By Vincent Troncone of www.pennies-from-heaven.us

Back in 2000, I was in the middle of a wheat trade. At the time, I was short using a daily chart. While trading that day, I discovered what I call The 1 Point Rule. Initially, when I became aware of it, I just thought it was a fluke. I figured it was a temporary effect in the wheat market and never gave it a second thought.

Recently, I re-discovered this little gold nugget, and you will too in The 1 Point Rule. This secret is simple, yet very powerful.

In many areas of life, we have been conditioned to believe it must be complicated because, if it were simple, everyone would either know about it or be doing it.

This type of thinking is precisely what keeps us from discovering the knowledge we seek.

The Discovery

When I have seen a market break the current high or low on a daily chart of the previous day by one point or more, the trend in that market typically continues or closes in the direction of the price break for the session / price bar.

Provided it wasn’t a reversal day / bar.

I have observed that this rule works best using daily, weekly and monthly charts. Although, occasionally, I have seen this phenomenon occur at 1 point or less in these time frames, it is the exception, not the rule.

I only use The 1 Point Rule (1 point or better) in the time frames given previously in this article simply because it occurs most often in these time frames and works consistently, over and over again.

Simply put, I stick with the odds instead of trying to trade the exception to the rule. Remember that we are trying to trade when the odds are most favorable. Any little insight we can gain may be the difference between winning and losing.

The Basic Concept

Look at the current price bar in comparison to the previous price bar in the time frame you are trading to see if the current price bar has broken above or below the high or low of the previous price bar by one point or better.

If so, the trend for that price bar will typically continue or close in the direction of the price break, provided it is not a reversal day / bar.

I am not making a claim that this will happen every single time in every time frame 100 percent of the time. As I stated earlier, there are exceptions to the rule.

It’s just something I have noticed that occurs quite often.

On that note, let us take a look at a daily wheat chart to see what this entails from a bullish perspective.

Chart Figure 1

Now take a look at Chart Figure 2, which presents The 1 Point Rule from a bearish perspective.

Chart Figure 2

Try it for yourself, and happy trading.

*Reprinted (and modified) with permission from Vincent Troncone. Info@pennies-from-heaven.us www.pennies-from-heaven.us. Futures and options trading involve high risk, and you can lose a lot of money. When investing in futures, you may lose more than your original investment. When purchasing options, you may lose all of the money you invested. According to many experts, most individual investors who trade commodity futures or options lose money. There is a substantial risk of loss in trading futures and options. Do not risk money you cannot afford to lose. Past results are not necessarily indicative of future results. There is no guarantee that The 1 Point Rule will generate profits for the reader. All charts are provided by FutureSource.com, a division of eSignal.