The Wealth Factor
Stock Market Strategies, Segment 5
By Dr. Stephen Cooper

The Art of Observation III

"Great works are performed not by strength, but by perseverance."
~ Book of Reflections ~

Just two days ago, I received an e-mail from a student who had a trade go wrong. He was beyond distraught. The sky had figuratively clouded over and he saw all his hopes and dreams shatter like a living room window just assaulted by a homerun baseball. As I read the description of how and why he entered into the trades he did, I began counting the broken rules he had ignored but knew.

At no time in life are we allowed to move from the starting blocks to the finish line without traveling the distance between. This is certainly and quickly evident in the realm of trading.

Over the past few weeks you have been led through a line of thinking that is intended to take you from your starting block to the point at which you can and will achieve extraordinary results in the stock market. Today the journey continues with the next level of TTC understanding. Remember that we first looked at price trend as the beginning of your analysis of a stock, index, or commodity chart. Next we observed the short term price moves away from the larger and more established trend. As a reminder, take a look at the following chart.

As you can see, I have placed the arrows over points at which prices briefly moved against the established trend. The next level of observation involves prices moving back into the broad trend. When they do this, we have an opportunity to make money by following along the path of least resistance. One of the tools that work well for this job is a simple 7-day moving average. You see, we must have some way to quantify and define when prices have indeed returned to their former trend. To fail to have some measure for this would be to simply guess as to when the right time to go into the trade is. On the chart below, you’ll find the addition of a 7-day moving average of price as a red line.

We’ve switched from a down-trending chart to an up-trending one as you noticed. The red 7-day moving average line helps us to quantify the short-term price movement quirks as compared to the overall trend on the chart. On the next chart, I’ll add arrows at the trade entry points. These arrows will be placed where price has closed above the 7-day moving average after prices had moved away from the broad trend. This chart has also been magnified so you can more clearly see the exact entry point.

Because we were patient in observing what the chart had to show us, we were richly rewarded by entering the trade at the correct time. Here is what we looked for:

  1. The overall trend.
  2. Short-term price movement away from the trend.
  3. A return in price to the original trend.

Are you beginning to see how simple this all really is? It becomes hard only as you make it that way.

Shakespeare must have been thinking of stock charts when he wrote, “There’s nothing either good or bad but thinking makes it so.”

Dr. Stephen Cooper is the Director of, a training and support web site for both beginning and advanced traders .Over the past four years, Dr. Stephen Cooper has been the primary stock market trainer for Mark Victor Hansen and Robert Allen’s Enlightened Millionaire Institute. He has now taught thousands of students his proven trading strategies. He is the author of The Online Option Trader, Windows to Wealth, and The Truth About Money. He has also authored 10interactive chart analysis tutorial CDs and contributed to several newsletters and publications.