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  • Writer's pictureMaximus

How to conduct a rules-based technical analysis

You have to set very clear guidelines and rules for yourself when trading options.

Technical Analysis is the art of reading a chart.

First, you need to look at the charts with all the key indicators. The key indicators are the moving averages, the volume, the MACD, the Relative Strength Index (RSI), and the On-Balance Volume (OBV).

Let's say you want to enter a bullish trade. You want to see:

  • The stock trading above the 30-day moving average

  • Preferably on really good volume

  • A green MACD

  • Relative Strength Index moving up

  • On-Balance Volume going up

If all those things come together, then you can enter the bullish trade.

A lot of people know when to enter a trade, but do not know when to get out.

You can utilize many indicators to identify when to exit a bullish trade.

One way is to compare moving averages. If the 10-day moving average is above the 30-day moving average, the stock is bullish. So, when the 10-day crosses below the 30-day it means the stock is no longer bullish.

You can even just use the 30-day moving average and compare it to the stock price. If the stock price goes below the 30-day, then the stock may no longer be bullish.

If you want to make a quicker exit, then look at the MACD and get out when it turns red.

If the RSI and OBV are also going down, then you definitely want to get out of a bullish trade.

The critical thing is to put rules in place for yourself when trading. That way you can read the charts and know exactly what you want to do.

Use the key indicators to make these rules for yourself.


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