Market Analysis Rules

Market Analysis Rules

 The Market Analysis rules category helps you identify when a particular market is likely to help you trade profitably because of its clearly defined trend. This provides a potential statistical edge because you can expect your tactics to be more productive. The other two categories contain rules for the way you identify how much money to allocate to a given trade and the tactics for timing your trade.

Market Analysis rules help you select what market to trade, whether it be a stock, an index, an option, a futures contract, a forex currency pair, a combination, or something more unusual. You want to trade in an asset or asset class that is clearly trending and has evidence that it will continue its trend.

The rules you use to help you identify what is going on in a given market should be carefully selected to help maximize your success using the probability profile you have selected. There are three basic rules in this category that you must fully articulate in your trading plan:

  1. The uptrend rule.
  2. The volatility rule. 
  3. The downtrend rule. 


You should discuss these three rules with your instructor and put completed versions of them in your trading plan. Each of these rules can be described in further detail.

Market Analysis Rule 1: The Uptrend Rule

A person must first decide which market (stocks, options, etc) they want to trade. It’s possible for one person to trade in several markets with different portions of their portfolio. Any asset with a strong trend, or an indication of the beginning of such a trend, is best to trade. Within each selected market the uptrend rule serves as a filter for identifying when you will apply bullish tactics. You’ll want to have a market analysis rule for upward trends that looks something like this:

Market Example

Trend Status


Large company stocks (S&P 500) 

Strongly Up – Above the 200-day Moving Average

Take trade signals from preferred systems.

Your available choices to fill out the parts of this rule are as follows (discuss with your coach if you want different choices):

Market Choices

Trend Status Choices

Action choices

  • Selected Stocks
  • Selected Options 
  • Other Assets (Futures, FX, etc)

Strongly Up

Mildly Up


Mildly Down

Strongly Down

Prepare to Enter (long)

Prepare to Enter (short)

Add to a Watch List



Market Analysis Rule 2: The Volatility Rule

Market Volatility is simply the price fluctuation you see in the market. The purpose of volatility rules is for you know what to do if the volatility changes or remains the same. The market  volatility analysis rule will look something like this:

Market Example

Volatility Status


SPX (Index)

ATR Trending Higher

Be conservative about trades (put fewer on and take smaller profits)

Your choices to fill out the parts of this rule are as follows:

Market Choices

Volatility Status Choices

Action choices

  • SPX
  • VIX
  • GVX
  • VXX
  • VXZ
  • Combo of the above

VIX Above 20

VIX Trending Higher

VIX Trending Lower

VIX Below 20

ATR trending higher

ATR trending lower

Good to Trade Aggressively
Good to Trade Conservatively

Do not trade


Market Analysis Rule 3: The Downtrend Rule

This rule specifies how you will protect yourself when your market enters a downward trend. The purpose of this rule is to give you the opportunity to alter your normal trading activity in the event of a downward trend. You may choose to sit out a downtrend and simply not trade, or you may choose to shift your tactics from bullish to bearish. 

Market Example

Event Status


Growth Stocks (Russell 2000) Tracked by IWM

IWM closes below the 200-day moving average

Trade only TZA or other bearish ETFs

Your choices to fill out the parts of this rule are as follows:

Market Choices

Market Filter

Action choices

  • Chosen Asset
  • Price moves below designated moving average
  • Volatility Indicator is on the rise
  • (Combination of the two)
  • Do not trade, stay in cash
  • Trade only bearish ETFs, options or futures based on that market
  • Enter short-sale trades in that market