StockCharts Insider: 10 Laws Every Chartist Should Know
Before We Dive In…
Markets change. Principles don’t. More specifically, the way we deal with markets evolves, but the factors driving markets remain consistent. Famed technical analyst John Murphy distills these factors into 10 Laws. These are timeless lessons that cut through the market noise and reveal how price, trend, and volume behave. In this series, I’ll unpack each Law, show how it still applies today, and share a few Insider Tips to optimize your approach to each principle.
Back to Basics
Every trader has a preferred setup, indicator set, and charting approach. But beneath every method and market strategy lies something much simpler, older, and more powerful: the technical factors that make all of these setups, indicators, and techniques work.
Before algos, AI models, and all-in-one dashboards, there were the basic principles upon which many of these things were built. John Murphy outlines them in his Ten Laws of Technical Trading. These “rules of thumb” are like a trader’s constitution: they’ve survived countless market cycles—from every overhyped boom to every consequential crash.
And here’s the thing: they still work. So, if you aren’t acquainted with them yet, let’s get started.
Why These Laws Still Matter
At the core of it all is human behavior. Technological innovations in the financial markets may have improved the speed, data, and democratization of financial information, but the human response to markets in general hasn’t changed all that much. You still see fear, greed, FOMO, and hesitation shaping the markets. The same fingerprints of smart and dumb money that Charles Dow and subsequent analysts saw over a hundred years ago can still be seen today.
Murphy’s 10 Laws show you how to read those fingerprints. They’ll show you how to see structure when others see chaos; how to recognize the undercurrents of price and volume driving the markets; and how to gauge the health of a trend and forecast its potential trajectory, among other things.
The 10 Laws at a Glance
- Map the Trends.
Always see the big picture. Daily charts may show you where you stand in the immediate vicinity of market action, but only weekly and monthly charts can reveal the wider terrain.
- Spot the Trend and Go With It.
Whether you’re trading with or against the trend, it’s critical to distinguish the trends in different timeframes and to decide which one best aligns with your goals.
- Find the Low and High of It.
Not only do support and resistance act as the market’s memory, but they also present one of the most effective trade signals. Additionally, support can turn into resistance and vice versa.
- Know How Far to Backtrack.
Retracements are a natural feature in every trending market. Moreover, they also present effective buying and selling opportunities. Learn how to measure them, and you may find the most opportune moment to get in, get out, or step aside.
- Draw the Line.
Simple yet effective, trendlines provide clarity in almost every charting context. But it’s important to know how to draw them properly and how to read price’s behavior around this basic measure.
- Follow that Average.
Moving averages are the basis of many other indicators. They also have multiple uses and meanings. Knowing which one to use and when can help you better read the markets while avoiding misinterpretations and fake outs.
- Learn the Turns.
Tools like the Relative Strength Index (RSI) or the Stochastic Oscillator can give you early warnings. They tell you when momentum is waning long before price does. However, they can also signal strength in an overbought market or weakness in an oversold market. Knowing how to distinguish one reading from another is key to staying on the right side of the market.
- Know the Warning Signs.
The MACD is part trend and part momentum indicator. Know how to read its crossovers and histogram. In many situations, you wouldn’t want to ignore its signals.
- Trend or Not a Trend
Every trader wants to be on the right side of a move. But even sideways markets present opportunities. The trick is spotting the difference, which can save, or even boost, your account.. That’s where the Average Directional Movement Index (ADX) line comes in.
- Know the Confirming Signs.
Volume is the market’s truth serum. Price moves mean little if money flow isn’t driving them. Volume indicators can help you estimate whether a price move has plenty of fuel or is running on fumes.
“11.” Keep At It (the unofficial Law #11)
The market never stops teaching. And if you’re not attuned to this, the market can become a harsh teacher. You have to keep showing up as a student. You see, the market isn’t the only risk-giver in the equation. You, too, can be your own risk factor if you’re not careful.
Insider Tip
Murphy’s Laws are like chess openings. They’re not things you just memorize; you have to practice them until they become instinct.
Essentially, you have to know the variables and variations that make them adaptive to the market you are trading. And as there are many indicators and strategies built upon them, you’ll have to find the ones that resonate best with your own approach and risk tolerance. This can only come through practice.
And That’s a Wrap
Over the next several weeks, we’ll deep dive into each of Murphy’s Laws. One article per law. We’ll break them down into practical lessons, real chart setups, and exclusive Insider Tips.
So, this isn’t just a recap of basics; it’s about rediscovering timeless rules that can help you navigate today’s markets. The end goal of this series is to help you chart with more confidence and to reduce blind spots that can lead you astray.
