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April 17, 2014 – When to Enter a Trade

April 17th, 2014

Hey, it's Sasha Evdakov, April 17th, 2014 and right before the good Friday.

April 18 tomorrow, the markets are close. I hope you guys are enjoying your shorten holiday break and those of you that aren't working, I hope you spend some good time with family and enjoy the goodness out of life.

Today I want to focus on entering a trade. And I'd like to kind of do this in a 3-Part series in terms of entering the trade this week, maybe following through next week but we'll see where I get to today. Because I like to go in depth on this recaps.

Today we'll be focused on entering the trade and I'm not going to be talking about any one stock in specific, I did do a couple of Q and A's on twitter, if you're not following me on twitter, you can do so. And you can follow me there. Make sure that you're checking the right account because I do run a couple businesses and I will only answer trading questions primarily from my tradersfly twitter account. I make it to it from the other accounts, just make sure that you're on the right account, just because I don't like to mix things up. Make sure you're on this account right here if you're following me or asking me questions.

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Now, since today I did want to go over a couple of things that people asked about and I did play a couple of games with you guys to get you thinking about stocks. Want to hit back game first and I asked about twitter versus Netflix and which one look healthier?

Twitter vs. Netflix

And if you just don't even think of the company in general, just pretend this is some company you have no clue what the stock is. Which one looks healthier according to the recent couple of trends or charts or patterns.

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If we zoom in right here, and we look at twitter for now, just so we have a reference point of what we're discussing or what company. If we look at twitter, we had a nice break right here and if we zoom out on the longer term of scale and you can see that it was hitting kind of the lows here. But of course it can go lower, so I never deny that it can't go lower. The lowest it can go is zero.

If we look at just twitter here on the recent chart, what looks healthier between twitter versus Netflix that I talked about right here?

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And I had a range of responses in terms of health if we just compare it, the answer would be Twitter. And just the health wise, I'm looking at three main components, what I always look at when I go into the stock.

Some of you emailed me saying "Hey, you know I got into twitter but then it went down the next day." Stocks do not go straight up. It's not going to be fifty shades of green all the way up or the minute you buy it. We had a huge day on the upswing right here and it was a nice volume amount 24.3 million shares. If you got in it at the 42 - 60 mark you would have sold half and now the stocks will play.

They will isolate here, they'll either go up, down or sideways. And it tends to happen with many stocks, if we break them down here in a minute they all either go up, down or sideways. And it takes time to build up to the next part.

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Here, it broke out on 24.3 million and it came back on 13.9 million. I'm looking at this box that pops up on the shares or you can drag a mouse here and see that it's 14th and here's the 24.

Now today, I asked that question right around noon time and the stock was trading much higher. Now today, we didn't get a follow through or push to the upside with the stock towards the end of the day. And that's the other thing I watches. How do they finish at the end of the day? Do they sell off at the end of the day or do they push higher?

If they push higher into the end of the day, it is a conviction. It's showing you that it has strength and lengths in the move. This one, it sold back down which means it still could be consolidating here. If you got in at 42, 43 area, you're still on the safe zone specially if you sold some.

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If we look at Netflix on other region or on the other hand, the last few texts and bars even though we're looking at this support level just like twitter - that's why I picked this two, they have this nice support line about the same spread. Just looking at the chart itself, don't even look at the price, just look at the chart. This one doesn't look as healthy and why?

If we compare it here, 4.4 million shares two dodge here, this is your hammer and to the upside again another a dodges, we went 2.3 million. 2.3 up versus 4.4 down. We looked at the other down text 4.3, 3.6, going up on 2.3. Let me slow it down for you.

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Going down on 3.6 million shares, but going up on 2.3. This one 4.5 million shares, today was better. We're coming in right here into this bar and if we break things down like this and I'm trying to really simplify it so you guys understand it. If we look at this bar and we extend it further, it's now hitting this bar.

How much was in this bar? 5 Million shares and this bar was 3.6 million shares. And we're gong up on 4.5. 5 million shares versus 4.5 million shares, that's probably as low as I can explain it. Which one went out?

It's obviously Twitter that went out and in this side, the downside. This tick is to the downside. Like I talked about on Amazon, they like to go up, if we look at Amazon, what I do is we went down here, huge volume - 16 million shares. Went back up, people could be talking about this for weeks "Oh it's going back up". I'm like "No, no, no". Rolls back over and where do we end up, that's what they do. That's what stocks do.

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They're not going to go straight up, even here. Look, they're not going to go straight up. There's a few red ticks in there, eventually they come back down.

I want you to pay close attention, just look and study these charts, just study them. This one I don't think it's a healthy stock in a general sense if we talk about Twitter versus Netflix. I like trading Netflix a lot more than I like trading twitter, why? Because it moves $14, 10 bucks in a day. Twitter, it moves .60 cents, .50 cents, .70 cents, a dollar. But forget the price, forget the company itself, just look at it in terms of the chart. That's what you learn from the charts, you want the stocks hitting higher into the next day.

Let me show you another example so you understand and again don't particularly care about the company, I'm trying to get you understand the reasoning behind the trade and why to enter, when to enter, what to watch for. I'm not here to give you stock pick, I'm here to give you, to educate you, to take you to the next level so you kind of understand what's going on.

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Look here, again we have this trend line right here. This is TPLM if you want to look it up on your own charts or play with the company. Here, here's a consolidation pattern, the stock went off, it went down. it's consolidating, now it's gong back up. Where do you make money or how do you make money? That is the question you're probably asking.

Here we have a consolidation pattern, being patient, sit on your hands until this consolidation pattern breaks. Or you can check on the upswing or the downswing. You make money from the market when the market is not balance. If it's balance then isolating, you can't make money. Here, there's line of resistance.

When we compare it to all those other ticks here, what was the volume here on average? Let's just take a middle tick, 1.5 million shares, 1.6, 1 million, 1.3, it's right around that area. One of the larger ones we had was 2.2 million to the downside. Looking at it here, we had 2.2 million, it broke out 2.2 million. We had 2.2 to the downside, we had 2.2 to the upside. It's a different price region. If we take this out all the way over here, what tick mark is it hitting?

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It's hitting this one here which is 1.8 million. We went up on 2.2, 1.8 it went down. We continue further. Let's just continue it further. Now we're getting 1.8 million here again. It's not funny, we went down on 1.8 here, here we're going up on 2.2. Very interesting right?

Let's bring it back a little bit, okay?

Now that first day broke out. Let's say you integrate here $8.60 doesn't matter what the price is right around that area. Just again, like I said, eliminate the company, look at the chart. Don't worry about the price, we're using the price as a reference point. Chart is a chart, the way it looks. This is human behavior, what we're looking at.

We enter right around here, at this point. Little clearance for us is 8.57, 8.68, 8.55 give or take right there. Comes up next day, trade again, how much? 3.3 million shares, a little more but it almost ends the same way as it opened up. Now, it did go up and then it came back down and it ended right there.

If you went a little lower, would have close lower the day but and you would have seen the red tick right there, but it still would have been fairly positive because it's holding it's ground depending on the volume, that's what we're looking at, right?

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Here, looking at this level it hit the highs here. There's this high, take it right around here. And then today it continue to follow through on 3.8 million shares. Again, a dollar doesn't matter. But look at the way that chart looks. If we take it out further, now we take this tick, look at this very interesting, 1, 2, 3. I hit a couple areas here, we kick this tick out further like I said. Here we have 3.2 million, we have 2.3 million, this one sold off on 3.2. This one is consolidating at 2.3. This breakout now is at 3.8, 3.8 versus 3.2 which one won? This one, 3.8 million won.

Now where we're heading into, we're in the 10 bucks zone. Now in this region, we're going down here in 2.5 million, 2.1 million, 4.2 million. This one kind of covered a little bit higher over here. Technically they didn't cover the whole bar, I'm looking at the whole bar here. This bar 2.1 million, this one 2.5, and this one half 4.2.

We're right around, let's just use 2.1 compare it to what we have 3.8 which bar is getting more action? This newer one. That's why you saw the stock go hgiher. That's how you break it down step by step.

And I try to do it slowly and I apologiz if it's too slow for some of you people that have my course. Because if you have my course you probably understand a lot of this stuff in terms of theory but now maybe you get to see it in terms of the chart. And if you're asking me 10-20 questions on twitter or on email then you probably are understanding what's going on in the market and even picked up a book, pick up a course. I don't even care it it's my course. Just learn, pick up any study material. You don't buy my stuff, buy somebody else's stuff but study and learn and take your game to the next level. And this is what I do, I look at stuff and I do as quick, I do this in about prior minute, maybe 30 seconds. Sometimes if I know the chart maybe 5 - 10 seconds. I would flip through charts, so quickly, you know it will make your heads spin. So that's why I can go to 3,000 stocks in just an hour or two.

What is the behavior if the price is good?

In either case, that's what I watch for is the price. Where's the price? Is the price higher or lower? Or in this area the price. If the price is good, how's the action? How's the behavior, human behavior happening? Is it moving up, is it moving down? Is it moving with force?

Think of a water fall, is it a little drifty waterfall or is it a strong waterfall. So we got the price, we got the action which is the behavior and the volume. Do you have the juice, the high flow of water? And yeah we do.

Think of these volume as voting right. People go to the politicians to vote for those politicians, the more votes that you have for the stock going to the upside, the more conviction. Meaning the more likelihood of the outcome, so the same thing here. A waterfall with high flow of water, you know where it's going. It's like a rocket, with more rocket power it's going to go to the upside.

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Enough about that one, we know that one more here. This one just recently, here MRTN again. Don't trade this stocks personally then it will move a ton. But I just pick them to use as an example of how to enter into the trade.

Here looking at it, 162,000.7 shares traded and it's pushing higher and now today we had 261,000 shares and it broke higher.

Let's back track it, is there anything here? No, there's nothing here that's making issues or problems first that we're watching. Compare it to the other volume that's going on, so here now what we do is 162 it broke out versus the previous days 66,000. That's at least three times as much versus 115,000 versus 72,000. Why am I checking these bars? Because this bar covers all these bars. If one of these bars to the downside was huge, it would be something to be careful off and watch.

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Here, let's take the biggest one, 162.4 it's right around this area to the lower end of that bar. It's not really in there. It's the highest one at 52.4 and this highest one is 155,000. And here we had 162, who won? 155 versus 162? 162 won and then here, 260 won. We're going up on 260 won.

This is what you want to see, on the breakout we got one day that broke out second day follow through. If we're looking at twitter, we got first day break out, second day no follow through.

Is it a little bit weaker than that stock? Yeah in theory if we look at chart by chart. Yeah, it's a little bit weaker. Just because you see a red thing here versus the Netflix I talked about, to green things it's not about green or red.

It's about looking at the action and behavior versus the overall pattern. Like I said I like Netflix better just because I like trading those kind of stocks but in terms of entering the trade, the price, the action and behavior and the volume that's what you're watching.

I hope that was really clear, I know I didn't cover a ton of stocks. Want to actually give you a little lesson today and I'll go over one or two things. CMG we got earnings coming out. The stocks started to pop higher and I'm going to go into let's just say 10 minutes. With the stock popping higher.

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I had somebody asked me, I don't remember if it's twitter which person but you know who you are, asked me about yahoo. Well the stock normally fill the gap they asked me the previous day.

I said yeah, typically they do and it doesn't happen on the same day because we got earnings happening now. It doesn't typically happened on the same exact next day or this weekend. It might happen a week later. But gaps typically fill, they typically do. It's like a magnet. It sucks some down.

Today what will happen was we did go lower into this gap and it may continue or it could continue higher and then later fill it.

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What happened with CMG, CMG is just more volatile than Yahoo. Yahoo is a slower mover. Just think of it and maybe Yahoo doing the same thing within two weeks, I don't know. But here's what happens. They open up on the gaps, pretend this was Yahoo. You can pretend it's any stock you want. Pretend we open up on earnings. So the tick start happening or watching on a 10-minute.

Oh my god, it's up 30 points. First part happens, we're up on higher volume. This is what they do. First bar happens we open up higher volume, it's going to look good. Thing to be cautious about the gap, since we're coming into the earnings, I want to cover this.

We got the gap, it's going to try and hold here. You'll use this as the base, it's going to try to hold. We got dodges, people are trying to come in to this. Get a lower bit more volume coming into this. Let me zoom in, you can see the volume still much higher than the other day. Continue higher, now here's the big question, is it going to clear this high of this bar?

Notice I'm looking at the bar specifically and since this is a 10-minute bar. It's not as strong as the daily bars. But again, gives you some ideas maybe to study further or pick up another book.

Here we go, more volume to the upside. This is healthy, retracement with last volume. Again, we continue and now all of a sudden huge spike to the downside.

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The volume starts increasing. This is your red flag right there it's breaking below that initial open bar. It couldn't hold that first bar. The volume here even though the volume on the first bar is higher. It couldn't hold this, you need all three things, price, action and volume. you have the volume here, retracing lower, the action is down, the price is down. You don't have everything, you need everything to make it healthy.

Doesn't mean it can't go back up on lower volume and so on and so forth. It doesn't mean that the stock can't go higher on lower volume or stock can't go up on looking unhealthy. It just means if you want a healthy stock and if you want a better percentage, you need health.

Again this is your first sign, and you can see what happen after that. It continue to fill this gap, here we start close that's that yellow line right there and the volume right there was higher then again, we had a couple of nice higher volume bars comparing it to the earlier day. You can see here we have 92,000, 81,000 and here we have 140,000, 115,000.

You need all concept

That's what happen then it tested right here. Isn't that funny exactly where we close the previous date. Tested it, couldn't do it, more influx of volume, 304,000. Still this bar 403,000 versus 304, 000 technically you could say "Hey, it's going down on lighter volume." Yeah but you don't have the price, and the behaviour is wrong. If you don't have the other two things, the stock isn't correct.

You need all concept, all three things to make it right. And towards the end of the day as you can see, we continued and what do we do at the end of the day? That's what I mentioned is I look at the end of the day, do we have strenght, or do we have weakness. At the end of the day how are volume to the downside?

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Continue to sell off, so here one A to B, B to C, C to D. Continue to sell off towards the end of the day. We do this with Yahoo, here we're starting slightly slower and it's a slower mover, it's .3 cents there. It's a different kind of stock but these are just some things to think about.

Like I said I'm sorry I didn't cover recaps on stocks specific, I think somebody wanted me to cover Tesla but again look at what we're doing, look at the volume, look at where we are, where we're going and what do you predict. And you can break it down into a few ways. A to B, B to C, C to D. If we continue on that pattern, then what do you think may happen?

There's our support line, you think it can bounce? Yeah it can, I said watch the 200 on this. This is the 200 and I say that because it's right here.

Technicals vs. Fundamentals

And do I always look at technicals versus fundamentals. I always think technicals are more important because when people are in panic mode, they will scream and go "ahhh..." and sell everything versus the fundamentals. Fundamentals - usually a stock look good. Fundamentals will have good technicals and good charts. And that's one thing that my mentor always said was "Good stock charts usually also have good fundamentals and good fundamentals usually they also have stock charts". Same thing goes in reverse.

Pick up these stocks on your own and start putting this theory and concept what I just share with you in place. And learn from it becuase it's about taking your trading higher. It's not about me making more money, it's not about me boosting my ego about what I know. It's about getting you to that next level.

And if you are asking a lot of questions, then it might be time to pick up a book. Because I'm happy to answer your questions and I love hearing from you guys. Sometimes sorry if I don't respond to every single tweet because sometimes you give me thank you's, and I love seeing the thank you's but I know and have the time to respond all the time but I do try and do it as quickly as they can. It helps having automonitors. But if you're confused about some things, then pick up a book, pick up a video course. It doesn't have to be mine, just get something, read some articles online just to kind of study a little more.

Trading more doesn't mean you'll learn more, I mean you'll get it through experience but it will be costly. But if you haven't picked up a book or check some video courses out or something like that like I said pick something off, doesn't have to be mine. Just get something to take your trading to a better level.

In any case I do have the book coming out soon, predicting it will be here next week. I just had it proof and everything looks good. It's just a hundred stock trading tips that very light reading, about a 110 pages. Nothing major but it's very simplified into a lot of different tips and ideas and concepts just to get your brain thinking.

I hope you guys have a great good Friday and a fantastic weekend ahead. Plan to enjoy the weekend here as well. We got some thunderstorms happening I think soon, we'll trying to make it a good rest of the week. Have a good Friday, have fun with your families and trade them well next week. Take care.

Author: Sasha Evdakov

Sasha is the creator of the Tradersfly and Rise2Learn. He focuses on high-level education speaking at events, writing books, and publishing video courses on business development, internet marketing, finance, and personal growth.

I'm Sasha, an educational entrepreneur and a stock trader. In addition to running my own online businesses, I also enjoy trading stocks and helping the individual investor understand the stock market. Let me share with you some techniques & concepts that I used over the last 10+ years to give you that edge in the market. Learn More

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