New Book

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The New Age of Technical Analysis
Brandon Rosewag
© Brandon Rosewag
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[email protected]
Published in 2022
Copyright © Brandon Rosewag 2021
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any
form or by any means without the prior written permission of the publisher, nor be otherwise circulated in any form
of binding or cover other than that in which it is published and without a similar condition being imposed on the
subsequent purchaser.
Rosewag, Brandon
The New Age of Technical Analysis
Cover design by Jake Chambers
Copyrighted with the Library of Congress
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TABLE OF CONTENTS
DISCLAIMER ............................................................................................................................... 5
Acknowledgments ..................................................................................................................... 6
Introduction ............................................................................................................................... 7
Chapter 1: Options Trading........................................................................................................ 9
Chapter 2: The Greeks ............................................................................................................. 12
Chapter 3: Candlesticks ........................................................................................................... 20
Chapter 4: Understanding Stock Trend ................................................................................... 34
Chapter 5: Support and Resistance ......................................................................................... 46
Chapter 6: Fibonacci Extensions & Retracement .................................................................... 81
Chapter 7: Trendlines ............................................................................................................ 107
Chapter 8: Exponential Moving Averages ............................................................................. 118
Chapter 9: Simple Moving Averages ...................................................................................... 182
Chapter 10: Combining All Moving Averages to Trade ......................................................... 201
Chapter 11: Stochastics ......................................................................................................... 209
Chapter 12: TTM Squeeze ...................................................................................................... 225
Chapter 13: On Balance Volume ............................................................................................ 258
Chapter 14: Chart Patterns .................................................................................................... 267
Chapter 15: Swing Trading ..................................................................................................... 347
Chapter 16: Day Trading ........................................................................................................ 412
Chapter 17: Futures ............................................................................................................... 456
Chapter 18: Risk Management .............................................................................................. 462
Chapter 19: Emotional Trading .............................................................................................. 464
Chapter 20: Winning Mindset................................................................................................ 466
Chapter 21: Outside Resources ............................................................................................. 468
Chapter 22: Use Short-Term Gains to Generate Long-Term Wealth .................................... 480
Conclusion.............................................................................................................................. 482
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DISCLAIMER
I am not a certified financial advisor. Everything I say is based on my opinion and experience and is not
to be taken as advice or suggestion for you to act upon. Please do your own due diligence before utilizing
anything discussed in this book. Trading options is a risky form of investment and not suitable for
everyone. It is possible for you to lose all your money and/or your personal investment. Please consult
with your certified financial advisor before investing in options. I, Brandon Rosewag/Brandon Trades, am
not responsible for any loss of funds. Any ideas or strategies discussed herein should not be undertaken
by any individual without prior consultation with a financial professional for the purpose of assessing
whether the ideas or strategies that are discussed are suitable to you based on your own personal financial
objectives, needs, and risk tolerance. Brandon Trades expressly disclaims any liability or loss incurred by
any person who acts on the information, ideas, or strategies discussed herein. The information contained
herein is not and shall not constitute an offer to sell, a solicitation of any offer to buy, or an offer to
purchase any securities, nor should it be deemed to be an offer, or a solicitation of an offer, to purchase or
sell any investment product or service Although material contained in this book was prepared based on
information from public and private sources that Brandon Trades believes to be reliable, no
representation, warranty, or undertaking, stated or implied, is given as to the accuracy of the information
contained herein, or that it indicates future results. Brandon Trades expressly disclaims any liability for
the accuracy and completeness of the information contained herein. This material is distributed for
general information and educational purposes only and is not intended to constitute legal, tax, accounting,
or investment advice. The information, opinions, and views contained herein have not been tailored to the
investment objectives of any one individual, are current only as of the date hereof, and may be subject to
change at any time without prior notice. Brandon Trades does not have any obligation to provide revised
opinions in the event of changed circumstances. All investment strategies involve the risk of loss. Nothing
contained in this book should be construed as investment advice. Any reference to an investment’s past or
potential performance is not, and should not be construed as, a recommendation or guarantee of any
specific outcome or profit.
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Acknowledgments
To my fiancé and soon-to-be wife, Madison, who kept my head on right and helped me through the
struggles of being a trader, without you, I would not be where I am today, and I cannot thank you enough
for everything you have done. To my mom, dad, and sister Carlie, thank you for all the support over these
years through the transition from wanting to be a police officer to an options trader, entrepreneur, and
author. Without your endless support, I do not know where I would be. Finally, a special shoutout to my
family at Team Bull Trading—Jacob, Geno, Jared, Nate, Noah, and Uncle. Without you guys, I would
have never grown into the trader I am today. You are the ones that helped me take my trading to the next
level, and words cannot express the gratitude I have for you and everyone in Team Bull Trading. With
that being said, I now present you with The New Age of Technical Analysis.
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Introduction
Hello everyone, my name is Brandon Rosewag, also known as Brandon Trades, and I have been trading
the Stock Market since 2017. I began trading as an escape from the career path I was pursuing, which was
criminal justice. I knew from the very beginning that criminal justice was not for me, but I had nothing
else going for me in life. I graduated high school with a 1.85 GPA and did not see a bright future for
myself. The only thing I could see myself doing was becoming a police officer. But in that field, you must
work holidays, overtime, anniversaries, birthdays, etc. One day, I stumbled upon a trader on YouTube
giving a recap on how he made over $2,000 in a single day trading options, and that immediately caught
my attention. As I started looking more into the stock market and options trading, I discovered that this
genuinely interested me, and it was a skill that I wanted to learn. Before I knew it, I was obsessed with the
stock market, and I wanted to see what I could make of it. For me, it was either becoming a successful
trader or going into law enforcement. Because you are now reading this book, I am sure that you know
which path I ended up pursuing. I have made many mistakes while trading and have learned from them,
which was the best teacher of all. I have had amazing trades, and I have had terrible trades; however, I
still became a profitable trader at the end of the day due to motivation and the fact that I had to make it
my career unless I wanted to work a job that I would have hated. I have spent countless hours reading
trading textbooks, watching endless trading content via YouTube, hiring mentors, and spending years of
trial and error to acquire the information I have now that has led me to my success in trading. Now I do
my best to educate others on how to successfully trade in the stock market. I post daily videos on my
YouTube channel: BrandonTrades, and mentor individuals who are looking for extra help.
In this book, I will be sharing a new generation of technical analysis and walking you through how to
become the successful trader you want to be. I have written one other book titled Profitability, Technical
Trading Done Right. In that book, I discussed exponential moving averages, chart patterns, Calls vs. Puts,
the Greeks, and Fibonacci. That book will be the equivalent of a fraction of what I will be writing about in
this book which is why it is no longer for sale. Not only will that information be included within this book
in updated content, but I will also be diving deeper into those contents and helping you build a strong
foundation and understanding of the overall markets and how to profit from them. If you have any
questions while reading this book, feel free to message me on Instagram, and I will gladly assist you. My
Instagram account handle is @Carwhorns; be aware; that there are fake accounts that pretend to be me on
social media. If it is not the account just named, it is NOT me.
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I want to give a special thank you to John Carter for allowing me to discuss the TTM Squeeze in this
book. The TTM Squeeze is by far my favorite trading indicator, and I am thrilled to have the opportunity
to have an entire chapter about it in this book. John has authored a book called Mastering the Trade,
which all traders should read, as it is one of my favorites and lays a solid foundation for any trader. I
would also like to thank John Person for allowing me to discuss the Persons Pivots in this book. The
Persons Pivots have changed the way I trade forever, and I am glad I came across his work. If the Persons
Pivots chapter interests you, I highly suggest checking out his book, Candlestick and Pivot Point Trading
Triggers.
I hope this book serves you well and helps you develop into a profitable trader in the future.
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Chapter 1: Options Trading
The majority of this book will be geared toward options trading. Options trading is what I prefer to
engage in as a trader; however, you can apply all the technical analysis taught throughout this book in
many markets, such as the foreign exchange market, bond market, or cryptocurrency market.
In options trading, you are making a bet with another market participant. You are essentially saying that
the underlying asset will increase in price or decrease in price. If you say that the stock will go up in
price, this would be considered a “Call”. On the flip side, if you say that the stock will go down in price,
that would be considered a “Put”. Yes, believe it or not, you can profit from a stock going up in price or
down in price. The Calls and Puts have expiration dates that usually fall on each Friday throughout the
month unless that Friday is a holiday, in which case they will expire on Thursday. Or, if you are trading a
heavily traded ETF like the $SPY or $QQQ, the contracts expire Monday, Wednesday, and Friday. Each
contract has a predetermined strike price, which is where you are saying the stock price will be by
expiration. You then pay the premium for the contract (this varies depending on the stock and is
determined by the market makers) to lock in your bet.
For example, I am betting that $AAPL is going up to $145 a share by August 20, 2021, and I am willing
to pay $160 to lock in my bet. The strike price is $145, which is where I am saying $AAPL stock price
will be by the expiration date of August 20, 2021. I am also saying that $AAPL stock price is going up,
initiating a Call. The price per contract would be $160 since that is what I paid ($AAPL $145 Call
Expiration: 08/20/2021 price: $160). On the flip side, if I believed $MSFT would drop to $220 a share by
July 23, 2021, I would be willing to pay $130 to lock in my bet. The strike price would be $220, and the
expiration would be July 23, 2021. I purchased a Put since I believe the stock price will drop, and the cost
per contract was $130 ($MSFT $220 Put, Expiration: 07/23/2021, price: $130).
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Chart A.1 - Chart by ThinkorSwim
Chart A.1 is an example of how an option chain will look on ThinkorSwim. Each platform will look
different; however, the concept is the same. Each expiration is listed within the option chain, and the
trader gets to choose an expiration date for the contracts.
Chart A.2 - Chart by ThinkorSwim
In Chart A.2, the left side of the option chain is for Calls, and the right side of the option chain is for Puts.
Keep in mind that some brokers might be different regarding which side the Calls or Puts are on, but they
should be easily labeled for the trader on each platform. The middle numbers are the strike prices for the
stock. For example, $114, $115, $116, etc. As you can see, there are predetermined expiration dates.
Again, each expiration falls on a Friday. Each contract already has a set amount you need to pay to get
into that trade, also known as the premium, again determined by market makers. Once you pay the
premium for the contract, the trade is now active. The most money you can lose is what you purchased
the contract for, but your reward is unlimited. Sounds great, doesn’t it? Not so fast. There is still much
more to learn.
Looking at $AMD in Chart A.2, theoretically, if we are betting that $AMD will be at or above $115 (Call)
by March 25th, 2022, we would have to pay $245 to place our bet. On the other hand, someone is selling
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you this Call. It is sad to say, but one of you will make money, and one of you will lose money. The goal
of this book is to make sure that you are the winner in most scenarios.
It is essential to understand the basics of options trading before diving into the subject deeper. Many
technical analysis books discuss equity trading, but do not dive into much detail on options. While in the
equity world, they buy long or sell short, in options, we buy Calls for upside moves and buy Puts for
downside moves. The only difference is that to make a hefty profit in the equity market, you need to have
a substantial size to make good money. But with options, the contracts are cheaper, and you can generate
a much larger return on your investment. Do not get that confused because you can also quickly lose a lot
of money with options. With equity, you do not have to say where a stock will go by a specific date, but
in the options world, you must select a Call or a Put, a strike price, and an expiration date. Now that you
understand what options are, let me explain how you will profit when you are on the right side of the
market.
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Chapter 2: The Greeks
The Greeks are one of the most crucial elements that you must pay attention to when options trading.
Later in the book, I will be showing you a swing trading strategy that heavily relies on the Greeks. There
are four Greeks that I will be discussing. The Greeks that appear in options trading are Delta, Gamma,
Theta, and Vega. I will also discuss other important options trading elements, such as Volume, Open
Interest, and Implied Volatility.
Delta: This is how much the contract will increase in price based on a $1 move in the underlying asset.
For example, if $AAPL stock price is sitting at $100, and we buy a $105 Call and pay a $150 premium,
we will know before we even enter the trade how much $AAPL needs to increase for us to make a
substantial profit. Every single contract will tell you the Delta price before entering. For this example, the
Delta is .20 (multiplied by 100), meaning we will make an additional $20 for every $1 $AAPL stock price
increases.
Scenario: You purchased the $105 Call for $AAPL for $150 a contract. There is a Delta of $20, and the
price of $AAPL stock is $100 a share.
If $AAPL stock goes up to $101 a share, the contract will now be worth $170. If the stock price increases
to $102 a share, the contract would now be worth $190. If the stock price goes up to $103 a share, the
contract will now be worth $210. Based on a $3 move in $AAPL stock price, the contract increased by
$60.
Chart B.1 - Chart by ThinkorSwim
Looking at Chart B.1 of the $PYPL option chain, looking at the Calls on the left, theoretically, if I were to
buy the $120 Call expiring on March 25th, 2022, I would need to spend roughly $254 a contract to enter
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the trade. The Delta value is .42. If $PYPL is currently at $118.77 a share, and the stock price increases
+$1 to $119.77, the $120 Call will increase by $42, making the contract worth $296. If $PYPL stock
price increases another dollar, the contract will roughly increase by another $42, making the contract now
worth $338. Notice how I said “roughly”. That is because Gamma plays a vital role in contract pricing.
Remember, for every dollar the stock goes in your favor, the contract will increase by the Delta.
Eventually, the Delta will max out at .99 and will not go any higher.
Gamma: This is how much will be added to the Delta for every dollar the stock price moves in your
favor. Look at the previous picture; you can see how each Delta value is different within the option chain.
This is due to Gamma being added or subtracted from each Delta’s value.
As seen in Chart B.2 above, looking at $TAP for a contract that expires in 25 days, the $55 Call would
cost $90. The Delta value is .33, and the Gamma value is .08. $TAP stock price is currently $52.96 a
share. If $TAP stock price increased by $1 to $53.96, the trader would make the original Delta on the
contract; however, the next $1 $TAP increases, the trader will profit from the Gamma + Delta. The
Gamma value will be added to the Delta value for each dollar the stock price moves in your favor.
Therefore, the first +$1 move, the trader would have made $33, but on the next +$1 move, the trader
would make $41 per contract.
To make this visually easier, here is the example laid out.
Stock: $TAP $55 Call, Price Per Contract $90, Delta = $33, Gamma =$8
$TAP Stock Price: $52.96
$TAP Increases to $53.96: You profit $33 (the original Delta)
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$TAP increases to $54.96: You profit an extra $41 (Delta + Gamma)
$TAP increases to $55.96: You profit an extra $49 (new Delta + Gamma)
In total, the contract increased by $123, making the contract worth $213, and returning the trader, a
+136.67% return on their investment. Now I know the Delta and Gamma portion of the Greeks has you
excited, but contracts decay in value leading up to expiration. That is why paying attention to Theta is
important for traders.
Theta: This refers to the amount in which the option contract will depreciate each day. The further
expiration you choose, the lower the Theta will be; however, the closer the expiration gets, the higher the
Theta will become.
Looking at Chart B.3 above of the $FB option chain, these contracts expire in twelve days. Focus your
attention on the $220 Call. To get into this trade, you would need to pay $455 a contract; however, look at
the Theta value of –.25. This means the contract will depreciate $25 each day if you continue to hold, and
the Theta value will only get higher the closer the expiration comes. If you were to buy this contract on a
Friday, you would have Theta depreciation on Saturday and Sunday. In short, when the market opens on
Monday, you will automatically lose $50 on that contract due to Theta. All contracts have Theta, which is
one of the major downsides of options trading.
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Chart B.4 above is another example of Theta, but this time on $TSLA, with a contract that expires the
same week. Looking at the Theta on the $920 Call, the Theta is -2.41 ($241) when the contract itself costs
$1,850-$1,950. Essentially if you were to buy this Call on a Monday and swing it for two days, you
would roughly lose $482 unless $TSLA goes up in price, which will limit the losses. Due to the Theta
when swing trading, it is important to give yourself more time. Remember, the further dated the
expiration, the lower the Theta (This concept will be discussed further in-depth in the “Swing Trading”
chapter).
Vega: Vega measures the option's price sensitivity to Implied Volatility. Vega is shown as a number in an
options contract and represents how much the contract will increase or decrease based on a 1% move in
the option's Implied Volatility. Before I dive deeper into Vega, what is Implied Volatility? Implied
Volatility is the market's expectations of what will happen to the stock price in the future. When
expectations rise, so will the Implied Volatility. When expectations drop, so will the Implied Volatility.
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Looking at Chart B.5 above, the option chain on $CVS for a contract that expires in 25 days is seen.
Looking at the $110 Call, one would need to spend $135 to enter this trade. Looking at the Implied
Volatility measurement, the market is not expecting any big moves in $CVS as it is giving an Implied
Volatility of 21.10%. This is a low amount of Implied Volatility. Remember, the higher the Implied
Volatility, the higher the expectations, which results in higher priced premiums. Looking at the Vega, it
shows .10. This tells the trader that if the Implied Volatility goes up +1% to 22.10%, the contract will
increase by $10; if the Implied Volatility goes up to 30.10%, the contract will increase by $90. However,
if the Implied Volatility were to drop down to 15.10%, the contract would lose $60 in value. When swing
trading, I try to avoid contracts with high Implied Volatility. The reason is, if the stock price drops, I will
lose the Delta; however, if the Implied Volatility drops with it, I will lose the Delta and the Vega.
Chart B.6 is another example of Implied Volatility. An increase in Implied Volatility also occurs once
earnings reports get closer. Above is a screenshot of $NVDA with the Implied Volatility measurement
just three days before their earnings release. Looking at the $245 Call expiring the same week, you would
need to spend $1,040 per contract with an Implied Volatility measurement of 118.01%. What happens
once earnings are released is that the Implied Volatility will drop. There are higher expectations going
into the earnings event, which increases the premiums on the contracts due to high Implied Volatility,
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then finally, when earnings are released, there are no longer high expectations. As a result, the Implied
Volatility will drop regardless of a big move or not, and the contracts will lose a good portion of their
value simply due to the Implied Volatility decreasing.
Higher Implied Volatility levels always result in higher-priced options premiums. It is important to know
the level of Implied Volatility before entering a trade because if you buy when the Implied Volatility is
high, and it ends up dropping a decent percentage, that is known as an “IV Crush”, and you are going to
lose a good chunk of the contract’s value.
Volume: The volume presented within the options chain refers to the total number of options contracts
bought and sold for that day. At the end of the trading day, the volume will go to zero and will reset for
the next trading day.
Looking at $AAPL in Chart B.7 shows the options that expire the same week. One can see how many
contracts were bought and sold that day through the volume tab. The $165 Call for $AAPL shows that
119,314 contracts were bought, sold, or both. The $170 Call had 68,688 contracts bought, sold, or both.
Paying attention to the volume is important because it will show you the amount of activity going on in
that contract. Therefore, that contract has a lot of trader’s interest. Usually, the higher volume will narrow
the spreads, while low volume results in wider spreads. Comparing volume and open interest is essential
in options trading.
Open Interest: After volume, you will also see open interest. This lets you know the total number of
open contracts held by other traders. These contracts have yet to be sold by the traders and show you the
open interest in that specific contract. The option chain will show the total number of open interest each
morning before the trading session begins.
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Looking above at Chart B.8 of an $AAPL contract that expires the same week, we can see that on the
$165 Call, there was 119,314 volume, but 25,994 open interest. This means there are currently 25,994
open contracts as of market open, not including the volume. The next day, the volume of the contracts
will go to zero, and the traders who held their contracts overnight will then be reflected in the open
interest. However, if there was a lot of selling being done today, tomorrow, you would notice a sharp
decrease in the open interest.
It is essential to look at the amount of volume and open interest for several reasons. The first reason is
that it shows you the number of other traders interested in those contracts, but the second and most
important reason is the bid and ask spread. The bid is where buyers are willing to buy, and the ask is
where sellers are willing to sell.
Above in Chart B.9 of the $MSFT option chain, notice the volume and open interest on the $305 Call.
There is 8,090 volume and 2,774 open interest. In my opinion, this is a relatively good number, but the
higher, the better. Looking at the bid, buyers are only willing to pay $185 for the contract, but sellers are
only willing to sell it for $203 a contract. As a result, this creates an $18 spread in the contracts. The
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difference in the spread is known as the “Bid & Ask Spread.” There is also something known as the
“Midpoint,” which is the middle between the bid and the ask. In this scenario, we would want to purchase
the contract at the midpoint, which would be around $194 a contract. As the volume and open interest are
high, you would likely get filled at this price. On the flip side, you must be careful of contracts with low
volume and low open interest because the spreads will be wide, and it will be nearly impossible to enter
the trade.
Looking at Chart B.10 above of the $DPZ option chain, look at the volume and open interest on the $420
Call. There was a total of 29 volume and 12 open interest. If you think about it, there were only twenty-
nine people in the entire world interested in this contract. As a result, look at the bid and ask. The bid is
$370 where buyers are willing to buy, and the ask is $520 where the sellers are willing to sell. This
creates a $150 spread, which is something you want to avoid. Look at some of the other Calls in the
option chain. Some of them have a $110 spread and a $400 spread. Stay away from these spreads! With
low open interest and volume, it will be hard for you to get filled on the contracts, and if you do, it will be
nearly impossible to sell. Do not buy at the mid-point either when the spread is this wide. Going back to
the $420 Call, the midpoint between the bid and ask is $450. If you managed to get filled on the order,
you would become the asking price, and the bidding price would stay the same; as a result, the midpoint
would now be $410, putting you at an automatic loss of $40 a contract.
Now that you understand the overall basics of options trading, Calls, Puts, the Greeks, and how options
can work in your favor or against you, let me explain the first step of technical analysis: candlesticks.
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Chapter 3: Candlesticks
Candlesticks let the trader know the stock's high, low, open, and close within a given time frame. These
ranges can include one-minute, five-minute, ten-minute, fifteen-minute, thirty-minute, one-hour, four-
hour, daily, weekly, monthly, or even yearly. You can also preset custom time frames for most brokers.
Candlestick charting first originated from the Japanese rice merchants. The candlestick was able to show
Japanese rice traders the high, low, open, and close of rice prices and the momentum of price increases or
decreases. This was an amazing discovery because we still use candlesticks hundreds of years later. There
are hundreds of candlestick patterns; however, in this book, I will only explain the main candlesticks that
you want to pay attention to. The basics of a candlestick is seen in the image below (See Chart C.1).
Chart C.1
Looking at Chart C.1, this is how candlesticks will appear in the markets. They will appear in many
different shapes and sizes. The green candle tells the trader that the stock closed higher than it opened on
whichever time frame the trader is watching. The red candle lets the trader know that the stock closed
lower than it opened, depending on which time frame the trader is watching. There are also two thin black
lines, one on top and one on the bottom of the candles. These are known as “wicks” or “tails.” I will refer
to them as wicks. The wicks let the trader know how high or low the stock price has gone within a given
period.
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Chart C.2 - Charts by TradingView
In Chart C.2 above, the lower shaded green area is where the market opened. Using Eastern time zones, at
9:30 a.m. EST, this is where the stock price opened at. Sometime throughout the day, the stock price went
as high as the upper wick and as low as the lower wick. The high of the day is labeled “High,” and the
low of the day is labeled “Low.” But, at 4 p.m. EST, the stock price closed at the upper portion of the
green shaded area. This lets everyone know that the stock price increased in price and closed higher than
the opening price.
In Chart C.3 above, a red candlestick shows that the stock price closed lower than it opened for that time
period. Looking at the wicks of the red candlestick, this still lets you know how high and how low the
stock price went throughout that time period. The only difference is that the opening is the upper red
shaded area of the candlestick, and the lower red shaded area of the candlestick is the close. As a result,
the trader knows that the stock price closed lower than it opened on the day.
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Now that you know the basics of candlesticks and the difference between green and red candles, I will
now share with you the select candlestick patterns I look for in my trading.
Chart C.4 shows an example of a Doji candlestick. This candle shows that the stock price opened and
closed within the same general area. As a result, giving a small body but simultaneously giving a long
upper wick and a long lower wick. Dojis represent uncertainty amongst traders. When you see a doji, both
the buyers and sellers are neutral on the stock being traded and do not believe the price should be higher
or lower. When both sides are uncertain, this is where you want to be cautious and not trade until one side
overtakes the other. Doji candles are especially important at the top of an uptrend, or the bottom of a
downtrend. If this is spotted, it could signal an immediate reversal in the opposite direction.
Chart C.5
Chart C.5 above represents a perfect reversal after a doji printed at the top of an uptrend. If a stock is
increasing in price and then suddenly dojis, the buyers have become uncertain about the stock price going
higher, but at the same time, the sellers are showing a presence by keeping the stock price down.
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Looking at Chart C.6 above of $D on the weekly time frame, a doji appeared at the top of an uptrend.
Again, this represents uncertainty in the buyers, but sellers are showing a presence at the same time. As a
result, once $D broke below the low of the doji, the stock immediately reversed and headed lower, giving
a clean entry to the downside.
Looking at Chart C.7 above, this is an actual trade that I took on the U.S. Dollar Index $DXY. The $DXY
was beaten down in price since the COVID sell-off of 2020. Again, on the weekly time frame, a doji was
spotted at the bottom of a downtrend in June of 2021. Once the $DXY broke above the high of the doji,
that is when I entered long, and the currency continued higher. Breaking down the doji, sellers were in
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control for the entire sell-off but became uncertain about driving prices lower. As a result, a reversal was
created once the price was above the high of the doji. This gave a perfect entry to the upside with a stop-
loss below the low of the doji.
There are three variations of doji candlesticks. The first variation is the doji shown in Chart C.4, Chart
C.5, Chart C.6, and Chart C.7. Then the other two variations are known as gravestone dojis and dragonfly
dojis.
Chart C.8
Chart C.8 shows what a gravestone doji will look like on a chart. Again, the body will be small; however,
this time, there will be a long upper wick. I mainly look for gravestone dojis at the top of an uptrend
because they signal a possible reversal. Looking at the gravestone doji, the stock price opened at the
lower end of the candle and went to the highs of the upper wick. From there, sellers drove the stock price
back down to the opening price and kept it there for the remainder of the candle. As a result, the buyers
were uncertain, and sellers were clearly visible. As seen in the chart above, the stock immediately
reversed after.
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Looking at Chart C.9 of $NOVT on the daily time frame, the stock's price had a nice push to the upside,
followed by a gravestone doji at the top of the uptrend. Notice how the stock immediately reversed
following the gravestone doji. If you were long $NOVT, this was the sign to get out.
Chart C.10
Chart C.10 is an example of a dragonfly doji. Again, a small body can be seen, but this time, a long
bottoming wick can also be seen. I mainly look for this candlestick formation at the bottom of a
downtrend because it can hint at a possible reversal to the upside. Breaking down the dragonfly doji, at
one point, the candle had an entire red body as sellers drove the price down throughout the day, but
sometime throughout the day, buyers showed their presence and pushed the stock price back up to its
opening price and did not let the price drop any lower. As a result, buyers showed their presence, but the
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sellers remained uncertain about pushing the stock price lower. As seen in the image above, the stock
immediately reversed to the upside.
Looking at Chart C.11 of $GOOGL on the daily time frame, $GOOGL had a brutal pullback to the
downside, dropping from $1,530 a share to $1,009 a share and formed a dragonfly doji. Notice what
happened to the price of $GOOGL after the dragonfly doji appeared. The stock price ran to a high of
$1,475 before pulling back.
Chart C.12
There is also a candlestick formation known as the bullish hammer. As seen in Chart C.12 above, the
bullish hammer looks like the dragonfly doji, but the difference can be found in the candlestick's body.
With the dragonfly doji, there is no body or very little of a body; however, with bullish hammers, a body
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is present, and the candle is in the shape of a hammer. The body does not matter; it can be green or red.
The importance is the long bottoming wick. Again, at one point, this was a solid red candle, but the
buyers were able to push the price of the stock higher and have it close higher than the opening price.
Throughout the day, the sellers diminished, and only buyers showed their presence until the end of the
day. If a bullish hammer is spotted at the bottom of a downtrend, it can hint at an immediate reversal.
Chart C.13
Chart C.13 shows an example of a bullish hammer at the bottom of a downtrend, but instead of a green
body, this time, it is red. Again, the color of the body does not matter. As long as it is a hammer at the
bottom of the downtrend, this can hint at a reversal. This leads to a common question, "what if a bullish
hammer occurs at the top of an uptrend?" It would no longer be considered a bullish hammer if this were
to occur; it is now considered a hanging man.
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Looking at Chart C.14 of $T on the daily time frame, the stock had a slight sell-off from $34 a share
down to $31.25 a share. At the same time, the stock formed a bullish hammer at the bottom of the move.
From there, $T rebounded from $31.25 up to $38.75 before pulling back.
Chart C.15
As seen in Chart C.15, what looks like a bullish hammer signaling a continuation of the trend is actually
signaling a reversal of an uptrend to a downtrend. The key thing to look for when this occurs is the
volume and the distance between the candlestick compared to other surrounding candles. If the volume
drops and this candle forms at the top of an uptrend, this is a key indication that the trend will reverse.
Chart C.16
Looking at Chart C.16, again, the color of the hammer does not matter. If it is red or green, the meaning is
the same.
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Looking at Chart C.17 above of $DISH on the daily time frame, a perfect hanging man candle can be seen
at the top of an uptrend. As seen in the chart, $DISH quickly reversed back to the downside after a
hanging man candlestick was printed on the chart.
Chart C.18
Looking at Chart C.18, the opposite of a bullish hammer is a bearish hammer, also known as an inverse
hammer. I like to look for these at the top of an uptrend because they can signal a significant reversal.
Again, the difference between a bearish hammer and a gravestone doji is that the bearish hammer has a
body to it. At one point, the bearish hammer was an all-green candle. However, throughout the day, the
buyers diminished, and the sellers pushed the price of the stock lower and were able to make the stock
close lower than the opening price.
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Chart C.19
Looking at Chart C.19 above, it does not matter what color the body of the inverse hammer is. It can be
red or green. As long as the hammer is at the top of an uptrend, it can hint at a possible reversal to the
downside. However, just like the hanging man, if a bearish hammer occurs at the bottom of a downtrend,
this can signal a reversal from a downtrend to a new uptrend. If a bearish hammer appears at the bottom
of a downtrend, this is known as an inverted hammer.
Looking at Chart C.20 above of $HD on the daily time frame, the stock continued to push up in price, but
an inverse hammer appeared at the top of the uptrend. As a result, the stock price dropped from $340
down to around $298.
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Chart C.21
Looking at Chart C.21 above, an inverted hammer formed at the bottom of a downtrend. One may think
that sellers are in control and are ready to drive the price even lower; however, this is a reversal pattern
and lets the trader know to be cautious when looking for trades to the downside.
Chart C.22
Looking at Chart C.22, like most of the other candlesticks, color does not matter when it comes to the
inverted hammer. I like to look for inverted hammers at the bottom of a downtrend and then piece them
together with the indicators discussed throughout this book.
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Chart C.23
Looking at Chart C.23, a bullish engulfing candlestick can be seen. A bullish engulfing candle is one big
green candle that swallows up the previous red candle. When you spot a bullish engulfing candle, this lets
the trader know that the buyers are present while little sellers are participating. The bullish engulfing
candle is usually an unusual size compared to all other previous candlesticks. If you spot a bullish
engulfing at the bottom of a downtrend, this can lead to a reversal. I like to pay attention to them even
during a market uptrend because it shows the buyers' strength compared to the sellers.
Looking at Chart C.24 above of $HD on the daily time frame, two bullish engulfing candles can be seen.
Notice the size of these candles compared to the other candles on the chart, and how they are just one
solid green candle. As the bullish engulfing entails, strong buyers are present in the stock.
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Chart C.25
Chart C.25 is an example of a bearish engulfing candlestick. This candlestick is one solid red candle that
swallows a previous green candlestick and can hint at a reversal of the current trend. With a bearish
engulfing, there are minimal buyers and a massive number of sellers. Again, the bearish engulfing
candlestick will be bigger than other surrounding candles. This is how you know the number of sellers is
a substantial amount. I also like to look for bearish engulfing candles while the stock is in a downtrend
because it can help show the amount of selling pressure and will let you know that the stock is more than
likely going to continue to drop.
Chart C.26 is a perfect example of what a bearish engulfing candlestick will look like. This example of
$AMZN on the daily time frame shows the candlestick before the drop was a doji followed by the bearish
engulfing. After the doji and bearish engulfing, $AMZN continued to drop in price from around $3400 a
share to around $2880 a share.
These will be the main candlestick formations I pay attention to when trading. There are hundreds of
candlestick formations that you can learn to assist you in your trading journey. There are entire books
written on just candlesticks, and I highly suggest purchasing them. The books are called Beyond
Candlesticks: New Japanese Charting Techniques Revealed by Steve Nison and Japanese Candlestick
Charting Techniques: A Contemporary Guide to The Ancient Investment Techniques of The Far East by
Steve Nison.
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Chapter 4: Understanding Stock Trend
There are three ways that a stock can move. Stocks can either uptrend, downtrend, or consolidate. In this
chapter, I will help you understand what these trends mean and how to apply them to your trading. The
first thing I do when looking at a chart is establishing the current trend the stock is in. I check the
monthly, weekly, and daily time frames to help answer this question. Always start on the monthly time
frame to get an understanding of the major trend, then break it down to the weekly time frame to see any
minor trends, and then finally down to the daily time frame to help spot any other trends that can be taken
advantage. Using these higher time frames to determine trends helps in the decision-making process for
day trading and swing trading.
Uptrend: The stock or underlying assets is on an upward trajectory. As a result, there are higher highs
and higher lows, in which the stock continues to go up in price. If the stock continues to make higher
highs and higher lows, it will be considered an uptrend.
Chart D.1 - Charts by TradingView
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As you can see in Chart D.1 above, the “stock” is making new successful highs while creating higher
lows. If you can understand which way the stock is trending, adding the indicators from later chapters will
help you make a highly educated assumption about what will happen next in the market.
Chart D.2 of $FB on the daily time frame shows that the stock price continues to set new highs, while
each successful pullback never goes lower than the previous low. Remember, higher highs and higher
lows = uptrend. This is a perfect example of how an uptrend will look on a stock.
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Chart D.3 is another example of $FB, but this time on the monthly chart. Again, as you can see, there is a
clear uptrend. Each pivot high sets a new high, and each successive pullback is higher than the previous
pullback.
Downtrend: Where the stock creates a sequence of lower lows and lower highs. As a result, the stock will
continue to decrease in price. As long as the stock continues to set lower highs and lower lows, the
downtrend will be intact.
As seen in Chart D.4 above, the stock is creating lower lows and lower highs. As a result, you would want
to stay away from the Call side of the market and ideally look for puts. Again, adding the technical
indicators from later chapters will help form a story about what will happen next for the stock.
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Chart D.5 is an example of $BA on a daily chart. Notice how it continued to make lower highs and lower
lows. The highs never surpassed the previous highs, and the lows continued to go lower than the previous
low, thus forming a downtrend.
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Chart D.6 is an example of a downtrend on $KO (Coca-Cola) on the monthly time frame. Notice the
lower lows and lower highs that continued to form from 1997 to 2003. Each pullback to the upside was
followed by a lower high, and each price drop made a new lower low.
How does the trend change?
An uptrend will change if two things occur. The first one is that the stock needs to set a lower high. If that
occurs, it is the first clue that the trend may be changing. The second thing that must happen is that the
stock must set a lower low. If these two things occur, the uptrend will likely reverse into a downtrend. As
for a downtrend, a stock must set a higher high and higher low for it to become an uptrend. Refer back to
the monthly downtrend on $KO. Again, lower highs and lower lows mean there is a downtrend; however,
notice what happened as soon as $KO created a higher low instead of a lower low, as well as a higher
high (See Chart D.7 Below).
Looking at Chart D.7 of $KO, the stock trend shifted direction and created an uptrend instead of a
downtrend, and that uptrend is still valid to this day, thirteen years later. (The uptrend began in 2008).
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Chart D.8 - Charts by TrendSpider
Looking at Chart D.8 of $JNJ on the daily time frame, as seen, the stock was making lower lows and
lower highs; however, as soon as $JNJ set a higher low and then a higher high, that is when the trend
changed, and price began to move to the upside, thus creating a new uptrend.
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Chart D.9 is a basic drawing of what a trend reversal will look like. Notice at the beginning that the stock
is setting lower highs and lower lows. However, later in the trend, the stock failed to create a lower low
and instead created a higher low, which is the first sign of a reversal. Then the stock created a higher high
(trend change confirmed); as a result, a new uptrend was established, and the stock continued up in price.
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Chart D.10 is an example of an uptrend turning into a downtrend. In this example, I will be showing you
the weekly time frame of $JPM (JP Morgan Chase & Co.) Notice at the beginning of the trend, it was an
uptrend. The stock was making higher highs and higher lows. However, suddenly, it created a lower low
and broke that pattern. $JPM then proceeded to make a lower high which confirmed that the trend was
changing. What happened to $JPM? It dropped from $46 a share to $14 a share during the downtrend.
Chart D.11 is another example of a trend change seen on $SQ. Looking at the daily time frame, on the left
of the chart, one can notice that $SQ created higher highs and higher lows, creating an uptrend. However,
as soon as $SQ created a lower high and then a lower low, the stock trend changed. As seen in the picture,
$SQ has continued to make lower lows and lower highs, which constitutes a downtrend.
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As shown in Chart D.12, the stock was in an uptrend initially; however, as soon as the price set a lower
high and lower low, the trend had changed and will more than likely continue to go in the opposite
direction.
When looking at the retracements of higher lows in an uptrend and lower highs in a downtrend, these
levels more than likely occur at a Fibonacci retracement zone. In the Fibonacci chapter, I will discuss how
to accurately predict where the levels of retracements can occur in both an uptrend and a downtrend. This
will allow you to find low-risk entries while following the prominent trend.
Consolidation: This is where the stock trend is undecided on whether it wants to continue in its current
trend or reverse the current trend. As a result, the stock stays in a narrow range until buyers or sellers
decide which direction they want to move the stock. Traders want to avoid making trades during
consolidation periods. From experience, you will get whipsawed and stopped out of many trades. When
consolidation forms, it usually results in a price pattern, which I will discuss in a later chapter. It has also
been shown that if a stock was previously in an uptrend, then goes into consolidation; the trend will more
than likely continue up once it breaks consolidation and vice versa if it were to consolidate after a
downtrend. But you will always want to confirm this with the indicators discussed in this book. Below are
multiple examples of what consolidation looks like on a chart (See Chart D.13, Chart D.14, and Chart
D.15 Below).
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Looking at Chart D.13 of $GLD on the monthly time frame, the stock experienced a consolidation period
that lasted seventeen months before breaking out and continuing in price. Pay attention to the overall
trend; when the stock broke out of the consolidation, it then formed a higher high, letting the trader know
that the stock is more than likely going to continue to push further in price.
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Chart D.14 shows $HD on the weekly time frame. $HD was previously in an uptrend where the stock
price traveled from $140 a share to $280 a share. $HD then went into a thirty-three week consolidation
period before continuing in an uptrend.
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Looking at Chart D.15 of $GOOGL on the daily time frame, you can see that $GOOGL was previously in
an uptrend before its fifty-one-day consolidation period. Once $GOOGL broke out of the consolidation,
the stock continued in its uptrend setting higher highs and higher lows. Then $GOOGL went into another
consolidation period of forty days before breaking out again and setting a higher high.
Now that you understand stock trends and how to spot an uptrend, downtrend, or consolidation, I am now
going to move on to support and resistance. I will show you three ways of plotting support and resistance
levels. The first method is the old-fashioned way, which is plotting support and resistance manually. The
second method is with Persons Pivots, which plot support and resistance levels for you. The third method
uses Fibonacci extensions and retracements. Be prepared to learn some new mind-blowing techniques in
the next chapter.
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Chapter 5: Support and Resistance
Before I show you multiple ways to draw support and resistance, you must first understand these two
terms.
Support: Created by buyers stepping into the market. The buyers believe that this is an excellent area to
start buying up the underlying asset, and as a result, the asset refuses to fall under this point, and most of
the time, buyers will push the stock price back up. You will more than likely notice a support area as the
stock is in a downtrend. This is where the stock falls to and then begins to bounce off the support area as
buyers flood the market.
Chart E.1 - Charts by TradingView
Looking at Chart E.1, in Bitcoin’s case, $30,000 is a support level. Each time Bitcoin drops down to this
level, the number of buyers stepping into the market pushes Bitcoin’s price higher. The more hits there
are on this $30,000 level, the stronger the support area becomes due to trading psychology. If you were to
pull up a chart of Bitcoin and notice that Bitcoin has hit the $30,000 level five times and continued to go
back up in price, what would you more than likely do if Bitcoin hit this $30,000 level a sixth time? You
would buy Bitcoin there, would you not? You are not the only person who can see this either. Suppose
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you have a plan to buy Bitcoin when it comes back down to $30,000 for the sixth or seventh time; more
than likely, hundreds of thousands, if not millions of other people have the same plan as you. That is why
support works in the markets. We recognize previous price points in which an asset has bounced off
before, and we continue to buy it off that area if it stays valid. I will be putting updated pictures of Bitcoin
below as the days progress.
Looking at Chart E.2, this is now Bitcoin a couple of months later. Notice the reaction Bitcoin had off the
support level and the increase in price since Bitcoin met the support level. I will now update bitcoin's
price again (See Chart E.3 Below).
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Now, look at Bitcoin in Chart E.3 above! Bitcoin has rallied over $25,000 since the support zone at
$30,000.
Support is a powerful tool for many reasons. It allows you to spot where other buyers are waiting to enter
the market, allowing traders to exploit low-risk entry points. If there was strong support on stock XYZ at
$110 and the stock came down to that level, this would offer any trader a perfect opportunity to go long in
the market. If you can time the entry off support, the stop-loss should be placed on the opposite side of
that level.
Resistance: Created by sellers selling short or buyers cashing out on their gains by selling their positions
for profits. The short sellers believe the stock is overbought and want to profit from the stock dropping in
price. At the same time, buyers exit the market to secure their gains before the stock goes against them.
As a result, the price of the stock will drop. Resistance points are found during an uptrend. At this point,
buyers are unable to exceed the number of sellers, and as a result, buying pressure diminishes, and sellers
take over.
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Looking at Chart E.4 of $COST (Costco), one could observe that there was previous resistance in
November 2020 and December 2020, where it tested resistance six times. Six months later, $COST had
returned to that exact resistance point and tested it as resistance seven extra times. As a result, there were
many sellers in this area. Again, if you break it down to trading psychology, if you noticed that $COST
rejected $385 thirteen times, what are you more than likely going to do if you bought a $385 Call when
$COST was at $375, and it is now approaching $385? You would more than likely sell your position and
secure your profits since, in the past, it has tested that area, rejected, and then dropped in price. As a
trader, you want your money, so you pull out. Well, if you think that, more than likely, 90% of all the
other traders in $COST are as well. Resistance areas will always make longs liquidate their positions out
of fear of the stock getting rejected. That is why we want to pay attention to these areas.
What happens to the stock if it breaks support or resistance?
As seen in Chart E.4 on $COST, once the stock closed with a solid green candle through the resistance
area at $385, the price exploded to the upside. $COST is now sitting at $412.37 as of this writing. Let me
explain why $COST moved the way it did once it finally cleared key resistance.
Imagine you were a buyer of $COST at $370, and you spot a clear resistance at $385; therefore, you plan
to buy $COST options at $370 and sell at $385 to secure profits. You are not the only person in the world
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with that plan. Being a good trader (like you should be), you stick to your plan and sell $COST at $385,
and so did hundreds of thousands of other traders who were following the same plan; however, this time,
$COST blows through that $385 level and goes higher. The number of buyers in this scenario outweighed
the number of sellers; therefore, Costco broke the $385 resistance. You and everyone else are now upset
that you sold your positions because $COST broke that key resistance and will likely continue higher.
What do you and every other trader who sold at $385 want to do? Buyback in for a move higher. That is
exactly what happened with $COST. Old buyers bought back in, and new buyers are buying in. A
combination of fresh buyers and old buyers returning to the stock creates a massive upside push.
When a stock breaks a solid area of support or resistance, it is common to see the price come back and
retest that area. This happens due to trading psychology. Imagine you are waiting for a stock to break a
key area of resistance to go long. When the stock breaks the resistance point, you could not get your order
filled. Instead of chasing the trade, smart traders wait for the stock to return to its breakout point to enter.
As a result, old resistance then becomes new support. This type of pullback allows traders to enter a low-
risk trade with a stop-loss below the breakout point.
Looking at Chart E.5, I can almost 100% guarantee you this was the same thing that happened on $AMD.
Buyers accumulated shares on dips with plans to sell in the $34 zone. The ones who sold at $34, once
they saw the break and continuation past $34, became buyers again with the combination of new buyers
flooding into $AMD. As a result, the stock price continued higher.
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Looking at Chart E.6, the same thought process can occur when it comes to support. $SQ had a support
area at $225.60; therefore, this is where buyers were accumulating shares so that they could profit when
$SQ rebounded in price. If you were buying into a trade at support, your stop-loss is always below
support. Since this trade is based on the daily time frame, $SQ would need to close below $225.60 for the
day. Suppose you are buying up $SQ this entire time while it is at support, just like everyone else who
sees this support level, but suddenly, $SQ falls below support and closes below it. What is everyone more
than likely about to do? Sell their trades, which they rightfully should if they are using proper risk
management. The thought process is, “I do not want to lose money. I am going to sell before it drops
more.” If everyone is doing this simultaneously, the stock will likely drop at a rapid pace, which it did. At
the same time, short sellers were waiting for $SQ to fall below this level to profit from the stock dropping
in price.
You are going to see many references to trading psychology throughout this book. I finally became
successful at trading when I started to think more about everyone else’s psychological state of mind when
an occurrence happens in a stock.
Going back to the $SQ example in Chart E.6, where everyone panic sold after the stock broke below the
support area of $225.60, we can take full advantage of what is about to happen. Remember, you can profit
from a stock dropping in price. If many people are buying on support, and the stock drops below it, many
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people will sell. As we are thinking about what everyone else is about to do, we could buy a Put and
profit from everyone else’s fear.
Now that you understand support and resistance and why they work in the market, I will show you how to
plot support and resistance levels. First, I will show you how to set it up for swing trading, and then I will
show you how to plot the levels for day trading. I will first go over the old-fashioned way of support and
resistance, but then I will show you the new way of plotting these levels in the new age of technical
analysis.
Drawing Support and Resistance for Swing Trading
There are three specific criteria I keep in mind when drawing support and resistance:
1. Hit as many wicks as possible. The reason being, this is how high or low the stock price went
during that period.
2. There must be a minimum of two to three hits. The more hits, the stronger the level.
3. When swing trading, default support and resistance levels will be fifty-two-week highs, fifty-two-
week lows, all-time highs, and all-time lows.
When plotting support and resistance levels, always start on the monthly time frame. The monthly time
frame will give you a bigger picture of the trend, and major support and resistance areas will be clearly
visible. For this example, I will be plotting levels on $AMD.
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Chart E.7 is $AMD on a monthly time frame with no support or resistance levels plotted. If you look
closely, you can see that $AMD has four bottoming wicks bouncing off $73.87. Again, this meets the
minimum criteria of two to three hits, and since the stock has bounced off this level four times (four
months), this is a strong support level that you need to know about. Therefore, one should draw a support
line at that level. Remember, if it hit this support area four times in the past, it will more than likely act as
support when it hits it a fifth time.
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Looking at Chart E.8, as for resistance, if you look closely, you can see that $AMD has three direct hits to
the upside at $94.48, as well as the current month of July 2021 struggling to break through this level.
Therefore, I am going to draw a resistance line at $94.48.
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Looking at Chart E.9, if a stock is near all-time highs, always plot this level as resistance. This is because
there will more than likely be resistance at this level in the future unless the stock price breaks above it. In
that case, it will become support. This happens because the buyers who chased $AMD at all-time highs
did not want to sell their shares at a loss. But, as soon as the price comes back to their entry point, they are
more than happy to liquidate their positions at breakeven, or a slight loss.
Looking at Chart E.10 above of $AMZN on the daily time frame, this is a perfect example of how a
previous all-time high can act as a resistance point.
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Looking at Chart E.11, going back to $AMD, this is how the monthly chart should look when you are
done plotting the support and resistance levels. There are multiple hits for both the support and resistance,
followed by the all-time highs.
Looking at Chart E.12, after you have plotted all the support and resistance levels on the monthly time
frame, break it down to the weekly time frame to find more support and resistance levels. On the weekly
time frame, there is a major area of resistance and support between $86 and $87.50; one thing to note
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about support and resistance is that support is not exactly at $73.87 in the monthly example, and
resistance is not exactly at $94.48. Support and resistance are more so an area. In reality, the support area
is between $73.50 and $73.87, and resistance is between $94.25 and $94.50; our job as technical analysts
is to find these areas to identify potential buying or selling opportunities.
Notice how in Chart E.13, the area was resistance and support in the past. There were seven direct hits as
resistance, meaning seven weeks out of the seventeen weeks the stock was below, it resisted breaking this
level. That is huge and something you want to pay attention to. Now when a stock breaks above a
resistance level, nine times out of ten, it will become support, and that is precisely what ended up
happening on $AMD. Notice that as soon as $AMD broke above the resistance level, it immediately
returned and tested as support six times out of the twelve weeks above it. As soon as it broke below the
new area of support, it became resistance again, and finally, as of this week, it broke back to the upside
and made it support.
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Looking at Chart E.14, there is one more support and resistance area for $AMD on the weekly time
frame, between $95.92 and $96.50.
Now that the weekly support and resistance levels have been plotted, you will then go to the daily time
frame and find more levels. At this point, most of the support and resistance levels should be plotted, and
you will see how important these levels are on the daily time frame.
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Looking at Chart E.15 of AMD on the daily time frame, at this point, I am going to add the final additions
of support and resistance to the chart. There is a clear area of support and resistance at $90.90.
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Looking at Chart E.16, there is one more resistance area at $91.97-$92.
Chart E.17 is a completed chart of $AMD with all support and resistance levels plotted. If I were swing
trading, this is where I would stop plotting levels.
Remember, the stock meets resistance in an uptrend and support in a downtrend. When the stock price
breaks above resistance, the resistance then becomes support, and when the stock price breaks support,
support then becomes resistance.
Now that the $AMD chart is complete, these will be the levels to use as potential price targets and entries.
Looking at Chart E.17, if $AMD breaks above $92, a gap needs to be filled to $94.48-$94.50. Again,
breaking it down to trading psychology, you are not the only person in the world who knows about this
gap, nor are you the only person who plans to buy on the break of $92 and sell at $94.50; therefore, when
$AMD breaks above $92, you will likely notice significant buying pressure come into the stock. As
everyone has the same plan, we can profit from it. Buy at $92 for a swing and sell at $94.50; if it breaks
$94.50, it is going to the next level at $96. This is why buying multiple contracts helps the trader so that
you can scale out and secure profits along the way. I will discuss scaling out in a later chapter.
To wrap up plotting support and resistance levels for swing trading, start on the monthly time frame,
break it down to the weekly time frame, and break it down to the daily time frame. Again, plot support
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and resistance levels on each time frame. The free range to trade is in between the levels where no support
or resistance is blocking the stock price. I will return to swing trading in a later chapter once we piece the
entire puzzle together.
Drawing Support and Resistance for Day Trading
The same rules will apply when plotting support and resistance levels for day trading.
1. Hit as many wicks as possible. The reason being, this is how high or how low the stock price
went during that period.
2. There must be a minimum of two to three hits. The more hits, the stronger the level.
3. The previous day’s high, low, and close will act as support and resistance points, so make sure to
mark these points.
For day trading, instead of starting on the monthly time frame, instead, start on the weekly, then break it
down to the daily, then the four-hour, and then the one-hour. Let’s chart $AAPL together. First, I will
show you how to plot all your support and resistance points for day trading on $AAPL. Then I will show
you how the previous day’s high, low, and close have acted as support and resistance points.
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Chart E.18 is a blank chart of $AAPL on the weekly time frame. Right away, I can spot a level of support,
resistance, and a trendline, which I will discuss in a later chapter.
Looking at Chart E.19 above, the green line represents a trendline which is an inclined support point.
However, there is clear support at $123.11, with six hits as support and four as resistance. Since there are
ten hits in total, this is an area to know about for $AAPL, especially in the future. There is resistance at
$138 that has three hits as well (you will see this better on a daily chart). Then finally, plot the all-time
high, which $AAPL hit recently. After plotting all the key support and resistance areas on the weekly
time frame, break it down to the daily time frame.
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Looking at Chart E.20, the daily support and resistance levels have been drawn on the chart. Again, notice
how previous all-time highs became a resistance level in the future!
As day traders, we want to be as precise as possible regarding price targets. Therefore, after plotting the
levels on the weekly and daily time frames, you would then view $AAPL on a four-hour time frame to
find more support and resistance areas that were not spot on the weekly or daily time frame. When
looking at the four-hour time frame, I watch more recent price data that is within the last three to five
months.
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Looking at Chart E.21 of $AAPL on the four-hour time frame, one thing I think is worth mentioning is
observing the trend. What do you see? Higher highs and higher lows? What is that? AN UPTREND!
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Looking at Chart E.22, four-hour support and resistance have been plotted on the chart. The picture is
becoming clearer about where buyers and sellers are in this chart, providing you with trading
opportunities. Notice the new additions of support and resistance on the four-hour time frame.
Looking at Chart E.23, once finished plotting support and resistance on the four-hour time frame, then go
to the one-hour time frame to find the remaining support and resistance levels. When plotting my levels
on the one-hour time frame, I only focus on recent price action within the past twenty days. One-hour
support and resistance tends to invalidate over time, so I only focus on recent price action. The chart is
now complete once you have plotted support and resistance on the one-hour time frame.
One thing I would suggest doing at first is color-coding the levels based on the time frame you drew the
support and resistance levels. For example, make the monthly support and resistance levels green, weekly
white, daily purple, four-hour orange, and one-hour pink. I did this when I first started plotting my levels;
however, I now leave them white and just run through the time frames for simplicity and quickness.
With day trading, you trade the free ranges between the support and resistance levels. $AAPL had an all-
time high at $145.25 and only one resistance level before that at $140.66. Again, if you break it down to
trading psychology, you are not the only person in the entire world who knows about this gap that needs
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to be filled, nor are you the only person in the world who has a plan to buy on the break of $140.66 and
sell at $145.25.
Looking at Chart E.24, notice what happened on $AAPL once the price broke the resistance at $140.66.
The stock tested that level as support a few hours later and filled the resistance gap the following day. The
day proceeding tested $140.66 again as support, filled the gap again, and set a new all-time high. Using
simple support and resistance levels, one could have created a trading plan for $AAPL, which would have
played out to a T.
Now that you know how to plot support and resistance for swing trading and day trading, I will show you
how the previous day’s high, low, and close can act as key areas of support and resistance for day traders.
Once you feel comfortable plotting support and resistance, feel free to continue reading.
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Chart E.25 - Charts by ThinkorSwim
Looking at Chart E.25 of $TSLA on the five-minute time frame, I was planning to buy Calls for an upside
move at either a break of the premarket high or a bounce at the previous day’s high, which was $805.57.
As seen in the chart above, $TSLA came down and treated the previous day’s high as support where it
gave a perfect entry. From there, $TSLA rallied to $840.76
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Looking at Chart E.26 of $FB on the five-minute time frame, my plan was to short Facebook under its
previous day’s lows at $193.92. As seen in the chart above, $FB treated the previous day’s low as support
five times before finally breaking below and closing below the level. Once $FB broke its support, the
price dropped to $191.12 before forming a double bottom and bouncing back for the day.
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Looking at Chart E.27 of $GM on the ten-minute time frame, notice how the previous day’s high became
a strong resistance area. Once $GM broke above premarket highs at $51.64, the price ran straight to the
previous day’s high at $51.9, where it became resistance two times before selling off.
Looking at Chart E.28 of $HD on the ten-minute time frame, notice how the previous day’s high acted as
a resistance point, and the previous day’s low acted as a support point. This is why it is important to pay
attention to the previous day’s high and low points. As seen in these examples, they will act as a solid
support and resistance point. Once price breaks these levels, you can usually look for a continuation in the
direction of the break.
As for the previous day's close, this is the point where buyers and sellers agreed on a price for the stock.
There is a reason why stocks X, Y, and Z closed at a specific price and not ten cents above or ten cents
below.
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Looking at Chart E.29 of $AAPL on the ten-minute time frame, notice how the previous day's close
became premarket support. Notice what happened to $AAPL once the price broke below the previous
day's close. $AAPL dropped to the previous day's low, went slightly below the level, and rebounded. This
was a simple textbook setup with an entry and exit well defined.
Looking at Chart E.30 of $MRNA on the ten-minute time frame, again notice how the previous day's
close became resistance first thing in the morning, where $MRNA was then denied and continued to go
lower. Where did $MRNA find short-term support? Right on the previous day's low, until price finally
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broke below. Once $MRNA broke below the level, price dropped much lower.
As seen in the last few examples, it is essential to identify the previous day's high, low, and close. These
areas will act as support and resistance points and possible price targets on the traded stock. Being
prepared with these levels each trading day is necessary, and remember, I only use these levels for day
trades.
Now that I have shown you how to plot support and resistance for swing trading and day trading, as well
as showing you some tips and tricks, let me show you some more complex variations of identifying
support and resistance points. Both methods will take most of the guesswork out of finding these key
levels and will make it much easier to plot support and resistance.
Plotting Support and Resistance Using Persons Pivots
Before discussing the Persons Pivots, I would like to thank John Person for giving me permission to
discuss this indicator within this book. The Persons Pivots have changed the way I trade forever, and I
cannot be any more thankful for him allowing me to talk about his indicator.
The Persons Pivots is an indicator created by John Person from Persons Planet. The Persons Pivots ™ is a
trademark that is owned by Persons Planet. The copyright and trademark of this indicator are the property
of Persons Planet. Therefore, moving forward in this book, all the statements and views are solely based
on my view and not Persons Planet. If you would like to learn more about this indicator, please visit
personsplanet.com and check out John’s best seller Candlestick and Pivot Point Trading Triggers: Setups
for Stocks, Forex, and Futures Markets. In that book, he discusses the Persons Pivots much more in-depth
and other indicators that he has created.
From here, I will discuss how the Persons Pivots are calculated and how I use them in my trading
strategy.
What are the Persons Pivots?
The Persons Pivots is an indicator that draws predetermined support and resistance areas for you,
depending on which time frame they are set to. The pivot points are found by calculating the High + Low
+ Close/3. For example, if you are using the weekly Persons Pivots, and the high of the week = $148.76,
the low of the week = $141.66, and the close of the week = $147.52. You would then add the high + low
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+ close together and divide it by three. This calculation will give you a weekly pivot at $145.98. The
Persons Pivots plots two resistance points and two support points. To get resistance point one, you take
the pivot point (in this case, $145.98), multiply it by two, and then subtract the weekly low. $145.98×2-
$141.66=$150.3 is the weekly resistance one. You then take the weekly pivot point + the weekly high –
the weekly low to get the second resistance point. $145.98+$148.75-$141.66=$153.07 for the weekly
resistance two. As for the support areas, the weekly support one calculation is the pivot point × 2 –
weekly high. $145.98x2-$148.76=$143.2. As for weekly support two, take the pivot point – weekly high
+ weekly low. $145.95- $148.76+$141.66=$138.85.
Luckily in the new age of technical analysis, you do not need to do these calculations to find the pivot
points. Many brokers now have an indicator that will do everything for you. If you use ThinkorSwim by
TD Ameritrade, the indicator is called "Persons Pivots." All you need to do is go to the studies and add
this indicator to the Chart. To demonstrate this indicator's effectiveness and almost pinpoint accuracy, I
will show you a few examples of Persons Pivots on multiple time frames.
Chart E.31 of $CRM (SalesForce) shows an example of the weekly Persons Pivots. The chart shows that
the stock had plenty of price action off the weekly pivot point, weekly support one, and weekly resistance
one.
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Chart E.32 of $BA on the ten-minute time frame shows how accurate the daily Persons Pivots can be.
Based on the previous day’s price action, the Persons Pivots determined where the next day’s support and
resistance would be. As seen in the chart, $BA rejected the daily pivot point almost to a T and then
continued to sell-off. The stock came down to support one from the Persons Pivots and treated it as
support for the rest of the day. Price action bounced off the support level six times throughout the day
until the market closed.
Chart E.33 is an example of $FB on the 10-minute time frame. At the beginning of the day, and even in
premarket, $FB tested the daily pivot two times as resistance and could not hold above it. As a result, the
stock price sold off, and a trader could have easily gone short with a price target of support point one,
which was almost a $3 drop. $FB sold off to the support point, where the stock found short-term support
until it finally broke below support and continued to drop another $3 before recovering for the day.
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When setting up the Persons Pivots, I set them to multiple time frames. I like to use the daily, weekly,
quarterly, and options expiration Persons Pivots. Feel free to experiment with the multiple time frame
settings within the Persons Pivots. For example, some traders like to use the monthly Persons Pivots, but
John Person has found that the options expiration setting works best on individual companies that offer
options such as $AMD, $FB, $TSLA, etc. Using these multiple different time frames on the Persons
Pivots will ensure that you get the most accurate support and resistance points. Now that you know which
pivot points you should be utilizing, please continue reading and see how these other levels react as the
stock price approaches them.
Chart E.34 is an example of $BA on the daily time frame. One can spot many different pivot points that
acted as support and resistance. Starting at the bottom cyan pivot, this is the quarterly pivot point. On
October 21st, 2021, the Persons Pivots calculated that this point would be potential support in the future,
and magically the same level became support and was the dead bottom for $BA on December 20th, 2021.
At the same time, the top cyan line is the quarterly resistance one. Again, this was calculated as a
resistance area on January 3rd, 2022, and validated its resistance on January 18th, 2022, over two weeks
later. As for the other lines, the orange lines are the option expiration pivot point which was calculated on
December 17th, 2021. That option expiration pivot point became resistance on December 28th, 2021,
January 3rd, 2022, and then support on January 6th, 2022, January 10th, 2022, and January 11th, 2022.
Looking to the left shows the importance of the quarterly and options expiration pivots. Price had hit
these areas multiple times, acting as support and resistance.
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Looking at Chart E.35 of $COST on the daily time frame, there are several examples where the pivot
points have acted as support and resistance. The orange and yellow lines are the option expiration pivots,
and the big purple and cyan lines are the quarterly pivots. Notice the areas that I have circled on the chart.
$COST came up to its quarterly pivot, which became resistance and denied the pivot ten times before
breaking through. At the same time, the option expiration pivot acted as support nine times. Once $COST
broke above the quarterly pivots, it ran up to the next options expiration resistance, which became short-
term resistance. Once $COST broke through option expiration resistance one, it then proceeded to move
higher to option expiration resistance two. The wonderful thing about Persons Pivots is that these areas
are being given to us days, weeks, and sometimes even months before a stock approaches that area. This
helps identify invisible support and resistance zones, which as a result, helps the trader make much more
accurate and precise trading decisions.
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Looking at Chart E.36 of $SQ on the daily time frame, I have it so the weekly pivots are shown all over
the chart to show you the accuracy of these pivots. The red lines are the weekly resistance points, the
purple is the pivot point, and the green is the weekly support points. Visually looking at the chart, notice
the price action on the weekly support and resistance points. These levels are being calculated each week
and are constantly changing based on the previous week’s price action.
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Looking at the NASDAQ futures in Chart E.37, the quarterly pivots are applied on the chart. The Persons
Pivots formula calculated this resistance area over two months in advance and let traders know that there
would be possible resistance at that level. The NASDAQ proceeded to test this area as resistance four
times before being sold off. The Persons Pivots gave a fair warning of this area, and knowing how to use
these levels could have helped traders develop a trading plan on the NASDAQ.
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Looking at Chart E.38 of $SE on the daily time frame, notice the price action at the options expiration
resistance. $SE came right to resistance one, where price was rejected and then pulled back. $SE
proceeded to push back to option expiration resistance one before pulling back again.
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Chart E.39 above is an example of $SQ on a ten-minute time frame. On this chart, I have the weekly
pivots applied. As seen in the chart, at the beginning of the day, $SQ denied the weekly pivot point
treating it as resistance. As a result, a trader could have entered short with a price target of support one.
$SQ continued to drop from $163.77 down to $150.9, which was support one. From there, $SQ bounced
and never went lower that day.
In the last example of the Persons Pivots, I will show you an intraday setup on $NVDA. Looking at Chart
E.40, $NVDA opened below the daily pivot point (white line) and later approached this level. The pivot
point should now act as resistance as $NVDA is coming up to this level. $NVDA tagged the pivot point
twice as resistance before selling off. From here, the Persons Pivots did not have any support on $NVDA
until $241, which was $14.50 lower than the current daily pivot point. $NVDA proceeded to sell off to
weekly support one and daily support one, which became the exact low for the day.
From all the examples shown on the Persons Pivots, you should be able to see how accurate these levels
are. I love using the Persons Pivots to plot support and resistance that could otherwise visually not be
seen. Some traders solely trade based on the pivot points and are successful in doing so. The Persons
Pivots is a super accurate, quick, and easy way of identifying support and resistance points as they are
predetermined for you at the beginning of each time interval. Test this indicator out and let me know how
you like using them! As previously mentioned, the Persons Pivots have been a game-changer for me and
have helped escalate my trading to a new level.
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Which Persons Pivots Should You Use?
Personally, I like to use the daily, weekly, quarterly, and option expiration Persons Pivots. Make sure to
color-code each set of pivots differently. That way, you can identify which pivot is seen when doing your
analysis. If you would like to copy my person's pivot layout, here is how I have mine color-coded:
Daily Pivot Point = White

Daily Support & Resistance Pivots = Black
Weekly Pivot Point = Purple
Weekly Resistance Pivots = Red
Weekly Support Pivots = Green
Option Expiration Pivot Point = Yellow
Option Expiration Support & Resistance = Orange
Quarterly Pivot Point = Purple
Quarterly Support & Resistance = Cyan
Feel free to color code as you wish, but this is how I like to have my set. I also changed the thickness of
the higher time frames to differentiate between them and the smaller time frames.
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Chapter 6: Fibonacci Extensions &
Retracement
Another form of support and resistance can be found using Fibonacci extensions and retracements. I will
be referring to Fibonacci a few times throughout this book, so let me explain who and what Fibonacci is.
Fibonacci, a famous Italian mathematician, found that adding a certain sequence of numbers up in a
certain order applies to many things in life. For example, sunflowers, pineapples, acorns, the human body,
etc. In Fibonacci, the "Golden Ratio", is the number .618. This is not a random number, and I will show
you how Fibonacci found the golden ratio. The Fibonacci sequence is quite simple, and we will revisit
this later once I discuss Exponential Moving Averages. The sequence is 1+1=2, 2+1=3, 3+2=5, 5+3=8,
8+5=13, 13+8=21, 21+13=34, 34+21=55, 55+34=89, and so on. For the Fibonacci sequence, you take the
sum of each addition and add it to the previous higher number. To find the Fibonacci ratios, you take one
of the numbers from the sequence and divide it by the next highest number. For example, 55/89= .618 and
34/55= .618. To find the .382 Fibonacci ratio, you take one of the Fibonacci numbers and divide it by the
Fibonacci number two times out. For example, 34/89=.382 and 21/55=.382. Mind-blowing, right? You
can find this entire sequence online on how each of these Fibonacci levels is calculated; however, this is
the new age of technical analysis, so let's look into this tool's actual utilization.
How To Draw Fibonacci Extensions
To draw the Fibonacci extensions, there must be a well-defined pivot high and pivot low. Going back to
the stock trends chapter, the high points are the pivot highs, and the low points are the pivot lows. Below
is an example for visualization purposes.
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Chart F.1 - Charts by TradingView
Chart F.1 shows the two points in which you would draw the Fibonacci extensions. Once the stocks pivot
high and low have been identified, take the Fibonacci retracement tool, place it first at the high, then drag
it down to the low. Always go from left to right, high to low. Do not get confused; there are two separate
Fibonacci tools. The Fibonacci extensions are a separate tool from the Fibonacci retracements. However,
I use the Fibonacci retracements tool and add my extensions to it, which I will discuss shortly.
Looking at Chart F.2, this is how the chart should look after plotting the Fibonacci extensions. I will be
showing you two ways to draw Fibonacci. The first one will be used when a stock is breaking above all-
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time highs. If that is the case, I take off all the Fibonacci numbers under 1, and I only want to know about
the extensions to the upside. These numbers are known as 1.272, 1.618, 2.618, and 4.326. In the second
part, I will be showing you the retracement side of Fibonacci, in which case you would want to use .382,
.50, and .618.
Now, let’s review the first way I like to use Fibonacci extensions. This method will be used when a stock
breaks out from all-time highs, and you have no other way of finding price targets. Let’s look at a swing
trade that I took on December 31st, 2020, on $QCOM.
On December 31, 2020, I entered a $QCOM swing, purchasing the $165 Call. I got filled on this swing
trade for $145 per contract. My overall price target was the 127.2% extension at $166.22. The 127.2%
extension is a well-known price target among many traders; therefore, if you break it down to trading
psychology, there will likely be price action at this level. As $QCOM had a straight shot to the 127.2%
extension, I decided to choose the $165 Call.
Looking at Chart F.3, at this point, this is all that I had on $QCOM and had zero clues of how the chart
would look in the future. All I knew was what the indicators and the Fibonacci extensions were showing.
The above chart is what I saw before entering the trade.
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Looking at Chart F.4, the two circled points are the points in which you would draw the Fibonacci
extensions. Again, go from pivot high to pivot low, left to right, wick to wick.
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In Chart F.5, the 127.2% extension lined up at $166.47, so I entered the $165 Call to get the contract in
the money. Guess where $QCOM ended up going around three weeks later? Right to my price target at
the 1.272% Fibonacci extension, where I fully exited the swing trade position. The 1.272 extension is an
extremely common price target for many swing traders.
Chart F.6 shows the exact day I fully exited my position for maximum profits. Notice the reaction
$QCOM had once it reached the 1.272 Fibonacci extension.
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Chart F.7 above shows the significance of the 127.2% extension. $QCOM tested this area three times,
making it resistance each time. Eventually, buyers gave up, and sellers took control and drove the price of
$QCOM down.
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Looking at Chart F.8 of $SQ on the daily time frame, taking the pivot high to pivot low, you can see that
the 127.2% extension and the 161.8% extension acted as resistance, which ultimately was $SQ all-time
high. The stock resisted this level four times before being sold off to the downside. Again, once $SQ
broke over its previous all-time high, no one had a clue where it could go in the future. Using the
Fibonacci extensions helped the trader determine their future price targets.
Looking at Chart F.9, let me show you another example of a trade I took using the Fibonacci extensions
for price targets. On June 29th, 2021, I purchased the August 20th $245 Call for $V. The chart shows
what I saw when entering $V. I had zero clue how the chart would look in the future, but using Fibonacci
and a few other indicators, there was a high probability that $V would continue to push up in price. The
price targets were the 127.2% extension at $242.19 and the 161.8% extension at $248.15. My final exit
was at the 161.8% extension.
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Chart F.10 shows the day I fully exited the $V swing trade position.
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Chart F.11 above is an example of a swing trade I took on $MSFT. For this trade, I entered a complex
spread that I will go into in a later chapter known as the butterfly spread; however, my overall price target
was the 127.2% extension. Looking at the daily chart, there are two points where you would draw the
Fibonacci levels. I took the Fibonacci tool and drew them from the all-time-high at $233 to the low point
at $196.06 to give the extension levels. As seen on the chart, $MSFT achieved the level within two days.
I will be revisiting this exact trade in a later chapter; however, looking at $CAT in Chart F.12 on the daily
time frame, one can notice the previous all-time high followed by the pullback to the downside. As a
result, draw the Fibonacci extensions, and the price target will be the 127.2% extension. Again, I did a
butterfly spread for this swing trade, so I am excited for you to read the chapter about spreads, but notice
how $CAT was quick to run to the 127.2% extension before treating it as resistance multiple times and
then dropping in price.
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Chart F.13 is an example of $MCK on the monthly time frame. Once $MCK broke above all-time highs,
the 127.2% extension and the 161.8% extension were the only price targets. As seen in Chart F.13,
$MCK was able to fill the entire gap to the 127.2% extension. Notice the stock's reaction once it achieved
the first price target. From there, $MCK continued to break through the 127.2% extension and fill the gap
straight to the 161.8% extension.
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Chart F.14 above is an example of another trade I have taken based on Fibonacci extensions. Looking at
$TGT, the most recent, clear-cut pivot high and pivot low are drawn onto the chart. Since then, Target has
given no retracements to draw new Fibonacci levels. Once the stock broke the all-time high, the next
price target was the 127.2% extension at $141.23; however, once the stock price broke above the 127.2%
extension, the market had a gap fill to the 161.8% extension. What did $TGT do? It filled the entire gap to
the 161.8% extension at $155.06. This was a $25 move from $130 to $155 in three weeks.
Fibonacci extensions can be an effective tool when a stock breaks all-time highs, especially if you
combine it with the person’s pivots. These two indicators will give you the most accurate price targets for
your trading. Remember, you must always take a pivot high to pivot low and draw the Fibonacci levels
from left to right. Traders can use the Fibonacci extension for day trades and swing trades. If a stock is
breaking above all-time highs as the market is ready to open, you need to know your daily price objective.
As a swing trader, you need to recognize where the stock has room to go once it surpasses all-time highs.
As a result, you can determine the strike price and calculate how long it will take to reach the price target.
Now that you know how to use Fibonacci extensions to find upside price targets, I will now explain a
method known as Fibonacci gaps.
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Fibonacci Gaps
Fibonacci gaps occur when multiple Fibonacci extensions are drawn at different pivot highs and pivot
lows, but no extension is blocking the stock from increasing substantially in price until the next Fibonacci
extension. The gaps occur from free space in the market where there is a significant price difference
between two Fibonacci levels. For this example, I will show you multiple trades that traders could have
taken on $MRNA due to Fibonacci gaps. As you can see in the chart below, $MRNA was smashing all-
time highs repeatedly. Therefore, traders needed to resort to Fibonacci extensions to get price targets to
the upside.
Looking at Chart F.15, paying attention to the Fibonacci extensions drawn in multiple different areas on
the chart, $MRNA had no resistance from $269.43 to $304. I know the chart looks like a disaster, but I
would never leave all of the lines on the chart. I would simply remove the irrelevant Fibonacci extensions
and keep the chart clean. $MRNA would be a perfect example of a Fibonacci gap since there is tons of
free space between one extension and the next. When you spot these gaps in the market, make sure to take
full advantage of them because the market will more than likely fill the gap, and if it does, that can offer
traders substantial profits.
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Again, breaking the gaps down to trading psychology, if we notice a huge gap that needs to fill from
$264.89 to $304, more than likely, millions of others will see the same gap. What is more than likely
going to happen? Buyers will push $MRNA up in price to $304 and begin to take profits once it hits their
price target. If it breaks above the price target and has another gap to fill, it will likely fill that gap before
having any pullback. As seen in Chart F.16, there was a gap from $304.16 to $340.3, and $MRNA filled
the gap in two days. $MRNA had another gap from $340.3 to $360.3, and $MRNA filled the gap in two
days. The final gap was from $360.34 to $420.14, and $MRNA filled that gap in two days.
Looking at Chart F.16, let me walk you through my thought process on this trade. I noticed a massive gap
in the market that needed to be filled. That was check #1. Check #2 was the break of premarket resistance
at $288.92 (or $290). As seen in the chart, once $MRNA broke above the premarket high, it quickly
reached $317.88 during the session. Why did $MRNA stop right at $317.88? Continue to Chart F.18 to
see why.
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Chart F.17 - Charts by ThinkorSwim
Looking back at Chart F.17 and then Chart F.18, the daily Persons Pivots gave $MRNA a price target of
$318, where price stopped twelve cents short. Piecing together Fibonacci and Persons Pivots is like
solving a puzzle. You might not see the clear picture with one indicator, but the picture makes more sense
when you piece the indicators together. When piecing them together, you will know which price targets to
aim for and have an idea of other traders’ price objectives. As the stock price breaks above one level, the
stock price will more than likely move to the next price target. If price breaks there, it will likely see the
next price target.
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Chart F.18 - Charts by Discord
Looking at Chart F.18, this is a screenshot of my premarket notes on $MRNA. Refer to the first chart of
$MRNA in Chart F.15. Notice the Fibonacci gap that needed to fill from $305 to $340? Well, it filled that
gap today (7/20/21). Again, piecing together Fibonacci and the Persons Pivots helped identify price
targets, entries, and exits. If no pivot points or extensions were blocking $MRNA from filling the gap,
more than likely, buyers would run the price up to the levels before taking profits.
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As seen in Chart F.19, $MRNA was able to fill the remainder of the Fibonacci gap and increase in price
to $346 before finally pulling back.
Looking at Chart F.20 of $SE on the daily time frame, notice the Fibonacci gaps that needed to be filled
by the market. The first gap to fill was once $SE was able to break above $298.58. Once $SE was above
$298.58, the market had a gap to fill to $310-$312. As everyone in the market knew about this gap, they
pushed the price of $SE up to fill the gap before taking profits. The next gap that needed to be filled was
from $312 to $324-$329. Notice how $SE reacted once it broke above $312. Price filled the gap the same
day, making a $12-$17 move. The next gap to be filled was from $329 to $343.95. $SE went ahead and
filled that gap in just two days.
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Chart F.21 is another example of a Fibonacci gap found on $UPST. Looking at the Fibonacci extensions
drawn at the beginning of the chart, $UPST had a gap that needed to fill from $188.63 to $215. $UPST
filled that gap in two days. After that, there was another gap from $217.86 to $244.19, $UPST filled this
gap within a few days. After that gap, there was another gap from $244.19 all the way to $302.32, and
$UPST filled that gap within ten trading days. After $302.32, there was another gap to $328.12, which
was filled in one day. From there, $UPST finally gave a new pivot high to pivot low that allowed a trader
to draw a new Fibonacci level. The Fibonacci extensions then showed that $UPST had two more gaps to
be filled. The first gap occurred from $346.54 (new all-time highs) to $364.33, then the second gap to
$386.96. $UPST filled both of those gaps as well. Throughout the entire $UPST move up, you could have
been trading the gaps and profiting the entire time.
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Looking at $AMZN in Chart F.22, I had taken three different Fibonacci levels to draw the extensions, and
there was a massive gap that $AMZN had to fill from $3551.2 to $3644.18. Since this gap is obvious,
everyone can see it, and everyone is planning the same trade. If everyone has the same plan, what is more
than likely going to happen? The market is going to fill that gap. $AMZN ran over $100 in a single day to
initiate the gap fill. After that gap, there was then another gap from $3666.76 to $3737.17. $AMZN filled
that gap as well.
Spotting gaps in the market is significant because, as you have seen in the examples, the market favors
filling the gap before having any form of price action. As a result, you can trade the free space in between
the gaps and use it to your advantage to profit. Always remember, the gaps are your friend. Now that you
know how to find possible price targets to the upside using Fibonacci extensions, as well as how to use
Fibonacci gaps to capture significant moves in the market, I am now going to show you how to use
Fibonacci retracements to understand where a stock can retrace to after a big move has occurred in the
market.
Fibonacci Retracements
I use Fibonacci also to find possible retracements after a big move has been made in the market. As I
discussed earlier, 38.2%, 50%, and 61.8% are other Fibonacci ratios, and these act as the most common
retracement areas, with the 50% and 61.8% retracement being the most popular.
A retracement is a short-term pullback against the stock's current trend before the original trend
continues. Retracements are perfectly normal and can provide the trader with excellent opportunities to
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enter a position. I know it is hard to believe, but stocks do NOT go up forever. Instead of doing what
amateur traders do, which is chasing the move, once you understand how to use Fibonacci retracements,
this will help you identify where you should be looking to enter the trade. This will ensure you have the
best possible risk-to-reward ratio when entering.
Chart F.23 - Charts by TrendSpider
Looking at Chart F.23 of $SPY on the daily time frame, as far as drawing the retracement levels, using
the Fibonacci retracement tool, take the pivot low (the low before the move was made) and draw it to the
newest pivot high (the high of the move). With the retracements, you draw them the opposite way of the
extensions. Make sure to draw from wick to wick, left to right. As you can see in the above chart, $SPY
came down into the retracement zone and made a full 61.8% retracement before continuing in its trend.
Ideally, I look for a 50% or 61.8% retracement to enter my trades; however, there are times when the
stock decides to retrace by 38.2% before continuing its trend. Something worth noting, just because the
stock makes a retracement into these zones does not mean it will bounce and go higher. Make sure to
confirm a bounce with the indicators discussed in this book. Understanding the retracements is super
important because it helps traders not buy the top of the market and instead provides levels that the stock
could retrace to, thus helping traders identify low-risk entry points.
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Looking at Chart F.24, going back to the $V example in Chart F.11, taking the most recent pivot low in
late March 2021 to the high of May 2021, the retracement zone was automatically drawn. Where did $V
retrace to? Right to the 50% retracement, where $V bounced and went to new all-time highs. In this
scenario, the retracements and extensions helped identify a low-risk entry, and the extensions provided
the price targets. If one entered the $V trade at the 50% retracements, the stop-loss would simply be
placed on the opposite side of the retracements.
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Looking at Chart F.25 of Gold on the daily time frame, there was a massive increase in price from $1,451
to $2,075. As a trader, you know a move like this is not sustainable for very long. Instead of chasing the
trade, you instead take the Fibonacci retracement tool and draw the retracements onto the chart. Staying
patient, you wait for a full retracement, ideally to the 50% or 61.8% level, where you could have
identified a low-risk entry. As seen on the chart, Gold retraced to the 61.8% retracement at $1,686 and
formed a double bottom. Since the 61.8% retracement, Gold has continued to increase in price to $2,080.
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Chart F.26 shows two examples of how efficient the Fibonacci retracements are. Looking at the chart
above, the first Fibonacci retracement on $SE, taking the low point before the move to the high point after
the move, $SE made a 50% retracement before continuing back up in price. $SE made another big move
following the 50% retracement. As a result, you can take the retracement tool and draw it on the chart to
understand possible retracements. $SE made a 61.8% retracement before bouncing and continuing back to
the upside.
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Looking at Chart F.27, one can also use Fibonacci retracements on a stock dropping in price. Instead of
taking the low to the high, take the high to the low. From here, the retracements still play a significant
role. As seen in all three examples, $BABA retraced back into the retracement zones before continuing its
downtrend. Each subsequent pullback was followed by a more significant move to the downside. Going
back to stock trends, notice how the retracements let traders know where the stock price could retrace
before continuing in its primary trend. The higher lows in an uptrend and the lower highs in a downtrend
can be predicted using Fibonacci retracements.
What is the result if the stock breaks the entire retracement zone? If a stock were to break the retracement
levels, the trend is more than likely changing directions. For example, in a market uptrend, if a stock falls
below the 61.8% retracement, the stock could continue to fall as the retracement has failed. On the flip
side, in a market downtrend, if a stock breaks above the 61.8% retracement, buyers will more than likely
flood the market and push prices higher. (See Chart F.30 Below).
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Looking at the example of $SPY in Chart F.28, notice price made a full 61.8% retracement but closed
below it. The day $SPY closed below the 61.8% retracement was on a Friday, and the overall market
continued to trend down on Monday. This is typically the result of a retracement being violated.
Remember, if it violates that level, it is more than likely not a retracement anymore, and the stock will
more than likely shift its trend.
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Chart F.29 - Charts by Trendspider
Looking at $NIO on the daily time frame in Chart F.29, notice the steep increase in price. As a result, you
do not want to get stuck buying Calls at the top, and instead, you would want to wait for $NIO to give a
retracement before going long. Notice how the price reacted once $NIO broke below the 61.8%
retracement. When breaking it down to trading psychology, short sellers are waiting for the stock to
invalidate the retracement, so they then sell short, then there are also the buyers who are forced to sell
their positions to cut losses. As a result, the stock price goes lower.
Wrapping up Fibonacci
When plotting the Fibonacci extensions, always start on the monthly time frame to understand the long-
term perspective. After identifying which long-term Fibonacci extensions are applicable based on the
monthly time frame, break it down to a weekly time frame and plot the weekly Fibonacci extensions.
Again, figuring out which ones apply to where the current stock price is at and deleting the ones that are
irrelevant to price. Then finally, break it down to the daily time frame to find any remaining Fibonacci
extensions. Make sure to delete the levels that hold no value to where the stock's current price is; that
way, the chart does not become cluttered. On the flip side, utilize the Fibonacci retracement tool if a stock
has had a substantial run-up or drop in price. Instead of going long at the top of the move, or going short
at the bottom of a move, the retracements will let you know where to possibly start your position, which
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as a result, will give you the best risk-to-reward possible. Also, make sure to utilize the Fibonacci gaps
that occur in the market. If there is a price gap, the market favors filling the gaps before significant price
action occurs. This offers traders some of the best possibilities to profit.
That will wrap up using Fibonacci extensions, retracements, gaps, support, resistance, and Person Pivots.
Make sure to use all of these tools to your advantage when trading. Simply relying on basic support and
resistance is not part of the new age of technical analysis. Now that you know how to plot support and
resistance in a few different ways, your entries and exits should be much more accurate. Another form of
support and resistance worth knowing is the trendline, which I will discuss next
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Chapter 7: Trendlines
A trendline is a sloped support or resistance line that successfully connects two to three swing lows or
swing highs. Trendlines can be found on any time frame and can assist traders in making proper trading
decisions. Like regular support and resistance points, the more direct hits a trendline has on price action,
the stronger the level becomes.
Chart G.1 - Chart by ThinkorSwim
Looking at Chart G.1 of $DISH on the daily time frame, the downward sloping trendline is acting as
resistance. $DISH had hit this level multiple times before breaking above and pushing higher in price. As
a result, the breakout generated buying pressure.
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Looking at Chart G.2, a different trendline can be spotted on the same example of $DISH, but this time a
slightly slopped trendline to the upside. This new trendline acts as resistance to the upside and suggests
that $DISH will continue to have resistance at this level. Notice the price increase once it broke above
both trendlines. I took this trade based on the stock price breaking above the trendlines.
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Looking at Chart G.3 of $GILD on the daily time frame, there is an upward sloping trendline acting as
support. The idea behind this trendline is that each time the stock comes back to this area, it will find
support and continue higher, which it did.
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Looking at Chart G.4 of $AAPL on the weekly time frame, the same upward sloping trendline can be
seen. Notice how each time $AAPL retested the trendline, it successfully bounced and continued higher
in price.
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Looking at Chart G.5 of $HUT, notice how the wicks have successfully touched the trendline four times.
Once two successful wicks connect a trendline, one can be drawn. As a result, this trendline will continue
to act as downward resistance until the stock price pushes through the trendline and holds above.
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Looking at Chart G.6, in this final example of a trendline, notice how $DKNG formed support at this
level multiple times over the course of six months. Each pullback led to a bounce; however, notice the
reaction once price broke below the trendline. It had a massive sell-off in the following weeks. This is all
due to trading psychology. Imagine you are adding to your $DKNG position with each successful
pullback to the trendline, and then eventually, the stock breaks below the trendline. Any sane person
would sell their position, and remember, you are not the only one who would sell in that scenario. As a
result of the trendline break, $DKNG dropped in price significantly.
There are many different ways to draw these trendlines, which has caused significant discussions on
whether trendlines are useful in technical analysis. In my opinion, yes, they are, but the way that some
traders use trendlines makes the topic very subjective. When you are using trendlines, you want to draw
the ones that will be the easiest to spot because, remember, the entire market is one big game of trading
psychology. If you are searching for a trendline with a magnifying glass, more than likely, the majority of
the market will not know about that trendline. Therefore, the price is going to ignore it altogether. Only
plot the obvious trendlines as those will be the ones where price reacts. If you need a website to double-
check your trendlines, check out FinViz.com; type in a ticker on the website, and it automatically draws
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the trendlines for you. This way, you can compare and eliminate any useless trendlines. As seen in the
$DKNG example, when a trendline is violated, buyers or sellers will flood the market and either drive
prices up or down. I will show you a few more examples in the following charts.
Chart G.7 - Charts by ThinkorSwim
Looking at Chart G.7 with the uptrending trendline on $X, notice what happened once the stock broke
below the trendline. Significant selling pressure hit the stock, and prices fell hard the first two days of
violating the trendline. Why did this happen? With each successful pullback to the trendline, many traders
and investors see this as a good buying opportunity. They begin to build a bigger position as they add
with each pullback. What do you do if you add to your position each time the stock returns to a trendline,
and suddenly the stock falls below it? You would probably sell, and that is exactly what happened. It
would be best to keep in mind that people started a position or added to a position when it came back to
touch the trendline the last time before breaking. If this was your first position and you saw the price
break below the trendline, you would quickly sell and cut your losses. At the same time, short sellers
enter the market to drive the price lower and profit from it. See how trading psychology justifies the drop
in price you see at the breakdown of the trendline?
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In Chart G.8 of $MRO, there is a slightly inclined trendline that has three hits as resistance. With this
kind of trendline, usually, once the price breaks above the trendline, you will notice a big reaction, and
that is exactly what happened with $MRO. Short sellers would sell short at the trendline, and the buyers
would buy on the dips. Once the stock broke above the trendline, short sellers had to cover their positions,
meaning they would repurchase the shares, plus people had been on the sidelines waiting for the stock to
break before starting a position. That is the psychology behind why this move occurred.
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Looking at Chart G.9, a fascinating aspect of the trendline is that if broken, the price will usually return to
the trendline and make it support or resistance. Looking at $MSFT in the chart above, there is a long-term
inclined trendline acting as resistance. Notice what happened when $MSFT broke above this resistance
point. It treated the trendline as support on multiple occasions.
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Looking at Chart G.10 of $TSLA on the daily time frame, three trendlines are spotted. Ignore the two
long upper wicks that break above the trendline. These are misprints on the ThinkorSwim platform.
Looking at the declining trendline, there are three hits. That meets the criteria to draw a trendline. Notice
how $TSLA treated the declining trendline as resistance multiple times until the stock was able to break
above the trendline. $TSLA then treated the trendline as support on multiple occasions. Following the
breakout, $TSLA then went into a channel where two trendlines could be drawn to capture the swing
highs and swing lows.
Looking at Chart G.11, the final example of how price likes to retest the trendline can be seen in the chart
above. Looking at the daily chart, there are plenty of times where price came up, hit the trendline, and
then dropped. However, notice what happened as soon as price broke above the trendline. It came right
back, tested it as support, and then continued to push higher.
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Why does this happen?
This happens due to the same reason regular support becomes resistance, and resistance becomes support.
Imagine you missed the breakout or breakdown of a trendline, and you are stuck missing out on the trade.
What would you do if the stock came back to revisit the trendline? You would likely enter the position as
the stock is back near the original entry. If buyers anticipate selling $HD at the trendline in Chart G.11 to
take profits, what happens if $HD breaks above it? They want to get back into $HD for as close to where
they sold. As a result, the stock will likely retest the trendline before breaking out and advancing further
to the upside. The same thing happens with a trendline that has been acting as support. If buyers have
been adding to their positions at the inclined trendline, and miss their sell once the price breaks below,
they would likely wait for a retest of the trendline before selling. As a result, this creates a perfect low-
risk entry to the downside. If you were to go short at a retest of the trendline in this example, the stop-loss
would be on the opposite side of the trendline, while profits are virtually unlimited.
Trendlines are a powerful form of support and resistance, especially when combined with horizontal
support and resistance, Fibonacci, and pivot points. Traders can also use trendlines to form the chart
patterns that will be discussed in a later chapter. Do not search too hard for a trendline, as they should
stick out like a sore thumb. Those are going to be the most effective since anyone can find them.
Did anything in the last few chapters blow your mind? Wait until you read the following few chapters
where I discuss my favorite trading indicators.
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Chapter 8: Exponential Moving Averages
Before discussing which Exponential Moving Averages (EMAs) you should be using in your trading, let
me tell you what the EMAs are. The EMAs is the average price of an asset set over a length of time the
trader chooses. The average price is then plotted with a line, and this line moves with each bar and will
change depending on which time frame is used. However, the EMAs put a greater weighting on more
recent price action than older price action.
For example, suppose you use a 100-day EMA. One would assume that out of the 100 days, the EMA
would weigh each day the same. However, that is wrong. The EMA will emphasize the previous ten days
more than the price action from 90 days ago. In short, the EMAs are weighing recent price action heavier
than older price action. One moving average, the Simple Moving Average (SMA), weighs each day the
same.
Chart H.1 - Charts by ThinkorSwim
Looking at Chart H.1, I have placed an EMA and SMA on the chart for visual reference. The red line is
the 100 EMA, and the blue line is the 100 SMA. Notice how the two moving averages are in two
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completely different areas on the chart. In my opinion, EMAs are more effective for short-term traders,
while SMAs are more effective for long-term trends.
Now that you know the difference between EMAs and SMAs, going back to the Fibonacci sequence, the
EMAs I use in my trading strategy are the 5, 8, 21, and 55. Before I begin discussing how to use these
moving averages, each EMA will be used the same way as shown in the following pages. The only
difference will be the time frame you base the trade. For example, if you base a trade on the daily time
frame, you must rely on the daily EMAs. If you base a trade on the five-minute time frame, you must use
the EMA rules on the five-minute. It all depends on which time frame the setup occurs.
The 5 EMA
First, I will discuss the 5 EMA and how to use it to keep you in winning trades longer, alert you of
possible exit points, and how use it as an RSI. I know some people are questioning that statement, “How
are you comparing a moving average to RSI.” Well, let me show you.
First, I will show you how to use the 5 EMA as your babysitter and keep you in winning trades longer. I
will show you a series of charts in the coming pages. Notice how the entire time, these stocks never
violated the 5 EMA. Therefore, my rule is that if the stock is following the 5 EMA, there are zero reasons
to panic and zero reasons to sell your position unless a price target is hit, or you are satisfied with your
profits.
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Looking above at Chart H.2 of $BA on a 10-minute chart. Notice that $BA followed the 5 EMA to a T
and did not break above the EMA until much later in the day. Theoretically, there were zero reasons to
sell the $BA options, and if held, the trader caught a $6.37 move to the downside, which is easily $150-
200+ of profit per contract.
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Looking above at Chart H.3 of $SQ on the ten-minute time frame, look at what the price did for most of
the day. It simply followed the 5 EMA to the upside without breaking below it until much later in the day.
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Looking at Chart H.4 above, this is a perfect example of why you should not panic when the stock
follows the 5 EMA. As you can see on the chart of $AAPL above, there was a beautiful breakout above
the trendline, and due to the breakout, I entered long. I entered the trade during the big green bar (labeled
“Entry); what happened the following three days? Red, red, and more red. Should I have panicked and
sold just because I saw red? NO. Looking at the chart, all $AAPL did was pullback to the daily 5 EMA.
From there, $AAPL proceeded to run $17 and create new all-time highs at $150. While increasing in
price, all $AAPL did was follow the 5 EMA to the upside. Therefore, there were zero reasons to exit the
position. By ignoring the 5 EMA rule, one could have sold the position at –40%, just to look back a few
days later and see the contracts were now up +300%.
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Looking at Chart H.5 of $HD on the daily time frame, all price did was follow the 5 EMA to the upside
for a $65 move without ever violating the moving average. As a result, theoretically, you could have
ridden $HD to the upside and caught this entire move, resulting in a significant amount of profits.
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Finally, looking at Chart H.6 of $TSLA on the one-hour time frame, notice how the price followed the
one-hour 5 EMA for most of the move. If you base a trade on the one-hour time frame, you must pay
attention to the hourly 5 EMA. As a result, $TSLA gave a great move to the upside without violating the
moving average.
As seen in the many examples provided, if the price follows the 5 EMA in the respected direction, there is
no reason to panic during the trade. The 5 EMA will guide you to profits as long as the stock follows.
However, it is important not to be greedy. As the stock continues to follow the 5 EMA, make sure to scale
out of your position to secure profits and move the stop-loss until it is eventually triggered. Now that you
know how to let the 5 EMA guide you, I will show you how to also use it as an RSI indicator.
How To Use The 5 EMA As An RSI
Before discussing how the 5 EMA can substitute the RSI, it would be beneficial to know what RSI is.
RSI, also known as the Relative Strength Index, was created by J. Welles. Wilder Jr. and written about in
his 1978 book New Concepts in Technical Trading Systems. This indicator has two extremes marked,
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which indicate overbought or oversold conditions. The 70-mark signals that the stock is overbought, and
the 30-mark signals that the stock is oversold. As a result, you want to avoid going long when the RSI is
in overbought territory and avoid going short when the RSI is in oversold territory. I, however, prefer to
use the 5 EMA instead of the RSI for the reasons that you will see in the following examples.
Chart H.7 of $HD on the daily time frame has RSI applied at the bottom of the chart, and shows the
similarities between the two indicators. The two can give the same signals regarding overbought and
oversold conditions. There are, however, many times when the RSI gives an overbought reading, but the
stock is still close to the 5 EMA. As seen in the $HD example, RSI is giving an overbought reading, yet
the price is hugging the 5 EMA. My general rule is that I will not sell the position until price gets
overextended from the 5 EMA.
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Chart H.8 of $AAPL on the daily time frame, shows the RSI giving $AAPL an overbought at $136 a
share. As seen in the picture above, the stock continued to move to the upside, following the 5 EMA all
the way to $150 a share before getting overextended from the 5 EMA and pulling back.
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Looking at Chart H.9 of $ZS, the RSI showed that the stock was overbought on multiple occasions, but as
seen in the picture, the stock kept following the 5 EMA. $ZS was first considered overbought at $210 but
proceeded to move to a high of $224.50 before pulling back and letting the RSI cool off. Then $ZS
proceeded to run again and was considered overbought at $233. From there, $ZS continued to run to a
high of $249.41 before pulling back. Then it was considered overbought one more time at $255 but
proceeded to move to $293.27 before finally giving a pullback. Notice how the pullbacks occurred once
the stock was over-extended from the 5 EMA instead of when the RSI was considered overbought.
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Looking at Chart H.10 of $LOW on the daily time frame, the RSI started flashing overbought conditions
at $185. From there, the RSI stayed in overbought territory, but the stock continued to push to $209
before pulling back to the downside. As seen in the chart, $LOW continued to ride the daily 5 EMA to the
upside before getting over-extended and pulling back.
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Looking at Chart H.11 of $TSLA on the daily time frame, notice how the RSI showed overbought
conditions at around $800. RSI users probably missed the move to $1,243.49 due to the overbought
reading. $TSLA followed the 5 EMA to the upside, where it got over-extended from the 5 EMA a couple
of times, pulled back, then continued to push to the upside.
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Finally, looking at Chart H.12 of $BABA on the daily time frame, oversold conditions were marked when
the stock was $175 a share. However, $BABA continued to sell off and eventually dropped to $150 a
share within a few days. A majority of the time, the stock followed the 5 EMA before getting
overextended and coming back up to the moving average.
As you can see in the examples, the RSI can show the stock is overbought; however, the price continues
to push to the upside, and the RSI can show oversold, but the price can continue to drop. We are not
talking about a few dollars; the stocks continued to push or drop a significant amount, and if you listened
to the general concept of RSI, which is “do not buy when overbought” and “do not sell when oversold,”
you are potentially missing out on an even bigger move to the upside, or downside. Therefore, I let the 5
EMA dictate when the stock is overbought or oversold, and most of the time, the 5 EMA will let you
know about these conditions well before the RSI does. The rule for the 5 EMA is that whenever the stock
is over-extended, it will ALWAYS pullback to it. Well, not always. Two things can happen: price pulls
back, or the stock bull/bear flags, which I will show later. It is also worth mentioning that I am not saying,
“Do not use RSI,” I know plenty of traders who use this indicator and are incredibly successful. If
anything, you can combine the 5 EMA and RSI to help you spot overbought and oversold conditions.
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However, in my strategy, a lot of it relies on the moving averages. That is why I prefer to use the 5 EMA
over RSI. If the RSI interests you, I highly suggest you purchase J. Welles Wilder Jr. Book, New
Concepts in Technical Trading Systems. It is a fantastic trading book that all traders must read.
Now I will be removing the RSI from the charts and showing you how to identify over-extensions with
the 5 EMA.
Looking at Chart H.13, on July 20, 2021, I was live streaming on my YouTube channel looking for stocks
to trade when I stumbled upon $BA. I told everyone in the live stream that $BA could get bought up back
to the daily 5 EMA due to the over-extension. That is a bold statement; however, looking at the $BA
Chart, the previous day, it closed at $206.62, but the 5 EMA was at $218.5, which is almost a $12 gap.
Because of this, we already knew that $BA was super over-extended to the downside and needed to be
bought back up to at least the daily 5 EMA. $BA that same day increased in price from a low of $206.5 to
a high of $217.25; almost an $11 move.
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Chart H.14 is another example of how understanding over-extensions in the 5 EMA helped me spot
trading opportunities. Running up into April 9th, I was trading $SQ Calls the entire time; however, on
April 8th and April 9th, $SQ was getting very over-extended from the 5 EMA on the daily time frame.
The day I took this trade was on the over-extension on April 9th. Looking at the chart of $SQ, the 5 EMA
was at $260, and $SQ opened at $274 where price proceeded to push to $278. At this point, $SQ was
over-extended from the 5 EMA by $18. Knowing this over-extension could have served you two ways. 1.
Not buying Calls and losing because the stock pulled back on you, and 2. hinting that you could start a
short position as long as all the other technicals confirm this act. $SQ pulled back down to the daily 5
EMA that day and offered a beautiful short position.
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Looking at Chart H.15 of $SPY on the daily time frame, notice how when the price became over-
extended from the 5 EMA, it quickly pulled back to the moving average before dropping again.
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Looking at another example of $SPY in Chart H.16, notice the three red arrows I have drawn on the chart.
Each time price got visually over-extended from the 5 EMA, it pulled back to the moving average.
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Take one good look at Chart H.17 of $SQ on the daily time frame. How many over-extensions can you
spot? Again, the over-extensions may not be enough to put on a trade in the opposite direction, but it will
save you from losing money.
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Looking at Chart H.18, notice all the daily over-extensions on $FB.
At the beginning of the chapter, I mentioned that one of two things could happen when a stock is
overextended from the 5 EMA. 1. The stock could pullback to the 5 EMA, or 2. The stock could create a
bull flag or bear flag. I will discuss the bull flag and bear flag further in-depth in a later chapter, but for
now, I want you to know that a bull flag is a continuation pattern to the upside. It consists of a move up,
followed by consolidation, and then another move up, while a bear flag is a continuation to the downside.
The bear flag consists of a move down, followed by consolidation, and another move down (See Charts
H.19 & H.20 Below).
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Looking at Chart H.19 of $TSLA on the 10-minute time frame, notice what happened when the stock
price got over-extended from the 5 EMA. The price consolidated until it returned to the 5 EMA, forming
a bull flag, and then pushed higher in price.
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Looking at Chart H.20 of $NVDA on the five-minute time frame, once the stock price became
overextended from the 5 EMA, the price consolidated until coming back to the moving average, giving
the next leg up.
These two charts above are just a couple of examples for now. You will notice the over-extensions that
turn into bull flags and bear flags once I discuss flags further in-depth in the chart patterns chapter.
Of course, we never know if the stock will pullback to the 5 EMA or if it will bull flag, so you need to
consider many other indications before exiting the winning positions. What I prefer to do in this scenario
is to move my stop-loss up and scale-out of my position when the stock gets over-extended. That way, if
it does pullback, in the worst-case scenario, you will get stopped out at break-even or in profits.
To sum up the 5 EMA, this moving average will act as your babysitter in all winning trades. If the stock
follows the 5 EMA in your respected direction, there are zero reasons to exit the position. Instead, move
the stop-loss until it eventually triggers, or you are satisfied with the profits. The 5 EMA also acts as an
RSI. When the stock gets over-extended from the moving average, it will either pullback to the 5 EMA or
create a flag. If you are ever in a winning position and the stock gets over-extended from the moving
average, secure some of your profits and move the stop-loss up to limit your risk if the stock does
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pullback. The 5 EMA will play a crucial role in all your trading decisions; therefore, you need to know
how to use this moving average. Another moving average can be combined with the 5 EMA, which
creates a powerful duo, and that moving average is the 8 EMA.
The 8 Exponential Moving Average
The second EMA from the Fibonacci sequence that I will be discussing is the 8 EMA. The 8 EMA is used
in several ways, and when you combine it with the 5 EMA, it creates a powerful technical tool. The 8
EMA will be your stop-loss in a winning position and a stop in a losing position. When you combine the
5 EMA and 8 EMA, it acts as a MACD indicator and is my two favorite EMAs.
Using The 8 EMA As A Stop-loss
My rule of thumb when trading is to always set my stop-loss on the opposite side of the 8 EMA. As you
will see in the following few charts, it is common for the price of a stock to come back to this area but end
up bouncing and going back in its respected direction. However, as I have seen repeatedly, once a stock
loses the 8 EMA, it tends to reverse and go in the opposite direction. When using this moving average,
depending on which time frame you have used to initiate the trade, the price must close on the opposite
side of the 8 EMA on that time frame to stop you out of the trade. For example, if you base a trade off the
10-minute time frame, the stock must close below the 10-minute 8 EMA. If you base the trade off the 1-
minute time frame, the stock must close below the 1-minute 8 EMA.
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In Chart H.21 of $ROKU on the daily time frame, notice that a $140 run-up was held by the 5 EMA and 8
EMA the entire way to the upside. When $ROKU pulled back, it tested the 8 EMA and continued higher
in price. You could have trailed the stop-loss below the 8 EMA during this entire run-up until $ROKU
finally fell the moving average. Notice the day that $ROKU lost the 8 EMA on the daily time frame, price
then proceeded to fall $28 to the downside before rebounding. Then once back above the moving
averages, price followed the two EMAs for another $106 move to the upside.
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In Chart H.22 of $TSLA on the one-hour time frame, notice how the stock rode the 5 EMA and 8 EMA to
the downside without ever violating the moving averages until days later. Since the break below the
EMAs, $TSLA stock dropped from $1150 to $950.5 without breaking above the 8 EMA besides in post-
market and premarket.
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Looking at Chart H.23 of $AAPL on the daily time frame, notice that once the stock lost the daily 8
EMA, $AAPL immediately went into a downtrend. If you were to take puts, trail the stop-loss above the 8
EMA the entire way down. Notice what happened to $AAPL once the price closed above the 5 EMA and
the 8 EMA. $AAPL then proceeded to push to the upside until the price fell below both moving averages
again. From there, $AAPL followed the 5 EMA and 8 EMA back to the downside before breaking back
above the moving averages. This combination never ends.
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Chart H.24 of $Z on the daily time frame can also help show how the two moving averages work
together. Looking at $Z, there were two scenarios where the stock followed the 5 EMA and 8 EMA to the
upside without ever violating the moving averages. The first run-up in price consisted of a $16 move, and
the second run-up in price consisted of a $32 move. At the same time, notice what happened each time $Z
began to close below the 8 EMA. The stock then reversed directions and followed both EMAs to the
downside.
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Looking at Chart H.25 of $FB on the weekly time frame, the two moving averages help paint a clear trend
in the stock price. Once $FB broke consolidation, the price was $282 a share. Until recently, all $FB did
was follow the 5 EMA and 8 EMA to the upside without ever violating the 8 EMA. $FB ran to a high of
$384 a share, which was a $102 increase without having any violations.
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In this final example of how the 8 EMA should act as your stop-loss, notice $TSLA on the daily time
frame lost the 8 EMA entirely on April 27th, 2021. The price of $TSLA at the close of that day was $704.
$TSLA continued its drop to $540 without ever violating the 8 EMA to the upside. This was a - $164
move in which you could have shorted or bought puts on $TSLA and profited the entire way down.
Notice how $TSLA got over-extended from the 5 EMA, pulled back, broke above the daily 8 EMA, and
then continued to push higher.
Remember, the stop-loss is on the opposite side of the 8 EMA. If you are long, the stop-loss is below the
8 EMA. If you are short, the stop-loss is above the 8 EMA. Depending on the time frame chosen for the
trade, the stock must close on the opposite side of the 8 EMA, on that time frame to stop you out. I have
seen too many people sell as soon as the stock price breaks the 8 EMA, but quickly after, price rebounded
and closed above the moving averages. Remember, it must CLOSE on the opposite side of the 8 EMA.
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How To Combine The 5 EMA and 8 EMA To Create A MACD
Before showing you how to use the 5 EMA and 8 EMA as the MACD, it will be beneficial for you to
know what this indicator is.
MACD, also known as the Moving Average Convergence Divergence indicator, is a momentum/trend
following indicator that gives buy and sell signals based on two EMAs. The two EMAs used are the 26
EMA minus the 12 EMA. It then plots the nine-day EMA from the difference between the 26 EMA and
12 EMA, and then uses the difference between the 26 EMA and 12 EMA as another line. With the
MACD indicator, there is also a histogram plotted on the chart. The histogram is presented with a few
different colors. The first color is dark green, the second color is light green, the third color is dark red,
and the fourth color is light red. These colored bars show the momentum of the stock. The bars are
calculated based on the difference between the two averages on the MACD. During a sell signal, if the
two moving averages gap far away from each other, you will see the red momentum bars, which signals
strong selling momentum. The same can be said based on buy signals. When the green is presented on the
MACD, this shows strong buying momentum. When the two moving averages get closer, the bars turn
into their opposing lighter color. Below is how the MACD indicator would look on a chart (See Chart
H.27 below).
Looking at Chart H.27, when the blue line curls below the tan line, this generates a sell signal; however,
when the blue line curls above the tan line, this generates a buy signal. As you can see, there is also a
histogram on the chart as well. This histogram measures the difference between the two EMAs.
Something to make a note of, I am not against MACD, nor do I hate the indicator. I do not use it in my
strategy as the 5 EMA, and 8 EMA will do exactly as the MACD. Now that you know what the MACD
is, let me show you a simple trick with the 5 EMA and 8 EMA, which can substitute for the MACD.
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Looking at the example of $HD in Chart H.28, using the 5 EMA, 8 EMA, and MACD, you can see that
the MACD crossed to the upside and had a clear buy signal. Look at the 5 EMA and 8 EMA as well.
What did it do? It also generated a buy signal. When the 5 EMA and 8 EMA curl, this generates buy and
sell signals. That is exactly what the MACD does.
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Looking at Chart H.29 of $AMD in, notice how the MACD and the two EMAs generated buy and sell
signals at similar times. Sometimes the MACD generates the signals first, and other times the EMAs
generate the signals first. In my experience, I have noticed that they tend to form the same signals
simultaneously, which is why I prefer to use just my EMAs.
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Looking at Chart H.30 of $HD, the first buy signal on the MACD happened when the 5 EMA crossed
over the 8 EMA. However, when MACD generated the sell signal, the EMAs NEVER gave a sell signal,
and instead, the stock began to bull flag. While MACD said sell, theoretically, there was no reason to sell.
From there, the MACD told you to buy back eight trading days later after the move had continued.
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Looking at Chart H.31 of $BA on the daily time frame, the MACD gave a buy signal at the same time as
the 5 EMA and 8 EMA. However, the big difference here is seen in the sell signals. Notice how the stock
was super over-extended from the 5 EMA on the daily time frame and was telling you to exit the position
ASAP. This occurred days before the MACD generated a sell signal. Would this have been a profitable
trade regardless? Of course, it would have, but you would have lost a lot of potential profit if you waited
for the MACD to generate a sell signal first.
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Chart H.32 is another example of how the MACD, 5 EMA, and 8 EMA tend to generate signals
simultaneously. Due to the almost identical buy and sell signals, plus knowing how to use the 5 EMA and
8 EMA for entries, exits, stop-losses, and take profits, it would be much more beneficial for you to use the
5 EMA and 8 EMA on your charts.
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Chart H.33 Charts by ThinkorSwim
Chart H.33 of $RIOT on the daily time frame shows how the 5 EMA and 8 EMA generated a buy signal
at the same time as the MACD, and then generated a sell signal at the same time as the MACD.
This is how to use the 5 EMA and 8 EMA as a MACD. Instead of having more indicators on your screen,
like the RSI, MACD, and the EMAs, all you need to have now is two moving averages to do all the work.
Next, I will be discussing another important EMA, which will be the 21 EMA.
The 21 Exponential Moving Average
The following moving average I will be discussing is the 21 EMA. This is an essential moving average on
almost all-time frames depending on your trading style. This EMA and the 20 EMA/SMA are considered
the mean of a stock. When the stock extends too far away from the mean, it will always revert back to it.
As many traders use one of the three moving averages just discussed, there will almost always be price
action in the general area of those moving averages if you break it down to trading psychology. I use the
21 EMA because it is a part of the Fibonacci sequence. Before diving deeper into this topic, I want you to
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remember through this entire chapter that the 21 EMA is the BEST possible spot to enter a trade.
Personally, I make the 21 EMA white.
Take one good look at the chart above of $AAPL on the daily time frame with the 21 EMA applied.
Notice how much price action occurred at the daily 21 EMA.
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Another excellent example of how strong the daily 21 EMA can be, is found in Chart H.35 of $GS. While
$GS was consolidating, you can see that the price bounced around both sides of the daily 21 EMA. While
$GS was above the 21 EMA, price treated it as support, while $GS was below the 21 EMA, price treated
it as resistance.
The 21 EMA does not only apply to the daily time frame either. It is applicable to all time frames. It just
depends on which time frame you use to initiate the trade. If you like to use the 1-hour time frame to
make trades, you want to rely on the 1-hour 21 EMA.
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Looking at $DKNG in the chart above, notice the stock price's reaction to the one-hour 21 EMA. Price
resisted this level on multiple occasions and continued to trend down.
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Chart H.37 above is another example of $BA. Again, notice the support that occurred at the daily 21
EMA. If a trader was looking for a long entry, $BA offered many perfect opportunities to enter a trade
while giving a fantastic risk-to-reward.
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Looking at the same chart of $BA except with the 20 SMA, 20 EMA, and 21 EMA applied, notice how
price reacts to these general areas. Again, if you break it down to trading psychology, most traders use
one of these three moving averages on their charts. As so many traders use these moving averages, there
will likely be price action in that area. Looking at the chart above, you can see that most of the time, the
stock is bouncing off one of those moving averages as support or resistance.
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Back to just the 21 EMA in Chart H.39, I want to start with a trade that I took on $AXP.
On March 26th, 2021, I entered $AXP $150 Calls expiring April 30th. I chose this date because it would
cover earnings, and the stock could experience a run-up into their earnings report. Again, the 21 EMA is
the BEST possible spot to enter a position. Looking at the dragonfly doji with the red arrow pointing at it,
notice the stock's reaction to the daily 21 EMA. As the stock pulled back to the daily 21 EMA, I entered
this swing trade. This offered me a low-risk, high reward trade. By default, I placed my stop-loss below
the daily 21 EMA. As the trade was based on the daily time frame, $AXP would have to close below the
21 EMA at the end of the day to stop me out.
When the 5 EMA, 8 EMA, and 21 EMA are super tight, the stop-loss is ALWAYS below the 21 EMA.
The next day, $AXP dropped in price and came back to the daily 21 EMA and made it support. Did the
stock ever close below the 21 EMA? Nope. Two days later, the same thing happened. The stock price
pulled back to the 21 EMA. Did it close below the 21 EMA? Nope. As a result, I added a few more
contracts due to the amount of support on the 21 EMA. Again, giving me the best possible risk-to-reward,
and an excellent average down on my contracts. Would some people panic sell in this scenario? Yes.
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However, there were zero violations and zero reasons to sell from a technical standpoint. I would feel bad
for those that sold because the contracts went +40% when I fully exited my position.
Chart H.40 is another example of a trade I took using the ten-minute 21 EMA. In this example, this was a
day trade I took on $TSLA. As seen in the picture above, where I labeled “ENTRY,” this is where I
entered a $TSLA Put. My stop-loss was a break and close above the ten-minute 21 EMA (you always rely
on the moving averages depending on the time frame the trade was based on). As seen in the picture,
$TSLA never closed above the 21 EMA, and instead dropped from $877.5 down to $837.5 for the day.
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One more example of the 21 EMA will be shown using Chart H.41. This trade was on a leap contract I
had purchased on $BLNK. On October 6th, 2020, I purchased $BLNK $25 Calls expiring January 2022. I
bought these contracts for only $160. For the next four weeks, all $BLNK did was drop in price, and the
contracts were down −40%. Again, plenty of people would have panic sold in this scenario. When trading
something that expires a year+ out, you must focus on the weekly time frame. Taking one good look at
the weekly time frame, it was suggested that $BLNK could find support on the weekly 21 EMA. A break
below there was my stop-loss. Many people could have closed their positions at a loss because they failed
to look at the bigger picture and were caught up in what was happening today. $BLNK touched the
weekly 21 EMA and then ripped to the upside. Those $160 contracts then turned into $1,385, where I
completely exited. Imagine selling at that –40% loss and missing +765% gains.
Remember, the 21 EMA is the best possible spot to enter a position. The stop-loss is on the opposite side
of the 21 EMA when you do so. Another thing worth noting is that if the 5 EMA, 8 EMA, and 21 EMA
are tight together, your stop-loss is always below the 21 EMA until the 5 EMA and 8 EMA start to
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generate distance from the 21 EMA. From there, trail the stop on the opposite side of the 8 EMA, or until
the stock gets overextended from the 5 EMA. Notice this same setup on $BA in the chart below.
Using Chart H.42, the following way you will be using the 21 EMA is as an intraday support and
resistance level. If the stock is near the daily 21 EMA, always chart this level on your chart because it can
serve as a strong resistance and support level, as seen in the previous examples.
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Chart H.43 shows $MO on a daily time frame. Notice the amount of support that occurred at the 21 EMA.
Since I noticed the support, I decided to enter a swing trade the day before $MO broke above the
trendline. I entered the $MO swing trade as the price came to the daily 21 EMA. This offered a perfect
low-risk entry, and I was able to exit the trade on February 18th, 2022, for +63% on the contracts.
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Looking at Chart H.44, when breaking down the time frame to a ten-minute chart, you can see how $MO
came down to the daily 21 EMA at $50.09 and gave it a little kiss before going back up in price. If I am
trying to snipe an entry off a level, like $MO off the daily 21 EMA, I will lower the time frame to watch
price approach the entry level and enter as soon as price hits.
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Chart H.45 is an example of a trade I entered on $SLV. I entered this trade right off the daily 21 EMA,
which I ended up swinging and making over +250% profits on the trade. Since I entered this trade at the
daily 21 EMA, my stop-loss was on the opposite side of the 21 EMA. I was risking around 10% on my
Calls, and as a result, I made over +250% returns on my initial investment. That is the kind of risk-to-
reward that traders should look for. Again, if the stock is near the daily 21 EMA, you always want to
chart this area for intraday support or resistance.
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In Chart H.46, the blue arrow and the white line represent my exact entry on the $SLV swing trade.
Notice how the stock price came down to the daily 21 EMA level before making it support and then
bouncing to the upside and never returning.
The 21 EMA is not just the best possible spot for entries from the daily time frame, but the ten-minute
and five-minute time frames work just as well for day traders, or even the weekly and monthly time
frames for long-term investors.
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Looking at Chart H.47, $PYPL gave a perfect opportunity to go long on the five-minute time frame. This
setup offered an excellent risk-to-reward, and the stop-loss would have been a break and close below the
21 EMA. This never happened, and instead, $PYPL moved higher in price. Again, you would have been
risking around 10% on the Calls if you bought the contracts off the 21 EMA.
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Chart H.48 is another example of $COST. Again, one had multiple buying opportunities off the 21 EMA
on the ten-minute time frame. If one entered the trade at the 21 EMA, the stop-loss was below the moving
average. As seen in the example, $COST pushed from $579.50 (the ten-minute 21 EMA) to $586.32
while following the 5 EMA and 8 EMA on the way up.
Chart H.49 - Charts by Thinkorswim
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In the last example of the 21 EMA, I will show you a day trade that I took on $FB on July 24th, 2021. As
seen in Chart H.49, I was watching $FB over $362.5, which was post-market and premarket resistance.
As soon as $FB broke over this area, the price pulled back and tested the 10-minute 21 EMA. That is
where I entered the trade and placed my stop-loss below the 21 EMA. This trade went up over +1000% in
a single day. This happened on Lotto Friday, which is when the weekly options expire the same day. On
Lotto Friday, the contracts are cheap due to Theta decay and can increase or decrease at a rapid pace due
to the high Delta and Gamma on the same day expiration contracts. I, however, took my profits at +220%,
and I have a full trade recap on my YouTube channel: BrandonTrades.
The 55 EMA
The 55 EMA is an important moving average on all the higher time frames. Therefore, I only pay
attention to the 55 EMA on the daily, weekly, and monthly time frame. First, I will show you how strong
the daily 55 EMA is on several charts, and then I will discuss how to use it in your trading strategy.
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Looking at Chart H.50, the first example shown is $SPY on the daily time frame. Each time $SPY has
had a pullback in the market, it has pulled back to the daily 55 EMA. As you can see in the picture above,
it has tested this level ten times, where price found support and then continued higher to make new all-
time highs.
Looking at Chart H.51 of $AAPL on the daily time frame, look at the amount of support and resistance
$AAPL has had at the daily 55 EMA.
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Looking at Chart H.52 above of $AMD on the daily time frame is another example of how the daily 55
EMA will act as support or resistance.
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Looking at Chart H.53 of $BA on the daily time frame, one more example of the 55 EMA's effectiveness
can be seen.
As you can see in the previous examples, the daily 55 EMA plays a major role when it comes to support
or resistance. Stocks tend to react to this moving average almost every time the price approaches. If a
stock is near the 55 EMA, chart it to know where this level is. Now that you know how to use the 55
EMA on the daily time frame, I will now be showing you how to use the 55 EMA on the weekly time
frame.
Using The 55 EMA On the Weekly
The following way to use the 55 EMA is on the weekly time frame, and there is no better way of showing
you this moving average than a trade that I took on $O (Realty Income).
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Looking at Chart H.54 of $O on the weekly time frame, you can see the stock's multiple attempts to break
and hold above the weekly 55 EMA. However, price denied this moving average seventeen times before
finally breaking to the upside and continuing higher. $O was on my radar for months, but there was no
entry until the price broke and closed above the weekly 55 EMA with a bullish engulfing candle. Once
the price finally broke and held, that is where I entered the trade.
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Looking at Chart H.55 above of the weekly time frame on $FCX, you can see three times that the stock
price had come down to the 55 EMA and had a direct reaction as support. As a result, this gave three
possible entries to go long on $FCX.
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Chart H.56 is another example of how strong the 55 EMA is on the weekly time frame. Looking at
$AMD, notice the amount of support price had at the weekly 55 EMA. As someone who now knows
about this level, the weekly 55 EMA could have assisted you in buying opportunities for $AMD
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As seen in Chart H.57, the weekly 55 EMA is filled with plenty of support and resistance areas. As a
result, if the stock being traded is near the weekly 55 EMA, plot a line in that area and name it "55 EMA
weekly". Chances are, there WILL be price action at that level.
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One last example of the weekly 55 EMA is seen in Chart H.58 of $GS on the weekly time frame. The
stock price made this moving average resistance more than ten times in the picture and generated plenty
of support in the process.
Using the 55 EMA on the Monthly
The final time frame that I use the 55 EMA is on the monthly time frame. Yet again, there is no better
way to discuss this moving average than with a story.
On December 7th, 2020, many people were hyping up $BA on Twitter. They believed $BA was ready to
breakout and head back to $292.50. On this day, $BA was $243.11 a share. As a result, everyone implied
that $BA would make almost a $50 move to the upside. What did everyone do? They bought Calls... at
the WORST possible spot. Knowing about the 55 EMA in this scenario would have saved you the loss.
The Monthly 55 EMA was sitting right at $243.11, where everyone went long. Please review the pictures
below.
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Chart H.59 - Charts by TradingView
Chart H.59 is $BA on the weekly time frame. I labeled the point where everyone went long on $BA.
Everything looks good, right? NOPE. If you zoom out to the monthly time frame, you will see that the
monthly 55 EMA is blocking $BA from filling that gap to the upside.
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Looking at the Chart H.60 above, $BA hit the monthly 55 EMA to a T and then dropped like a dime. As a
result, many people lost money in this trade; however, knowing how to use the monthly 55 EMA would
have saved you a headache and some cash. After seeing this happen, I created a rule: “When in doubt,
zoom out.”
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Looking at Chart H.61, notice the daily price action at the monthly 55 EMA. Price did not cross above the
monthly 55 EMA level until five months later. Everyone got stopped from this trade. As you now know
about the monthly 55 EMA, you should NEVER be one of those people.
In a super bullish market, like the one in 2021, it is hard to find stocks that have come down to their
monthly 55 EMA since almost everything has been destroying all-time highs since the COVID sell-off in
2020. However, let me show you a few more examples of the 55 EMA on the monthly time frame and the
significance behind this moving average.
Chart H.62 above is an example of $JNJ on the monthly time frame. The stock price had come down to
the monthly 55 EMA many times before the price rebounded and headed higher.
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Chart H.63 is an example of $BIDU. Again, notice the amount of price action at the monthly 55 EMA.
The 55 EMA acted as support and resistance on many occasions.
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Finally, looking at Chart H.64 above of $F, notice the significance of the monthly 55 EMA. Notice the
multiple points of resistance, which, when finally broken, $F was able to make a significant move to the
upside.
To sum up the monthly 55 EMA, you want to use this moving average on the daily, weekly, and monthly
time frames. As you have seen through the many examples provided, the stock has plenty of price action
once it approaches this moving average. Do not be the loser like in the $BA example, and do not get
caught buying a losing contract right as the stock is approaching the 55 EMA. Instead, use it to your
advantage as a point to enter a trade with minimal risk or as a spot to trim your current position.
These will be the EMAs that I will discuss in this chapter. I will revisit these moving averages in a later
chapter once I start discussing swing trading and day trading, where I will share my successful strategies.
In the next chapter, I will be discussing three SMAs that are a MUST use in technical analysis.
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Chapter 9: Simple Moving Averages
The three SMAs I will discuss in this chapter are the 50 SMA, the 100 SMA, and the 200 SMA. These are
three institutional moving averages that have many rules in place regarding buying and selling. If the big
shots with billions of dollars invested are using these SMAs and have specific rules when it comes to
them, you should also understand how to use them. I have noticed that there is always plenty of price
action at these three SMAs. However, these will only be used on the daily time frame and will only be
assisting you when it comes to charting. Other than that, I do not use them for anything else.
I have noticed that these SMAs have saved me multiple times from getting into a losing trade, but at the
same time, they helped pinpoint an entry point for my trade, offering the least amount of risk while
maximizing the reward.
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The 50 Simple Moving Average
Chart I.1 - Charts by ThinkorSwim
Looking at $X on the daily time frame in Chart I.1, notice how strong the 50 SMA was. In multiple
instances, $X pulled back to the 50 SMA, found support, and then continued higher in price, which could
have offered a trader the best possible entry to go long. Treat this moving average as another support or
resistance area. Many institutions have rules surrounding the 50 SMA. For example, they cannot buy
unless the stock is on the 50 SMA.
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Looking at $RIOT on the daily time frame in Chart I.2, this chart shows how vital the daily 50 SMA can
be. Recently, $RIOT has been hovering around this area for the last three months and constantly treated
the 50 SMA as support and resistance.
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Chart I.3 is an example of $V on the daily time frame. Again, notice the support and resistance $V had on
the daily 50 SMA.
If you are a day trader, you always want to know where the daily 50 SMA is. If you notice the stock you
want to trade is near the 50 SMA, always plot it on your chart with a line that corresponds to the moving
average. The reason is that there will more than likely be price action in this area, and it can make the
difference between making money and losing money.
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Pay attention to the area between the two horizontal red lines drawn in Chart I.4. Notice the price action
on the daily 50 SMA.
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Chart I.5 is still $BA, just on a ten-minute time frame. Notice the price action that occurred at daily 50
SMA. Ignoring the 50 SMA level could have been the difference between losing and winning trades.
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Finally, in Chart I.6, notice the price action on the 50 SMA for $JKS. There are multiple direct hits on
this moving average as support and resistance.
It is also important to pay attention to this moving average as a swing trader. As you have seen in the
many examples shown above, there tends to be almost direct price action on the 50 SMA each time the
stock price touches it. As a result, you would not want to purchase a swing trade if a stock is coming up to
the 50 SMA because chances are, price will treat the 50 SMA as resistance. Instead, wait for the stock to
close above the 50 SMA before initiating your purchase. You can also use the 50 SMA as a price target
for the trade. There are multiple variations of how traders can use this SMA, but to simplify it, always
know where it is on the daily time frame. We will revisit this SMA and combine them all once I discuss
the 100 SMA and 200 SMA.
The 100 SMA
I also like to use the 100 SMA for charting purposes. As far as using the 100 SMA, I use it the same way
that I would use the 50 SMA. If a stock is approaching the 100 SMA, you want to know about it due to
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the price action involved. The 100 SMA should hold more significance once the stock price approaches it,
as it takes more price action to plot the average.
Looking at $AAPL on the daily time frame in Chart I.7 shows the amount of support and resistance at the
100 SMA. There were multiple scenarios where $AAPL came down to the 100 SMA, where the SMA
acted as support before the price continued higher. On the flip side, there were multiple occasions where
the 100 SMA acted as resistance. In the case of resistance, notice how the stock reacted once it broke and
held above the 100 SMA.
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Looking at Chart I.8, this was a trade that I took on $DKNG. The pink line is a trendline, as discussed in
an earlier chapter. Looking at $DKNG on the daily time frame, I was able to spot this trendline while at
the same time knowing that the 100 SMA is a strong area for support to the downside; my plan was that if
$DKNG broke below the trendline, I would go short with a price target of the daily 100 SMA. Once
$DKNG broke the trendline intraday, that is where I entered puts to ride the stock to the downside. The
price target hit almost a T while riding the intraday 5 EMA, 8 EMA, and 21 EMA to the downside. This
was also on the weekly watchlist that I uploaded to my YouTube channel: (BrandonTrades). I upload a
free weekly watchlist every Sunday.
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Chart I.9 is the actual $DKNG day trade I took from a one-hour time frame. As seen in the chart above, as
$DKNG broke below the trendline, I initiated my short position with a price target of the daily 100 SMA.
I fully exited my position as the stock was approaching the 100 SMA, and as seen in the picture, it
bounced and went back up in price.
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Chart I.10 of $FB on the daily time frame shows one final example of how effective the 100 SMA can be.
Again, notice the amount of support and resistance at this moving average.
By observing the price action, you should understand why the 100 SMA is important. Seeing that the
stock has direct price action as support or resistance at this point should be important to all traders.
Ignoring this moving average could be the difference between making money and losing money. If the
stock is near the 100 SMA, you want to know about it. If you are day trading that stock, always plot a
support or resistance line and label it “100 SMA” because the stock is likely to experience price action in
this area. Now, let’s move on to the final SMA, which is the 200 SMA.
200 Simple Moving Average
The final SMA I will be discussing is the 200 SMA. As this is such an extended period, you WILL see
price action when the stock price comes to this level. As you are only using the 200 SMA on the daily
time frame, it will be uncommon for a stock to see its 200 SMA. But, when it does, you want to make a
note because it can be a strong area of support or resistance.
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Looking at Chart I.11 above of $FB on the daily time frame. Once $FB came back to its 200-day SMA,
price bounced around the area, treating the 200 SMA as support and resistance on multiple occasions.
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Chart I.12 is an example of a trade I took on $BA due to the 200 SMA. On November 13th, 2020, I
noticed that $BA had a solid close above the 200 SMA compared to previous days. It was a bullish
engulfing candle that signaled an influx of buyers. Since there was a solid close above the 200 SMA, this
signaled that $BA was ready to continue up in price. Within three trading days, $BA moved to a high of
$234 a share from $186 a share.
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Looking at $CHWY in Chart I.13 above, price has had major price action at the daily 200 SMA for the
last three months. Pay attention to the far left side of the chart. The first time $CHWY fell below the 200
SMA, notice the stock price's reaction due to the violation of the moving average. This violation could
have offered a beautiful short position to a trader.
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Taking another look at a different example of $BA on the daily time frame, notice the amount of price
action at the daily 200 SMA in Chart I.14. Do you think this level is important yet?
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I want to add that throughout my time trading the markets, I have noticed that market news is always tied
to technicals, and the technicals tend to confirm the news before the news is announced. This occurs
because insiders have the information before the public does, and they will make trades based on it.
Looking at $JPM, in Chart I.15, notice the huge gap-up overnight. Notice what happened just two days
before the news occurred. $JPM gave a solid close over the 200 SMA and then proceeded to hold above
the 200 SMA for another day. Was the news planned? In my opinion, yes. I will show you many more
examples of this in later chapters.
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Looking at Chart I.16, notice all the price action that has occurred at the 200 SMA for $F.
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The final example of the 200 SMA can be found on $RIOT in Chart I.17. $RIOT is a Bitcoin mining
company that took a hard hit after the 2021 Bitcoin sell-off. As you can see, $RIOT fell to the 200 SMA
before rebounding and running an extra $16 to the upside before coming back down.
Again, when doing your technical analysis, you want to know where the 200 SMA is for the stock being
traded. If the stock is near the 200 SMA, you should always draw a support or resistance line and then
treat it as such. The 200 SMA is one of the most, if not the most commonly used SMAs in the market,
which is why there are many institutional rules and guidelines for this moving average. Always pay
attention when a stock is near the 200 SMA because I can promise you there will almost always be price
action there.
To conclude the SMAs, I only utilize them on the daily time frame and when doing my analysis. If a
stock is near one of the SMAs, I always plot a line, color code it corresponding to the moving average,
and name the line which SMA price is near. Once the levels have been plotted on the chart, make sure to
change the level each day as the SMAs change daily. After that, I remove the SMAs from the chart to
make room for the other indicators I will discuss in the chapters to come. I personally leave the SMAs on
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their own chart and briefly look at them to see if the stock is near the SMAs. If not, I move on over to my
other charts. Remember, a lot of big money traders use these SMAs and have specific rules and criteria
that must be met to enter or exit their positions. Big money moves the market, so if they use the three
moving averages discussed, so do we.
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Chapter 10: Combining All Moving Averages
to Trade
Now that you know how to use both the EMAs and the SMAs in your trading strategy, I will show you a
few trading scenarios that would be ideal for entering a trade. All of these examples will be shown on the
daily time frame. Before showing you the remaining indicators that I use for trading, I would like to show
you how to piece all the moving averages together for effective trading.
In these scenarios, you can see that I have the moving averages color-coded. The green moving average is
the 5 EMA, the purple moving average is the 8 EMA, the white moving average is the 21 EMA, the sky-
blue moving average is the 55 EMA, the yellow moving average is the 50 SMA, the dark blue moving
average is the 100 SMA, and the red moving average is the 200 SMA.
Chart J.1 - Charts by ThinkorSwim
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Looking at $BA on the daily time frame in Chart J.1, there was plenty of price action at the moving
averages. First, the ideal entry would have been when the price returned to the 100 SMA, 50 SMA, 21
EMA, and 55 EMA, where the moving averages acted as resistance. The reason being that four major
moving averages are blocking $BA to the upside; however, to the downside, the stock had room to the
200-day SMA. Once $BA fell below the moving averages, the price dropped to the 200 SMA. Why
would you not buy puts on $BA once price fell below the 200 SMA? It got over-extended from the 5
EMA. When it is overextended, you should always be looking to secure your gains and for pullbacks to
the 5 EMA. Look a little further, and you can see $BA rebounded and went back to the daily 50 SMA,
where it hit it to a T, treated it as resistance, and then fell further to the downside. This is one example of
how the moving averages work together.
Looking at $GD on the daily time frame in Chart J.2 can help paint a clear picture of what to expect.
Looking at the stock, you can see recently that the price came down and tested the 200 SMA to a T two
times before bouncing back to the upside. I would not enter the trade just because the price bounced off
the 200 SMA. For all I know, the stock could come back to the 5 EMA and then drop more in price.
Instead, I would be waiting for $GD to come above all the moving averages. Once it did that, I would
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then be looking for a position. Notice the price action the day after $GD pierced the moving averages.
The stock ran from $152 to $159 in two days, where it then broke all-time highs and continued to increase
in price. Each pullback was greeted by support at the 8 EMA, and eventually, the stock pulled back and
hit the 21 EMA to a T as support, and then proceeded to push back above the moving averages. Think of
the moving averages like a puzzle. You piece them all together, and it will show you a picture.
Next, I will show you a series of trades that I have taken on numerous stocks and explain why I entered
these trades.
Chart J.3 shows a trade that I took on $ABBV. Looking at the $ABBV chart, there was a gap that needed
to be filled to the upside, but if you look at the EMAs and SMAs, there is too much resistance to go long
on $ABBV. That is why I waited until the day the stock closed above the 50 SMA with the dragonfly
doji. At that point, no moving averages were blocking $ABBV from moving freely to the upside. If you
look at the 5 EMA and 8 EMA, they generated a buy signal by curling. The stock closed above the 50
SMA, which now signals to buy, and the stop-loss was well defined. All $ABBV had to do was close
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below the 50 SMA, and I would have been out of the trade. Instead, notice the reaction $ABBV had the
following day after closing above the 50 SMA.
Looking at Chart J.4, the same setup was present on $JNJ during the same period. Notice the resistance
$JNJ had at the 50 SMA before finally breaking above. As we know about the 50 SMA and how to use it,
there was no entry until $JNJ closed above the 50 SMA. Once it did, I entered the trade. Again, knowing
the 50 SMA, once a stock clears it, it should continue to go in that direction, and the stop-loss was a close
below the 50 SMA. Since $JNJ cleared the 50 SMA, the price followed the 5 EMA and 8 EMA until the
price got over-extended, and that is where I took my profits.
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Chart J.5 is another trade taken due to the EMAs and SMAs. Looking at the daily time frame on $ORCL,
the stock gapped down after earnings and consolidated in a narrow range. As you can see, the 50 SMA
and 21 EMA acted as a significant resistance area. Therefore, there was NO entry until $ORCL closed
above the 50 SMA and 21 EMA. Once it did, I entered the trade. That same day, the 5 EMA and 8 EMA
generated a buy signal by crossing. At that point, all $ORCL had to do was close below the 50 SMA, and
I would have stopped out of the trade. However, looking at $ORCL, the price increased substantially,
which I then trailed my stop-loss under the 8 EMA and let the stock run. $ORCL never violated the 8
EMA until 22 days after the entry and moved from $79.50 to $91.25.
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Chart J.6 is a chart of a swing trade that I recently took on $SNAP. Looking at $SNAP, it formed a
weekly bull flag, and the daily 50 SMA and 55 EMA acted as a powerful support level. This is where I
started my position because all $SNAP had to do was break below the two moving averages, and I would
have stopped out of the trade. The stock never closed below and instead rose above the moving averages.
From there, I added to my position, and the following day $SNAP broke out of the weekly bull flag and
increased in price substantially. Getting the best possible entry off the 50 SMA and 55 EMA, and then
adding once $SNAP began to confirm the breakout generated a beautiful trade, and some beautiful
profits!
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Looking at Chart J.7, this is another swing trade that I have taken recently on $USO. This trade can show
another perfect example of using these moving averages to your advantage. Looking at $USO on the daily
chart, the yearly highs were at $51.40. Once $USO broke above the yearly highs, I entered the swing
trade with a stop-loss below the daily 8 EMA. As you can see on the chart, the stock continued to ride the
5 EMA to the upside and had pulled back to retest the 8 EMA as support on multiple occasions but never
closed below. As a result, I was able to pocket a +207% gain on $USO.
This is how you utilize all of the moving averages discussed in the previous chapters. Remember, the
SMAs act as major support and resistance on the daily time frame. You always want to know where the
moving averages are because if you ignore them, it can make the difference between winning and losing
trades. The 55 EMA is most beneficial on the daily, weekly, and monthly time frame, and the 21 EMA
will be the best possible spot to enter a trade depending on the time frame being used. The 5 EMA and 8
EMA will be your babysitter in all trades, depending on which time frame is used for the entry. Let these
moving averages do the storytelling and make highly educated decisions based on what the moving
averages are telling you. If the stock holds above the moving averages, the stock will more than likely
continue to be bullish. The same can be said for the downside as well. If the stock price remains below the
moving averages, odds are it will continue to be bearish. In the following few chapters, I will be
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discussing the other indicators that I utilize in my trading strategy. In the next chapter, I will be discussing
the Stochastics.
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Chapter 11: Stochastics
George Lane created the stochastic oscillator in the late 1950s. Now that you are familiar with MACD
and RSI from the EMAs chapter, the Stochastics is a combination of the two, but it generates much more
accurate buy and sell signals. The Stochastics have two extreme readings: twenty represents oversold
conditions, and eighty represents overbought conditions. The stochastic consists of a %K line and a %D
line. The Stochastics generate a buy signal when the %K line crosses above the %D line. The Stochastics
generate a sell signal when the %K line crosses below the %D line. The %K line is the fastest of the two,
so that will be the line you want to pay attention to for buy signals and sell signals. Then the %D line will
tell you if the stock is overbought or oversold. If the %D line is above the 80 mark, the stock is
considered overbought, and if the %D line is below the 20 line, the stock is considered oversold. It is,
however, essential to pay attention to where the buy or sell signals are generated. If a buy signal occurs at
or above the 80 line, this is a strong buy signal on the Stochastics. On the flip side, if a sell signal is
generated at or under the 20 line, this is considered a strong sell signal on the Stochastics. However, if a
sell signal is generated above the 80 line, the stock will likely pullback, especially if it falls below the
moving averages. On the flip side, if a buy signal is generated below the 20 line, the stock will likely
reverse to the upside.
There are a few variations of the Stochastics, but the most popular are the Stochastic Fast and the
Stochastic Slow. The Stochastic Fast generates more buy and sell signals, while the Stochastic Slow
generates fewer buy and sell signals. Some may think the more signals generated, the more trades you can
make, and the more you can profit. That is false. In reality, less is better in the market. I have also noticed
that the Stochastic Slow tends to generate more accurate buy and sell signals than the fast variation, which
is why I prefer to use the Stochastic Slow.
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Chart K.1 - Charts by ThinkorSwim
Chart K.1 is an example of how different the Stochastic Fast and Stochastic Slow can be when generating
buy signals and sell signals. The top Stochastic is the slow version, and the bottom Stochastic is the fast
version.
You can feel free to experiment with the Stochastic Fast; however, it is not a part of my strategy.
Therefore, I will not be talking about the Stochastic Fast in this book. Instead, I will show you how to
master the Stochastic Slow and how I use this indicator in my trading strategy.
Stochastic Slow
When using the Stochastic Slow, I prefer to use it on the daily time frame and the weekly time frame. It
also holds value during intraday price action; however, it is not something I go out of my way to check
when day trading. I have a different way of day trading than swing trading, and I will show you the
difference between the strategies in later chapters. Feel free to experiment with the Stochastic Slow in
your day trading strategy and see if it works for you.
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When using the Stochastic Slow, you always need to use the moving averages to confirm the buy or sell
signals. If the Stochastic generates a buy signal, but the stock is below all the moving averages, there are
ZERO reasons to go long; however, if the stock is above the moving averages, you can now use the
stochastic buy signal as another confirmation to go long.
Looking at the $NIO in Chart K.2, notice how the Stochastics generated a sell signal well before moving
to the downside. Using the 8 EMA and 21 EMA, once $NIO fell below the 8 EMA, you could then go
short with a price target of the 21 EMA. On top of $NIO falling below the 8 EMA, the sell signal served
as double confirmation. Another way of looking at this is if you were long on $NIO, say you purchased
Calls for $NIO and let the stock ride to the upside; as soon as the Stochastics generated a sell signal, this
lets you know to exit the position and secure profits.
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Chart K.3 is an example of a swing trade I took on $CRM. There was plenty of confirmation to buy Calls,
and I want to walk you through my thought process at the time. The Stochastics generated an important
buy signal which assisted me in this trade. Looking at $CRM on the daily time frame, there was a falling
wedge (which I will discuss further in-depth in a later chapter), and $CRM was able to breakout to the
upside. Looking down at the Stochastic Slow, it generated a buy signal where the SlowK crossed above
the SlowD. Not only that, but $CRM closed above the 8 EMA and 21 EMA, which added more
confirmation to the buy signal. I purchased a butterfly swing trade where I bought the $245 Calls, sold
twice as many of the $250 Calls, and bought the $255 Calls as protection. As you can see on $CRM, the
following two days gave a beautiful push to the upside and resulted in a winning trade. Seeing the buy
signal gave me more confidence going into this trade when pieced together with the EMAs and falling
wedge breakout.
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Chart K.4 is an example of a trade I took on $EBAY to the downside. Looking at the daily chart for
$EBAY, the stock lost the 8 EMA and closed below it. We know that once the stock starts losing the 8
EMA, it is a negative sign, but the Stochastics gave double confirmation to purchase puts. The Stochastic
Slow generated a sell signal two days before $EBAY fell below the 8 EMA. Therefore, you use that sell
signal as another confirmation tool when entering the trade. Notice how $EBAY reacted once losing the 8
EMA. The price dropped down to the 21 EMA, but once the stock lost that, it dropped significantly.
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Chart K.5 is another example of a swing trade I took recently on $HOOD. Notice the Stochastic buy
signal that $HOOD generated below the 20 line. Remember, when the %D line is below 20, the stock is
considered oversold, so the fact that it gave a buy signal below the 20 level tells the trader to watch the
stock for a possible reversal. Why did I not enter once stochastics generated the buy signal? It was not
above the moving averages. Once the stock broke above the moving averages, that is when I entered the
trade. This swing trade returned me +113% profits at my final exit.
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Looking at the next trade on $RUN in Chart K.6 (which was called out on my YouTube channel:
BrandonTrades), the Stochastic Slow generated a buy signal once the stock broke out of the daily falling
wedge. As a result, there was a breakout with a buy signal, and the stock was above the moving averages.
This is plenty of confirmation to enter a trade. The stock increased in price by $8.50 within a few days.
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In Chart K.7, I have circled each time the Stochastics have generated a buy or sell signal. Notice what
happened with the stock price almost every time the Stochastics generated a buy or sell signal.
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In Chart K.8, I also circled each time the Stochastics generated a buy or sell signal. Notice the
representation between the stock price and the Stochastics.
As you can see in the examples provided, the Stochastic Slow is super accurate when providing buy and
sell signals. It generates fewer signals because it is the slow version compared to the Stochastic Fast;
however, the Stochastic Slows' signals are incredibly reliable when the signals are generated. Combining
the Stochastic Slow with the moving averages makes the picture even clearer.
Another way that I like to use Stochastics is on the weekly time frame. Like chart patterns and other
technical indicators, the higher the time frame, the more superior it becomes. When doing my technical
analysis for the week, I always check the weekly Stochastics for any buy or sell signals. These signals can
help traders plan their trades for the upcoming week.
Chart K.9 is an example of $AAPL on the weekly time frame with each buy and sell signal marked on the
chart. Again, notice the correlation between the stock price and each buy and sell signal generated.
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Chart K.10 is an example of $GOOGL on the weekly time frame with each stochastic buy signal and sell
signal marked on the chart.
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Chart K.11 is $TSLA on the weekly time frame with each Stochastic buy signal and sell signal marked on
the chart.
As you can see in the Stochastic examples on the weekly time frame, the buy and sell signals tend to be
super accurate. It is essential to pay attention to both the daily and the weekly time frames for these
signals. Ideally, you want to simultaneously see both time frames generating/corresponding a buy or sell
signal. If the weekly time frame generates a sell signal, but the daily time frame generates a buy signal, it
is always wiser to pay attention to the bigger trend. Meaning do not go long when the weekly Stochastic
tells you to sell, and vice versa. You can also utilize the Stochastics to help find divergences in the
market, which I will be discussing next.
Divergences On The Stochastics To Spot Reversals
A divergence is when a stock's price moves in the opposite direction of where a technical indicator is
saying the stock price will go. For example, if a stock is going up in price, but there are multiple sell
signals on the Stochastics, or if a stock is going lower in price, yet the Stochastics is generating many buy
signals, that is a divergence. A convergence is where the technical indicators confirm the stock price's
direction.
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Looking at $SPY on the daily time frame in Chart K.12, $SPY continued to go up in price; however, the
Stochastics showed bearish divergence. The divergence was formed by the Stochastics constantly
generating lower sell signals. At the same time, the buy signals were getting lower as well, thus creating
bearish divergence. If you notice this in the market, DO NOT go long; stay patient and wait for a better
setup.
The same scenario can be found on $MO in Chart K.13. The stock consolidated for a few weeks before a
major breakout area; however, the Stochastic Slow generated bearish divergence signaling a possible
reversal to the downside. Again, forming lower buy signals and lower sell signals. Notice what happened
to $MO shortly after.
The same sequence works to the upside. But in this scenario, a stock will be going down in price, yet the
Stochastics is generating higher buy signals along the way, letting the trader know of an impending
reversal.
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Looking at the daily time frame of $LVS in Chart K.14, notice the first buy signal below the 20 line,
letting the trader know of a possible reversal. The second buy signal occurred higher than the first signal,
letting traders know of a divergence. As soon as the second buy signal occurred, $LVS increased in price
rapidly.
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Chart K.15 is an example of $GOOGL where the Stochastics continued to generate higher buy signals
until $GOOGL finally exploded in price. With $GOOGL consolidated but at the same time getting higher
buy signals, this was a clear hint that $GOOGL was ready to make an upside move.
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Looking at Chart K.16, a clear stochastic divergence can be seen. $VXX continued to hold below the
moving averages, but the Stochastics continued to give higher buy signals and higher sell signals. After
the third buy signal, $VXX finally gave an upside move that traders could have taken advantage of. The
$VXX does the opposite of the overall market. When $VXX goes up, the market goes down, and vice
versa. Spotting this clear divergence could have let traders know that the overall market would likely drop
and would let traders know to stay cautious. I called this exact divergence out on my YouTube channel
the week before the $VXX moved significantly to the upside.
To conclude the Stochastic Slow, a buy signal is generated whenever the %K crosses above the %D;
however, a sell signal occurs when the %K crosses below the %D. If a buy signal is generated above the
80 line, this is a powerful buy signal, and when a sell signal is generated below the 20 line, this is a strong
sell signal. However, if a buy signal is generated below the 20 line, that is a good indication of an upside
reversal, as well as a sell signal generated above the 80 line is an indication of a reversal to the downside.
Always use the moving averages discussed in the previous chapters to time your entries. Ideally, I pay
attention to the Stochastic Slow on the daily and weekly time frames. However, it has significance on the
lower time frames as well. Play around with it on the smaller time frames and see if it suits your strategy.
Then finally, if a stock continues to go up in price, but the Stochastics is generating lower buy signals and
lower sell signals, proceed with caution because bearish divergence is occurring. On the flip side, if the
stock is going down in price, yet the Stochastics are generating higher buy signals and higher sell signals,
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look for a move to the upside just like the $VXX example in Chart K.16, which is known as a bullish
divergence.
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Chapter 12: TTM Squeeze
The TTM Squeeze is an indicator created by John Carter from Simpler Trading. TTM SQUEEZE ™ is a
trademark owned by Simpler Trading, LLC. This indicator combines the Bollinger Bands, Keltner
Channels, and the Momentum indicator. The TTM Squeeze identifies positive and negative momentum
through the multicolor histogram and tries to identify breakouts of consolidation. The TTM Squeeze
Indicator is © Simpler Trading, LLC 2009. Before I begin this chapter, I would like to thank John Carter
and Simpler Trading, LLC for allowing me to discuss the TTM Squeeze in this book, as it has been my
favorite indicator to use when trading.
The TTM Squeeze indicator copyright and the TTM Squeeze™ trademark are each property of Simpler
Trading, LLC and not the author, and the discussion herein is by permission of Simpler Trading, LLC.
Nonetheless, all statements, views, and representations expressed herein are solely those of the author and
not of Simpler Trading, LLC.
Looking at the TTM Squeeze histogram bars in Chart L.1 below, there are four colored bars on this
indicator. The first color is light blue. The light blue color identifies strong buying momentum in the
market and is reflected in the histogram with growing bars. The dark blue color is where the buying
momentum starts to die down and is ideal for traders to take their profits and to be cautious moving
forward. The red color indicates strong selling momentum, and as a result, you will see the stock start to
drop in price. The final color is yellow, where the selling momentum dies down, and the buyers begin to
step into the market. When the yellow appears, the stock tends to begin its move to the upside. As the bars
on the TTM Squeeze histogram get bigger or smaller, the bars represent the amount of momentum in that
phase. For example, if there is light blue on the TTM Squeeze histogram, and the bars are getting bigger,
more buying momentum is coming into that stock. However, if the dark blue color appears and the bars
start to shrink, that lets the trader know that the buying momentum is dying down. If there is red
momentum on the histogram, and the red bars are growing to the downside, this lets the trader know that
the selling momentum is increasing. If the yellow momentum appears on the histogram, and the yellow
bars start to shrink, this lets the trader know that buying momentum is picking up and that the yellow may
turn into light blue, representing strong buying momentum.
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Chart L.1 - Charts by ThinkorSwim
Chart L.1 is an example of the TTM Squeeze in action on $ADSK on the daily time frame. Notice how
the stock price and the colored histogram bars on the TTM Squeeze correlate.
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Chart L.2 is an example of $FB on the daily time frame with the TTM Squeeze applied. Again, notice the
stock price in conjunction with the TTM Squeeze bars.
Chart L.3 is an example of $AAPL on the daily time frame with the TTM Squeeze applied. Notice the
accuracy of the squeeze bars compared to the momentum in the $AAPL stock price!
Light Blue = Strong Buying Momentum
Dark Blue = Buying Momentum is Dying Down
Red = Strong Selling Momentum
Yellow = Buyers Are Back in The Market
As shown in the multiple examples above, whenever you see the light blue bars on the TTM Squeeze
histogram, it is almost always accompanied by a move to the upside. When looking at the dark blue bars,
notice that the stock tends to consolidate or drop in price. The red bars then show strong selling
momentum, and this is where the stock could see a major drop in price. As the yellow bars appear on the
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histogram, the stock gives an initial push to the upside. This tends to be a constant pattern on the TTM
Squeeze ranging from various time frames.
The TTM Squeeze Pro also has colored dots on each bar. There is a red, green, black, and occasionally an
orange dot. The orange dot is extremely rare, so always make a note when you see an orange dot on the
TTM Squeeze. All the dots result from the Bollinger Bands and the Keltner Channels. Before diving
further into the squeeze, I believe it will be beneficial to know what the Bollinger Bands and Keltner
Channels are and how to use them.
John Bollinger developed the Bollinger Bands in the 1980s. The Bollinger Bands consists of a centerline
with two bands, one band above the centerline and one band below the centerline. The centerline is a 20
Simple Moving Average and helps calculate both bands using price volatility. The upper band acts as a
resistance area, and the lower band acts as a support area. If the stock is constantly touching the upper
band, it is considered overbought, and if prices come outside the upper band, price is almost always
greeted with a pullback inside the Bollinger Bands. Notice I said "almost" because sometimes a stock can
stay outside the bands for a few days before price pulls back in. When the stock price is constantly hitting
the lower band, it is considered oversold, and if it comes outside the lower band, the stock almost always
pulls back in. The Bollinger Bands will contract when price volatility lowers and expand as price
volatility increases. Remember, volatility is the market's expectations of the stock going into the future.
As expectations rise, so does volatility. When expectations shrink, so does volatility. Therefore, if
volatility increases, the Bollinger Bangs will widen. If volatility decreases, the Bollinger Bands will
tighten.
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Looking at Chart L.4, this is an example of the Bollinger Bands applied to $AAPL on the daily time
frame.
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Looking at Chart L.5, this is an example of the Bollinger Bands applied to $BA on the daily time frame.
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Chart L.6 is another example of the Bollinger Bands applied on $D on the daily time frame.
Finally, Chart L.7 is an example of $CMG on the daily time frame with the Bollinger Bands applied.
As shown in the multiple charts above, each time the stock price reached the upper Bollinger Band, it
acted as resistance, and if the stock price came down to the lower Bollinger Band, it acted as support. If
the stock price was outside the Bollinger Bands, it was greeted with a pullback inside. Also, make a note
of how the Bollinger Bands contract and expand. When the Bollinger Bands are contracting, the volatility
is lowering. When the bands open, the volatility increases. This is the basics of Bollinger Bands. Since it
is not a part of my strategy, I will not discuss it any further. This is all you need to know about the
Bollinger Bands for the TTM Squeeze.
As for Keltner Channels, these were created by Chester W. Keltner, who described how to use this
indicator in his 1960s book How to Make Money in Commodities. This indicator looks exactly like the
Bollinger Bands, but the calculations are different. The Keltner channels have three separate lines.
However, one variation that I will discuss later has seven lines. The middle line is an Exponential Moving
Average, and the upper and lower line is calculated off the Average True Range (ATR). The ATR is how
much a stock moves in a given day on average within the past fourteen days. The upper band is set at two
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times the ATR, and the lower band is set at two times the ATR from the EMA. Depending on the ATR
values, these bands move each day, either contracting or widening. The upper band will act as resistance,
and the lower band will act as support. If the price goes too far outside the upper band, the stock now has
“unusual strength” and can continue to make a bigger move to the upside. If the stock drops below the
lower band, this signifies that the stock has “unusual weakness” and can continue to drop further in price.
Looking at Chart L.8 of $MU on the daily time frame, the Keltner Channels applied to the chart.
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In Chart L.9 of $FB on the daily time frame, Keltner Channels are applied to the chart.
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Looking at Chart L.10 of $SE on the daily time frame, the Keltner Channels are applied.
Finally, Chart L.11 shows $ROKU on the daily time frame with the Keltner Channels applied to the chart.
As seen in the pictures above, the stock tends to come back into the Keltner Channels after being
extended on the outside for too long. However, violations of the upper or lower channel give beautiful
trading opportunities.
Now that you know the Bollinger Bands and Keltner Channels, I will show you how the TTM Squeeze
dots appear on the histogram. In the following few examples, the pink lines are the Keltner Channels, and
the blue lines are the Bollinger Bands. When the Bollinger Bands curl inside the Keltner Channels, a red
dot appears on the TTM Squeeze. When you see a red dot, this is signaling that the stock is in a squeeze.
So, a “squeeze” is when the Bollinger Bands curl inside the Keltner Channels.
To imagine what a squeeze is, imagine you take a Ziplock baggie and blow it up full of air. After the
baggie fills with air, you then zip it up and begin to twist the baggie. Eventually, the Ziplock bag is going
to pop. That is exactly what a squeeze is. The stock price becomes so tight that it is forced to pop and
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breakout of its consolidation.
Looking at Chart L.12 above, notice how the red dots appeared on the TTM Squeeze as the Bollinger
Bands curled inside the Keltner Channels.
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As shown in Chart L.13, as the Bollinger Bands curled inside the Keltner Channels, a red dot appeared on
the TTM Squeeze. At the same time, notice what happens when the Bollinger Bands curl outside the
Keltner Channels. A black dot appears.
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Looking at Chart L.14, notice what happens when the Bollinger Bands curl outside the Keltner Channels.
A black dot will appear on the TTM Squeeze when this occurs.
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Looking at Chart L.15, again notice that when the Bollinger Bands curled inside the Keltner Channels, a
red dot was reflected on the TTM Squeeze, but as soon as the Bollinger Bands curled outside the Keltner
Channels, a black dot appeared on the TTM Squeeze.
The black dot signifies that the squeeze has begun stage one of firing in its respected direction. Again,
notice what happens when the Bollinger Bands curl outside the Keltner Channels, the TTM Squeeze dot
turns black, and the stock can now begin to move more freely since the stock price is no longer as
compressed. Remember, if the Bollinger Bands are tight, the stock has limited room to move; however,
when they curl outside the Keltner Channels and begin to open, this allows the stock to move more freely.
The green dot appears on the TTM Squeeze once the squeeze has officially fired in its respected direction.
This is where the stock will move the most both ways since the Bollinger Bands are now finally open and
are no longer tight. Below are a few examples of the moves that price can make during the green dot
sequence.
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As seen in Chart L.16, when the Bollinger Bands disperse away from the Keltner Channels, a green dot
appears on the TTM Squeeze, and the stock moves more freely.
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Looking at Chart L.17, multiple times in this chart, the Bollinger Bands separated from the Keltner
Channels. As a result, green dots appeared on the TTM Squeeze.
Notice how wide the Bollinger Bands become when the TTM Squeeze dots are green. A green dot will
appear on the squeeze indicator when the Bollinger Bands move away from the Keltner Channels and
open, allowing more room for the stock to move.
There is, however, one more dot that can appear on the TTM Squeeze, and this dot is super rare to see.
Therefore, you need to take note every time you see it because it hints that a big move is about to be made
in that stock. When you see the orange dot on the squeeze, it screams, “Grab me by the face and pay
attention to me.” I will show you many trades I have taken in the past based on the orange dot squeeze.
Before I do so, how does the orange dot appear on the squeeze?
The orange dot appears on the TTM Squeeze when the Bollinger Bands curl inside the Keltner Channels
and gets super tight in between. In the examples below, you can spot the difference between the Bollinger
Bands in a red dot squeeze versus an orange dot squeeze. With the orange dot, the two Bollinger Bands
are super tight to the point that the stock has a very narrow range that it can move. If the stock is supposed
to stay inside the Bollinger Bands, and the bands are tight, the stock is left with nowhere to go until the
squeeze fires.
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Looking at Chart L.18 of $BJ on the daily time frame, when the Bollinger Bands curled inside the Keltner
Channels, the TTM Squeeze reflected a red dot; however, once the Bollinger Bands became very tight
within the Keltner Channels, that is when an orange dot appeared on the TTM Squeeze.
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An orange dot squeeze can be seen in Chart L.19 of $CAT on the daily time frame. Notice how deep the
Bollinger Bands curled inside the Keltner Channels, resulting in the orange dot squeeze.
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Looking at Chart L.20 of $BBBY on the weekly time frame, notice the orange dot squeeze. It was
previously in a red dot squeeze once the Bollinger Bands curled inside the Keltner Channels, but as the
Bollinger Bands contracted further, the orange dot appeared.
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Looking at Chart L.21 of $TXN on the weekly time frame, notice the extended period that it has been in a
squeeze. While in this squeeze, it has changed from red dots to orange dots, back to red, and back to
orange. Again, notice the difference in the contraction of the Bollinger Bands at each point.
Now that you know what all the dots mean on the TTM Squeeze, I will remove the Bollinger Bands and
Keltner Channels from my chart to free up space and place the Exponential Moving Averages on the chart
instead.
On the new chart, I have the 5 EMA, 8 EMA, and 21 EMA with the TTM Squeeze. Let me show you a
few trades I have taken based on the orange dot squeeze.
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Chart L.22 above is a daily perspective of $BJs.
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Chart L.23 above is a weekly perspective of $BJ.
Looking at both Charts L.22 and L.23, In January 2021, I noticed that BJs was in a weekly orange dot
squeeze with the yellow momentum, plus it was in a daily light blue squeeze with the orange dots at the
same time. Both squeezes showed that this squeeze was likely going to fire to the upside. As it was a
closer-term swing, I had to find my entry based on the daily time frame. In the first picture, which is the
daily time frame, the price broke above the daily 8 EMA and 21 EMA and held above it. As a result, I
went long on a retest of the daily 21 EMA, and my stop-loss was a daily close below the daily 21 EMA.
As you can see in the charts, $BJ ran from $38 to a high of $50! If you can identify the momentum on the
TTM Squeeze and get in when the dots are orange, the dots still need to go red, black, and then green, and
in that scenario, you caught a HUGE move from the stock price releasing. This trade was a perfect
scenario of this process.
Chart L.24 is a day trade taken on $TSLA and was solely due to the orange dot squeeze. Looking at the
TTM Squeeze, there are two things to make a note of. The first one is the orange dot squeeze, and the
second is the light blue momentum with rising histogram bars, with the stock price holding above the
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EMAs. Therefore, these two things let me know what more than likely was going to happen on $TSLA.
Again, knowing the 21 EMA is the best entry, that is exactly where I entered. My price target was $742,
and my entry was $736. $TSLA made a $6 move within 5 minutes, and I was able to exit the trade
entirely.
The chart above shows a swing trade that I took on $CAT based on the orange dot squeeze. Using the
Fibonacci extensions from pivot high to pivot low, the 127.2% extension lined up at $243.69; therefore,
that was the price target. As you can see on the TTM Squeeze, it began to hint that the squeeze wanted to
fire up due to the light blue histogram bars. As a result, the squeeze quickly fired to the upside and then
straight to the price target, where I exited my position.
Below are a couple of trades I have taken based on the red dot squeeze.
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Chart L.26 above is another example of a swing trade I have taken. $GLD and the entire gold sector was
something I was watching very closely due to the weekly squeeze showing signs of wanting to fire to the
upside. At the same time, $GLD had a clear trendline acting as resistance that had to be broken before I
entered the trade. As soon as $GLD broke above the trendline, that is when I entered this swing trade. I
purchased the $180 Calls expiring June 17th, 2022, and some leaps expiring 6+ months out. The $180
Calls went $2.50 in the money, and I was able to pocket almost a +120% return on my investment. This
trade would not have been on my radar if it were not for the squeeze.
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Chart L.27 above is an example of $TAP on the daily time frame. Unfortunately, I entered this trade at the
breakout of the trendline and got stopped out the following day on the red candle, just to see the stock
start flying to the upside the following day. Just because I got stopped out does not mean this was not a
picture-perfect setup. Looking at the TTM Squeeze, $TAP was squeezing and showing signs of wanting
to fire up while breaking above the trendline and holding above the EMAs. As a result, the squeeze did
fire to the upside, and as painful as it is for me to say this, the contracts went up over +100% from my
entry. Ouch.
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Looking at $FB on the 5-minute time frame in Chart L.28, this was a day trade that I took today
(February 28th, 2022). Looking at the 5-minute time frame, $FB had positive momentum on the TTM
Squeeze, and the orange and red dots letting me know a big move was coming. Once $FB broke above
the high of the day at $209, the squeeze fired, and the stock continued to push to $213.15 before pulling
back.
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Chart L.29 is a screenshot of a swing trade I took on $FB. Looking at $FB on the weekly time frame,
there was a bull flag breakout; however, looking down at the TTM Squeeze, Facebook was in a weekly
orange dot squeeze for five weeks. Again, the higher the time frame, the more superior the orange dot
squeeze is. Taking the Fibonacci extensions from the most recent pivot high to pivot low, the 127.2%
extension was at $321. $FB broke out of the bull flag while still squeezing, and I entered the trade.
Looking at the squeeze, the yellow momentum turned light blue, and the orange dots turned red, red
turned black, and black turned green. This trade was spotted by looking at the TTM Squeeze. I have said
this before, and I will say it again, the TTM Squeeze is my favorite trading indicator.
While your attention is on $FB, I want to mention a method called the “Slingshot Squeeze.” A slingshot
squeeze is where the stock is currently squeezing, and the histogram bars are yellow. The stock MUST be
above 5 EMA, 8 EMA, 21 EMA, and 55 EMA for this to validate a buy signal. As the stock price stays
above these moving averages, the yellow bars will get smaller and eventually turn light blue and will have
the squeeze firing as the stock transitions into the light blue momentum. As a result, this creates a
slingshot effect and sends the stock on its way to the upside.
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Looking at Chart L.30 of $FB on the weekly time frame, this is a perfect example of a slingshot squeeze
in effect.
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A clean slingshot squeeze can be seen when looking at $JNJ on the weekly time frame in Chart L.31.
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Looking at $AAPL on the daily time frame in Chart L.32, notice how $AAPL broke above the moving
averages with yellow momentum and red dots. That yellow momentum turned into light blue, and the
squeeze released to the upside. From there, $AAPL followed the 5 EMA and 8 EMA from $126 to $150.
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Looking at Chart L.33 of $EA on the daily time frame, notice how the momentum was turning from
yellow into light blue, and at the same time, broke above the EMAs. From there, the red dot squeeze fired
to the upside with strong buying momentum.
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A slingshot squeeze can be seen in Chart L.34 of $DAC on the weekly time frame. The squeeze had
yellow momentum indicating that buyers were coming back into the market. Those yellow bars were
shrinking, giving the possibility of the momentum turning light blue. As the stock price was above the
moving averages, the momentum turned light blue, and the squeeze fired up.
This is going to wrap up this chapter on the TTM Squeeze. This is my favorite indicator in my strategy
and is involved with almost every trade I take. I could write about this indicator for hundreds of pages,
but I promised myself I would keep it short and sweet. To summarize everything about the TTM Squeeze,
the light blue momentum indicates strong buying momentum. The dark blue indicates that the buying
momentum is dying down and can lead to a reversal or consolidation. The red momentum indicates strong
selling momentum, where the stock will more than likely pull to the downside. Then the yellow
momentum indicates buyers are now showing a presence, and you could see the stock price move to the
upside.
If the TTM Squeeze is an indicator that you think can assist you in your trading, you can purchase it at:
https://www.simplertrading.com/courses/squeeze-pro-system-affl/?utm_campaign=squeeze-
pro&utm_medium=referral&utm_source=affl-linktrust&ltafid=507159&ltcampaignid=439968. This is an
affiliate link, so I will get credit if you purchase the indicator. Keep in mind that I have been using the
TTM Squeeze for years before I became an affiliate.
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With the TTM Squeeze, there are four colored dots; orange, which is rare, red, which indicates there is a
squeeze, black, indicating that the squeeze is in the first stage of firing, and green which indicates the
squeeze has fired. Remember to always piece the TTM Squeeze together with the moving averages. If the
histogram bars are light blue, but the stock price is below the moving averages, you should not be
initiating a long position until the stock price holds above the moving averages. The same can be said
about the red momentum on the squeeze. If the histogram shows red bars, but the stock price is above the
moving averages, you should not be going short or buying puts. I will be discussing the squeeze again in
the Swing Trading and Day Trading chapters later in this book. The next chapter will discuss the final
indicator I use in my strategy: the On Balance Volume (OBV). Make sure to check out the multiple
videos I have made about the TTM Squeeze on my YouTube channel: BrandonTrades. I have an entire
playlist on the TTM Squeeze there.
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Chapter 13: On Balance Volume
The On Balance Volume indicator (OBV) is a momentum indicator created by Joseph Granville and
written about in his 1960s book Granville's New Key to Stock Market Profits. The OBV predicts
momentum in the asset being traded. The OBV considers the total trading volume of a stock and indicates
if that volume is flowing in or out. In other words, it measures money inflow versus money outflow. As a
result, continued positive volume and money inflow will result in the OBV increasing, and negative
volume and money outflow will result in the OBV decreasing. It also helps the average retail investor
understand what smart money and institutions are doing when it comes to that stock. I like to use this
indicator because options trading has become more popular in the new age of technical analysis, and since
options are not reflected in the stocks volume, volume analysis has become more complex. There have
been numerous examples where the normal volume is low; however, the OBV hinted at a bigger move in
its respected direction. Old technical analysis books always state that volume needs to be present on
major breaks, but if more individuals are trading options instead of shares now, we would miss too many
moves. The OBV solves this issue regarding lower volume, and I will show you how to use it to your
advantage.
As far as which time frames to use the OBV, I prefer to use it on the daily and weekly time frames. These
are the time frames that I prefer because I have noticed that the OBV gives clearer signals on these time
frames; however, when you break it down to smaller time frames like the thirty-minute, it tends to be
choppier and not give you as clear of a signal as the higher time frames. You can always feel free to try it
out on these smaller time frames, but I personally do not like using it on anything lower than the daily.
Going back to Chapter 3: Understanding Stock Trends, the OBV should be treated similarly. The OBV
can uptrend, downtrend, or consolidate, and it is essential to pay attention to which trend it is currently in.
Not only that, but you can also spot chart patterns on this indicator as well as divergences.
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Chart M.1 - Charts by TradingView
Looking at Chart M.1 above is a picture of how the OBV looks on the daily time frame. I personally lap
mine over the normal volume indicator. When looking at the OBV, notice the uptrends, downtrends, and
consolidations.
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In Chart M.2, try to pick out the trend of the OBV and reflect it with the stock price. The stock and the
OBV show almost the same thing; however, notice that the OBV hinted at a shift in direction a few times
before the stock shifted trend. Notice how the OBV downtrend was broken, and the OBV line broke
above the recent lower highs, thus creating a higher high, then a higher low. This happened well before
the actual stock price indicated a reversal from its previous downtrend. From there, the OBV created an
uptrend, and $SNOW continued to go up in price.
In Chart M.3 of $SQ on the daily time frame, notice how the old downtrend was broken, and the OBV
indicated the new uptrend. Notice how $SQ continued to move to the upside, and as soon as the OBV set
a lower low and lower high, that indicated that $SQ was more than likely going to pull to the downside,
which it did.
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In Chart M.4, I will be going back to the $CAT swing trade I took. The OBV played a crucial role in my
entry into this trade. Looking at $CAT on the daily time frame, it broke out of the symmetrical triangle,
but looking down at the OBV, it had an uptrend while the stock was consolidating. This was a fair hint
that $CAT would breakout to the upside well before the price ever broke out. Then when $CAT did
breakout, notice the OBV reading as well. It created a much higher high than before, which added more
confirmation to the breakout.
It is also super important to know the OBV readings from a weekly time frame. I know I keep repeating
this, but I cannot stress this enough, always remember, the higher the time frame, the more significant the
signal is.
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Chart M.5 of $V on the weekly time frame shows a clear reading for the OBV. Notice how the OBV was
in a downtrend at the first set of arrows. Once the indicator made a higher high and then a higher low, this
was a clear indication that $V was now ready to move back to the upside. As seen in the OBV, the stock
price made higher highs and higher lows. Once the OBV dropped below the previous higher low, that’s
when the stock pulled back even harder, setting lower lows and lower highs on the indicator, as well as
the stock price.
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In Chart M.6 of $MO on the weekly time frame, notice how the OBV was able to show the trend of the
stock much more clearly. Each time the OBV made a higher high and then a higher low, the indicator
showed that more money was inflowing into the stock than outflowing. Piece this uptrend on the OBV
with the TTM Squeeze, EMAs, and Stochastics, and you have one amazing swing setup.
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Looking at Chart M.7 of $ABBV on the daily time frame, notice how the OBV was consolidating while
the stock was doing the same. I want you to notice that the OBV indicator broke out of its consolidation
before the stock itself did. Shortly after, $ABBV stock price followed through and gave a perfect
continuation in price
Chart M.8 above is a perfect example of a divergence on $AMD. Looking at the daily time frame, the
OBV set higher highs and higher lows while the stock was dropping in price. As a result, you would want
to avoid the short side on $AMD because there is more buying than selling occurring, which is why the
OBV was in an uptrend. Will this get you into a long position? Maybe not, but it will help you avoid
entering a losing position. In this scenario, I would wait to see what happens. If the OBV breaks below its
previous low, the downtrend will continue, and I will look to short the stock. But, if the uptrend continues
and the stock gets above the EMAs, I will look for long positions.
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Looking at $XLE on the daily time frame in Chart M.9, the OBV helped confirm the move to the upside
as soon as it broke above the previous highs. As seen on the chart, the lime green line was the high of the
OBV, and once the line broke above there, that let the trader know that the stock was ready for the next
leg up.
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Looking at $CVX on the daily time frame in Chart M.10, notice what happened both times when the
OBV broke out and set new highs. The stock price followed shortly after.
The On Balance Volume indicator is one of the most reliable indicators you could use in your trading
strategy. It clearly shows uptrends, downtrends, and reversals before they occur on the chart. Due to this
indicator's extreme accuracy, I believe any technical analyst should be using this indicator in their
strategy. Remember, I only use this indicator for swing trades and utilize it on the daily and weekly time
frame. I will be revisiting the OBV in a later chapter when I begin to discuss my swing trading strategy.
In that chapter, I will be reviewing previous swing trades I have taken and giving a list of confirmations
for each trade.
This will wrap up all the indicators that I use when trading. In the Day Trading and Swing Trading
chapters, I will show you how to combine these indicators for effective trading and what to look for
before entering trades. Before I go into detail, it is also essential to know chart patterns. Pattern
recognition is one of the most important aspects of technical analysis. From a psychological standpoint,
there are thousands of indicators and thousands of different variations that can assist in decision making;
however, there are only a select number of chart patterns. We may not all use the same indicators, but if
there is a bull flag on the daily time frame, all indicators aside, everyone will see that bull flag. In the next
chapter, I will be discussing all the chart patterns that you should pay attention to when trading.
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Chapter 14: Chart Patterns
Chart patterns play a crucial role in identifying buy signals and sell signals and providing guidelines for
future price movements and objectives. These patterns naturally occur in the markets, and they repeat
themselves daily. There are entire books written on only chart patterns that are 300+ pages in length. In
this chapter, I am going to discuss the chart patterns I see the most, which are Bull Flags, Bear Flags,
Falling Wedges, Symmetrical Triangles, Ascending Triangles, Descending Triangles, Head and
Shoulders, Inverse Head and Shoulders, Cup and Handles, Double Tops, Multi Tops, Double Bottoms,
and Multi Bottoms. There are more chart patterns than the ones discussed in this book, but I pay more
attention to those with a higher occurrence in the market. One thing to make note of with all the chart
patterns discussed, is that they are applicable on any time frame. As mentioned multiple times, the higher
the time frame, the bigger the reaction will be once the pattern is broken.
Bull Flag
A bull flag is commonly found in stocks with a recent strong uptrend in price, also known as the flagpole.
Following that strong uptrend in price is a consolidation area known as the flag. The pole results from a
vertical movement to the upside in the stock price, with the flag resulting in the consolidation of the stock
price. Below is an example of what a stock forming a bull flag would look like. A bull flag is a bullish
pattern, meaning a continuation to the upside is more than likely to occur. When you spot a bull flag, you
should only be looking to go long.
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Chart N.1 - Charts by TradingView
Chart N.1 is a visual representation of what a bull flag will look like. As seen in the picture, the “stock”
had a vertical move to the upside, followed by a consolidation period, and once the price broke above the
consolidation, the stock continued to go higher.
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Chart N.2 - Charts by ThinkorSwim
Chart N.2 shows $FB on a monthly time frame. I went ahead and marked out the bull flag for you; that
way, it is easier to spot. Looking at the monthly time frame of $FB, the stock did nothing but increase in
price from April 2020 to August 2020, traveling from $150 a share to $304.67. The price increase
generated the flagpole; however, at the time, no one knew that $FB was forming a bull flag. After three to
four months of $FB consolidating, you would be able to recognize that a bull flag is forming. You can
then trace the consolidation, which would be the flag. When drawing the two trendlines that create the
flag, you want to connect the trendlines in a way that they hit as many wicks as possible. Now, all you are
waiting for is for Facebook to break above the monthly bull flag for the stock to continue going higher.
Once $FB broke the flag in March of 2021, $FB increased in price from $287.50 a share to a high of
$377.55.
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Chart N.3 shows another example of a bull flag on the 1-minute time frame of $AMD. Again, notice the
price increase (the flagpole), followed by the consolidation (the flag), and then the breakout. This was an
actual trade I was able to take, where I scalped for a quick +20% profit. Like I said, the bigger the time
frame, the bigger the breakout, but this was on a 1-minute time frame. That is why I quickly scalped the
trade and then exited my position. I have noticed through my time trading that the breakouts from a 1-
minute bull flag tend to be weak and do not last long.
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Chart N.4 is an example of a bull flag on the 1-hour time frame of $AMD. Again, notice the sharp
increase in price followed by consolidation. Once the stock price broke out, the price of $AMD rocketed
to the upside.
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Chart N.5 is an example of a bull flag on the ten-minute time frame of $PYPL. Notice how after the
vertical movement to the upside, the price consolidated in a way that allowed two trendlines to be drawn
against the highs and lows of the candles. Once $PYPL broke the flag, the stock gave a nice push to the
upside.
These were a few examples of how the bull flag looks and how the bull flag forms. Now, I will show you
a few tips and tricks that can be utilized when trading a bull flag.
The first trick is entering the trade during the consolidation period when the stock forms the flag. This is
one of the few chart patterns where I will enter the trade prematurely. I like to enter the trade early
because we already know that a bull flag is a continuation pattern. Therefore, the stock will likely
continue to increase in price. Another reason I like to enter the trade early on bull flags is because of the
low Implied Volatility. Remember, Implied Volatility measures the market's expectation of where a stock
can go and directly correlates with the Vega in the options contracts. When a stock consolidates, the
Implied Volatility drops with it. As a result, you get a cheaper contract. As soon as the stock breaks out of
that consolidation (the flag), the Implied Volatility immediately shoots up. This will increase the cost of
the contracts rapidly as the breakout occurs. That is how I made +20% on such a small breakout in the
$AMD example. Finally, in a bull flag scenario, the stop-loss is well-defined. All the stock needs to do is
break below the lower portion of the flag, and you are stopped out. Utilizing the 8 EMA also gives a
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perfect entry point to enter the bull flag. I have noticed that most of the time, a bull flag forms because the
stock overextends from the 5 EMA and 8 EMA. I have also noticed that when the stock price comes back
to the 8 EMA, that is where the stock tends to retrace before continuing its move to the upside. The risk-
to-reward in bull flag scenarios is too good to give up. That is why I like to enter early.
Looking at Chart N.6 of $TSLA on a 5-minute time frame, notice how a trader could have easily found an
entry based on the bottom trendline of the bull flag.
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Looking above at Chart N.7 of $FB on the 10-minute time frame, a trader could have obtained a perfect
entry off the bottom trendline of the bull flag.
Chart
N.8 - Charts by TrendSpider
Looking at Chart N.8 of a different example of $TSLA on the 10-minute time frame, notice how the 8
EMA and the lower trendline of the bull flag both gave perfect entries for this trade. A stop-loss was well
defined, while the reward was substantial.
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Looking at Chart N.9 of a 5-minute bull flag found on $NVDA, as seen, the stock rallied up in price and
then consolidated until retracing to the 8 EMA before continuing to the upside.
Now when it comes to finding a price target on the bull flag, there is a standard measurement that people
like to use to find a price target. This method is 50/50, but you can utilize it to help you decide which
contract you should be buying for the breakout. If you duplicate the flagpole and place it at the breakout
zone, the stock should continue to the pole's distance. Again, in my experience, this is a 50/50 chance, but
I figured it was worth mentioning in this book.
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Chart N.10 is an example of an actual trade that I took based on the bull flag measurements. Looking at
$BA on the 4-hour time frame, I noticed that it created a bull flag, and I was looking to swing trade Calls
a few weeks out. Since $BA was in an area that it had not been in for three years, there was not much
resistance that I could utilize as far as price targets. As a result, I duplicated the flagpole, placed it at the
breakout, and chose my strike price based on the pole. In this scenario, $BA traveled the distance of the
flagpole, where it eventually broke above the price target but could not sustain the level for long.
Remember, it is not a 100% guarantee that the stock will react to this level. Sometimes it will fall short,
and sometimes it will break above periodically, but the main reason to use this strategy is to help you plan
the trade and have a price objective in mind. This is one real-life example of how the flagpole assisted me
in developing a trading plan.
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In Chart N.11, going back to the $AMD 1-hour bull flag, taking the flagpole, and placing it at the
breakout would give you the price target. As seen in this $AMD example, the flagpole measurement
worked to a T.
To recap the bull flag, this pattern appears after a sharp increase in price to the upside, which forms the
pole, followed by a consolidation area known as the flag. The best spot to enter the trade is off the lower
trendline of the flag or on the 5 EMA and 8 EMA. The reason is that the stop-loss is well defined, and the
contracts are cheap due to the consolidation. As for a price target, if you duplicate the flagpole and place
it at the breakout, that should be the profit goal, but remember, this helps you have a price target in mind.
It is not always 100% set and stone that the stock will go to that level. Now that you understand bull flags,
it's time to move on to the bear flag.
Bear Flag
A bear flag is a bearish formation created by a strong move down, followed by consolidation and then
another move down. The strong move down will be the pole, and the consolidation will be the flag. Since
this is a bearish chart pattern, you should only be looking for short opportunities when bear flags occur.
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Chart N.12 - Charts by TrendSpider
Looking at Chart N.12, this is an example of what a bear flag will look like on a chart. Price had a strong
move down, followed by a slight pullback (probably back to a moving average) where it consolidates
before making a stronger move to the downside.
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Chart N.13 shows two examples of a bear flag on the 30-minute time frame on $QQQ. With both bear
flags, a strong downward move is first spotted, followed by a pullback and consolidation period, which
then was broken, and the stock price dropped lower.
Looking at Chart N.14, there is a bear flag example on the 30-minute time frame on the S&P Futures. As
seen, a strong move down was given for the flagpole, followed by consolidation, which then provided the
flag. After that, the S&P Futures broke down and dropped further in price.
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Looking at Chart N.15, a bear flag can be seen on the 4-hour time frame on the S&P Futures. A strong
move down in price, followed by consolidation, and another strong move down provided traders with an
excellent short opportunity.
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Chart N.16 is another example of a bear flag on the 10-minute time frame of $AMD. Notice the price
reaction once $AMD broke below the consolidation (flag). $AMD continued to drop another $1.05,
which offered a perfect opportunity to short $AMD.
Like a bull flag, you want to enter the trade either during the consolidation period or when the stock price
comes back to the moving averages or trendlines to ensure the best entry possible. This will give you the
best possible risk-to-reward for that trade since all the price action has to do is break above the moving
averages or above the trendline to stop you out.
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Chart N.17 of the $QQQ 30-minute bear flag shows how a perfect entry was given off the upper trendline
or 8 EMA of the first bear flag. This would have offered the trader the best risk-to-reward for a downside
trade.
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Looking at Chart N.18 of a weekly bear flag on $DKS, again, what ended up happening? The stock
consolidated and bounced off the upper trendline of the bear flag multiple times, which would have given
a perfect opportunity to go short. As seen in the chart, $DKS has recently broken below its bear flag and
dropped $15.77 before rebounding to the upside.
Traders can also apply the same measurement tool used on bull flags to get a price target for bear flag
breakdowns. Once the stock price breaks below the bear flag, take the pole, and place it at the breakdown,
which will give the price target.
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Looking at Chart N.19, at the S&P Futures 4-hour bear flag, using the same measurement tool as
previously discussed, the measurement implied that the futures could drop almost 110 points to the
downside. As seen in the chart above, the futures dropped almost to the price target before rebounding.
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Looking at Chart N.20, taking the pole of the first bear flag and placing it at the breakdown gave $QQQ a
price target of $386.77, which became support at the market open. I decided to swing puts overnight due
to a daily gap to the downside and the 30-minute bear flag.
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Looking at Chart N.21, a daily bear flag can be seen on $TLT. Once $TLT broke below the bear flag, the
next leg down was given, and the price continued lower.
That will wrap up how to identify, use, and take advantage of bear flags. Remember, there always needs
to be a strong move down in price, followed by consolidation, for it to be considered a bear flag. The best
possible entries are off the upper trendline or one of the moving averages with the stop-loss set on the
opposite side. To get a price target, duplicate the flagpole and place it at the breakdown to understand
where the stock has room to drop.
Symmetrical Triangles
The following chart pattern to be discussed will be the symmetrical triangle. This chart pattern is often
referred to as a “neutral chart pattern,” meaning it has no direct bullish or bearish trend. However, it has
been shown that more than likely, a stock that goes into a symmetrical triangle will continue to move in
the trend it was in previously. A symmetrical triangle is a chart pattern with two converging trendlines
connecting a series of swing highs and swing lows. The two trendlines will eventually meet at a point
where the stock is forced to breakout. However, it has also been shown that the breakout is much more
effective if the stock can breakout 50%-75% of the way through the symmetrical triangle. If you break it
down to trading psychology on why 50%-75% of the way through is so effective, this will give obvious
answers. For a stock to go up, buyers must outweigh sellers. For a stock to go down, sellers must
outweigh the buyers. For a symmetrical triangle, the buyers or sellers must show their presence early for
the stock to move in its respected direction. If the stock consolidates inside the symmetrical triangle until
the point where the two trendlines meet, the buyers and sellers were uncertain about which direction the
stock price should go. Therefore, if both sides are uncertain, the breakout or breakdown will be minimal.
However, if the stock breaks to the upside 50% of the way through the symmetrical triangle, the buyers
clearly outweighed the sellers, and the stock should see a continuation in price. The same goes for the
downside.
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Chart N.22 shows how the “stock” was in an uptrend before going into a consolidation period; at the same
time, notice how the stock was coiling up during the consolidation, setting lower highs and higher lows,
which allowed one to draw two converging trendlines. From there, you would wait for confirmation of the
breakout, and then enter the trade.
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One example can be found on $TSLA in Chart N.23. Looking at $TSLA on the daily chart, there was a
significant increase in price from $270 to $500, then $TSLA went into consolidation. Notice how price
continued to make lower highs and higher lows, allowing you to draw the symmetrical triangle with two
converging trendlines. From here, wait for a breakout or breakdown to enter the trade. The indicators
discussed throughout this book can help you understand which way the stock will break, but do not try to
assume which direction the trade will go until it happens. A measurement tool used to find price targets is
by duplicating the opposing trendline from the breakout and placing it at the beginning of the opposite
trendline or measuring the distance between the beginning of two trendlines and placing it at the breakout.
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Notice how the indicators in Chart N.24 gave the trader a clear indication of $TSLA wanting to breakout
to the upside. The Stochastic Slow gave two buy signals, the OBV was increasing, and the TTM Squeeze
was creating a slingshot effect, plus the TTM Squeeze had a red dot. Once $TSLA broke out to the upside
and held, that was the confirmation to go long. Using one of the measurement tools discussed gave a clear
price target for the trade.
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In this example on $MSFT, notice how the stock had a previous uptrend going into the symmetrical
triangle. Again, it is not set and stone that the stock will always continue in the direction of the previous
trend; however, in my experience, I have noticed that it more than likely will. Again, in this scenario, you
can utilize the measurement tools to understand where the stock can move.
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As seen in Chart N.26, $MSFT achieved the price target before making the trendline resistance and
dropping in price. Notice how the indicators provided extra confirmation on the breakout.
Remember, the entry is at the breakout or breakdown of the symmetrical triangle. Utilizing indicators can
give one a highly educated assumption of which way the stock will breakout, but the trade is not valid
until the stock has broken the trendline. You should never anticipate the breakout because I will show you
where a stock did not follow the previous trend and instead reversed direction.
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Chart N.27 of $PLUG on the daily time frame shows a huge price increase followed by a symmetrical
triangle. This is an example of why you must wait for the actual breakout before entering the trade
because if you went long in this scenario, you lost money. This was also an actual trade I took to the
downside because all the indicators hinted that $PLUG would drop in price instead.
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Notice in Chart N.28 in the $PLUG example how all the indicators hinted at a breakdown. There was a
decreasing OBV reading, Stochastic sell signals, decreasing squeeze momentum, an orange dot squeeze
looking to fire down, and then the stock lost the 5 EMA and 8 EMA. Once the stock broke below the
lower trendline, that was the entry to go short. Then again, you can use the two measurement tools to help
find price objectives. This trade played out beautifully, reaching the price goal.
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In Chart N.29, the previous trend in $JPM was down, so one would think that $JPM would continue to
move back down; however, notice how $JPM broke out to the upside and continued to move higher in
price. (The gap up occurred from the news, which so happened to occur once $JPM broke out of the
symmetrical triangle). Hence why you must wait for the break and hold outside the symmetrical triangle
before initiating a position.
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Chart N.30 shows that all the indicators confirmed a move to the upside on $JPM. Yet again, $JPM met
the price objective in this scenario.
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Traders can use symmetrical triangles on smaller time frames as well. Looking at Chart N.31, this is a
trade I took on $NVDA based on the 5-minute time frame. Looking down at the indicators, the Stochastic
generated a buy signal, while there was light blue momentum on the TTM Squeeze with orange dots, and
on top of that, the stock price was holding above the EMAs. As a result, once $NVDA broke above the
upper trendline, that is when I went long on this trade. As seen in the picture, $NVDA climbed to a high
of $230 from $226.
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Chart N.32 shows a chart that is currently breaking out of a symmetrical triangle on the daily time frame.
This breakout occurred on August 8th, 2021.
Chart N.33 is an update as of August 12th, 2021.
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Chart N.34 is an update as of September 1st, 2021.
Chart N.35 shows the price target being achieved.
That is going to wrap up symmetrical triangles. Remember, a stock that goes into a symmetrical triangle
will likely continue in the direction of the previous trend; however, always wait for a breakout or
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breakdown because, as you have seen from the previous examples, the stock can reverse and go in the
opposite direction. Make sure to use the indicators to your advantage. The indicators can help hint at a
breakout or breakdown before it occurs and can be used as confirmation once the stock breaks out. Also,
remember that you can always utilize the two measurement techniques laid out for price targets.
Ascending Triangles
An ascending triangle is another bullish chart pattern. This pattern consists of an upward trendline that
connects the stock's swing lows and has a horizontal resistance line that can be drawn above the swing
highs. You can add to your position on the bounces from the rising trendline with ascending triangles, but
ideally, I like to wait for a break and close above the resistance level, thus breaking above the ascending
triangle and giving confirmation to enter.
Chart N.36 is a visual example of how an ascending triangle would look on a chart. Notice the flat
resistance point and the upward trendline acting as support. The idea behind the symmetrical triangle is
that the stock will continue to deny resistance, but then come back to the trendline as support until the
stock price is forced to break above resistance or break below the trendline.
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Chart N.37 is an example of $GILD on the weekly time frame. Notice how the stock had multiple hits on
the ascending trendline as support. At the same time, $GILD had significant resistance at the $70 area
with multiple hits. As a result, you can now draw the horizontal resistance, creating the ascending
triangle. From here, ideally, you want to wait for a breakout above the resistance point to go long. Do not
be surprised if the stock breaks above resistance and comes back to test it as support. The retest offers
traders a fantastic opportunity to add to their current position or enter the trade.
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In Chart N.38, utilizing the indicators could have helped you decide when the stock will breakout, and
could confirm the breakout. The chart showed an increasing OBV reading, strong Stochastic momentum,
and a light blue squeeze looking to fire to the upside.
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Looking at $CHSCP on the weekly time frame in Chart N.39, this stock recently broke out of its
ascending triangle. Notice the indicators again in this scenario that indicated $CHSCP wanted to break to
the upside. The OBV was increasing, the Stochastics generated a buy signal, and there was a squeeze with
light blue momentum.
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Chart N.40 shows $CMCSA finally breaking out to the upside and giving a perfect trade opportunity. For
two weeks, $CMCSA sat above the top of the ascending triangle making it support, before giving a push
to the upside.
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Looking at Chart N.41, $HZNP formed an ascending triangle on the daily time frame. Notice how all the
indicators hinted at a further continuation to the upside.
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Chart N.42 is a picture of $CPK on the daily time frame. Again, notice the flat top acting as resistance
and then the rising trendline acting as support, thus creating an ascending triangle. The indicators showed
an increased OBV reading, two Stochastic buy signals, price was above the EMAs, and a slingshot
squeeze was present.
That is going to wrap up ascending triangles. Remember, these are bullish patterns which means the stock
should continue to the upside once price breaks above resistance. With an upward slopped trendline
acting as support, and a flat resistance point, it is always essential to wait for a solid break and close
above the resistance line before entering. Utilize the indicators to help confirm the breakout and to give
you higher conviction going into the trade. From there, the stop-loss is if the stock falls below the
breakout point. As the stock continues higher, trail the stop-loss under the 8 EMA, and take profits as the
price objectives are met, or when you are satisfied with your profits.
Descending Triangles
A descending triangle is a bearish chart pattern found by a downwards trendline connecting swing highs
and a horizontal support area acting as support. Ideally, for a descending triangle, I would like to see the
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stock break below support before entering my position. More aggressive traders look to add to their short
position at pullbacks to the trendline with a stop-loss placed right above the trendline.
Chart N.43 of $WD on the daily chart shows how the descending trendline connects multiple hits from
the swing highs. At the same time, there is a solid area of support where there are multiple hits. The idea
behind the descending triangle is that the stock will continue to return to the trendline, where it will act as
resistance, and continue to make lower highs. From there, wait for a break and close below support to
initiate a short position. However, notice how $WD broke above the trendline and had an explosive move
to the upside in this scenario. Why did this happen? When breaking it down to trading psychology, the
more aggressive traders are going short at the descending trendline while buyers buy off support. If the
stock broke above the trendline, the short sellers had to rebuy their positions to cut losses, while buyers
flooded in because the stock invalidated the descending triangle. As a result, the stock had a nice short
squeeze to the upside.
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Chart N.44 shows the daily chart of $EA. Notice the short descending triangle formation that occurred.
Looking at the chart, there was a solid support area and a descending trendline. Again, wait for the break
below support to go short. As seen in the picture, $EA had a negative reaction once breaking below
support. Going back to trading psychology, many traders waited for the break below this level. Once $EA
broke below, that is when shorts piled onto their positions and drove the price of $EA down.
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Chart N.45 of $UNF shows a picture-perfect descending triangle on the daily time frame. Each time the
stock reverted to the trendline, price denied it before dropping lower. At the same time, the stock
continued to bounce off the horizontal support area and eventually broke below, where traders could enter
short.
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Chart N.46 of $LUNG on the daily time frame shows a descending triangle. Again, there is a descending
trendline acting as resistance and a flat support area that the stock refuses to break below.
A descending triangle can be seen in Chart N.47 of $ACHV on the daily time frame. There is strong
support at $6.61, and a descending trendline acting as resistance each time the stock price comes back to
it.
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Looking at Chart N.48 of $WBX on the daily time frame, another descending triangle can be seen. There
are three successful lower highs allowing a trendline to be drawn and a strong support level at $11.77.
That is going to wrap up the descending triangles. Remember, this is a bearish chart pattern, and you
should only be looking for short positions when these occur. Ideal entry points would be off the lowering
trendline or a break below support. However, if the stock breaks above the descending trendline, the stock
will likely increase in price due to shorts covering their positions, and buyers flooding the markets.
Falling Wedge
A falling wedge shares characteristics with a bull flag. There is usually a significant increase in the stock
price, followed by a consolidation area. But the consolidation area in the falling wedge tends to have a
sharper pullback to the downside and consolidates for a longer time. When drawing the two trendlines for
a falling wedge, they converge to a point where the two trendlines will eventually meet. As for a bull flag,
it looks more like the letter “F”.
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Chart N.49 has two examples of a falling wedge on $CRM.
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Looking at Chart N.50, remember to use the indicators to help get a hint before a stock breaks the falling
wedge, and use them as confirmation once the breakout occurs.
A daily falling wedge can be spotted in Chart N.51 on $AMD. Notice the reaction that took place at the
breakout of the falling wedge and then the follow-through from earnings. Once again, all the discussed
indicators hinted at a bigger move to the upside.
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Chart N.52 shows a falling wedge on the daily time frame on $X. Notice that the indicators confirmed the
move to the upside through a Stochastic buy signal, increasing OBV, and the stock holding above the
EMAs.
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As for $IBM in Chart N.53, this falling wedge can be spotted on the weekly time frame. Again, notice the
previous increase in price, followed by a sharp pullback. The pullback allowed two converging trendlines
to be drawn, which, as a result, formed a falling wedge.
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Finally, looking at $NIO on the weekly time frame in Chart N.54, the two trendlines can be drawn in a
way that they would eventually intersect while capturing all the price action inside the trendlines. Notice
the breakout and follow through once $NIO was able to breakout.
This is going to wrap up the falling wedge. Remember, the difference between a bull flag and a falling
wedge is that the bull flag has more of a vertical move up followed by sideways consolidation. The falling
wedge consists of a move to the upside, followed by a sharper pullback that allows one to draw two
trendlines that contract near the end. This is still a bullish continuation pattern; however, you want to wait
for the breakout before entering the trade. As with the other chart patterns, utilize the indicators to help
confirm the breakout.
Head and Shoulders
The head and shoulders pattern is one of the most accurate reversal patterns in the market. You will
mainly notice this pattern at the top of an uptrend. The head and shoulders pattern signals a reversal from
bullish to bearish; however, these formations can also be found at the bottom of a downtrend which can
signal an even lower move to the downside. The head and shoulders pattern consists of three peaks—the
left shoulder, the head, and the right shoulder. At the same time connecting these three points is the
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neckline. The neckline connects the three peaks together. One can use multiple measuring techniques to
find price targets in a head and shoulders pattern, but you must also pay attention to volume, as volume
plays a crucial role in confirming a reversal.
Chart N.55 is an example of how a head and shoulders formation will look on a chart. One thing to note is
that not all head and shoulders will form perfectly symmetrical. In some cases, the head might be a little
funky, or it may have a deformed right shoulder. The head and shoulders can also form slightly slanted up
or down. If it is slanted up, this is a stronger formation, but if it is slanted down, this is a sign of
weakness.
You want to pay attention to the volume with the head and shoulders because if you break it down to the
basics, the three peaks are rallies in the market. You should notice a decent amount of volume on the left
shoulder, but as the head forms and the stock heads higher than the left shoulder, you should notice equal
volume or even less volume throughout the head. This tells the trader that the stock is moving to higher
highs with weaker volume, which is a warning sign for a reversal. At this point, there are just two rallies
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in the market. The first rally has high volume, but the second bigger rally has equal volume, or less
volume than the first rally. However, on the right shoulder, the third rally, you should notice significantly
weaker volume than the left shoulder and head. If you spot this, the head and shoulders pattern will likely
confirm the reversal soon. With the head and shoulders pattern, you always want to wait for a break and
close below the neckline before entering the trade.
As shown in Chart N.56, there is notably weaker volume as the peaks progress. Once it hit the third peak,
which had the weakest volume of the three, it gave a fair warning that the stock would reverse to the
downside. The entry would have been when $AAL broke below the neckline marked “Entry”. As far as
measuring techniques, you can use one of two ways. Some traders prefer to measure the length between
the top of the right shoulder and the neckline and then place the measurement at the breakdown, or more
aggressive traders prefer to use the length between the top of the head, measured down to the neckline,
and then placed at the breakdown.
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The breakdown achieved both price targets in Chart N.57 of $AAL before bouncing back to the upside.
In Chart N.58, looking at $UAL on the daily time frame, one could notice a head and shoulders pattern
forming. Notice the right shoulders volume, and the weakness shown in the volume compared to the left
shoulder and head. As soon as $UAL closed below the neckline, you could have initiated a short position.
To find the price targets, measure the top of the right shoulder to the neckline and measure the top of the
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head to the neckline. Place both measurements at the breakdown, and then those will be the price
objectives.
Looking at Chart N.59, $UAL reached both price objectives at the breakdown.
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Chart N.60 of $WFC shows another head and shoulders formation with a perfect horizontal neckline on
the weekly time frame.
Looking at Chart N.61, $WFC hit the first price target quite quickly. The second price target took a little
longer to hit but was eventually achieved.
That is going to wrap up the head and shoulders pattern. Remember, this is an extremely important
reversal pattern that has shown time and time again to be one of the most accurate reversal formations.
Always pay attention to the volume because it will hint if the stock is ready to breakdown. The left
shoulder should have the highest volume, whereas the head should have equal volume or even less
volume, then the right shoulder should have significantly less volume than the left shoulder and head. If
this volume pattern takes place, there is an extremely high probability that the head and shoulders will
break to the downside. Always wait for a break and close below the neckline before entering a short
position, and then make sure to use the two measurement tools discussed in the previous pages as price
objectives.
Inverse Head and Shoulders
The inverse head and shoulders pattern is a common chart pattern found at the bottom of a downtrend.
This formation looks exactly like the normal head and shoulders but flipped upside down. This formation
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predicts a bearish to bullish reversal; however, inverse head and shoulders can also be found at the top of
an uptrend. If this is the case, the inverse head and shoulders will be considered a continuation to the
upside. Like the head and shoulders pattern, the inverse head and shoulders will not always form in
picture-perfect examples. Sometimes the head might be a little messed up, or even a deformed shoulder.
Chart N.62 is an example of $DKNG on the daily chart. Notice the downtrend before the inverse head and
shoulders pattern appeared on the chart. The stock formed the left shoulder, the head, and the right
shoulder. At this point, the neckline can be drawn. All you need to do is wait for a breakout and close
above the neckline to go long. Again, the volume will be important on the breakout of the neckline (it can
also help if you use the OBV). Anyways, looking at the volume on the breakout candle helped indicate
that buyers are present and ready to push the stock higher. The OBV hinted at the move well before the
breakout by giving an uptrending reading. The same measurement rules will apply to the inverse head and
shoulders to give you future price targets. Measure from the bottom of the right shoulder to the neckline
and place it at the breakout, or measure from the bottom of the head to the neckline and place it at the
breakout.
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Looking at Chart N.63 above, again, with both measuring techniques shown on the chart, you can see that
$DKNG achieved both price targets, and the price hit the measurement from the head to the neckline to
the T before the stock began dropping. I took this swing trade and based my price targets on the
measurement tools.
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Chart N.64 of the NASDAQ futures shows an inverse head and shoulders formation. All the patterns
discussed in this chapter do not only apply to the stock market. They also apply to futures,
cryptocurrencies, commodities, bonds, etc. Looking at the NASDAQ futures, the inverse head and
shoulders broke above the neckline with a solid buyer's candle. As a result, one could go long with a price
target of the two measurements, and the original stop-loss would be below the breakout candle.
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As seen in Chart N.65, the NASDAQ achieved the first price target in this scenario, plus more to the
upside. The NASDAQ did not hit the second price target until three months later; however, one would
have been stopped out of the trade since the NASDAQ had a nasty pull to the downside. As a result,
always move your stop-losses up in a winning trade! We will discuss this more in a later chapter.
Looking at Chart N.66 of $ERX on the daily time frame. $ERX had continuously sold off until it formed
an inverse head and shoulders, letting traders know of an impending reversal. Once $ERX broke above
the neckline with a solid green candle, it never looked back and continued to push up in price.
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As seen in Chart N.67, $ERX quickly reached both price targets plus more on the trade. The price targets
would have served you well when choosing a strike price.
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Finally, looking at Chart N.68 of $PYPL on the 4-hour time frame, $PYPL dropped significantly in price
during the previous days. Once the right shoulder had formed, the neckline was able to be drawn. Once
$PYPL broke above the neckline, that was the signal to get in. Using the measurement tools, $PYPL was
able to achieve both price targets.
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Looking at Chart N.69, both price targets were achieved through the measuring strategies.
Cup and Handle
A cup and handle formation is considered a bullish formation in technical analysis. The cup is in the
shape of a U, also known as a rounding bottom, and the handle forms a slight downward slope before
breaking out to the upside and continuing higher in price.
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Chart N.70 is an example of $CHWY on the daily time frame. Notice how the price formed the rounding
bottom in the shape of a U, and then the handle is shown with the yellow trendlines. Once the stock broke
out from the handle, $CHWY stock price increased from $109.75 to $120 in just one day.
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Chart N.71 is an example of the S&P Futures on a 5-minute chart. As seen at the beginning of the day, the
futures sold off and eventually created a rounding bottom. From there, the futures came back up, gave the
little consolidation zone for the handle, and then broke out and ran over 20 points to the upside.
Chart N.72 is an example of $HUT on the weekly time frame. This is a trade I have been in since $5.64,
and the stock ran to a high of $11.09; however, I have not sold it yet due to the large cup forming on the
weekly time frame. The three proceeding weeks were a downwards slope where I could draw two
trendlines around the price action, which gave the handle. Once $HUT broke the handle, it continued to
run to a high of $16.60.
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Looking at Chart N.73 of the Gold Futures (/GC) on the monthly time frame, notice how there was a giant
cup and handle that Gold has recently broken above. This was a setup that I had been waiting on for more
than six months, and I took full advantage of it once it finally broke out.
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Chart N.74 - Charts by Thinkorswim
Chart N.74 is the final example of a cup and handle formation found on the daily time frame for $TSCO.
As seen on the chart, there was a beautiful rounding bottom creating the cup, followed by a slight
pullback which created the handle. Once the stock broke out, it continued to push $12 in eight trading
days.
Double Bottoms
A double bottom is considered a bullish pattern and is found at the bottom of a downtrend. Therefore, the
double bottom predicts a bearish to bullish move to the upside. If you go back to the support and
resistance chapter, remember that all price needs is two hits to draw a support or resistance level. That is
exactly what a double bottom is—a newfound support level. Double bottoms tend to happen the most at
52-week lows or all-time lows. As for day trades, I tend to notice them more at the low of the day. That is
not to say that they do not occur in many other areas on the chart. I personally notice them more at these
lows and like to trade them off those levels.
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Looking at Chart N.75 of $TPTX on the daily time frame, one could see price formed a double bottom at
the bottom of a downtrend, which was also 52-week lows. $TPTX had found new support at this level,
creating a double bottom. In this example, since the double bottom, $TPTX increased in price from $60 a
share to a little over $80 a share, returning +33.33% if you had traded the equity. It is important to utilize
your indicators to help confirm that the stock may bounce and go higher in price when spotting double
bottoms.
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Chart N.76 is an example on $IBBJ, which offered another beautiful example of a double bottom. The
stock price tested $27.87 two times as support. On the second attempt, $IBBJ rebounded and pushed in
price to a high of $31.75. Again, a $3.88 move in the options world would offer an excellent return.
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Chart N.77 of $XBI on the daily time frame also created a double bottom. Twice $XBI came down to
$118.55, and once it came down the second time and rebounded, the price increased to a high of $137.66
before pulling back. The bounce would have offered a return of $19.11 on the trade, and the stop-loss
would have been slightly below $118.55. Talk about fantastic risk-to-reward
Remember, double bottoms are a newfound area of support. If the stock comes down to the area and
generates a bullish candlestick with substantial volume the second time, this can indicate that the stock
will likely rebound and head higher in price. Once in the trade, the stop-loss will be a break and close
below where the double bottom occurred.
Double Tops
Double tops are the exact opposite of a double bottom. A double top predicts a bullish to a bearish trend
reversal. Remember, price only needs two hits for resistance; therefore, during a double top, a stock has
found new resistance. As far as identifying double tops, I notice them the most when a stock reaches 52-
week high, all-time highs, or the high of the day for day trades. Again, I am not saying that double tops do
not happen in other areas. I just prefer to trade them off the areas previously mentioned.
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Observing Chart N.78 on the daily chart of $SOXL, a clear double top lets traders know of a possible
trend reversal. The stock had a nice run-up in price until the stock price approached the previous 52-week
high, hit it again, then ultimately dropped in price. The stock dropped from $48.01 down to $37.17 before
rebounding to the upside.
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Chart N.79 is another example of a double top on $MDT. Notice the first time $MDT came up to
$132.32, the stock rejected the level hard and pulled back. This created a new all-time high. Months later,
as $MDT came back to this level, it formed a double top and dropped almost $9 to the downside.
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Chart N.80 is another example of a double top on $AMZN. As seen in the picture, $AMZN had an all-
time high at $3,556.50, which was set in October of 2020. $AMZN revisited this level in late April of
2021 and treated it as resistance. Therefore, creating a newfound resistance point plus a double top.
$AMZN dropped from a high of $3,549.76 a share down to $3,127.91 a share before rebounding back to
the upside.
The final double top I will be showing you can be found in Chart N.81 of $ACI on the daily time frame.
Notice how months prior, the stock came up to $37.85. Once $ACI came back to this level, price formed
a double top and sold off.
Double tops are straightforward as far as a common reversal point. You will most likely notice double
tops at an all-time high, or 52-week high. Again, going back to the support and resistance chapter, all-
time highs will always be a resistance point. That is how double tops are formed, and that is how one will
know that a double top could be in the making. There are also other bottoming and topping patterns worth
making a note of. There can also be triple bottoms, multi bottoms, triple tops, and multi tops. The higher
the number of hits on a specific area, the stronger the support and resistance. Again, with these bottoms
and tops, you will see them occur mostly at all-time highs, all-time lows, 52-week highs, 52-week lows,
high of the day, and low of the day.
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Mutli Bottoms
Like double bottoms, multi bottoms are a strong area of support and can hint at a reversal in price if
buyers show interest in that area. A multi-bottom is an area at the bottom of a downtrend where the stock
has hit multiple times. Each time the stock successfully bounces back to the upside, the level becomes
stronger. I have noticed that the strongest multi bottoms occur over a long period of time.
Looking at Chart N.82 of $LVS on the monthly time frame, we can notice a strong support area that has
been a buy zone for many traders over the last ten years. Each time $LVS has come back to this zone,
buyers have bought $LVS up and pushed the price back up. This setup is a beautiful example of a multi-
bottom.
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Looking at Chart N.83 of $OPEN on the daily time frame, you can notice that on multiple occasions, the
stock price came down to the support zone at $13.85 and has acted as support, followed by a push back to
the upside. On $OPEN most recent touch of the multi bottom, it had rebounded from $13.85 to $21.
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As seen in Chart N.84 on $SPAK, the stock had come down to the $21.50-$22 level multiple times before
bouncing each time. As a result, this creates a solid multi-bottom.
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The final multi bottom can be found in Chart N.85 of $OHI on the daily time frame. The chart shows that
the stock price had come down multiple times to the $27-$27.07 level and made it support before
successfully bouncing each time.
Multi Tops
Multi Tops are a reversal pattern from bullish to bearish. This pattern is like the double top but has
multiple hits acting as resistance at the top of an uptrend.
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Looking at Chart N.86 of $SPG on the daily time frame, each time the stock comes up to the $136 to
$137.50 area, the stock kept denying the level. Since there are multiple hits, this will identify as a multi
top, and could hint at a reversal if the buyers cannot push the stock price above the resistance point.
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Another perfect example of a multi-top is in Chart N.87 of $MAN on the daily time frame. For six
months, this stock had tested the resistance area multiple times and failed to break through each time. As
a result, price sold off and dropped from $124 a share down to $106 a share.
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Looking at Chart N.88 of $NEA, another beautiful example of a multi-top can be found. From July 2021
to September 2021, price tested the same resistance area multiple times. Since the stock could not push
above resistance, it sold off a significant amount.
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Finally, looking at $DBA in Chart N.89, notice how each time price came to the $19.50 area, it treated it
as resistance. The more price denies this area, the stronger the resistance will become.
That will wrap up the chart patterns that I will be discussing in this book. Again, understanding chart
patterns and how to identify them is extremely important for your trading strategy. As I mentioned earlier
in the chapter, there are thousands of different trading strategies. One trader may draw a support or
resistance area differently from the next trader, and one trader may draw a trendline differently than the
next trader; however, chart patterns will always be the same. A bull flag is a bull flag, and an inverse head
and shoulders will always be a reversal pattern from a downtrend to a possible new uptrend. The only
challenge is being able to identify these patterns properly. Once you can, this will be a powerful tool in
your trading strategy.
Now that you know how to correctly plot support and resistance, trendlines, the indicators I use for
trading, candlestick formations, and chart patterns, it is time to piece everything together and share my
swing trading strategy with you.
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Chapter 15: Swing Trading
Swing trading is the purchase of options or shares that you will hold anywhere from a day, a few days, a
week, a few weeks, a month, a few months, etc. When swing trading, you are NOT buying and selling the
stock on the same day. I prefer swing trading because I can catch better moves in the market and the
trades play out slower. With day trading, the timing makes a huge difference. Being off by just five
seconds in a day trade can invalidate an entire setup. With swing trading, you can take your time entering
the trade and develop a solid plan before entering.
The indicators I use for swing trading are different from the indicators I use for day trading. When swing
trading, I use the 5 EMA, 8 EMA, 21 EMA, 55 EMA, 50 SMA, 100 SMA, and 200 SMA. I also use the
On Balance Volume indicator, Stochastic Slow, and the TTM Squeeze. Many traders say that these are
too many indicators; however, I look at indicators the same way people look at filters on Instagram. There
are many different variations of a picture that one can post, but there will only be one variation you like.
The indicators act as a filter in the market. There are plenty of trades that can be taken, but only so many
will fit the filter standards.
Chart O.1 - Chart by ThinkorSwim
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Chart O.1 is a screenshot of my main setup for swing trading on ThinkorSwim. This is the first chart I
look at to see if a stock is near any of the SMAs or EMAs and to get an overall picture of the stock's
sentiment. After looking at this chart, I then go to a separate chart with only the 8 EMA and 21 EMA,
TTM Squeeze, On Balance Volume, and Stochastic Slow. Changing the charts allows me to have a
clearer picture of the stock that I will potentially be swinging.
I prefer to trade "different" companies when swing trading. I mostly leave the $TSLA, $GOOGL, $FB,
$MSFT, and $NVDA to day trading. Instead, when I am swing trading, I prefer to trade companies like
$X, $JNJ, $BJ, $GILD, $ABBV, $GLD, $GDX, etc. I prefer to trade these less "popular" names because
the contracts are cheaper, meaning I can buy more, and they have a high Delta and Gamma, low Theta,
and offer a great risk to reward ratio. For example, recently, I swung a Call on $X that expired a little
more than a month out. The total cost of the contract was $120. If you were to swing trade a stock like
$FB a month out, it would cost you $500-$900 depending on the contract chosen. That is a substantial
price difference. The $X contract had a .53 Delta and a .08 Gamma. As for $FB, it had a .40 Delta and a
.02 Gamma. Which contract is truly the winner here? The $X trade would be chosen by me each time.
Suppose you only had $500 to spend, and let's say the $FB contract was $500 and the $X contract was
$100 for simple math. For $FB, you would make $40 for every dollar move plus an additional $2 on each
dollar move after that. On $X, you would be making $265 off a $1 move (.53 Delta x 5 Contracts) plus
the additional $8 worth of gamma per contract after that. I have an entire video dedicated to this topic on
my YouTube channel, make sure to check it out: BrandonTrades
Chart O.2 shows the Greeks for $AMD contracts expiring 21 days out. Notice the price you must pay to
enter the trade. The contracts have a high Delta, but low Gamma, and higher Theta. Delta is on the left,
Gamma is the second one in, then Theta, then Vega.
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Chart O.3 shows $CCJ contracts expiring 21 days out. In this example, notice the low price of the
contracts, the high Delta, the high Gamma, and the low Theta. These are the kind of Greeks I am looking
for when swing trading.
Now that you understand what companies I am looking to swing trade, I will show you how to piece all
the indicators together to make a highly educated assumption about what will happen next in the market.
There will be no better way to show these examples other than on trades I have taken in the past.
Chart O.4 is $X on the daily time frame.
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Chart O.5 is a weekly chart of $X

Focusing on Chart O.4 and Chart O.5, $X was a trade that I recently had taken and was able to profit over
+100%, where I made the rest of my contracts free, and proceeded to cash out on a +7,800% gain using a
calendar spread. Before looking at the list of confirmations below, see if you can figure out the technical
reasons behind taking this $X swing trade, utilizing all the information I have taught you in this book.
Confirmations:
1. Above all The EMAs and SMAs

2. Breakout From Trendline
3. Increasing Daily On Balance Volume
4. Daily Stochastic Buy Above The 80 Line = Strong Buy
5. Light Blue Squeeze
6. Increasing Weekly OBV
7. Weekly Stochastic Buy Signal
8. Light Blue Squeeze Weekly
9. Red Dot Squeeze From Orange Dot Squeeze Weekly
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10. Above Weekly Moving Averages
In total, there were ten confirmations to take the $X swing trade, and that is exactly why I entered the
trade. I bought the $29 Calls expiring one month out for $120. It is also worth noting that you should be
swinging the monthly expirations when you do swing trade these “different” companies. The monthly
expiration is the third Friday of every month. These contracts tend to have the most liquidity and are
usually where the swing traders are positioned. Most brokers will label the expiration as “Monthly”.
Using support and resistance, I knew that $X had room to at least $28.66, then $29.97. This is why I
decided to choose the $29 Calls.
Make sure to study all these confirmations. When all the indicators point in the same direction, especially
on multiple time frames, that is what you want to see before entering a swing trade.
Chart O.6 Chart by ThinkorSwim
Looking at Chart O.6, I know I said that I usually do not swing trade $FB; however, if the setup is there, I
will take it. This picture is of $FB on the weekly time frame, and again you can notice all the indicators
are pointing in the same direction. $FB was also in a monthly bull flag at the time. See if you can list all
the confirmations that helped me decide to enter this $FB swing trade.
Confirmations:
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1. Monthly Bull Flag Breakout
2. OBV Uptrending
3. Breakout On Volume
4. Yellow Momentum On Squeeze = Slingshot Squeeze
5. Red Dot On Squeeze (The Stock Is Going To Pop)
6. Previous Orange Dots On Squeeze
7. Stacked EMAs
8. Two Stochastic Buy Signals
There were eight confirmations to take $FB to the upside. Going back to Fibonacci extensions, to get a
price target, I used the most recent pivot high to pivot low, and my price target was the 127.2% extension,
as well as the 161.8% extension. Since the 127.2% extension is an extremely common price target, I
purchased the $320 Calls expiring three months out. At the time, these contracts were $40 out of the
money; however, the technicals gave a clear understanding that $FB could go to this level, which it did,
plus much more.
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Looking at Chart O.7, this is another example of a swing trade that I took on $SBUX. In this swing trade,
I bought the $110 Calls expiring two weeks out, and then I purchased the $112 Calls expiring one month
out. I bought the $110 Calls because that was $SBUX all-time high, then I purchased the $112 Calls
because the 127.2% extension was at $112.57.
Again, see if you can notice all the confirmations involved with this swing trade before reading on.
Confirmations:
1. Above All Moving Averages

2. Increasing OBV
3. Light Blue Momentum
4. Red Dot On The Squeeze
5. Stochastic Buy
6. Increased Volume
7. Straight Shot to All-Time Highs Then 127.2% Extension
Chart O.8 is a picture of $O on the daily time frame.
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Chart O.9 is a picture of $O on the weekly time frame.
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Chart O.10 is a picture of $O on the monthly time frame.

Utilizing Chart O.8, Chart O.9, and Chart O.10, the next swing trade was made on $O. There was plenty
of confirmation going into this swing trade. However, I entered the trade due to the solid buyers' candle
above the weekly 55 EMA. Looking at the previous price action, the weekly 55 EMA was denied at least
15 times. Once the stock finally had a solid close above the weekly 55 EMA, that was the hint to hop into
the trade. As $O went in my favor, I trimmed most of my position, making my contracts almost free, then
turned the remainder of the trade into a risk-free debit spread which I will discuss later in this chapter.
There were plenty of indications that signaled to enter this trade. See if you can list all the confirmations
from this trade.
Confirmations:
1. Above All EMAs - Daily

2. Light Blue Momentum Squeeze - Daily
3. Stochastic Buy - Daily
4. Increasing OBV – Daily
5. Solid Close Above Weekly 55 EMA
6. Orange Squeeze – Weekly
7. Yellow Into Light Blue Squeeze (Slingshot) - Weekly
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8. Stochastic Buy – Weekly
9. Yellow Squeeze – Monthly
10. Increasing OBV – Monthly
11. Solid Close Above All EMAs – Monthly
Chart O.11 shows a picture of $BA on the weekly time frame.
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Chart O.12 is a picture of $BA on the daily time frame.
Looking at Chart O.11 and Chart O.12, the next swing trade I will discuss was a trade I took on $BA.
Observing $BA on the weekly time frame, several confirmations gave hints that price was ready to
breakout to the upside. See if you can list all the confirmations before continuing to see why I entered the
trade.
Confirmations:
1. Weekly Falling Wedge Breakout

2. Volume On The Breakout
3. Weekly Increasing OBV
5. Orange Dot Squeeze Weekly
6. Slingshot Squeeze Weekly
7. Daily Slingshot Squeeze
8. Daily Increasing OBV
9. Daily Stochastic Buy Signal
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Chart O.13 shows a weekly time frame of $CVS.
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Chart O.14 shows a daily time frame of $CVS.
Looking at a swing trade that I took on $CVS, I purchased the $90 Calls that expired on November 19th,
and I purchased the contracts for $90. As you can see on the charts, $CVS had a massive move to the
upside on this trade, which resulted in +168.68% gains.
Confirmations:
1. Weekly Orange Dot Squeeze

2. Weekly Light Blue Momentum
4. Weekly Increasing OBV
5. Weekly Increasing Volume
6. Daily Slingshot Squeeze
7. Daily Light Blue Momentum
9. Daily Stochastic Buy Signal in Previous Days
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Chart O.15 is a picture of $USO on the weekly time frame.
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Chart O.16 is a picture of $USO on the daily time frame.
Chart O.15 and Chart O.16 show the setup of a swing trade I took on $USO. The swing trade was a no-
brainer. Zooming out and looking at the weekly chart clearly showed that $USO wanted to continue to the
upside and had no resistance until $58.64. Once $USO was able to break above the yearly highs at $51.4.
Confirmations:

2. Light Blue Momentum Squeeze
3. Increasing Weekly On Balance Volume
4. Above All Moving Averages Weekly
5. Huge Weekly Gap to Next Resistance
6. Daily Increasing On Balance Volume
7. Multiple Stochastic Buy Signals Daily
8. Light Blue Momentum on TTM Squeeze Daily
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Chart O.17 is a picture of $GILD on the 4-hour time frame.
For $GILD, I ended up taking a swing trade overnight based on many factors that I was able to identify
on the 4-hour time frame. I purchased the $72.5 Calls expiring one month out in case it took $GILD a
little longer to breakout, but $GILD hit my price target within one day. Look back at the chart and see if
you can name all the confirmations, I saw on $GILD before you continue to read any further.
Confirmations:
1. 4-hour Orange Dot into a Red Dot Squeeze

2. Light Blue Momentum on TTM Squeeze
3. Multiple Stochastic Buy Signals
4. Increasing On Balance Volume
5. Symmetrical Triangle After Previous Uptrend
6. Breakout Of Symmetrical Triangle
7. Measurement Tools For Symmetrical Triangle At Breakout For Price Target
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Chart O.18 - Charts by ThinkorSwim
Looking at $XLE in Chart O.18 above is a swing trade I took on February 28th, 2022. For this swing
trade, I purchased the $72 Calls expiring on March 18th. I purchased these contracts for $161 and fully
exited at $302 per contract. See if you can spot all the confirmations before reading all the ones I saw.
Confirmations:
1. Red Dot Squeeze

3. Stochastic Buy Signal
4. Increasing OBV
5. Straight Shot To 127.2% & 161.8% Extension
That is going to wrap up looking at previous swing trades of mine. I included this because I want you to
see the number of confirmations I am using before entering any swing trade. I do not act off two
confirmations. There are often many confirmations that get me into a swing trade. When swing trading, it
is essential always to know what is going on as far as the daily, weekly, and monthly time frames.
Something I like to do with my losing trades is figuring out why the trade did not work out, and there was
one thing I noticed when it came to swing trades. I had noticed that they became losers because I was
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oblivious to what was happening on the higher time frames. The daily time frame could look beautiful;
however, on the monthly time frame, the stock could be super over-extended from the 5 EMA, and then
on the weekly, there could be a decreasing OBV, Stochastic sell signal, and dark blue momentum on the
squeeze. However, you would have had no clue if all you studied was the daily time frame. As a result,
you will more than likely lose money on that trade. That is why it is important to do multiple time frame
analysis when swing trading.
You want to see the same confirmation from all three-time frames. Always remember, the higher the time
frame, the more superior it becomes. Also, note that the higher the time frame the signal is generated, the
further dated expiration you should go. For example, if you see a breakout from a monthly bull flag, you
should purchase a longer-dated expiration instead of something that expires next week. However, if you
are trading a daily bull flag breakout, the expiration can be closer. Ensure that all the indicators on all
three time frames confirm each other before hopping into a swing trade, as it will add to your confidence
when entering. I hope seeing my thought process behind these swing trades will help you when you are
looking for your own.
Leaps
When it comes to swing trading, there is also a trading strategy known as "leaps." A leap is where you are
bullish or bearish on a stock in the long term. As a result, with leaps, you would be buying contracts that
expire in a year, two years, or even three years. I like to use the leap strategy on smaller cap stocks that I
have done substantial research on and see massive potential for in the future. Since the option is expiring
in 1-3 years, it would make zero sense to look at the stock on a daily time frame. I would prefer and
suggest watching these leaps on a weekly and monthly time frame. This way, you are not concerned about
what is happening on a daily basis and do not fake yourself out of the trade.
I will show you a scenario of a leap I did on $BLNK, which is an electric vehicle charging company. I did
a substantial amount of research on the company and became very bullish on the stock. As a result, I
purchased the $25 Calls expiring on January 21st, 2022. I entered these contracts on October 16th, 2020. I
had a year and three months until the expiration. Since I had a long time until my contracts expired, I had
to watch $BLNK on a weekly and monthly time frame and not a daily time frame.
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Looking at Chart O.19, marked on the chart as “entry,” you can see that I entered the contracts at the high
on the week of October 5th, 2020. From there, $BLNK did nothing but drop in price for four weeks
straight. Going back to the exponential moving averages, where is the stop-loss when the 5 EMA, 8
EMA, and 21 EMA are tight together? Below the 21 EMA. I purchased these contracts for $160, but by
the time they dropped to the weekly 21 EMA, they were worth $100. Did $BLNK ever violate the weekly
21 EMA? Nope! Plus, I still had a year and two months until expiration. Why would I sell something that
had so much time, plus it did not violate anything technical? Three weeks after price bounced off the
weekly 21 EMA, $BLNK started to increase in price rapidly, going from $10 a share to $35 a share
shortly after. My contracts were now $10 in the money and worth $1,365. Imagine selling the contracts
for a -$60 loss, just to look back a few weeks later and see those same contracts worth $1,365. Needless
to say, if you had the patience, you would have made a nice paycheck out of this trade. Do you want to
know why people would sell at a loss? Keep reading to find out why.
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Looking at Chart O.20, those who would have panic sold were too focused on the daily time frame.
Notice how different the two images appear to a trader's emotions. If you were to follow the EMA rules
on the daily time frame, you would have been stopped out of the trade. Since this trade was a leap, the
weekly and monthly time frames would hold the most priority.
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Chart O.21 is another example of a leap I made on $RIOT. Looking at $RIOT on the weekly time frame,
everything looked perfect. I had done substantial research on the company and was more than confident
to buy leaps. I ended up purchasing the $10 Calls expiring January 2022. Since the contracts expired in a
year, I had no reason to watch the daily time frame. Instead, I watched the weekly time frame. As a result
of not watching the daily time frame and being faked out by everyday moves.
Leaps can be made on any stock from $FB, to $AAPL, to $TSLA; however, I do not like buying leaps on
big-cap companies due to how expensive the contracts are. I prefer to purchase leaps on the small-cap
companies that I have done substantial research on and have faith in the future. In my opinion, leaps are
decided upon by fundamental analysis more than technicals. However, you want to use the technicals to
help you in the trade.
Gap Trading
Gap trading is essentially where the market or stock has no areas of support or resistance. These gap areas
usually occur from news or earnings reports. When spotted and combined with indicators, these gaps
could result in substantial profits if traded correctly. I will also show you what to look for when swing
trading a gap fill.
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Chart O.22 is one example of a gap fill trade that I took on $ORCL. Notice the gap down from $71.5 (low
of the candle before the gap down) and then $68.1 (high of the candle after the gap down). This is what a
gap will look like on a chart, and in this scenario, it was from earnings. When swing trading, you are
waiting for a break and hold above the high of the candle after the gap down. Once $ORCL held above
the initial gap down, that was my entry to go long. The first price target was the low before the gap down
at $71.5, then all-time highs at $73.62, the 127.2% \extension at $75.85, then finally the 161.8%
extension at $78.68. As seen on the chart, $ORCL achieved all the price targets to the upside.
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Chart O.23 is another gap fill trade on $ORCL, which offered almost the same setup as the previous
example. Again, a gap down occurred due to earnings. However, in this example, notice all the EMAs and
the 50 SMA acted as resistance for $ORCL. Therefore, there is no entry to go long on the trade until the
stock price can close above the moving averages. Finally, the stock broke above the moving averages, and
I entered the trade. Again, the market has a gap to fill to at least the low before the gap down. $ORCL
filled the gap the next day, and the contracts increased by over 100%. From there, the following price
targets were all-time highs, the 127.2% extension, and the 161.8% extension. $ORCL achieved all the
price targets, and the contracts increased by over 800%!
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Chart O.24 is an example of a stock filling a gap to the downside. $BYND had news that created almost a
$60 gap up the next day (notice the huge over-extension from the 5 EMA). The high of $BYND before
the gap up was $164.25 a share, and the low after the gap up was $183.6 a share. Once $BYND started to
lose the low of $183.6, it was quick to fill the almost $20 gap back down. Filling gaps to the downside is
easier to achieve even if EMAs are acting as support; however, when a stock is trying to fill a gap to the
upside and EMAs or SMAs are blocking it, a lot of the time, the stock will not fill the gap, or it will just
take extra-long to fill.
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Chart O.25 is an example of $PTON. Again, notice how quick price was to fill the gap to the downside
once falling below the low of the gap up.
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Looking at Chart O.26 on $AMD, a daily gap needed to be filled from $91.88 to $93.63. It was not a huge
gap, but a gap that traders could take advantage of. $AMD filled the gap and then immediately continued
to drop in price.
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Chart O.27 of $TWTR shows how long it took for price to fill the gap to the upside. It took extra-long
because the 55 EMA, 50 SMA, and 100 SMA blocked $TWTR from initiating the gap fill. However,
notice how the stock reacted once it finally cleared the moving averages. Remember, these moving
averages have a strong significance in the market. Hedge funds and money managers have rules when it
comes to these moving averages; therefore, there will be support or resistance at these levels. If the
moving averages are blocking a stock from initiating its gap fill, price will more than likely struggle to fill
the gap, or price will not fill the gap at all.
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Chart O.28 of $CLX shows a huge gap down occurred from earnings, giving the low point before the gap
down and then the high point after the gap down. Without knowing the moving averages, one could
simply think that $CLX would fill the gap to the upside, WRONG. For $CLX to fill the gap, it would
need to clear the 21 EMA, 55 EMA, 50 SMA, and the 100 SMA. That is a lot of resistance to
breakthrough to fill a gap. However, if all the moving averages were below $CLX and were not blocking
the stock, it would have likely filled the gap.
When gap trading, make sure that if you are trading a stock that looks ready to fill the gap to the upside,
no moving averages block the stock as resistance. If so, you will likely wait a while for the gap to fill, or
it will not fill at all. I cannot tell you how many traders I have seen make this mistake when trading gaps.
Also, make sure to utilize the indicators because they will help confirm the gap fill.
Spreads For Swing Trading
As promised, I will discuss option spreads that you can use while swing trading to limit the risk in the
trade while maximizing the reward. There are three spreads that I use and will discuss in this portion of
the book. These spreads are the debit spread, calendar spread, and butterfly spread. I will start with the
easiest of the three spreads, the debit spread.
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The debit spread is where the trader buys a closer to the money option contract while at the same time
selling a further out of the money option contract for the same expiration. As a result, this will make the
contracts cheaper and limit the risk for the trade. At the same time, a debit spread caps the potential
reward. There are guidelines on how far apart the two legs must be, which will be discussed soon. Before
I discuss those guidelines, let me show you how this spread works and how to implement it in your
trading strategy.
Looking at Chart O.29, in this example of setting up a debit spread, I will use $TQQQ as an example. Say
I was bullish on $TQQQ and wanted to buy a swing trade expiring March 18, 2022. This will give 21
days until expiration; however, say you are a small account and do not want to spend $235 for a swing
trade. That is how much the $55 Call would cost. At that point, one would be risking $235 per contract.
At the same time, you do have an unlimited amount of reward. Instead of spending $235 for the $55 Call,
you can buy that $55 Call and sell the $60 Call to someone else for the same expiration. As a result, the
contracts would only cost you $146 instead of the original $235. This spread just saved you $89 contract!
As far as the reward, you can make $354 profit per spread. To find the maximum profit, take the spread
between the contracts, in this case, 60-55 =5 ($500), and then subtract what you paid to buy the spread
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($146). Say you only had $1,000 for a swing, you have the choice of buying 4 of the $55 Calls, which
offer unlimited profit potential, or 7-8 of the debit spreads that offer a max reward of $354 per spread.
Chart O.30 is another example of the debit spread. Again, say you were bullish on $V and wanted to
swing trade a $225 Call expiring 21 days out. That one contract would cost you $355 to buy in this
scenario. Again, unlimited profit potential, but much more risk per contract. Instead, you could buy the
$225 Call and sell a $230 Call for the same expiration. As a result, the spread will only cost you $155.
This would give a discount of $200 per contract. Say you only had $2,000 that you were willing to put
into this trade. You could buy 5-6 contracts of just the $225 Call, or you could buy the debit spread
contracts and buy 12-13 of them. As far as max profit is concerned, again, the difference between the
contract bought and the contract sold is $5 ($500) minus what you paid for the contracts, which is $345,
meaning you have a max profit of $345 on 12-13 contracts, which is $4,140-$4,485.
The debit spread strategy is helpful for small trading accounts. When individuals first begin trading, most
do not start with a $50,000-$100,000 account, and it can be hard to find trades that fit your account size.
This spread would be great to use since you can limit the premium you have to pay to enter the trade. The
main question I get asked about the debit spread is, "how do I know which contract to sell?" and the
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answer to this question is quite simple. Where does the stock have room too, and where does it not have
room? Let me show you what I mean.
Looking at Chart O.31 of $AAPL, look to the left of the chart. Notice how $150 was the all-time high,
and from there, a Fibonacci extension gave a price objective of $151.81, then $154.34. Using the
technicals, $150 was easily obtainable for $AAPL, but for $AAPL to get to $155, price had to break
through many resistance points. Since $150 is easy to get in the money, and $155 is a challenge, a trader
could purchase the $150 Call while simultaneously selling the $155 Call to someone else for the same
expiration. This is exactly how I determine how to set up the debit spread.
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Looking at Chart O.32, this was an actual trade that I took. Looking at $WYNN on the daily time frame, I
noticed that $WYNN broke out of a falling wedge. At the same time, the monthly Persons Pivot
resistance was at $136.83. Due to the major resistance in this area, I was able to set up a debit spread. I
bought the $135 Calls expiring a few weeks out and then sold the $140 Calls against it for the same
expiration. $135 was easily attainable for the stock, but for the price to hit $140 would be quite a
challenge. The stock ran to $136.83, hitting the monthly pivot resistance, then quickly plummeting.
Instead of spending the original $340 per contract, the debit spread made the total cost $128 per spread. I
was able to exit these contracts at +70% profits.
Another thing to remember is that when determining how wide to make the spread, it depends on the
stock being traded. For example, $AAPL moves $2.30 a day. You can set up a debit spread that is $5
wide and get away with it. On the other hand, if you are trading $TSLA, which moves $21.14 a day, you
need to make the debit spread at least $50 wide. For example, buying the $750 Calls and selling the $800
Calls or buying the $740 Calls and selling the $790 Calls. If you were to trade $AMZN, which moves
$63.64 a day, I would be looking to do a debit spread that is around $200 wide. For example, buying the
$3500 Calls and selling the $3700 Calls. It all depends on how much the stock price moves each day.
Depending on that, it will determine the difference between the contracts you buy and the contracts you
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sell. Now that you know how to perform a debit spread, let me kick it up a notch and discuss the calendar
spread.
The calendar spread is when you buy a longer-dated expiration on a contract and at the same time sell the
same contract to someone else, but for a closer expiration. The goal is to collect the premium from the
buyers to whom you sold the closest expiration contract, thus making the contract cheaper. Here is an
example of a calendar spread that I did recently that profited me +332%. The trade was made on the
$DIA, which is a stock that follows the DOW Jones futures.
Looking at the DOW Jones in Chart O.33, there was major resistance at $35,000, which is a
psychological resistance level. Due to this, I believed a calendar spread was the best spread to use since I
was bullish on the DOW. Using the indicators also helped confirm my bullish bias. Then using the
Fibonacci extensions showed that once the DOW broke $35,000, price had a gap to fill to $35,300, then
$35,500. As a result, those became my price targets.
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Looking at the $DIA in Chart O.34, the technical analysis was almost identical to the DOW. As a result, I
knew that if the DOW could crack $35,000, the $DIA could fill its gap to $356. I purchased the $DIA
$355 Call expiring one month out. Knowing that $35,000 was a major resistance point for the DOW, it
made zero sense for me just to hold my contract and let it depreciate due to Theta while the DOW was
choosing if it would break above that key resistance. While the DOW is deciding what to do, I might as
well limit the amount of risk involved with this trade and do a calendar spread. Instead of buying the
August 20th, 2021, $355 Call for $261 and losing money from Theta, I ended up buying that $355 Call,
but selling the July 30th, 2021, $355 Call for $40. If July 30th came around and the $DIA was not at or
above $355, I would pocket the $40, and now my contract only cost me $221. Since this happened, I
bought the sold contract back completely worthless and sold the August 6th, 2021, $355 Call to someone
else for $90. Again, if the $DIA is not at or above $355 by August 6th, I would pocket $90, which is what
happened. At this point, I had taken $130 off the original cost of my contract. Now, I had only paid $131
for my August 20th, 2021, contract and still had two weeks until expiration. Finally, I sold the August
13th $355 Call to somebody else and collected the Theta along the way. The DOW finally broke out and
was able to push above the $35,000 area sending the $DIA with it. I was able to buy back the sold side of
the August 13th expiration for $13, netting myself a $58 gain and decreasing my cost even further.
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On top of that, my August 20th $355 Call was able to go in the money; therefore, it was profitable.
Looking at the math, initially, if I had just bought the $355 Call for $261, I would have been down most
of the trade, but since I used a calendar spread, I was able to collect $39 one week, $89 the following
week, and then $58 the week after that. In total, I gained $186 through selling weekly expirations to
someone else. As a result, from the original $261 contract, I had now only put in $7, and the August 20th
$355 Call went to $324. This was a +332% profit trade instead of +21.14% and a whole lot of unneeded
stress.
Chart O.35 is a scenario where one could have performed a calendar spread. Looking at $NKE on the
daily time frame, notice how price consolidated inside the symmetrical triangle for weeks. All of the
indicators hinted that $NKE wanted to push to the upside, and if you wanted to take this trade while the
price consolidated, you could have done a calendar spread. Each week you could have collected
premiums from the sold side of the contracts, and once the price broke above the symmetrical triangle,
you would have collected enough premium to the point that the original contracts were much cheaper than
originally. Then once the breakout occurred, the profits would have been substantial.
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To wrap up calendar spreads, you are buying a longer-dated Call and selling a closer-dated Call of the
same strike to someone else. If the stock stays below the strike price, you will pocket the premium and
make the contract purchased cheaper.
I often get the question, “what if the stock price goes above the strike price I sold?” The answer is, that
you will just not profit as much. Since you have the longer-dated expiration, the contract will always be
worth more. The contract you sold to someone else will increase in price, so you will only lose money as
their contract gains value. But the contract will continue to increase as well. As a result, you simply close
out the sold side of the spread and hold the long contract.
Again, calendar spreads are very technical. You cannot simply do a calendar on each swing trade that you
perform. There is always a time and place for these types of spreads. Now, the most complex of the three
spreads, but my absolute favorite spread, the butterfly spread.
A butterfly spread is a three-legged options strategy where you are buying one close to the money
contract, selling two further out of the money contracts, and then buying an even further out of the money
contract. When done correctly, the reward can be substantial. Below is an example of how to set up a
butterfly spread.
Chart O.36 is an example of how you will set up a butterfly spread.

The most important thing about a butterfly spread is that you are selling twice as many contracts at the
middle leg as you are on the other contracts. That is the number one thing I see people mess up when it
comes to butterflies.
As far as the risk-to-reward, the contracts become super cheap when performing a butterfly spread, but
the profits can be substantial. For example, say you were bullish on $AMD and wanted to purchase a
$125 Call expiring in one week. You would need to pay $165 to purchase that contract and must worry
about the Theta because it expires in one week.
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In Chart O.37, instead of buying the $125 Calls alone, you could sell two of the $130 Calls to someone
else, collect the premium and then buy the $135 Calls as protection. As a result, the spread would cost
you $72 instead of the original $165.
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Looking at Chart O.38, the maximum profit is the difference between the first leg bought and the second
leg of the sales, which is $5 ($500) minus the contract cost, which is $72. Therefore, the max profit could
be $428. This trade would have a max profit of $428 while only risking $72.
In Chart O.39, the green line represents the amount of profit that can potentially be made and shows
where the stock needs to be for the maximum profit to be made. The green line begins to move to the
upside as the stock price surpasses $125 (the first leg bought) and peaks at $130 (the second leg with the
two contracts sold). After the price surpasses $130, the spread begins to lose profit and eventually will go
back down to break-even or even worthless once price surpasses $135.
I will show you a few examples of butterfly swings that I have personally taken in the past. However,
before I show you those examples, a few guidelines must be followed when entering a butterfly spread.
The first thing to remember is that a butterfly spread should have a max expiration date of one week to
two weeks out. There are strategies where you can utilize longer-term butterflies, but my favorite way to
perform them is with a short expiration period. The Greeks will work in your favor when performing a
butterfly spread, and they are the best when the expiration date is closer. Make sure you always close your
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butterflies before expiration. The last thing you want is for the options to be exercised on you and for your
broker to call saying that you need to deposit money immediately. Yes, that has happened to me.
Looking at Chart O.40, of the $125, $130, and $135 Calls, notice the extreme difference between the
Delta and Theta. The goal is to get the first leg in the money, and the two sold legs out of the money and
collect the premium. The first leg has a .29 Delta, the sold has a .13 Delta, and the last leg has a .05 Delta.
The Delta will gain value as the contract goes in the money, but the ones out of the money will become
worthless by expiration. Notice the Delta and Theta on the contracts expiring one month out in the
following chart.
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Utilizing Chart O.41, looking at the Greeks for a butterfly that expires in one month, notice how the
Thetas are almost identical. The whole point of the butterfly is to have the sold side depreciate from Theta
while getting the first leg in the money. The further the stock goes in the money, the less the Theta will
become when approaching the expiration date. As expirations get closer, the strikes closer to the money
will have a higher Delta and Gamma value, while those further out of the money have a lower Delta and
Gamma. The other thing about butterflies is, Theta is almost non-existent when done right.
Back to the first example of $AMD, the $125 Call has a Theta of -$14, the $130 Call has a Theta of -$11,
and the $135 Call has a Theta of $9. In this scenario, we bought one of the $125 Calls and sold two of the
$130 Calls, and bought one of the $135 Calls. Adding the Theta together would look like this; -$14 ($125
Call) +$22 (Sold $130 Calls) - $9 ($135 Call) = -$1. As a result, we would only lose -$1 a day to Theta
instead of the original -$14. One thing to note with the butterflies is that most of the time, you can get it to
where the Theta is almost $0, and sometimes, you will even receive a credit. There are many variables
that this depends on, such as the stock being traded, the expiration date, and how far the strikes are from
each other. Before ever attempting a butterfly, make sure to use a simulator first so you know how to
execute the buy-side and the sell-side properly.
Below are a few examples of butterflies I have taken in the past.
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Chart O.42 is a 4-hour time frame of $CRM. Notice the falling wedge breakout and retest. I mentioned
this trade earlier in this book, and I am now revisiting it.
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Looking at Chart O.43 shows a daily perspective of $CRM. The picture shows that the stock broke above
the falling wedge and held above the moving averages.
1. Falling Wedge Breakout & Retest

3. Yellow Momentum on the TTM Squeeze
4. Holding The Moving Averages
5. Daily Squeeze
6. Increased Volume
I put this trade on July 21st, 2021, a Wednesday, and set up a butterfly that expired 7/23/21, which was
only two days away. For the butterfly, I purchased four of the $245 Calls because the price could achieve
that within two days, but I sold eight of the $250 Calls. I did this because $250 is a major psychological
resistance area, and it would be hard for $CRM to break and hold above $250 within two days. Since the
buy and sell legs were $5 apart, I purchased four of the $255 Calls as protection. In total, I paid $51 per
contract, and my maximum reward was $449 per contract. The next day, I sold ½ of my contracts for
+100% to make the rest of my contracts free. Then came Friday. $CRM broke above $250 very briefly in
the morning but held below $250 for most of the day and stayed rangebound. Since $250 was out of the
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money and expired that day, the contracts were worthless; however, mine had intrinsic value since they
were in the money. Due to this, my butterfly spread was now worth $280, where I fully exited the
position. That is a little over a 449% return in just two days.
I performed the next butterfly on $CAT. Looking at the technicals in Chart O.44, there were several
reasons for entering this trade and choosing the strike prices for my butterfly. As far as the technical
confirmations are concerned, they can be seen below.
1. Wedge Breakout
2. Increasing OBV
3. Stochastic Buy
4. Orange Dot Squeeze (PAY ATTENTION)
6. Above All the Moving Averages
7. Increased Volume at the Breakout
In this trade, I had seven confirmations before entering. Many people enter a trade based on one
confirmation; imagine having seven. As far as the butterfly, I bought three of the $240 Calls, sold six of
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the $245 Calls, and bought three of the $250 Calls as protection. I entered this position for $56 per spread.
Why did I choose the strike prices I did? If you look at the Fibonacci extensions, the 127.2% extension
lined up at $243.69. Since I knew that the 127.2% extension is a common price target for many traders, I
decided to sell the $245 Calls. $240 was easily attainable for $CAT; however, breaking the 127.2%
extension and holding above $245 within a week was highly unlikely. As a result, I sold 2/3 of my
position at +100% to make the last set free, and then sold the last spread at $215, +383%.
The next butterfly example I will show is in Chart O.45 of $CHWY. Looking at the daily time frame,
several confirmations made me enter this trade.
Confirmations:
1. Daily Cup and Handle

2. Above All Moving Averages
3. Increasing OBV
5. Red Dot Squeeze
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The cup and handle played a significant role in this trade. Remember, a cup and handle is a bullish pattern
and indicates a continuation to the upside. In this trade, I entered the $115/$120/$125 butterfly spread,
where I bought four of the $115 Calls, sold eight of the $120 Calls, and then bought four of the $125
Calls for $45 per spread. Those contracts were completely worthless on Friday morning, but $CHWY
broke out from the cup and handle and went directly to $120! First, why did I choose these exact strike
prices? Looking at the daily time frame and the Fibonacci extensions helps paint a clear picture. $115 was
easily attainable; however, reaching $120 (the 127.2% extension) and breaking above within the same
week was highly unlikely. Since the difference between the first buy and the sell was $5, I bought the
$125 as protection. Since my purchases of the $115 Calls went in the money, they increased substantially.
However, the $120 Calls were not in the money. Therefore, they were worthless. As a result, I made
802% on this trade. Turning $45 per spread into $406!
Remember, when setting up the butterfly spread, you need to determine where the stock price does, and
does not have room to in the near future. Most of these examples were done on stocks that can be $5 wide
on the butterfly. However, if you are trading $AMZN, you need to do at least $100 wide, meaning buy the
$3400, sell two of the $3500, then buy the $3600. As for $TSLA, I would go with at least $50 wide.
Each stock moves differently and has a different range that it trades in each day. That is why next, I will
be discussing the Average True Range (ATR). Remember, all the spreads discussed are used to limit the
amount of risk you have in the market while maximizing your potential reward. Each spread has a time
and place to be done in the market, so always ensure it is the right time before entering them. Hopefully,
the examples provided in this chapter paint a clear picture of the setups necessary.
Average True Range
The ATR is an indicator developed by Welles Wilder, JR. The ATR takes the last 14 days' price
movement, adds it together, and then divides it by 14. A new ATR reading will be given each day as new
data is given to the market. However, the ATR can differ depending on which time frame you select. A
different reading will be given on a weekly time frame versus a daily time frame. This indicator lets
traders know how much the stock price moves on average each day. With this data, traders can make
highly educated predictions when it comes to swing trading and day trading.
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Looking at $BA in Chart O.46, the ATR is $6.41. Knowing that $BA moves $6.41 a day can help aid
your trading decisions going forward. The ATR will also help you decide which way to set up a spread,
and how wide the spread should be. You can also use the ATR to calculate how far out the expiration
should be for a swing.
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For example, on $SO in Chart O.47, the stock moves on average $0.84 a day. Say that the price target was
the 127.2% extension in this example. If you were to enter the trade at the break of the neckline at $64.8
and have a price target of $68.78, you would need to use this calculation to determine the expiration date.
Take the distance the stock needs to travel, which would be $4 in this scenario, and divide it by the ATR.
$4/$.84=4.76, and I always prefer to round up, so this will be 5. If $SO were to go straight up and do its
respected ATR, it would take five trading days to achieve the price target. However, you must consider
the days when the stock goes down instead of up and when the stock does not achieve its average price
movement. To do this, one can simply multiply the number of days it would take to achieve the price
target, in this scenario, 5 days, and then multiply that by 4 or 5. It would take 20-25 trading days to
achieve the price target. Therefore, the expiration should be 4-5 weeks away.
Using the ATR can also help assist in day trades. For example, say you are watching $TSLA for a
possible upside move from $795 to $806. Well, if $TSLA has a $22 ATR, and $TSLA opened at $780,
and made its move to the entry point at $795, the price had already moved $15, meaning on average,
$TSLA has another $7 in the tank. Instead, you would want to aim for $802 instead of $806.
Another scenario I have run into in the past is, for example, let’s say we are trading $AMD, and the stock
has an ATR of $2.37. If $AMD opens and quickly makes a $1.50 move, on average, the stock will be
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trading with an extremely limited range for the remainder of the day. Therefore, we would look to trade
the remaining $.87 and use that as a price target. Could $AMD continue to run another $5 on that specific
day? Of course! But if you look at the average, it is highly unlikely. Using the average range lets a trader
know the expected moves that can be made and allows for proper trade planning.
ATR Channels
You should now be familiar with the Keltner Channels from the TTM Squeeze chapter. As mentioned
earlier, I do like to use the Keltner Channels, but I like to modify them and use the modified version in
my swing trading strategy. I will refer to the modified Keltner Channels as the ATR Channels. The ATR
Channels are a variation of the Keltner Channels, except that the ATR Channels add more upper and
lower bands. With this indicator, there are three upper bands (+1, +2, +3), three lower bands (-1, -2, -3),
and a middle band. The middle band acts as the mean of the stock, where the stock always reverts to the
mean. Ideally, when using the ATR Channels, the price is not meant to go outside the third upper band or
below the third lower band. The other bands also act as a form of support and resistance. The third band
also acts as a standard price target for traders. When using the ATR Channels for swing trading, I like to
enter positions around the mean, the middle line, and –1 ATR if the indicators show upside potential. I
will show some examples here soon, but first, I want you to see what happens when the stock price comes
outside the +3 and -3 ATR.
To apply the ATR channels on the chart, add three separate Keltner Channels to the chart. From there,
make the factor 1.0 on one of the Keltner Channels, a factor of 2.0 on the next Keltner Channel, and then
a factor of 3.0 on the final Keltner Channel.
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Looking at $PTON on the daily time frame in Chart O.48, one could notice that the stock price is outside
the third band. In many of these scenarios, the stock pulls back inside the ATR Channels, which
happened.
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Chart O.49 is another example but on $FB. Three times $FB came outside the ATR Channels and pulled
straight back inside. One thing to note is that you should never initiate a short position just because a
stock is outside of the ATR Channels. When a stock jumps out of them, and you are currently in a
position already, that is when you should exit for maximum profits. There are scenarios where a stock can
stay outside of the ATR Channels for multiple days.
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Chart O.50 is a perfect example of why you should not go short or buy puts just because the price is
outside the channels. In this example, $AMD stayed outside the channels for five days before coming
back in. Within those five days, $AMD ran over $15. This would have destroyed any short positions in
the market. Never trade against the trend, but this will let you know that it is not in your best interest to
continue staying in your long positions.
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Chart O.51 is a beautiful example of how the ATR Channels on $GOOGL. Looking at the daily chart,
$GOOGL sat around the mean for a month and one week. At the same time, there was an orange dot
squeeze with yellow momentum, an increasing OBV reading, and a breakout of a wedge. Notice where
$GOOGL ran up to before pausing in price, the third ATR. The total move was an increase of $137.56;
imagine that in options terms.
I personally like using the ATR channels in my swing trading. I like to identify where the channels are
located. That way, I can use them for price targets when swing trading. Before entering a stock, I also
want to know if it is currently outside the channels, which has happened more than one would think. If I
see that price is over-extended, I wait until it pulls back into the ATR channels and look for a proper
setup. Again, remember that just because a stock is outside the channels does not mean to initiate a
position in the opposite direction. It does, however, let you know that it is not the smartest to initiate a
new position and lets you know that it is time to start taking profits. Now I will show you a variety of
setups that are picture-perfect for swing trading with the ATR channels.
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Looking at $XLF on the 3-Day time frame in Chart O.52, this was a picture-perfect example of a swing
that I would look to enter. As seen on the chart, $XLF consolidated between the mean and –1 ATR. This
offered a trader the best possible risk to reward as $XLF only needed to close below –1 ATR to stop one
out. At the same time, $XLF was squeezing while holding these levels. Remember, red will turn yellow,
and yellow will turn light blue if the stock holds up. What happened with $XLF? The squeeze fired up
and offered a perfect swing trading opportunity, not only on $XLF but also on many of the bank stocks.
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Chart O.53 of $XOM on the daily time frame shows another example of this setup. Looking at $XOM,
from March 23rd, 2021, to April 27th, 2021, all it did was bounce between the mean and –1 ATR. At the
same time, it went into a squeeze while holding above these levels. Again, one could have positioned
themselves into a swing trade by entering off –1 ATR. As seen in Chart O.53, the squeeze eventually
fired up and $XOM ran to a high of $64 from $55 (If entered off –1 ATR).
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Two examples can be seen when looking at $GILD on the daily time frame in Chart O.54. Notice how
$GILD began squeezing with the yellow momentum in the first example. At the same time, the stock
rebounded off –1 ATR and began to hold the mean. From there, the squeeze turned light blue and then
fired up, offering a fantastic swing opportunity. In the second example, notice how $GILD constantly
bounced off the mean while in a light blue squeeze. This was a swing trade I had taken and was discussed
earlier in the book. Again, the squeeze fired up and offered profits for anyone in Calls.
Charts O.52, O.53, and O.54 are just a few examples of using the ATR Channels to identify swing trading
opportunities. This now leads me to the next subject; how do you find swing trades to begin with? How
do you find all these potential setups? Well, if you were asking those questions, keep reading on.
How To Find Swing Trades
There are several ways that you can go about finding possible swing trades. In this portion of the book, I
will share with you my favorite ways to find winning swing trades.
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Method 1: The first method I use is by using SPDR ETFs. These ETFs track each sector in the stock
market. This includes real estate, utilities, healthcare, metals, oil, etc. Below is a list of all the SPDR
ETFs.
When I look through the list of SPDR ETFs in Chart O.55, I am trying to identify which sectors have the
most strength, and which sectors are the weakest. Looking at the list, $XLY (Consumer Discretionary)
was down $4.29, which shows signs of weakness, but $XLV was up $1.60 (Healthcare), which shows
strength. This is a real example of what I have been trading for the last two weeks, and it all started with
this list. I identified the strength in health care and took full advantage of it through swing trades.
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Looking at Chart O.56, after seeing $XLV, I knew I wanted to start trading healthcare. There were plenty
of confirmations that this sector wanted to continue to the upside. Once you determine the sector that you
would like to trade, you would then go to Google and search “$XLV Holdings.” From here, it will list all
the stocks held in the $XLV ETF and list the top 10 holdings based on weighting.
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Chart O.57 - Charts by SlickCharts.com
Looking at the top 10 holdings in Chart O.57, I noticed that $JNJ makes up 9.19% of the entire ETF.
Therefore, if $XLV is strong and wants to move higher, $JNJ will likely carry it. Looking at the chart of
$JNJ, there was tons of potential since both $XLV and $JNJ confirmed a move higher. Utilizing the
technical analysis taught throughout this book confirmed this as well. Therefore, I purchased the $175
Calls expiring on August 20th, 2021.
Chart O.58 is a daily view of $XLV with the entry date labeled. Comparing the chart of $XLV and $JNJ
in Chart O.56, the two setups looked very similar.
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Because of the strength seen in $XLV, I decided to start looking for swings in the Healthcare sector.
Using the list in Chart O.57, it was easy to identify which stocks to watch. Since $JNJ was the #1 holding,
that is where I started, and it happened to be my favorite setup. As a result, I took a swing trade on $JNJ,
where my price target was the 127.2% extension, and the 161.8% extension. As seen in Chart O.59, $JNJ
achieved both price targets.
I also utilized this strategy to find a swing trade on $GILD, another healthcare stock. This had much less
weight than the top 10 holdings but is within the top 20 holdings. If the healthcare ETF continues to stay
strong, I knew $GILD would continue to increase in price with $XLV.
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Looking at Chart O.60 of $XLV again, the date of when I entered the $GILD trade is labeled on the chart.
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Looking at Chart O.61, there were several confirmations to get into this swing trade. There was an
increasing OBV reading, Stochastic buy signal, a squeeze, and ascending triangle breakout. As a result, I
purchased the $72.5 Calls on $GILD, expiring September 17th. When I entered the trade, it was August
12th, 2021. The contracts were in the money within three trading days, where I fully exited the position.
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Putting $XLV next to $JNJ in Chart O.62, the similarities are almost identical. In short, if $XLV is going
up, most healthcare stocks will also be going up. However, if $XLV goes down, most healthcare stocks
will also go down.
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As seen in Chart O.63, a daily chart of $XLU and $D can be seen. $XLU, the SPDR ETF for Utilities,
and then $D, a utility stock with a high weighting within the ETF. Both charts are almost identical where
they both formed a pennant and came back to the moving averages before exploding to the upside. Due to
the correlation between the two and a pending breakout on Utilities, I decided to swing trade the $85
Calls for $D, expiring May 20th, 2022. My favorite setups are when the ETF correlates with the stock
setup.
I have also used this strategy to identify significant market shifts in consumer staples, industrials, and
energy. This technique is relatively easy to use as well. All you need to do is open the market sentiment
watchlist, and you can identify strengths and weaknesses within five seconds. Once you have found the
strengths and weaknesses, google the top holdings of that ETF, and do the technicals. If the stock
correlates with its ETF, that is double confirmation.
Method 2: This method will be utilizing FinViz.com; when on the website, go to the tab labeled “Maps.”
From there, you can choose to view just the stocks in the S&P 500, the entire world, ETFs only, and full.
Looking at the map of the S&P 500, notice how healthcare, medical devices, medical instruments,
healthcare plans, and real estate maintained the strength of the market. Also, looking at this list, one can
see financials are extremely weak, as well as industrials. Green shows strength, and red shows weakness.
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Chart O.64 - Charts by FinViz.com
Looking at Chart O.64, after identifying the strength, you can begin to look at the stocks to see where the
strength is. As well as identifying the weakness for some possible Put scenarios.
Looking at the entire map, one could see that almost everything in healthcare and biotech is green, while
almost everything else is red. This lets the trader know which sectors should be focused on. In this
example, healthcare and biotech have strength in the overall market and should have a primary focus if
one is looking for Calls. At the same time, if one is looking for shorts, airlines, banks, and financials
would be a great place to start.
Once you have identified the strengths and weaknesses in the market, you can again focus on several
stocks in that sector. All you need to do is apply the technicals taught in earlier chapters and decide if it is
a high probability setup or if you should avoid the trade. I love using this method because it shows the
industries where the strengths and weaknesses are and the stocks in that industry that are performing well
or poorly. If you mix this strategy with method #1, finding swing trades should be relatively easier to
find. All that a trader must do now is find the proper setup.
Method 3: This method will take up more of your time; however, I use it to create my weekly watchlists.
The method is simple, create a watchlist, and everything you have ever traded will go into this watchlist.
My one rule is that the company must have liquid options. If it has liquid options and I was able to trade it
in the past, it goes onto this list. I have well over 350 stocks on this watchlist; therefore, I am bound to
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find some nice setups when looking through it. What I will do on the weekends is set up the monthly,
weekly, and daily time frames on a chart, and flip through each stock on the watchlist. Some things I look
for are a squeeze and if the EMAs are stacked up or stacked down. Are there chart patterns? Any
Stochastic buy signals? Is there an increasing or decreasing OBV?
Look for confluences on these three time frames to confirm direction. By the time I flip through this
entire list, I have at least 25 stocks that I can choose to swing trade sometime throughout the week if the
setup is validated. Once I find the stocks I like, I create a separate watchlist in ThinkorSwim named
“swings” and leave them on that list until the swings are no longer valid, or if I was able to take a
successful swing on it. Sometimes I even flip through this list a few times a week to see if any other
setups have risen. If you would like to get this watchlist, send me an Instagram message: @Carwhorns
and let me know you purchased the book.
To sum up everything you have just learned about swing trading, this type of trading consists of buying
an option or equity and holding it over the course of a few days, weeks, months, or even years. When
swing trading, the primary focus should be on the higher time frames such as the daily, weekly, and
monthly. Pay attention to all the indicators because you want to see them all in confluence on each time
frame. You do not want to swing trade a Call if the daily time frame gives you the green light, but the
weekly and monthly tell you otherwise. If all three time frames confirm each other, that is a clean setup,
and that is the ideal swing trading setup. Remember to use support and resistance, Persons Pivots, and
Fibonacci for price levels. I know swing trading can sometimes be a little slow, so you can also day trade
while your swing trades are playing out. Feel free to continue reading once you feel comfortable with
everything I have discussed in this chapter. In the next chapter, I will be discussing my day trading
strategy.
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Chapter 16: Day Trading
Day trading is a fast-paced, momentum trade that can last for 30 seconds, a few minutes, an hour, a
couple of hours, or even the entire market day. The point of day trading is to take advantage of the short-
term market momentum to profit. Risk management will be one of the most important aspects of day
trading. This chapter will discuss the day trading strategy I use that helps me decide which side of the
market to be on, as well as entries, time frames, level 2, breakouts, and combining support and resistance
with the pivot points.
The first thing I want to discuss is how I determine if I want to look for Calls or Puts in the market, and it
is quite simple. The first thing you want to do is to set up a flexible grid chart where you can see the 1-
hour time frame, 4-hour time frame, and daily time frame. On these time frames, I use the 5,8,21,34,55,
and 89 EMA. I know that I did not discuss the 34 EMA (red line) and 89 EMA (dark blue line); however,
this chapter will explain how to use them. To determine if I want Calls or Puts, all comes from the EMAs.
If the 5 EMA is below the 8 EMA, the 8 EMA below the 21 EMA, 21 EMA below the 34 EMA, 34 EMA
below the 55 EMA, and the 55 EMA below the 89 EMA, I want puts. This is what is known as a “bearish
stack”. If this exact EMA lineup is on the one-hour, four-hour, and daily you should ideally be looking for
puts. That is not to say that you cannot take a trade in the opposite direction. The EMA stacks just let us
know the ideal direction to look for trades.
Chart P.1 - Charts by ThinkorSwim
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Looking at Chart P.1, in this example of $MRNA, all the EMAs created a bearish stack for the last several
days on the 1-hour, 4-hour, and daily time frame. As a result, I would ideally be interested in puts. One
could have been trading puts and profiting through the entire drop in $MRNA stock price.
Chart P.2 is another example of a bearish stack found on $SQ. Again, if all the moving averages are
stacked to the downside, ideally, I am looking for puts. Especially when you go back to the chapter on
Exponential Moving Averages, if the stock follows the 5 EMA and 8 EMA, you should not be going
against it. As a result, one could have successfully been able to trade puts on $SQ for days in a row.
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Looking at Chart P.3, this is known as a “Bullish Stack”. This is where the 5 EMA is on top of the 8
EMA, the 8 EMA is on top of the 21 EMA, the 21 EMA is on top of the 34 EMA, the 34 EMA is on top
of the 55 EMA, and the 55 EMA is on top of the 89 EMA. In this example on $PFE, notice how all the
EMAs are stacked up on the 1-hour, 4-hour, and daily time frames. Due to this, you would ideally want to
look for Calls. Again, this is not to say you cannot trade puts during a bullish stack. The stack lets us
know the ideal direction to look for trades. Due to the bullish stack, I traded $PFE for several days in a
row to the upside.
Looking at $AMD on the 1-hour, 4-hour, and daily time frames in Chart P.4, there is a clear bullish stack
spanning over the course of several weeks. As a result, you would ideally look for Calls in this scenario,
and that is exactly what I did again for multiple weeks in a row.
It is that easy to decide if you want to watch the Call side of the market or the Put side of the market. All
you need to do is recognize which way the moving averages are stacked on the 1-hour, 4-hour, and daily
time frames. If they are stacked up, ideally, look for Calls. If they are stacked down, ideally, look for puts.
The reason I am more biased on one side of the market is simply due to the moving averages. As
mentioned earlier in the Exponential Moving Averages chapter, all moving averages act as support or
resistance. Each trader has a different time frame that they prefer to base trades. That is why we see
support and resistance at these moving averages regardless of the time frame.
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Looking at Chart P.5 of $PYPL, it would be risky to look for long positions. The reason is that there is a
bearish stack. Since many traders use different time frames, all six moving averages will act as resistance
on the 1-hour time frame. 4-hour time frame, and the daily time frame. That is an insane amount of
resistance points, isn't it? That is why I tend not to trade against the moving averages. If the moving
averages are stacked to the downside, I will look to initiate Put positions, mainly because no moving
averages are blocking the stock as support.
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Looking at Chart P.6, the same can be said for $MRNA on why you should ideally be looking for short
positions if the EMAs are stacked down. Looking at the entire drop in price on $MRNA, the EMAs
NEVER stacked to the upside. If they stay stacked to the downside, you should ideally be looking for
puts. Again, there are eighteen possible resistance areas from the moving averages for $MRNA to the
upside. You do not know which EMA price will bounce off, which is why I typically avoid trades against
them. There are multiple instances where the stock rejected the 34 EMA on the 1-hour time frame, the 21
EMA on the 4-hour, or even off the 55 EMA on the 4-hour time frame. I have seen a stock reject one of
the moving averages on these time frames too many times in the past and reverse direction. That is why I
am usually biased in the morning and already have a chosen direction for my trades.
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Chart P.7 - Charts by Discord
For example, look at my premarket notes on $MRNA in Chart P.7.
The results are shown in Chart P.8. It took a few hours for $MRNA to make a move, but it was a hefty
drop in price when it did.
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That is why I tend to favor one side of the market because these moving averages have been shown to act
as support or resistance. Trust me when I say this; respect the stack. Bearish or bullish follow the trend.
Once you have determined if you are looking for Calls or Puts, I then begin to look at the TTM Squeeze
for more confirmation. Remember, the TTM Squeeze is a momentum indicator where light blue
represents strong buying momentum, and red represents strong selling momentum. I like to see the TTM
Squeeze correlate with the moving averages. So, if the EMAs are stacked to the upside, ideally, I would
like to see the light blue or yellow momentum on the TTM Squeeze. Then if all the EMAs were stacked
to the downside, I would like to see red or dark blue momentum on the TTM Squeeze. At the same time, I
am also looking for red or orange dots within the squeeze. On top of this, I am also looking for any chart
patterns to take advantage of.
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Looking at $COST in Chart P.10. the 1-hour, 4-hour, and daily EMAs have been stacked to the upside for
an extended period of time. This entire time you should have ideally been looking for Calls.
Chart P.11 shows a day trade setup that I took on $MSFT. For this trade, I noticed the stacked EMAs.
Therefore, I wanted to look for Calls. I then applied the day trading breakout rule that I like to use, which
will be discussed in this chapter, as well as using the TTM Squeeze and bull flag setup to my advantage.
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Notice the run $MSFT had! I have a full trade recap on my YouTube channel for this trade:
BrandonTrades.
Once the trend of the trade has been determined using the EMA stack, with the TTM Squeeze confirming
the direction of the trade, any chart patterns being discovered, and all support and resistance points
marked, you then want to break the time frames down to the 5-minute and 10-minute. All I am looking
for on these time frames is the same exact stack that the higher time frames have. If the 1-hour, 4-hour,
and daily time frames are stacked up, I also want the 5-minute and 10-minute time frames to be stacked
up. When this happens, it paints a clear picture of which way the stock would like to go.
To recap how I decide to look for Calls or Puts in the market, I like to use the 5, 8, 21, 34, 55, and 89
EMAs. If all the EMAs are stacked to the upside, I prefer to look for Calls. If they are all stacked to the
downside, I prefer to look for puts. Now, I will share with you an amazing day trading strategy that has
changed the way I day trade forever. The strategy is known as the opening range breakout. The opening
range breakout helps pinpoint your exact entry for day trading.
Opening Range Breakout
There are a few variations of how the opening range breakout can occur. My favorite variation is when
the previous day's high, post-market high, and premarket high all reject the same price level. When this
occurs, it creates a powerful resistance point, and since many traders like to wait for a break above
premarket highs or above the previous day's high for an entry, you are getting double buying pressure
when the breakout occurs.
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Chart P.12 of $PFE shows how the previous day's high, post-market high, and premarket high all rejected
the same price point at $50.4-$50.5. As soon as $PFE broke the level, $PFE ran to the upside, climbing
+$1.40. A $1.40 move in options can mean $60-$80 profit per contract purchased. Which is a substantial
return on $PFE contracts considering they are under $100 each.
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Chart P.13 is another variation of the opening range breakout. The stock did not get the post-market
resistance; however, the previous day's high was at $236.85, which became resistance in the premarket
multiple times. Again, notice the breakout once $BA broke above the resistance level.
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Chart P.14 is another variation of how this setup can occur. When the post-market and premarket both
have a solid resistance area to the upside, watch for the breakout above the high to go long.
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Chart P.15 is another variation of the opening range breakout that can be found when a stock creates a
solid premarket support level. You are waiting for a break below the premarket support to initiate a short
position in this scenario. Notice the drop that occurred in $BA after the break below support.
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Chart P.16 on $NVDA offered a beautiful opportunity to initiate a short position once the stock broke
below the premarket lows. Notice the amount of support that $NVDA found in the premarket. Once
$NVDA was finally able to break below premarket support, that was the entry to go short. As you can
see, the stock followed the 5 EMA and 8 EMA to the downside giving the trader a $16.66 drop.
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Looking at $MARA in Chart P.17, there were three hits at $32.8 in the premarket. Due to this resistance,
a break above $32.8 is necessary to go long. Notice how $MARA reacted once the price broke above
$32.8.
Another variation of an opening range breakout can be identified on the first opening candle of the
market. I personally like to use this variation on the first 5-minute time frame, but traders can also apply it
to the 10-minute, 15-minute, or even 30-minute. Since I prefer the 5-minute ORB, the examples below
will be shown on the 5-minute time frame.
When the market opens in the morning, pay attention to the high and the low of the first 5-minute candle.
Using the EMA strategy previously discussed, you should already know which way the stock wants to
break. Once the first 5-minute candle has closed, you can properly identify the high and low. From here, I
like to see the stock trade between the high and low of the first candle for the next few bars. Once the
stock can break the high or the low of the opening candle, that is the entry. Piece this together with the
EMA strategy and TTM Squeeze, and you will already have an idea of which way you want to see the
ORB break.
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Chart P.18 is an ORB example of the opening 5-minute candle on $BA. The high of the candle was
$217.85, and the low was $215.28. From there, $BA proceeded to trade within the range of the high and
low for the next fifty minutes. Once $BA broke above the high of the opening candle, that was the
breakout point and the entry to go long. $BA gave a beautiful $1.24 push to the upside, which could have
been a nice scalp opportunity.
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Chart P.19 shows another ORB on $SQ. The opening 5-minute candle set a high of $106.97, and a low of
$104.61. The stock traded between the range for the next twenty-five minutes, then broke to the upside,
which was the entry. $SQ proceeded to follow the 5 EMA and 8 EMA to the upside and offered
substantial profits.
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Chart P.20 shows another ORB on $AAPL. Looking at $AAPL on the first 5-minute candle, the stock set
a high at $172.42, and a low at $171.6. From there, $AAPL proceeded to trade between this range for the
next fourteen 5-minute candles until the price finally broke out. Once it did, $AAPL offered a perfect day
trade to the upside.
These are multiple examples of how the ORB can occur, and why it is essential to identify these setups as
a day trader. As far as stop-losses go, the stop-loss in this trade would be if the stock fell below the
breakout candle. If the stock continues to go in your direction, move the stop-loss on the opposite side of
the 8 EMA the entire way throughout the trade, or until the stock becomes overextended from the 5 EMA,
or you are satisfied with your profits. Remember not to be greedy in the market because the market will
humble you quickly.
ABCD Pattern
The ABCD pattern is one of the easiest chart patterns to identify as a day trader. This pattern is great for
new traders and even intermediate traders. ABCD formations can occur on the 1-minute, 5-minute, 10-
minute, 15-minute, and 30-minute time frames. Some traders look for the ABCD on higher time frames,
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but since this is the day trading chapter, I look for them on the time frames just mentioned. Below are
several examples of what an ABCD pattern will look like on a chart.
As seen in Chart P.21 on $SQ, there was an increase in price, followed by a pullback, and then another
increase in price. The bottom before the first price increase is known as “A”. The top after the price
increase is known as “B”. The pullback in price is known as “C”. Then the continuation in price is known
as “D”. The ABCD pattern allows you to start a position in the trade at point “C”. Remember, stocks do
not go up or down forever and will provide traders with a pullback to which they can then enter the trade.
Once the stock is able to pullback and provide point "C", this is where traders should be looking to enter
the trader for a continuation to "D".
A common question about the ABCD pattern is, "how do I find point C?". Identifying where "C" will be
is quite simple. Through my time trading, I have noticed that "C" tends to occur at one of the moving
averages, a common one being the 8 EMA or 21 EMA. Another way of identifying where "C" can occur
is Fibonacci retracements. Taking the low of the move to the high of the move will give the retracements,
and I have seen "C" form at the 50% retracement, as well as the 61.8% retracement the most. My favorite
setup is when the moving averages and retracements are in the same area, as this makes that level even
more likely to form "C."
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Chart P.22 is another example of an ABCD formation on $AMD, but with the 8 EMA and 21 EMA
applied. Looking at the chart, $AMD had an initial move to the upside, giving points “A” and “B;”
however, the pullback provided the trader with “C” where the price retraced to the 5-minute 21 EMA.
This would have been the entry point for traders to catch the continuation to “D”.
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Chart P.23 is another ABCD formation found on $FB. Again, looking at $FB, the initial move to the
upside provided the trader with points “A” and “B”. Once the stock pulled back, it provided point “C”,
where traders can look for entries to catch the move to point “D”. In this scenario, $FB returned to the 8
EMA before continuing to the upside.
Those were a few examples of how an ABCD formation appears on a chart. There are also inverse ABCD
formations. The inverse ABCD is a setup that can help a trader time an entry to the downside.
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Inverse ABCD
Looking at Chart P.24 of $AAPL on the 5-minute time frame, an inverse ABCD is spotted. An inverse
ABCD consists of a move to the downside, followed by a pullback, and then another move to the
downside. The initial move to the downside will give points “A” and “B”, the pullback provides point
“C”, and that is where traders want to enter the trade to capture the move lower to point “D”. Notice how
the stock retraced back to the 21 EMA before continuing lower.
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Looking at Chart P.25 of $PYPL on the 10-minute time frame, another ABCD pattern can be spotted. The
top before the move down is labeled “A”, the bottom of the initial move down is labeled “B”, the
pullback is labeled “C”, and then the second move down is labeled “D”. Notice the reaction $PYPL had
off the 10-minute 21 EMA.
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Chart P.26 will be the final example of an inverse ABCD pattern. This setup can be identified by looking
at $AMZN on the 5-minute time frame. Point “A” was provided at the top before the move down, point
“B” was given at the bottom of the first move down, point “C” was at the top of the pullback, and then
point “D” at the bottom of the second move down. Yet again, another perfect entry was given off the 21
EMA.
That is going to wrap up the ABCD pattern. Again, this is one of my favorite day trading patterns because
they are easy to identify and offer a great risk-to-reward when entered on the pullback. Instead of chasing
a trade at point “B”, wait for a possible pullback to give you point “C”. From there, you want to enter the
trade to catch the move to point “D”. As always, use proper risk management when entering and exiting a
position. If you enter at what you thought was point “C” and the stock continues to go against your
position, exit the position quickly to avoid a steep loss. Next, I will be discussing another important
aspect of day trading that arguably might be the most important in becoming a profitable trader, level 2
data.
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Level 2
Level 2 easily shows a trader the order book of buyers and sellers in the market and shows the quantity of
the asset being bought or sold, while also showing the price the trader is buying and selling at. Level 2
can be an extremely helpful tool when confirming breakouts or letting traders know of an impending
reversal.
Chart P.27 is an example of the level 2 quotes on $RIOT.
Looking at Chart P.27 above, you can see many different exchanges listed, like NASDAQ, AMEX, and
BATS. These are the hedge funds with computers trading for them all day long. With the level 2 data,
traders can see which exchange is buying or selling, at what price, and the order quantity.
On the left side of the level 2, notice where it says “Bid” and “BS.” The bid is the price that buyers are
willing to pay to purchase equity of the stock. The “BS” is the number of shares being bought in a lot of
100. 5=500 shares, 2= 200 shares, 3=300 shares. In this example, ARCA is trying to purchase 1,100
shares at $17.06, while Y is trying to purchase 1,700 shares at $17. On the right side of the chart are the
sellers. The “ask” is where they are trying to sell their shares, and again, the number next to the ask
represents how many shares they would like to sell in lots of 100. For example, 26=2,600 shares to sell. In
this example, the EDGX is trying to sell 1,300 shares at $17.09, and H is trying to sell 5,500 shares at
$17.45. At the same time, GSCO is trying to sell 2,100 shares at $38.18. This level 2 information can be
super helpful when day trading.
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Looking at the live level 2 in Chart P.28, this can help one substantially when it comes to initiating a long
or short position in the market. Looking at level 2 on the sellers' side, PHLX, AMEX, ARCA, and BSE
are ready to unload a decent number of shares, 2,100 in total, to be exact, at $121.98. When you see
sellers like this stacked in the same area, it is best to wait for the stock price to break the sell wall, while
the buyers outweigh the sellers. For example, the entry point may be $121.95; however, in my experience,
you do not want to go against a seller's wall. I will give you a hint, it does NOT work in your favor. If you
break it down to trading psychology, many other traders will be waiting for the price to clear the sell wall
before going long. If the sellers do get cleared, buyers will more than likely flood the market and push the
stock price higher; however, if the price of the stock comes up to the sell wall and then drops significantly
in price, the ones who bought will get stopped out and will contribute to the selling. Therefore, the stock
must clear the sellers' wall at $121.98-$122 before going long in this scenario. If you were to enter long,
make sure the buyers are also following through. A breakthrough at an important level and no follow-
through from the buyers can lead to a reversal, and a break below an important level with no follow-
through from the sellers can lead to a reversal.
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Make sure to utilize the EMA strategy laid out earlier in this chapter. Using that strategy will help you
understand which side of level 2 to prioritize. If there is a bullish stack on the EMAs, you know you want
to specifically pay attention to the buyers on level 2 and pinpoint any big sellers that could block the stock
to the upside. Vice versa for bearish stacked EMAs where you would be looking for puts. You also want
to make sure that the side of the market you are on maintains control throughout the move. If you see a
breakout to the upside, but the buyers on level 2 are not showing a presence, and the sellers outweigh
them, it is in your best interest to wait for the buyers to show a presence. The same can be said of the
downside. Say the stock has bearish stacked EMAs, and the stock breaks below premarket lows. If you
enter short, you want to see the sellers driving the stock price down. A reversal will likely occur if there
are more buyers than sellers at a breakdown.
This is a basic explanation of how level 2 works. Since I cannot show a video in a book, head on over to
my YouTube channel: BrandonTrades, for a further in-depth look at how to use level 2 for day trading.
Scalping
Scalping is taking advantage of a small price change and quickly exiting the position. Scalping can last 5
seconds, 30 seconds, a minute, or even a couple of minutes. The point is that you are in and out of the
trade very quickly. As a scalper, you are looking to catch the momentum and get out. When scalping,
level 2 will be your best friend to identifying buyers and sellers. A proper broker will also be required so
that you can buy and sell your position within one click of a button. Preferably as a scalper, you want to
use a broker with hotkeys enabled or active trader. That way, you can buy by pressing Shift+B or sell by
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clicking Shift+S. These hotkeys will vary depending on how you set them up, and there are plenty of
YouTube videos that can guide you on setting up hotkeys. When scalping, you must also have extremely
strict risk management rules. If a trade goes against you when you are scalping, you need to accept the
loss and get out immediately.
I will share my favorite form of scalping with you, and this strategy takes place in the first 5-10 minutes
of the market opening. I utilize the stacked EMAs on the 1-hour, 4-hour, and daily time frames to
determine which direction to watch. From there, mark important support and resistance areas, pivot
points, and Fibonacci if needed. Then, mark the entry points using premarket highs, previous day's highs,
premarket lows, or previous day's lows. Once all of this has been completed, I will then break the stock
down to the 1-minute time frame to scalp the market open. Paying serious attention to Level 2, as soon as
the stock breaks my entry point and level 2 confirms, that is when I enter the trade. From here, I am not
looking for a huge return. My goal is to get in, catch the momentum, and then get out of the trade. My
stop-loss is always a break back in the opposite direction of the entry.
Chart P.30 is an example of $NFLX on the 1-minute time frame. My entry in this trade was a break above
$610, which was the premarket high. As soon as $NFLX was able to break above the premarket high, that
is when I entered the trade. If $NFLX broke back down below the $610 level or got denied, I would have
immediately exited the trade. As you can see, $NFLX gave a beautiful push to the upside, and I was out
of this trade at 9:33 AM EST with a +27% return on my investment. In just three minutes, $NFLX ran
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from $610 to $615.28; even though I had a price target at $619.8, why complain about +27% returns in
three minutes? Again, my goal is to get in, catch the momentum, and get out.
Looking at Chart P.31 of $GS, again, I ran through the entire process of determining which way I wanted
to take the trade, finding resistance points, pivot points, and then identifying the entry points at premarket
high. My entry point in this trade was above $402, which was slightly over premarket highs. Once $GS
broke above $402, I had a price target of $403.28. Once $GS hit the first price target, I took most of my
profits. From there, $GS bull flagged and gave one more push to the upside to my final price target, where
I was able to fully exit the position. The majority of the trade only lasted for a minute and a half. By the
time I fully exited my position, the market had only been open for six minutes.
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Looking at Chart P.32 of $TSLA on the 1-minute time frame, again, after going through the entire process
of determining the direction of the trade, plotting support and resistance, pivot points, and finding my
entry points, the rest came down to executing the trade properly. My entry in this trade was a break above
$745, which was slightly over the premarket high at $744.78. I entered the trade once $TSLA broke
above $745 with volume. The price targets were $747.82, $750 (where I fully exited), then finally
$751.25. $TSLA achieved the $750 price target within the first two minutes of the market opening.
Remember, with scalping, my plan is to get in, catch the momentum and then exit the trade in profits. I
am not looking for massive moves in the stock, but just looking to take advantage of the volatile swings
that the market generates at the open. I personally am not waiting for the 1-minute candle to close above
my level because when you scalp, waiting that entire minute could make you miss the entire trade. As
soon as the entry is broken and level 2 confirms the break, I do not think twice about it and enter the trade
immediately. All the stock must do is break below the breakout candle, and I am out of the trade. As the
stock moves in my favor, I am looking to trim profits along the way and then move my stop-loss up as the
trade continues in my favor.
Contracts and expiration
When day trading, you always want to trade the closest dated expiration. Expirations fall on each Friday
throughout the week. Therefore, if it is a Monday, you are trading the expiration that expires that Friday.
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If you are day trading on a Thursday, you are trading the contracts that expire tomorrow. Regardless of
what day it is throughout the week, you are trading the same week's expiration. The reason for doing this
is that the further out the expiration date, the more expensive the contracts become.
Chart P.33 shows the option chain for $BA. This coming week's expiration will be March 4, 2022. If you
were to look at the $205 Call for March 4th, 2022, they would cost $285-$290 per contract. If you were to
trade the following week's contracts, you would now be paying almost $460 per contract. That is $165-
$170 more than the contract that expires the same week. If you bought the following week's expiration,
you would be forced to buy fewer contracts due to the price if you are following proper risk management;
however, if you purchase the same week's expiration, you can buy more due to the cheaper premiums.
Plus, you will profit more percentagewise if the trade goes in your direction.
Again, when day trading, you are always trading the same week expiration, even on a Friday. I like to call
Fridays in the stock market “Lotto Friday”. The reason being that you would be trading contracts that
expire the same day. Therefore, the option prices can be very volatile. Trust me when I say this, you can
make 300%+ returns on a day trade for the same day expiration, but you can also lose –75% in a matter of
minutes. I do not suggest trading on Friday if you are a beginner trader, but if you have more experience,
Lotto Friday is definitely fun to trade. My general rule for Friday is that I will only use 5%-10% of my
weekly profits to trade lotto Friday. If I lose it, I am done for the day and walk away. For example, If I
made $10,000 this week, I would only use $1,000 to trade on Friday. If I lose that $1,000, my day is over.
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As seen in Chart P.33, there are plenty of Call contracts to choose from. There is a $202.5 Call, a $205
Call, a $207.5 Call, etc. In these scenarios, it is always best to look at the chart. For example, if $BA had
an opening range breakout at $202 and did not have any resistance until $206, a trader can use personal
judgment to decide which contract they should go for. The trader in this scenario should buy the $202.5
Call or the $205 Call. Now, pretend this is the same scenario, but $BA only has room to $203. in this
scenario, a trader should purchase the $202.5 Call. The contract you end up buying for the day trade
depends on what the stock has room to. The bigger the gap that needs to be filled, the more flexibility you
will have when choosing the strike price. On the flip side, the tighter the gap, the fewer options you will
have for the trade. The idea is that you want to get the contracts in the money so that you can profit
substantially.
How To Find Stocks to Day Trade
There are many ways to find stocks to day trade, but I will tell you the methods I like to use. When
creating a daily trading list, it is important to ensure that the stock offers enough price fluctuation to take
advantage of. Ideally, I like to look for stocks that move more than $2.50-$3. The higher the price
fluctuations, the better. The stocks on this list must also have liquid options meaning that people trade that
stock millions of times a day. Also, on this list, you want to have diversification. When creating a day
trading list, you do not want it to consist of 100% tech or 100% financials. Instead, you want it to be
diversified, which means a couple of tech stocks, a bank stock, an industrial, a healthcare stock, etc.
Ideally, you want to create a list of around 10-15 names that can be in constant rotation. Names will come
and go from this list depending on market conditions, but that is the glory of making your day trading
watchlist. When day trading, you usually want to stick to popular names since they tend to have the most
liquidity in the options and have a decent range the stock price can move. For example, $AAPL, $FB,
$TSLA, $BA, $GS, $BABA, etc.
One source I use to find stocks to day trade is FinViz.com; on FinViz, a screener will find stocks that
meet the criteria you input. There are many different screeners you can set up, but this is the one I like to
use. Again, I do not trade small-cap stocks; therefore, in the Market Cap section, I want to select either
"Medium," "Large," or "Mega." For Average Volume, you want to input "over 1 million". This will
ensure that you find liquid stocks. Then where it says "Option/Short", you want to select "Optionable".
Since I am an options trader, options for the stock are needed.
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Chart P.34 - Charts by FinViz.com
Looking at Chart P.34, at this point, 5,400 stocks meet the criteria, but I will further narrow the search to
ensure the best stocks for the day trading list. Now head over to the technical tab. These selections will
vary depending on if there is a bull market or bear market, but since the market is bullish right now, I will
show you how to set it up for bull markets. From here, you want to find "20-Day Simple Moving
Average" and select "Price Above SMA20". Do the same setting for the 50-Day Simple Moving Average
and the 200-Day Simple Moving Average. Then locate the Average True Range and select "Over 3".
These are all the filters needed in this scan. If the market were bearish, you would simply select "Price
Below" for each SMA.
Looking at Chart P.35, sixteen stocks fit the scan results, and as a result, could possibly be traded on a
day-to-day basis.
Looking at Chart P.36, from this list, $AAPL, $COST, $CRM, $GOOGL, $MSFT, $NFLX, $NVDA are
all good names to add to a day trading list. Right off the bat, there are seven names for the day trading list.
Then, you can change the market cap to a different setting to find more names for the list.
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Looking at Chart P.37, in the "Mid-Caps", you can find two more companies known for day trading.
These companies are $RIOT and $MARA. Now the day trading list consists of nine separate companies.
Then finally, looking at Chart P.38, in the "Large Caps", forty-two stocks were picked by the scanner.
Using these three separate market caps will ensure that you can find 10-15 names to keep in constant
rotation when trading. When deciding which companies to use in your list, double-check that the options
have enough liquidity for everyday trading!
Another method that one can use is simply looking up the top holdings for the S&P 500, NASDAQ, and
DOW Jones. Looking at each component's top 10-20 holdings will give you a fair understanding of which
stocks to focus on. There is a reason why these companies have such a high weighting in their respected
component.
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Chart P.39 - Charts by SlickCharts.com
Chart P.39 shows a picture of the top holdings within the S&P 500.
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Chart P.40 is a picture of the top holdings within the NASDAQ.
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Chart P.41 is a picture of the top holdings within the DOW Jones.
At this point, with both methods shown for finding stocks to day trade, finding stocks for the list should
be easy. Again, make sure to diversify the list, that way, you are not watching 100% tech or 100%
industrials. Chances are, if tech is down one day, financials might be up, or even airlines might be up.
Alternatively, if financials are down, tech might be up. Therefore, diversification of the list is essential.
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Chart P.42 shows my current day trading list. Over time stocks will come and go from this watchlist, that
is why it is important to constantly be adding new names that have gained more attention and taking
names off that have lost hype. For example, now that I am editing this book months later, $MRNA,
$ROKU, and $GS are no longer on my day trading list. The liquidity dried up in the option chains and
made these companies hard to trade. As a result, I removed them from the list and added new names such
as $GME, $XOM, and $CVX since those option chains had seen an increase in liquidity. Once you have
selected the 10-15 stocks, you then want to create a watchlist that you can view each morning.
Creating a Day Trading List
Once you have decided what stocks to put on the daily trading watchlist, these should always be in
constant rotation. From here, it is simple to figure out which stocks from this list you should prioritize for
the day. Ideally, out of the 10-15 stocks you have selected, you only need to watch three or four of them
each day. Using the 1-hour, 4-hour, and daily time frame mentioned earlier in the chapter with the EMA
stacks and the TTM Squeeze, you want to flip through this list and decide which stocks offer the best
setup for that day. Look for EMA stacks, the color of the squeeze, red or orange dots, chart patterns on all
time frames, and even the opening range breakout setup. When flipping through the list, pick out the
stocks that look the best and narrow it down to the top three or four. Make sure to utilize support and
resistance, pivot points, entry levels, and Fibonacci levels if needed. When making your list, take notes
that look like mine below.
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Chart P.43 shows my premarket notes on $NVDA fifty minutes before the market opened.
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Chart P.44 shows $NVDA at the end of the day. Notice the massive run the price had throughout the day.
Chart P.45 shows my premarket notes on $MSFT an hour before the market had opened.
As seen in Chart P.46, $MSFT had a beautiful run to the upside.
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Looking at my premarket notes in Chart P.47 of $TSLA, I wanted to see a further continuation to the
upside for the day.
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Looking at Chart P.48, this $TSLA trade took much patience but offered substantial profits when
breaking out.
Once the watchlist for the day has been narrowed down to 3-4 stocks, create a premarket plan, and then
utilize everything else discussed in this book. And remember, stick to your plan! If a stock does not give
an entry into the trade, DO NOT enter, and avoid the trade overall. The stock market is not going
anywhere, so just come back the next day and create a new plan. Also, make sure not to steer off your
plan. For example, if you are watching $FB, $AAPL, and $MSFT, and that is all you planned to trade for
the day, you should not have $TSLA on your screen. I have made the mistake of trading off my plan
many times, and almost every time, I have lost money. Watch the stocks you are prepared to trade and
stick to the plan!
Time Frames for Day Trading
Another common question I get asked about day trading is which time frame is the best? This depends on
what kind of trader you are. Are you a scalper or a normal day trader? When scalping or pinpointing my
entry points, I like to use the 1-minute time frame and 3-minute time frame, but once I find my entry
point, I rely more on the 5-minute and 10-minute time frames. If the stock rides the 5 EMA and 8 EMA
on these two time frames, I will continue to stay in the trade. But, if you are only watching the 1-minute
time frame, then there are many scenarios where you would get stopped out of a trade just to see the 5-
minute and 10-minute never violated the EMAs.
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Looking at Chart P.49, of $GLD, one could have broken the chart down to a 1-minute or 3-minute time
frame to find a solid entry. Once in the trade, set the time frames back to the 5-minute and 10-minute.
Notice how $GLD continued to stay with the trend on both time frames for an extended period.
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Looking at Chart P.50, one could have used the same strategy on $FB. Again, one could have broken
down the time frames to a 1-minute or 3-minute chart to spot a sniper entry on the break below premarket
lows at $214.39. Once in the trade, looking at the 5-minute and 10-minute time frames, $FB dropped
down to $212.15, which was a $2.24 move down. The stock never violated the moving average rule the
entire time, which could have kept a trader in the winning trade longer.
In short, use the 1-minute and 3-minute time frames to find the entries, then use the 5-minute, and 10-
minute time frames for the rest. Utilize level 2, the opening range breakout methods, the EMAs, and the
TTM Squeeze to guide you throughout the trade. Remember, always be prepared with your entries, exits,
take profits, and stop-losses.
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Chapter 17: Futures
Futures are an obligation to buy or sell an asset on a specific date. Futures set the price for everyday
stocks. For example, if Crude Oil futures are rising, stocks like $XOM, $CVX, and $MPC rise with it. Or
if we see Corn Futures drop, we will more than likely experience a drop in $CORN. In short, futures are
for predicting the future price of commodities or stocks. Therefore, if the futures go up, stocks related to
that commodity or component will go up too, and vice versa to the downside. The main futures that I will
focus on in this book are S&P 500, NASDAQ, DOW Jones, Crude Oil, and Gold.
S&P 500 Futures: The S&P 500 is known for its overlook of the entire market. It is named the S&P 500
because it tracks the top 500 stocks in the United States. Big money controls how the futures move. If
they are bullish on the stock market in the future, they will usually drive the price of the S&P futures up,
and as a result, you will likely see the overall market continue up in price. However, if big money starts
selling the futures, the entire market will likely be red. Looking at the S&P 500 futures allows one to get
an overall view of the entire stock market.
NASDAQ 100 – The NASDAQ is made up primarily of tech stocks, but some stocks like $SBUX and
$PEP are included in the component. When you think of the NASDAQ, think of tech. Again, big money
controls where the NASDAQ futures will go. If they are bullish on tech going forward, they will drive the
prices of the NASDAQ up, and as a result, you will see many tech names go up with it. For example,
$AAPL, $MSFT, $AMZN, and $FB. However, if they become bearish on the NASDAQ, they will then
sell the NASDAQ futures, which as a result, will pull many of these stocks down with it.
DOW JONES 30: The DOW Jones is made up of the top 30 prominent companies listed on the United
States stock market. When thinking about the DOW, consider health care, banks, financial services, food
brands, and retail stores. Some of the DOW top holdings include $GS, $HD, $MCD, $AXP, $WMT,
$BA, and $IBM. It has some $MSFT and $AAPL in it, but not as big of a weighting as the NASDAQ.
With the DOW, especially during COVID, where the entire economy shut down, since the DOW is
prominently banks, airlines, healthcare, and retail, what do you think happened to the DOW? It dropped,
and as a result, so did all the holdings. However, when the economy opened back up, the DOW started
moving to the upside, taking all of the holdings with it.
Since stocks rely heavily on the futures, it is essential to know how the futures are moving before trading
the stocks. For example, since $AAPL is the highest weighted stock in the NASDAQ, if the NASDAQ
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falls off a cliff, it is not in your best interest to buy $AAPL Calls. The best scenario is when the futures
and the stock being traded move in sync.
Chart Q.1 - Charts by ThinkorSwim
Looking at Chart Q.1, in this example of $FB and the NASDAQ, notice how the price action is almost
identical. When the futures and the stock line up like this, it adds double confirmation to the trade.
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Looking at Chart Q.2, the movements are almost identical when looking at $TSLA compared to the S&P
500 futures.
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Looking at a 5-minute chart of both $AAPL and the NASDAQ futures in Chart Q.3, the similarities are
shown. In the morning session, $AAPL and the NASDAQ pushed to the upside and then fell to the
downside. In the late morning, both $AAPL and the NASDAQ increased in price substantially before
pulling back again.
Chart Q.4 is a 5-minute chart of $BA and the DOW Jones futures. Remember, when trading airlines,
banks, healthcare, or retail, you want to primarily look at the DOW. Notice how the charts look very
similar.
Since I enjoy swing trading oil stocks, I also pay attention to the Crude Oil futures. Crude Oil futures are
used to predict the future price of oil, and it connects the producers of the oil to the consumers of oil. The
producers in these scenarios can sell futures contracts to consumers that match their predictions of the
price of oil in the future. Since I like to swing trade oil stocks, it is essential to pay attention to what is
going on with crude oil futures because if crude oil is going up, stocks like $XOM and $CVX are going
up as well. However, if crude oil futures are going down, oil stocks will likely decrease in price.
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Looking at Chart Q.5 above, the left chart shows $XOM, and the right chart shows the Crude Oil futures.
Notice how identical price movement is between XOM and the Crude Oil futures. Since I do not trade
futures, the next best thing is the oil stocks.
I also like to pay attention to Gold futures. If I am trading gold-related stocks such as $GOLD, $GLD,
$GDX, or $RGLD, it is essential to watch the Gold futures since the stocks move based on the price of
Gold. If Gold increases in price, these stocks will follow. But, if gold drops in price, these stocks will
decrease in price.
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Chart Q.6 is a picture of $GLD and the Gold futures. Recently Gold saw a dramatic price increase;
therefore, all gold-related stocks followed. As a result, this allowed a trader to identify a breakout on
Gold, and trade options on gold-related stocks.
This is going to sum up the futures. Make sure to always do technical analysis on the futures as they
determine where stock prices go on a daily basis. Use the futures to your advantage to help create double
confirmation when deciding to enter a trade.
Now that you have all the information you need to know about trading from a technical standpoint, you
must also learn the art of preserving your capital, risk management, having a winning mindset, and
dealing with emotions in the market.
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Chapter 18: Risk Management
When trading in any market, the most important concept to learn is risk management. I always tell my
students that it only takes one trade to lose your entire account if you are not using proper risk
management. To start this chapter, I want to tell you the true story of someone who blew their entire
trading account by not following basic risk management rules. After that, I will then share with you my
risk management guidelines for trading.
In 2020, $TSLA was gaining a lot of hype from investors and, as a result, sent the stock flying to the
upside. This one trader, who will remain anonymous, turned $5,000 into almost $27,000 within one week.
One would think that this would be enough for the trader and that they would at least take their original
$5,000 out of the market and put it back into their bank account. Did this happen? Not at all. Since this
trader felt like they were on top of the world after securing a $22,000 gain, what do you think they ended
up doing? They went back into another $TSLA trade using all $27,000! Within just three days, they saw
their entire $27,000 portfolio turn into $0. Yes, you read that correctly, ZERO. Nothing. Instead of being
smart with their recent winner and either paying themselves or using the gain to take calculated risks in
the market, they just threw everything back into the market and lost it all. This is why risk management is
the most important concept when it comes to trading. And trust me when I say this, I have seen this
happen to many traders countless times.
Risk Management Rules
Rule #1: Never use more than 10-15% of your trading account at all times.
Reading back to the story of the trader who blew their entire account, it is self-explanatory why you
should never use 100% of your trading account in active trades. Some traders may even think 10-15% of
your trading account is crazy; however, it will all piece together when you read the following few rules.
For example, if you are trading with a $100,000 trading account, no more than $10,000-$15,000 of your
account should be in active trades. If you are a new trader, I suggest using 5-10%
Rule #2: Never have more than 2-3 open positions at a time.
I cannot describe the number of times I have seen traders with 10+ open positions at a time while trying
to monitor each one of them actively. I get overwhelmed when monitoring three positions at a single time.
If you have more than three positions open at a time, you are probably not following rule #1. Not only
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that, but you are trying to place your eggs in too many baskets at once. When trading, you only want to
have the highest probability setups as active positions. Do not spread yourself too wide in the market
because it takes one bad day to lose your account. If you were to go on the lower portion of the spectrum
with two trades, what I would do is have one swing trade and one day trade. It is rare for me to day trade
two stocks at the same time. When day trading, I like to focus all my attention on that single trade;
however, with swing trading, I can monitor a few positions at the same time.
Rule #3: Stick to your stop-loss
This is another rule I have seen traders violate time and time again. When entering a trade, you must be
calculating exactly what you are willing to lose, and if the trade goes against you and hits your stop-loss,
get out of the trade. Too many traders are afraid to admit they are wrong and instead widen their stop-
loss, thinking that the stock will go back in the direction they wanted, only to see it go against them even
more. Always admit when you are wrong and stick to your stop-loss. I promise it will save you a lot of
money and stress in the future.
Rule #4: Stop listening to others' opinions
This might be the #1 risk I see traders take every day. Many traders fall victim to someone else's opinion
without ever doing their own due diligence. Instead, they generate a bandwagon bias and follow the
crowd. If 20 people got together and said, "Nike stock is going to explode! We are all going to buy a
bunch of shares", you would more than likely do the same thing without doing any research. A few days
later, you look at your portfolio, and it is down substantially. This is what happens when you listen to
other people's opinions without ever validating their reasoning. Do your own research and come to your
own conclusion before ever entering a trade.
These are my four rules of risk management. It will be tough to fail if you follow these simple rules. In
the market, you can either make money or lose money. It is a 50/50 game. Apply basic risk management,
and now the game is skewed in your favor. Apply the technical analysis taught throughout this book, and
now you have the upper hand.
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Chapter 19: Emotional Trading
Emotional trading is something that I struggled with a lot when I first started trading. In fact, it almost
forced me to quit and almost never look at a chart again. Think about how different my life would have
been if I had quit. In this chapter, I will walk you through how to eliminate emotions when it comes to
trading. Most of it will come down to experience and education; however, one can take other steps to
ensure that they do not trade off emotions. When you are in an emotional state of mind, that is where you
are most prone to act out and make major mistakes. As a trader, a major mistake could be a -$30,000 loss.
One of the main reasons I see individuals start emotional trading is because they are trading with money
they are not willing to lose. When you begin your trading journey, you must only be trading with money
that you can afford to lose. If you only have $5,000 to your name, it is not in your best interest to trade
with $5,000. However, if you have $150,000 to your name, you could probably afford to take a potential
$5,000 loss, and your life would not be affected. Because of this, you must only be trading with capital
that you are okay with losing. Let's face it, nobody likes to lose money, but if you are losing money that
you need for bills and groceries, well, you are more than likely going to have an emotional reaction to a
losing trade. If you needed that $5,000 for bills and groceries and lost $200 in a trade, you would more
than likely feel obligated to make the $200 back. In this scenario, the trader would force another trade,
which would send the trader into a bigger loss. Then, the same cycle would repeat until the trader quits or
blows their entire account. However, if you traded with money you were willing to lose, that initial loss of
$200 would suck but would not send you into a frenzy and make you think that you must make it back as
soon as possible.
The second reason I see individuals start emotional trading is because of the success they see from others
online. There will always be a trader who is better than you. Maybe your friend started trading six months
after you and has made $15,000 while you have only made $2,000. Reading that sentence probably made
you a little angry as well. What happens in this scenario? The individual feels obligated to outperform
their friend by taking a bigger position or trading more frequently, only to become frustrated with losing
trades. Never compare yourself to another individual in the market. You will bring yourself down, and it
will cause an emotional reaction.
The third reason a trader becomes emotional in the market is that they are dealing with stress in their
personal lives. If you are moving, going through a breakup, have had the death of someone close to you,
or any other stressful event, I suggest not trading until everything is past. There have been days and even
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weeks when I have taken off from trading because of something in my personal life. The market will
always be here. Take time off if needed. That way, you do not respond to trading with emotions.
Emotional trading is not just limited to lashing out and trading based on anger; it also applies to being
fearful. How often have you looked at a trade, were about to enter, but didn’t because you feared being
wrong and the consequences? I know I have. Being wrong is a part of trading, and you should not be
afraid of it. With every loss, there is a lesson. If you take two L’s and put them together, you get a W. The
losses only become a problem if you are not using proper risk management. Wall Street’s finest are not
even 100% correct all the time, and neither are the computers that do the trading. Losses are
unpreventable. All you need to do is apply the risk management rules, and you should make it out of the
markets alive. An excellent book on trading psychology and emotions is Trading in The Zone by Mark
Douglas.
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Chapter 20: Winning Mindset
A winning attitude is needed regardless of what you begin doing. No trader ever goes into the market
saying, "I am going to lose my account today", or "I am going to take a losing trade". All successful
traders have a winning attitude regarding trading and their overall life. Do you think Eminem woke up
each day saying, "Damn, I suck at rapping." NO. You need to have a winning attitude when it comes to
your trading, regardless of what you have experienced in the past. Have you ever told someone that you
would grow up and do big things, and their response was, "Okay, keep dreaming"? If so, then this more
than likely created a negative response in your head, and if done repeatedly, you have probably developed
a losing attitude. However, there are several things you can do to develop a winning attitude.
First, recognize why you started trading. Was it because you needed extra money to pay the bills? Need
money to get out of debt? Do you want to leave your crappy 9-5 job? Identify your why. I started trading
because I did not want to go into the state police. I sucked at school and had nothing else in my life ahead
of me. There was only one thing I could do to escape becoming a police officer, and that was trading.
Through each bad day I had, I always reminded myself of the bigger picture. You started trading for a
reason. Write that reason down on post-it notes and stick it to the bottom of your trading monitor so that
you can see it each day.
Surround yourself with the right people. There is a famous saying that if you hang around four
millionaires, you are bound to be the fifth, but if you hang out with four drug addicts, you are more than
likely to be the fifth, and this is true. My trading nor my entrepreneurial self were at the level I am at now
until I finally changed my inner circle. I went from negative individuals who brought me down every
second they had to working with individuals way more successful than me. Plus, my new circle motivated
me to become even better each day. Without them, I would not be writing this book.
Have faith in yourself. So many people lose faith in themselves and just work a regular hourly job and
live a normal life because they cannot see the bigger picture. Anyone can do anything that they put their
mind to. There are felons who spent twenty years in jail that became millionaires because they wanted a
better life for themselves. Nineteen-year-olds are making triple their parents' salaries because they are
determined. I have seen it all, myself included. Anyone can achieve anything, and I do not care what
anyone else tells you otherwise. Have faith in yourself because you can achieve way more than you think
you ever could.
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I would also add to this list to eat right, exercise, and get a good amount of sleep per night. The saying
"you are what you eat" is absolutely true. As someone who is big into bodybuilding and nutrition, I notice
the difference in my mental state when I am on my whole food, clean diet compared to when I am on
vacation drinking, eating out, and even eating dessert. When I am on vacation, I feel like absolute garbage
from the food I am eating. I always suggest a solid diet because it will make you feel better and help build
self-confidence. Exercising can help reduce anxiety and depression, which might result from trading.
Trust me. Personally, when I am not working out, I feel terrible, tired, unmotivated, and heavy-eyed.
However, I feel like a much better person when working out consistently. Finally, sleep is a MUST. If
you do not get adequate sleep, you will be tired when you try to trade, you will be unfocused, more
irritable, and maybe even depressed. If you have all these symptoms and then have a losing trade on top,
the result will be catastrophic.
Take all these steps to develop a winning mindset!
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Chapter 21: Outside Resources
There are several outside resources that I use daily. Not only must we pay attention to the technical data
being provided to us on the charts, but we also need to pay attention to fundamental news, where big
money is going in the market, and what stocks are hot and on everyone's radar. First, I will discuss where
to get market news.
There are several sources that you can use to get the news. There are sources like Yahoo Finance,
Benzinga (which offers live news and is my favorite), Zacks, and even Twitter. On Twitter, you must find
accounts that post news throughout the day. Some of my favorite accounts on Twitter are ZeroHedge,
CBCAlerts, and Bloomberg Markets. While most of these news sources release the same news, I use
Benzinga Pro. In Benzinga Pro, I can see everything from price upgrades and downgrades to acquisitions,
premarket movers, after-hour movers, and random news articles about specific stocks throughout the day.
Not only that, but it also offers a 52-week high and 52-week low scanner in the same window.
The following outside source that will be extremely helpful is a flow scanner. A flow scanner will allow
you to discover large and unusual trades other individuals or institutions make. There are plenty of
websites that you can use for a flow scanner; however, I prefer CallsorPuts.com and FlowAlgo.com.
Within the flow scanner, there are a few different order types. The first order type is known as “Sweep.”
A sweep is a large market order that is split into different sizes so that a trader can fill all their contracts at
the best prices available from multiple exchanges. This is where the smart money is said to be.
Since the sweeps are market orders, it indicates that the buyer wanted to get filled as soon as possible,
meaning they think there will be a big move in the stock soon. Since the sweep is multiple orders through
multiple exchanges, the trader is trying to stay under the radar when making these kinds of orders. As for
a “Block” trade, these are large privately negotiated orders that are executed outside of the public market.
The primary order type you want to pay attention to is the sweep. Highly actionable options sweeps are
something I pay very close attention to, as well as unusual option sweeps. Again, the smart money is
behind these sweeps, and if they are putting multiple orders in totaling hundreds of thousands of dollars,
or even millions, that is something you should pay attention to. Just because you see a sweep come
through does not mean you should follow it. There are many other factors that you must consider before
following the flow. For example, let’s look at an unusual option sweep that came in just before the
weekend.
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Chart U.1 - Charts by CallsorPuts.com
In Chart U.1, multiple orders came through for the $SPXU $15 Calls expiring in one week. The
expiration date is September 3rd, 2021, and the order came through on August 27th, 2021. $SPXU is an
inverse ETF of the $SPY; therefore, if the $SPY drops in price, the $SPXU will increase. If $SPY goes
up in price, $SPXU will drop in price. Understanding what is going on from an economic standpoint can
help paint a clearer picture of why these orders were coming through.
Currently, U.S Military has been pulled out of Afghanistan, and terrorists have taken over the city of
Kabul. There were multiple bombings at the Kabul airport throughout the week, causing fear in investors.
There was also economic news from Jerome Powell, the FED Chairman, or as we call him, the “Money
Printer”, stating that interest rates will continue to stay low for the time being. The $SPY ran up in price
due to the news of low rates, but anything could happen in Kabul over the weekend. Due to this, if big
money has millions of dollars in $SPY Calls, they want to protect themselves going into the weekend due
to what is going on overseas. As a result, they purchased $767,848 worth of $SPXU $15 Calls. That way,
if things got worse in Kabul over the weekend and it affected the U.S market, they would not lose as
much money. Not understanding how to read options flow, one could have seen this and then bought a
ton of $SPXU Calls just to see their investments lost over the weekend. This is one way that I use options
flow.
Another way I use flow is by identifying unusual options sweeps.
Chart U.2 - Charts by FlowAlgo.com
In Chart U.2, unusual options flow was coming in for $PLTR. Multiple sweeps were coming in for the
June 17th, 2022, $27 Calls. There was $2,822,000 put into this trade, and in total, a trader purchased
7,029 contracts at $400-$405 a piece. Of course, I followed this trade! So far, those contracts have hit a
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high of $481 a piece, putting the trader/traders up +$569,349. UPDATE: I sold these contracts for +50%,
making these traders up +$1,411,000 in just a few weeks. When observing unusual options flow, I like to
see multiple orders of the same strike, and the same expiration bought. One must also make sure that the
contracts are being purchased, which will be discussed shortly.
Chart U.3 shows another example of unusual options flow on $BABA. On August 23rd, 2021, I noticed
unusual options flow sweeping the $BABA $160 Calls expiring the same week. As a result, I followed
the same contracts. In total, $4,695,000 was put into this trade, and the trader purchased a little over 8,000
contracts. These contracts went deep in the money, with $BABA gapping up to $174 the very next day.
These contracts increased well over 100%, making this trader, or traders, over +$4,695,000 in one day.
As seen in Chart U.4, with most flow scanners, there is also something known as “Golden Sweeps.” A
golden sweep is essentially a large opening sweep order, as you can see in the examples above, a $7.2
million order, a $1.3 million order, and a $2.3 million order. Paying attention to the $7.2 million order on
$SPY, a trader or traders purchased an enormous position for 33,776 contracts for the $452 Call. It is
essential to ensure that these contracts are being bought when looking at golden sweeps. On
ThinkorSwim, you can filter the options flow and see if these contracts were purchased or sold.
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Chart U.5 - Charts by ThinkorSwim
Chart U.5 is an example of a $PYPL golden sweep on February 20th, 2022. The contracts were bought
because they are green in the options time and sales tab. In total, this trader purchased 1,298 contracts of
the $PYPL 5/20/22 $105 Calls at 10:26 AM EST. Remember, with sweeps, these come through as
multiple orders through multiple exchanges. In this scenario, the trader spent a total of $1.5 million.
When observing options flow, it is also essential to make sure that the technicals line up. If the technicals
do not align with the order type, never follow it. The reason being these sweeps can come through for
several different reasons. Maybe the sweep is tied to equity, or the trader has a bigger position on the
opposite side of the market and uses that trade as a hedge.
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Chart U.6 of $PYPL on a 10-minute time frame can show you exactly where the trader entered. As soon
as $PYPL broke above the EMAs intraday, they started loading up. In this scenario, the technicals did
make sense for an entry for at least a day trade. Again, the trader has an expiration date three months
away, so I am sure they plan to swing those Calls. That is how I would use the options flow to my
advantage when trading. If you plan to swing this trade, you will want to look at the daily time frame and
make sure all the technicals confirm the move as well. Once you have confirmation that big money is
flowing in and the technicals, that is when you execute and use proper risk management. Since the
sweeper had purchased the Calls, $PYPL has rallied to a high of $122.81, putting the contracts $17.81 in
the money.
Going back to the $SXPU example in Chart U.7, the flow was picking up on the orders, and the options
time and sales confirmed that they were buys; however, the technicals did not confirm the move.
Therefore, I would not follow the flow.
Flow scanners can be a handy tool if you know how to use them properly. Again, always make sure that
the orders are actual buys and that the technicals align with the flow. Also, try to think about economic
news when the flow appears. The orders could be hedges to a much larger position on the other side of the
market.
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Dark pool prints
Another feature with most flow scanners is the darkpool prints. The darkpool is a huge block of orders
that are being bought or sold by institutions or major banks. These dark pool prints will appear a few days
or even weeks after the trade has taken place. The institutions and banks do not disclose their intentions
behind the trade so that they do not affect the underlying stock price. Most of the time, the dark pool
prints will not tell us if they are a buy or sell order—just a large position in the market.
Chart U.8 is an example of how the dark pool prints will appear. They are not green, and they are not red.
Just huge transactions were occurring on these stocks. You can, however, piece together the flow and
darkpool to conclude what is going to happen. For example, maybe the two $SNAP darkpool prints
appeared totaling $34,000,000, and then ten sweeps came through for Calls. You could piece together that
the dark pool prints were a bullish position with the flow. Then as always, utilize the technicals to confirm
the possible move.
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Finding Hot Stocks
There are several ways to find what stocks are heating up and gaining attention from investors. One way I
find hot stocks is through Facebook. If you go on Facebook and go to the group's tab and search for
"Stock Market," you will find hundreds of thousands of groups. Find active groups with a decent number
of daily posts and join 20-30 of these groups. Each weekend I go on my Facebook feed and just see what
everyone is talking about. Some companies might have reported news that you did not see, and sure
enough, someone on Facebook brought it up in a group, and you ended up seeing the news. There might
be a Chinese electric car company gaining much attention from investors that you have never heard of.
That stock could be only $3 a share but later grow to be a $67 stock at one point. Yes, this is a true story
about $NIO. All I saw on my Facebook for weeks was $NIO $NIO $NIO. As a result, I researched, liked
the company, and later became an investor for the short-term. I unfortunately sold all of my shares at
around $35 a share and did not catch the entire move to $67.
Put:Call Ratio
The Put to Call ratio shows investors and traders the difference between Put options versus Call options
on a day-to-day basis. Using the Put to Call ratio can be super beneficial when making trading decisions.
If you are using ThinkorSwim at the bottom of the option chain, there is a tab named “Today’s Options
Statistics”. If you click the tab, it will tell you the number of calls and puts purchased throughout the
entire day. For example, say you were looking at a possible swing trade on $NET. The technicals are
beautiful, but you want one more piece of confirmation to let you know that this is an excellent trade to
take. You go look at the Today’s Options Statistic tab and see that 23,182 Call contracts were purchased,
and only 8,549 puts were purchased. The Call buyers outpaced the Put buyers 3 to 1. As a result, this will
give you another confirmation to go long.
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Chart U.9 shows the Put to Call ratio for $MO. This was a stock I was looking to swing due to many
technical reasons, and the Put to Call ratio gave me more confidence when entering this trade.
Chart U.10 is a picture of $MO on the daily time frame. Notice all the technical confirmations.
Fear and Greed Index
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As an investor or trader, you will experience two types of emotions: fear and greed. That is essentially
what the fear and greed index is. This index lets you know the emotions that market participants are
experiencing. Fear is what causes investors to leave the market, which means selling their positions, and
as a result, the market will drop in price. On the other hand, when investors are greedy, they drive prices
higher to the upside and make the overall market overbought. A famous quote from Warren Buffett is,
“Be fearful when others are greedy, and be greedy when others are fearful.” When investors are greedy,
they are buying, buying, and buying—sending prices way over their fair value in the hope of making a
quick profit. When there is an unusual amount of buying for a substantial amount of time, eventually,
prices will climb so high from greed that you should be fearful. We know that stocks do not go up forever
and will eventually come back down.
Eventually, there will be profit takers, and individuals will sell in the fear that they will lose money. On
the other hand, when investors become fearful, they tend to sell off their stocks regardless of how much
the price drops. This is when you should be greedy because you are getting a discount! Use COVID-19 as
an example. During the March 2020 COVID-19 sell-off, investors were selling their stocks because they
thought COVID was the end of the world. Since the COVID sell-off, $SPY has increased +100% from
March 2020 to August 2021. Using the Fear and Greed index can help you make an educated decision
going forward in the market, especially if you are in a profit-taking area or a buy zone.
Chart U.11 - Chart From CNN.Com/Market/fear-and-greed
Chart U.11 is a picture of the Fear and Greed Index from CNN
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Chart U.12 - Charts by TrendSpider
Chart U.12 is a line chart of the $SPY on the daily time frame.
Notice the resemblance between $SPY and the Fear and Greed Index? The greed peaked right before
COVID and then hit a low in fear at the bottom of the COVID sell-off. There is much resemblance
between these two-line charts, and it is something that I pay very close attention to on a weekly basis.
Economic Calendar
This is one of the most important things you want to pay attention to as a trader. The economic calendar
lets you know about all the important economic news coming up the following week. These economic
reports range from pending home sales, consumer confidence, job reports, consumer price index, etc.
Here I will share the most important economic reports that you must pay attention to.
Consumer Price Index: This shows the change in prices over time for consumer goods and services. The
CPI includes food, fuel, and utilities. The higher the CPI becomes, hints that you are paying more for
everyday items such as gas. When I first got my license in 2016, gas was $2 a gallon. Now it is $5 a
gallon! Therefore, you have less purchasing power and are paying higher prices. An increase in CPI hints
at inflation, and the stock market hates the word "inflation". CPI numbers are released once a month and
can be found on the economic calendar.
Producer Price Index: This shows the average changes in prices received by domestic producers for
their output. These measurements are based on consumer goods such as food, medical care, and even
477
retail. The PPI shows the change in prices from the seller's standpoint and often hints at inflation. Again,
the market hates the word "inflation." This is also released once a month.
The difference between CPI and PPI is that CPI measures the costs and viewpoint of the customer;
however, PPI measures the costs and viewpoint of the producers or sellers.
Initial Jobless Claims: These numbers are released weekly by the U.S Department of Labor. Jobless
claims are released at 8:30 am EST on Thursday. These claims refer to the number of unemployment
benefits claims filed by unemployed individuals. The more people that file unemployment generally
means fewer people are working; however, the fewer individuals that file unemployment generally means
more people are working. If jobless claims start ramping up, this can hint at a weakening economy and
often result in the stock market dropping in price. However, the lower jobless claims become can hint at a
striving economy, and as a result, stocks will more than likely edge higher.
Unemployment Rate: This measures the number of workers who currently do not have a job but actively
seek employment. As a result of a weakening economy, the unemployment rate will be higher than
normal. If unemployment stays high, stocks will likely drop. But lower unemployment rates can hint at a
strengthening economy.
Federal Reserve: Whenever the Federal Reserve speaks, I do not trade during that time. Jerome Powell,
the current chairman of the federal reserve, can make or break the market in just one sentence. If he gets
on TV and says two words, "inflation" and "tapering," the market can go flying or drop substantially,
depending on the context they are used. Below is an example of what the stock market did when Jerome
Powell mentioned that no tapering was expected in the short-term. Since we do not know what Jerome
Powell will say when he speaks, it is best not to trade and wait until he is done.
478
As seen in Chart U.13, once Jerome Powell mentioned that no tapering was expected in the short-term,
the $SPY began to rally.
There are plenty of other economic indicators that investors pay attention to; however, these are the main
ones that I keep my eye on. I have noticed that these tend to have the biggest impact on the stock market,
which is why I want to watch them closely.
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Chapter 22: Use Short-Term Gains to
Generate Long-Term Wealth
In this book, I have laid out everything you will need to know on how to become a profitable trader. Now,
what do you do? It is important to pay yourself from the market every week or two weeks. I see no value
in having a $500,000 trading account because if you follow the rules of risk management, most of your
account will not be in active trades. As a result, you need to figure out the right amount of capital to keep
in your account. When deciding this number, think about this: if you were to lose all the money in your
trading account, would your life change for the worse? If your answer is yes, you need to take money out
of your account. You should only put what you are willing to lose in your account, or you will experience
emotional trading. Once you figure out the magic number, the rest is easy. For me, I pay myself once a
week from my profits. Again, I have a set amount of money that I trade with, and anything over that I
withdraw from my account to generate long-term wealth.
There are so many places where you can put your capital to generate wealth in the long-term. One of the
most important places to put your excess cash is into a long-term portfolio. There are many different
stocks, ETFs, or mutual funds that you can place in your long-term portfolio. I prefer to go with
individual stocks since this is where the most growth potential can be found. If you were just to look up
the S&P 500 top holdings, you are bound to find the stocks you should be looking to add to your
portfolio.
When investing in individual stocks, you need to research the companies' fundamentals more than you
would if you just bought an ETF. When looking at an individual stock like $AAPL, since the COVID
sell-off, $AAPL has risen from $53.15 a share to a high of $155 a share which is almost a +200% gain.
$NVDA went from $45.17 a share to a high of $230.43 a share in just a year and a half, resulting in a
+410% gain. However, $SPY, a common ETF many investors invest in, has only increased by +111%.
This is why I prefer going the individual stock route. Much more research is required, but it is well worth
it.
On the other hand, an ETF is a fund compiled of many stocks. When investing in an ETF, you essentially
own a piece of 500 stocks, 2,000 stocks, or even as many as 4,000 stocks, depending on the ETF. ETFs
also tend to be a lot more expensive than most other stocks.
If you are someone who does not have the time to do individual research on stocks to invest in, ETFs may
be the way to go. The average return on the $SPY in the last century has been 10% per year, which is
480
good. There are many other ETFs that you can invest in. My favorites are the ones from Vanguard,
specifically $VTI. However, there are other ETFs one could invest in. The SPDR ETFs mentioned in the
swing trading section, Vanguard ETFs, ARKK ETFs, Invesco ETFs, iShares ETFs, Charles Schwab
ETFs, and many more. Make sure to do your research on the ETFs that you want to invest in. Some ETFs
do terrible and only return 4% per year, while others outperform the market returning 13-15% yearly.
On top of that, there is also dividend investing. A dividend is a "thank you" payment from a company that
is paid out monthly or quarterly to its shareholders for investing in the company. For example, $T
(AT&T) pays $2.04 per year per share held. The current price of $T is $28 a share. I know you may be
thinking that $2.04 does not sound like much money, especially for an entire year of holding. But, what if
you own a few thousand shares? That is $6,120 a year just for owning a stock. Imagine what you could do
with an extra $6,120 put in your pocket each year. That beats the amount of money you will generate in a
bank account. You might as well put your money to work for you. What if you had 5,000 shares of $T?
That is now $10,200 a year just from owning a stock.
Not only can you invest in the stock market for the long-term, but there are also many other long-term
investments out there; just get creative. Some examples of other fantastic passive income sources are
cryptocurrency, and real estate.
You now have a way of making money in the short-term through trading, but the short-term profits can be
used to generate long-term wealth and financial freedom if done correctly.
481
Conclusion
With that being said, this will conclude The New Age of Technical Analysis. I want to thank you for
purchasing this book and putting your faith in me to teach you the needed material on how to become a
successful trader. I hope this book will serve you a lifetime of benefits and helps you on your journey to
success. All these strategies have proven to my students and me to be efficient and accurate, so I hope it
can treat you how it has treated us. If you could leave a review for the book, it would mean the absolute
world to me. If you have any questions about anything written in this book, please reach out to me on
Instagram: @Carwhorns or on Twitter: @Carwhorns. Also, check out my YouTube channel:
BrandonTrades, where I have hundreds of videos on how to trade effectively.
As always, stay motivated, and chase your dreams. We all started trading for a reason. Remind yourself of
that reason every day you get up. Did you start trading because you hated your job? Did you need more
money to pay the bills? Are you looking for an extra income stream? These are all reasons to remind
yourself to keep pushing each day. You will struggle at the beginning, but it is just like anything else in
life. Babies are a great example. The first time they get up and walk, they fall and cry, but get back up and
try to walk again. If a baby is motivated to learn how to walk and keeps getting back up, you should be
able to learn how to trade and learn to pick yourself back up on a bad trading day. Have I wanted to quit?
Of course I have. No matter how hard it is, keep pushing. Quitters do not get anywhere in life. Push
yourself as much as you can. My life would have been completely different if I had given up when trading
got hard. I would be working for the state police and probably hating my life. Instead, I continued to push
myself and became successful at trading, and not only that, but I am also changing others' lives daily
through YouTube, mentoring, my first book, and now my second book.
With that being said, I would like to leave you with a quote from my favorite rapper, Logic: "How can the
sky be the limit when there's footprints on the moon?"
I wish you all immense success.
- Brandon.
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1

The New Age of Technical Analysis

Cover design by Jake Chambers

Copyrighted with the Library of Congress

Chart A.2 - Chart by ThinkorSwim

Chart B.1 - Chart by ThinkorSwim

Chart B.2 - Chart by ThinkorSwim

To make this visually easier, here is the example laid out.

$TAP Stock Price: $52.96

$TAP Increases to $53.96: You profit $33 (the original Delta)

Chart B.3 - Chart by ThinkorSwim

Chart B.6 - Chart by ThinkorSwim

Chart B.7 - Chart by ThinkorSwim

Chart B.9 - Chart by ThinkorSwim

Chart B.10 - Chart by ThinkorSwim

Chart C.3 - Charts by TradingView

Chart C.4 - Charts by TradingView

Chart C.7 - Charts by TradingView

Chart C.11 - Charts by TradingView

Chart C.14 - Charts by TradingView

Chart C.20 - Charts by TradingView

Chart C.24 - Charts by TradingView

Chart C.26 - Charts by TradingView

Chart D.1 - Charts by TradingView

Chart D.2 - Charts by TradingView

Chart D.4 - Charts by TradingView

Chart D.6 - Charts by TradingView

How does the trend change?

Chart D.7 - Charts by TradingView

Chart D.10 - Charts by TradingView

Chart D.11 - Charts by TradingView

Chart E.1 - Charts by TradingView

Chart E.2 - Charts by TradingView

What happens to the stock if it breaks support or resistance?

Chart E.5 - Charts by TradingView

Drawing Support and Resistance for Swing Trading

Chart E.9 - Charts by TradingView

Chart E.10 - Charts by TradingView

Chart E.12 - Charts by TradingView

Chart E.13 - Charts by TradingView

Chart E.16 - Charts by TradingView

Chart E.17 - Charts by TradingView

Drawing Support and Resistance for Day Trading

Chart E.18 - Charts by TradingView

Chart E.19 - Charts by TradingView

Chart E.22 - Charts by TradingView

Chart E.23 - Charts by TradingView

Chart E.24 - Charts by TradingView

Chart E.27 - Charts by ThinkorSwim

Chart E.28 - Charts by ThinkorSwim

Chart E.30 - Charts by ThinkorSwim

Plotting Support and Resistance Using Persons Pivots

What are the Persons Pivots?

Chart E.31 - Charts by ThinkorSwim

Chart E.33 - Charts by ThinkorSwim

Chart E.34 - Charts by ThinkorSwim

Chart E.39 - Charts by ThinkorSwim

Chart E.40 - Charts by ThinkorSwim

Daily Pivot Point = White

How To Draw Fibonacci Extensions

Chart F.2 - Charts by TradingView

Chart F.3 - Charts by TradingView

Chart F.5 - Charts by TradingView

Chart F.6 - Charts by TradingView