
b) Turn old long trades into short trades
c) Get out of any long trades
On strong signs, you should:
a) Start a new long trade (s)
b) Change short positions from short to long
c) Get out of any short trades
Why does how you act when someone gives you a strong sign of strength (or weakness) matter so much?
Because any real sign of strength (or weakness) will be noticed right away by market makers and professionals, who will then act accordingly.
So, what does it mean to show "true" strength (or weakness)?
You should immediately see a strong volume bar to back up your position.
If there is no such bar, it means that professional money is not interested in the move because they know the market is still weak (or strong), and you can expect the move to go in the opposite direction of what you thought it would. Most likely leading to another period of building up or spreading out before the next indicator.
Follow this rule:
Find out where the pros are making money and go there. If they're not interested, you shouldn't be either. If they show interest by buying or selling, then you can trust your opinion.
The majority of traders have no idea what's going on in the markets. But you will if you take the time to learn how the pros do their jobs and what makes the market move. You will be able to almost perfectly time when to enter and leave.
For example, a sharp move up should be followed by a sharp move down. After a strong bar up, the new high prices make sellers want to sell. This is clear if there isn't any follow through and there's a strong down bar. The people who matter (the professionals) would notice this, move in, and push the market down.
On the other hand, after a sharp drop, weakness is likely. Look for a tried-and-true "test" Find the professionals who are getting into the market and follow them.
Before you start trading, you need to know a lot about how the markets work. So many people don't care about this. They never really "get it" because of this.
Tom Williams is the best person to teach you how to trade like a pro. "The Undisclosed Secrets That Drive the Stock Market" is one of his most famous books. And everyone has to read it.
