99% Noise

• August 4, 2000
• Eddie Kwong

One of these days, if I ever have to rename this
column, I’ll probably call it “Trading Confluence” because this is
probably the most commonly recurring theme in how I view the markets.

The market throws a lot information at traders. 99% of it is noise. 1% is
useful formation. 

If you pay attention to what’s important, you’ll be able to find setups in which
several technical factors are all saying the same thing. 

Today’s Chart of the Day is yet another interesting confirmation of how effectively
the approach of looking for multiple factors to line up in a trading setup
works. 

Gemstar
(
GMST |
Quote |
Chart |
News |
PowerRating) had three things going against it when it tried to
move higher off a gap-up opening:

• The top of a trend channel.

• Its 200-day moving average.

• Its 61.8% Fibonnacci retracement off the May
  26, 2000 low and the July 17, 2000 high.

From the confluence of these factors, GMST drifted downward over
the hours the followed. 

Most successful traders I’ve talked to look for confluence in
their trading setups. If you want to improve as a trader, I urge you to learn as
much as you can about the markets rather than looking for some Holy Grail
system. It is only through understanding the markets that you will be able to
make the best use of the patterns and indicators that intertwine to form these
setups.

Have great weekend,

Eddie