Stock Market Trading Made Easy

Stock market investing has puzzled some of the greatest minds of the science and investment community for centuries. There’s no actual economics studies that can explain and predict how stock prices rise and fall.

In the short term, the rise and fall of the stock market is purely and foremost a psychologically driven event, and it can be measured and studied in numbers.

In the longer term however, economics begins to make sense. That’s why if you ask an economics graduate about the stock market, they will reply saying: ‘The stock market is a long term thing’, because it is indeed the case that fundamental stock valuations become apparent in the long term only!

As far as stock market trading made easy goes; the following article will explain how you can use the 3 bar rule to simplify your trades a great deal.

Stock Market Investing Can Be Tough

Stock market trading is tricky, and in the short term, which we are interested in, factors other than fundamental stock valuation, determine if the stock market will go up or down. Over a period of 1 or 5 years, the stock market can trade completely opposite to what economists expect, that is why we had the tech bubble crash of the late 90s.

Sometimes we don’t have a clue about this cycle, and we have to take big risks with our stock market trades in anticipation of very large gains. The long term trend may be down, the intermediate term trend may be up, and the very short term trend may be down, so how can one make sense of it all?

Trading Made Easy Using The 3 Bar Rule

For the long to medium term, almost all stock markets in the world are affected by the seasonal trend factor, making deep lows in March and October, and extreme highs in Spring and December (The traditional Santa Claus rally), beyond this, there are shorter term cycles and pattern that are somewhat harder to spot.

Stock market trading made easy – One simple rule of thumb you can use to time your stock market trading entry and exit points, is the 3 bar rule; this rule requires counting 3 consecutive up or down days (Or weeks) on your stock charts. Not ‘up’ and ‘down’ as regards the daily close, but as defined by the 3 bar rule.

Take a look at how the 3 bar rule works in counting days:

As you can see, by the term ‘consecutive’ we mean bars, where each bar has a higher low and higher high than the one before (up bar), or a lower low and a lower high than the one before (Down bar). This simple rule is ridiculously simple and does have statistical proof that it works quite well, since most of the time the stock market rallies in 3 such bars, and then pauses and trades sideways or down.

Now, based on our definition of an up or down bar, and the 3 bar rule, take a look at the weekly Nasdaq chart below, quite often the turning points occur after 3 up or down weeks!

Notice how the 3 bar rule can be used to help make trading easy:

Follow same coloured arrows and see the 3 consecutive up or down days:

This was first spotted by W. D. Gann in the early 1900s, Gann believed that the number 3 was the most frequent occurring number when counting days. Even this definition of an up or down day or week, is based on Gann swing trading theory, which is a good example of stock market trading made easy, and is a strategy that simplifies things a lot… regardless if you are looking at a 3 day, 3 week or a 3 month swing on a monthly chart, where each bar represents a whole month’s trading.

Stock Market Investing Strategies and Stock Market Speculation by..

Scott Smith
Investing The Stock Market © 2008 – 2010

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