Eat, Sleep, Trade
Technical Analysis Through Charts
Stock Market Trading Lessons
What you can expect to learn about:
Technical Analysis, Charting, Risk Management, Positing Sizing, Market Trend, Trend Lines, Support, Resistance, Idicators, and Scanners
Lesson One: Position Size & Risk Management
Position Size and Risk Management are the two most important of our trading rules. We MUST adhere to these rules at all times. These two rules will save new traders.
The first question a new trader usually asks is "how much money do I need to start trading"? Unfortunately there is no direct answer to this question and the amount of capital required will be different based off each trade idea. The first step in calculating capital requirements starts with establishing an understanding of what it cost to make a trade, this should include cost of commissions charged by your broker as well as any fees that may apply. Once we've established what it's going to cost to place a trade we can start to look at risk and reward to determine how much capital we will need for our trade idea. We must never risk more than 2% of our total capital on a single trade.
With the cost of trading in mind, we can start to figure out what size of a position we will need. We need a large enough position to cover the cost of commissions when we hit our target and small enough that we aren't risking more than 2% capital if we hit our stop loss. One winning trade can make up for many losing trades, but only if your using proper Risk Management. I can not stress this enough!
Lesson Two: Identifying Market Trend & Drawing Trend Lines
It is extremely important to be trading with the Market Trend. Every trader that goes up against the market is at a disadvantage and we need to put the odds in our favor as much as possible. You shouldn't need to force a trade or feel stressed during a trade not knowing which way the market will most likely continue.
There are two different types of Trends. First we have an Uptrend, This is produced when a stock continually puts in higher highs as well as higher lows. The second Trend which is just the opposite and is known as a Downtrend. Downtrends are formed when a stocks price puts in lower highs and lower lows.
Trends can be identified not only through a specified ticker symbol but also when looking at an index as a whole. A stock market index is a measurement of the value of a large section of the stock market. Examples are S&P 500 INX or the Dow Jones Industrial DJIA. When an index is trending up it shows that the stocks in that index are performing well. This video will help you learn to Identify Market Trend and explain how to draw Trend Lines and properly use them with your trading.
Lesson Three: Support & Resistance
Support and Resistance are pretty basic ideas that I believe people over complicate. Support is the price range at which buyers tend to step in and prevent a stocks price from going any lower. Resistance is just the opposite, a price range at which sellers step in and prevent a stocks price from going higher. Notice I use the term "RANGE".
The biggest mistake new traders make when trying to identify Support and Resistance is not understanding that there is a price range. Support and Resistance will never be perfect, and playing them to the exact penny will only lead you into a loss. Just because you identify Resistance at $4.00 you are not guaranteed a breakout or a break of Resistance because a buy is printed at $4.01. Nothing in trading is guaranteed and Support and Resistance are no exceptions.
Support and Resistance are the keys to finding break out stocks. Once a major Support or Resistance area is broken it shows significant strength in that direction. This can be applied for a stock that is going either up or down. These break outs can be used to find entry points, set a stop loss, or confirm momentum in a trade your already in.
Lesson Four: Indicators
There are 100's of Indicators that you can use to assist you while Analyzing a Chart. The Indicators that you use will greatly depend on your trading style. In this Lesson video we cover a few Indicators that you can use.
Volume is the most common Indicator used and the only Indicator I believe is a must have. Volume is everything in trading. It lets us know there is liquidity, allowing us to easily purchase and sell a stock. Without Volume there is no price action and a stocks price will have minimal range.
Relative Strength Index or RSI is another great tool that allows traders to see when a specific stock is overbought or oversold. You don't want to be buying an overbought stock in hopes that it will go up.
MACD or Moving Average Convergence Divergence, VWAP or Volume Weighted Average Price, and Simple Moving Averages can also be good tools to identify a stocks trend. The most common Moving Averages are 20 period, 50 period, and 200 period. If you are looking at a daily chart then a 50 period Simple Moving Average will give you the average price of the last 50 days.
While there are many great Indicators, you should never solely rely on one single Indicator to make a trade decision. I recommend trying many different Indicators and finding the one(s) that work best for you.
Lesson Five: How to Scan for Swing Trade Setups
There are thousands of Stocks to choose from and there isn't enough time to search through all of them. So we use a Scanner or Screen-er to narrow down the selection of stocks and only show us ones that meet our specific criteria.
Finviz.com is a free website that allows you to select endless parameters and find the stocks you want to trade. You don't want to trade every single uptrend or every single chart pattern setup. Trade the best looking setups that fit your strict criteria. For example you can choose to only see stocks that are trading at least 100 thousand shares in daily volume or stocks that are priced under $20.00 if you have a smaller trading account.
We also show you how to check which sectors are performing well. Trading stocks that are in a strong performing sector greatly increases your odds of being right. As mentioned before we need to stack the odds as much as possible in our favor.
This video shows you step by step how to use Finviz.com to perform a simple yet effective scan that can produce a lot of quality plays.
Introduction to Technical Chart Analysis
This video covers the basics behind Technical Analysis. We discuss the difference between Technical Analysis and how it differs from Fundamental Analysis.
In Technical Analysis we use candlesticks which represent a stocks price action over a specific time period. The candlestick illustrates four things. First it shows us what the price was when the candle opened, for example if we are looking at a daily chart than this price would represent what the stocks PPS (price per share) was at market open. As the candlestick develops it begins to form what are known as the shadows. These shadows represent the highest and lowest price our stock has gone in our allotted time period. And finally the candle is finished after we put in a closing price to complete the body. the body represents our opening and closing price of our stock. Reading candlesticks can seem confusing and very overwhelming for a new trader. In this video We take a look at how to draw candlesticks, how they are formed, how to read them, and how to read a stock chart. we also talk about several websites where you can look at Technical Stock Charts for FREE!
Lesson Video: Finding the Proper Entry to Eliminate Emotional Trading.
Getting the Proper Entry is a major part of becoming a successful trader. Buying a stock is just as important as selling one and if you're not buying at the proper time your adding on stress and decreasing your chances of success. Always remember to use Limit Order when buying shares, this will guarantee your purchase price. "Market orders are for suckers, and market makers take advantage of suckers every chance they get."
Big loss's can lead to emotional trading, which in term can lead to vengeful trading and larger loss's that can become very difficult to recover from. There is nothing more stressful and emotional in trading then staring a large loss in the face. With the proper entry that offers you a good risk vs reward ratio you can minimize your risk and stress, while allowing the best possible reward.
You should never risk more than 2% of your total capital on any single trade as discussed in or Risk Management video. Following these two simple rules will allow you to define your Risk as a trader and allow you to remove the emotional stress that trading can force on to you.
Lesson Video: Locking Profits on Breakout Days
Locking in profits is extremely important in terms of success. It is especially important on breakout days. Often times after a stock breaks out or makes a move that is much larger than its average range, it is set up to make a large pullback or sell off. Not locking in profits on breakout days can leave you in a bad position. Nothing is more painful then watching your profits diminish as a stock continues lower and breaks support after support.
Breaking down charts into intra day time frames such as 15 minute or 5 minute will you give you a more clear picture of the days price action. This will allow you to spot the support and resistance areas you need to watch to keep up on the price action.
One of the most devastating things as a trader is watching your profits turn for a loss. The sense of gratitude and excitement that is felt after a large breakout can often blind a trader to whats actually happening and cause them to hold through a sell off. In this video we go over breaking down charts to find those support areas so you can determine when its time to lock profits!
Lesson Video: Misconceptions of the Reverse Split
A Reverse Split is as defined by Investopedia.com "A corporate action in which a company reduces the total number of its outstanding shares." At first glance Reverse Splits are commonly presumed as something positive. The amount of outstanding shares is reduced and there for the Price Per Share will go up. But what most traders don't understand is that the shares they own will also be split.
While there is opportunity in stocks that are Reverse Splitting, often times it is short lived and the stock price will eventually return back to pre split pricing. I recommend staying away from stocks that Reverse Split for the exact reason I go over in this video.
Often after a Reverse Split a company will begin to "dilute" the market. During this process the company will "print" shares and sell them to the public at its new and higher trading price. In turn the company can raise money to fund their business so they don't go bankrupt. Reverse Splits are also commonly used to prevent companies from de-listing. Nine out of ten times a stock that initiates a Reverse Split will return to pre split pricing.
Lesson Video: $RXII Short Play & $GERN Short Setup.
We had a great Short on $RXII off an early morning Parabolic move from Friday (3-13-15) that was unwarranted and unsustainable. These type of moves are a prime candidate for getting short. I don't typically hold these types of shorts over night as the risk weighs to great.
We got Short at $1.42 after identifying where Momentum was running out, and a new high of day Breakout was rejected. This observation gave us a great entry point and allowed us to place our risk at the high of day. The trade immediately went in our favor and created a stress free profitable trade.
These Stocks that run up crazy for no reason at all, are perfect candidates for Shorting. $GERN is another example just like $RXII that is setting up for a great Short opportunity. In the video above we go over our $RXII trade and what we want to see next week for a chance to Short $GERN. We also take a look at Finviz.com homepage where we can find these large parabolic moves. It's only a matter of time before these large moves that are unwarranted and have no catalyst come crashing back down.