Guest Post: What’s in a number? DOW hits 13,000 but does it matter as much as we think?

This is a guest post on trading from Tusk Trader (check out the newly launched site: www.TuskFund.com), an experienced Bay Street trader who will be writing here until Tusk’s own blog is set up. Tusk had a front row seat to the twists, turns, and almost collapse of our capital market systems a few years ago and provides a unique perspective you won’t find anywhere else. For most people, financial literacy is the elephant in the room. Let Tusk Trader help change that. If you are on twitter, make sure to follow Tusk at @TuskTrader

The DOW has been crossing back and forth, above and below, 13,000 for a week. It finally closed the day above 13,000 on Tuesday. The loonie is jumping around parity with the US dollar. Crude got a big push after charging though $100 recently.

These nice round numbers are interesting to keep track of, but don’t confuse psychological trading levels with technical ones. Technical analysis is not about round numbers. It involves chart levels that are caused by previous trading history. Psychological levels are more of a mind game. Those levels mentioned above will cause a few headlines in mainstream media but affect very little the day-to-day trading. Every so often, a technical level will happen at a nice round number, but not usually. The only element that nice round numbers can bring to trading is that they often have large volume in the trading book at those levels. Orders that are placed in the trading book for a lengthier time than a day are often put at a nice round number. Stocks will sometimes pause at those places as it takes a little bit more volume to get through.

If you are going to follow a few technicals, ignore those nice round numbers and focus on some basics. Here are a couple of big ones that can be quickly looked at on everything from the DOW, to Oil, to a specific equity:

• The 50-day/200-day cross: When the 50-day moving average crosses the 200-day moving average. If the 50-day falls DOWN through the 200 day, it is bearish. If the 50-day crosses UP through the 200 day, it is bullish.
• 52-week highs and 52-week lows: Very general support and resistance levels to watch out for. These are just the highest and lowest points a stock, commodity or index hits within the last year. They are simple, but critical. If a spot holds, it’s becomes stronger and more important the next time the stock gets to that level. When it does break, the move and momentum is exacerbated in that direction.

Keep your eye out for critical spots, not just round numbers.

Thanks Tusk. Make sure to check out the site: www.TuskFund.com or follow Tusk Trader on twitter: @tusktrader