In only two days I will be ready to start showing the results of my indicator. In the meantime I think it is a good idea to start work on a trading plan, which is a major purpose for this blog. When thinking of building a trading plan I think it is helpful to look at long term chard for the purpose of not only finding the most important trends in the market. We also want to find major support and resistence points that we can work off of. Let’s start by grading long term charts. When I think of a long-term chart I think of the 900 period weekly chart from off of Stockcharts.com which is a website that I use mostly for my research. Right now the long-term charts that I woll be mostly interested in are the Major indices chart and sector charts. The major indices are thing like the Dow Industrials, the NASDAQ, the S&P 500 and so on. Examples of sector charts are the consumer cyclical sector, the Technology sector or the Utility sector. Sectors group together industries by the function these industries serve in out society. I want to be able to grade the long-term sector charts for these indices and sectors so that I may better be able to drill down on where the best trades are to be found. I propose giving long-term Index or Sector charts letter grades just as we received in School. I will be using this blogpost to begin talking about these letter grades.
Let’s start with letter grade ‘A’. A letter grade ‘A’ long-term chart is essentially a chart that has been going up at about a 45 degree angle or better over the course of years. There have been pullbacks of course, but nothing significant and the chart is either at new highs or close to maintaining new highs.
A letter grade of B is a chart that is less than a 45 degree angle where current price is lower than at least one major pullback. A major pullback is defined on the weekly chart as one where the high and low of the weekly bar is lower than the high and the low of a bar at least 5 bars back.
I will talk about letter grade ‘C’ and so on tomorrow.