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Strategies & Market Trends : TATRADER GIZZARD STUDY--Stocks 12.00 or Less.....
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To: TATRADER who wrote (57979)3/25/2007 8:50:33 AM
From: lexi2004  Read Replies (2) of 59879
 
Hi Mark,

Was rereading a book I'd bought awhile back: THE TRADING RULE THAT CAN MAKE YOU RICH by Edward D. Dobson. In short, it's the 50% retrace rule. According to the author, in one year he took 5k to 120k by using this rule. Here are the major points:

1. Always trade with the major trend. For example, if it's an uptrend, wait for a retrace of 50% then go long.

2. Once you buy at the 50% retrace, always put in a stop immediately and he suggests at the 66% retrace.

3. Only buy the retrace of the 1st and 2nd moves of that major trend for he says when a stock retraces the 3rd or higher move of the major trend, it is likely to retrace 50% of the whole trend.

Now, it's not always easy to recognize the trends in the beginning IMHO. LMRA had an almost 79% retrace of that big move up. 3.61 - 5.16 was the next move up from that bottom, making 4.39 the 50% fib. Using the 66% stop, that would place it at 4.14 if i did it right. I did:

5.16 - 3.61 = 1.55 then did 66% of that move = 1.02. I then subtracted it from the high (5.16) and got 4.14.

The author does say this - the moves aren't always exact and you can buy in parts..meaning start at the 45%, then add at 50% and 55% retrace; however, still use the 66% retrace or something very close to it for your stop.

Obviously this system doesn't work if a stock is trading sideways; you have to have a clear up or down.

Some food for thought.:)

Lexi
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