These seven universal laws or truths will guide you
to the best stocks and the best markets. The laws of
"harmony" work well in the stock market as
well as in life.
THE 7 LAWS OF HARMONIC STOCK TRADING
"There is nothing to it. You only have to
hit the right notes at the right time and the instrument
plays itself." Johann Sebastian Bach, composer
THE LAW OF LEAST EFFORT – Flow with the trend.
THE LAW OF SURRENDER – Faithfully follow a stock’s "TAO."
THE LAW OF ALIGNMENT- Be in harmony with the markets.
THE LAW OF POTENTIALITY – Trade absolute strength.
THE LAW OF EXPECTANCY – Expect to gain more than you
risk.
THE LAW OF VISUALIZATION – See the trade before you
make it.
THE LAW OF ATTUNEMENT – Trade the "middle-ground,"
never the extremes.
By following these seven laws you will be in alignment
with the forces that move the markets and individual
stocks.
Notice how the 20-day line becomes "support"
as the stock moves higher.
THE LAW OF LEAST EFFORT – Flow with the trend. BUY
ONLY WHEN THE STOCK IS TRADING ABOVE IT’S 20-DAY MOVING
AVERAGE.
The "TAO" (gold line)
is draw this way.
THE LAW OF SURRENDER – Faithfully follow a stock’s
"TAO." The "TAO" is an ancient Chinese
concept that translates as the "way," "path,"
or "route," to the true nature of things.
To trade a stock, simply follow its "TAO."
See our related article on "How to draw a TAO trend
line. BUY ONLY WHEN THE "TAO" IS IN AN UP-TREND
THE LAW OF ALIGNMENT – Be in harmony with the markets.
The great majority of stocks follow the direction of
the leading indexes (Nasdaq, S&P 500, Dow). If you
buy only when the markets are heading higher, your odds
of success improve dramatically.
Here’s a simple technique that will always keep you
in harmony with the markets: BUY INDIVIDUAL STOCKS WHEN
THE NASDAQ IS TRADING ABOVE IT’S 20-DAY MOVING AVERAGE.
THE LAW OF POTENTIALITY – Trade absolute strength.
Strong stocks tend to get stronger. Legendary trader
Jesse Livermore, who made over $100 million during the
1920’s recognized that the markets are led by a small
number of powerful stocks. Companies that dominate their
field and have explosive profits from a hot new product
or service or from changing conditions. Big winners
from the past include U.S. Steel, RCA, Xerox, Boeing,
IBM, Amgen, Microsoft, Charles Schwab, Cisco Systems,
Home Depot, Google, Yahoo, Ebay, Apple, etc.
Here’s a simple rule that will lead you to the strongest
stocks. LOOK FOR STOCKS WITH EARNINGS UP 70% OR MORE
IN THE MOST RECENT QUARTER
The "buy point" is triggered
the moment the TAO line makes a new high.
THE LAW OF VISUALIZATION – See the trade before you
make it. The "buy point" is triggered the
moment the TAO line makes a new high like in this chart.
THE LAW OF EXPECTANCY – Expect to gain more than you
risk. Make sure that the profit you expect to make ("profit
target" minus your "buy price") is always
more than the amount you are risking (your "buy
price" minus the "stop loss").
You typically do not want to risk more than 5-6% on
any trade. The lower the better.
THE LAW OF ATTUNEMENT – Trade the "middle-ground,"
never the extremes. "Stochastics" measure
if a stock is "Over-Bought" (over 70) or "Over-Sold
(under 30)." BUY ONLY WHEN STOCHASTICS ARE MOVING
UP AND NOT OVERBOUGHT. Learn more about Stochastics
in our other articles.
These principals are universal and timeless. They worked
well in past, work well in the present and will work
well in the future.
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