Weekend Report-Nov 14th 2010- Market Technical Analysis and 10 Priceless Trading Rules from a legendary Trader

Traders,
After a week of trading, its a good time look back and see how the market behaved and see what we can anticipate in the coming week.We'll start with the latest ASI screenshot;

Those who think technical analysis does not work, just need to look at the above graph. I have not come across a so clear support line than above in recent history. During last 45 days, ASI touched support line three times and was able to bounce back without breaking it.
Volume shrank to a very low amount. If you look at the last volume bar, you'll notice that its the lowest in the recent past.
Funds stuck in two IPOs, government annual budget, and heavy disturbing weather are three key things that affected the market.
Based on above the ASI behaviour, there are two scenarios that can happen in the next week;
1. Market will bounce further above the 6500 level. If this happens, its worth paying attention to leading stocks that are showing upward momentum. Reason is, budget is one week away and market can indicate some clues of what you can expect.
Financial sector is an obvious benefiter, because its where Sri Lanka's key advantage lies. Government has already indicated that its planning to reduce certain tax relating to banking profits. Also if you look at BFI index (Banking, financial & Insurance), you can notice that, it has been resilient to the recent market correction.

2.Market will break the support line. If this happens, I could say that it should be temporarily. Sometimes, a sudden breakdown and immediate bounce back could further shake away weak traders out of the market. And after, subsequent recovery could be stronger as a result.

My recommended strategy is to scale up on an uptrending market. But market has not shown clearly that its uptrending yet.
Observing the market till right time comes is also a strategy. Its natural to feel that you should trade everyday and thats a recipe for disaster. My favorite all time trader hero is Jesse Livermore. I could survive some bad times because of the wisdom that he passed on to others.

For your Trading Wisdom 
Once he said "There are times when money can be made investing and speculating in stocks, but money cannot consistently be made trading every day or every week during the year. Only the foolhardy will try it. It just is not in the cards and cannot be done." http://www.jesse-livermore.com/

His Trading Rules...

• Buy rising stocks and sell falling stocks.
• Do not trade every day of every year. Trade only when the market is clearly bullish or bearish. Trade in the direction of the general market. If it's rising you should be long, if it's falling you should be short.
• Co-ordinate your trading activity with pivot points.
• Only enter a trade after the action of the market confirms your opinion and then enter promptly.
• Continue with trades that show you a profit, end trades that show a loss.
• End trades when it is clear that the trend you are profiting from is over.
• In any sector, trade the leading stock - the one showing the strongest trend.
• Never average losses by, for example, buying more of a stock that has fallen.
• Never meet a margin call - get out of the trade.
• Go long when stocks reach a new high. 

You can read the full article at http://www.jesse-livermore.com/trading-rules.html

Read these rules over and over and over... you will benefit from them years to come.

To your success
Manoj Balasooriya

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