Page 378 - THE MARKET WHISPERER

374 PART 10 - Winning Trades

receive the anticipated support; or to increase our position in a stock
based on the assumption that it will return to highs.

SMART A stock breaking out will generally execute a retest of the
MONEY breakout area, i.e. it returns to the line of resistance, which
now turns into the line of support. The opposite is true for
breakdowns.

The Top Down Analysis Method

“Top down analysis” is an accepted method among careful traders. Before
trading opens, traders review the strong industries and sectors and follow
their movements. If the pharmaceutical sector excelled on the previous
day relative to the market index and other industry indicators, these
traders will check a list of stocks belonging to the pharmaceutical industry
and seek out the notably dominant ones. Of these, the traders will choose
several with attractive technical formations and follow them as potential
candidates for the coming day’s trading. During trading, these stocks will
be bought at planned entry points, on the condition that all of the criteria
we have studied are properly filled:
• The market is trending up
• The specific industry is trending up
• The stock is at the correct technical point

Top down analysis considerably reduces chances of failure, but requires
no small amount of preparatory work and follow-up. It is recommended
for traders with plenty of time, or who are particularly wary and cautious.
Since you have the support of so many components of the market, the
probability of winning is much higher.

Summary

This was one very heavy chapter! We studied breakouts and breakdowns,
volume change, buy and sell points, reversals, gaps, trading strategies,
scalps, pre- and post-market trading, VWAP, small caps, reciprocal ranges,
how to use financial announcements, identifying the bottom, retesting,
and more…So, where do we start?

It would not be normal to be fluent with all this information at this
stage. As novice traders, you should choose one method and get to know it
well before moving on to new methods.