Listen to the Podcast
Hey it’s Sasha Evdakov, it is October 15th 2015 and welcome to the stock market Rapid Recap. Now in this week's video what we're going to focus on as far as the lesson goes is looking at finding hot stocks to trade versus finding your technical pattern.
I know that a lot of people are always looking at let me find that next great stock or they're trying to look for the next hottest stock to break out and they're all focused about the stock and less so much on what works for them or finding the technical patterns.
That's what we're going to look at today in this week's lesson I hope you've had a great week so far enjoyed some time with your family over the weekend and you know just made the most of it as far as spending some quality time with people as for us what we did was we went to a festival this weekend was the Sauerkraut festival ironically enough and there was a few sausages here and there that we got to sample and we also went to a roller derby.
It’s my first time at a roller derby I don't know if any of you actually participate in a roller derby but it was definitely something interesting or different to see and I always enjoy looking at different things or just meeting and greeting with other people and just exploring and broadening my horizons so what I'd like to do is before we get into the lesson I do want to share some news with you and what's going on here over the next month or two or couple of months and what's my plan and objective.
If you take a look at the Tradersfly website you’ve notice probably that the money-making stock charts set-ups for a penny stocks is coming very soon and in fact it is releasing. I've uploaded the files the files are already online and they should be within the Amazon live and active within a couple of days. Usually takes about three to four days for it to appear on Amazon.
I will send you another email once this book is actually live on Amazon and where you can get it so the files will be there and It'll definitely be there by next week's Rapid Recap so it's already uploaded proofed, double-checked you know and it's ready to go it's just a question of when it goes through their system.
If you're waiting for the Penny stock a book as far as studying charts, reading charts this is really focused on charts that are less than $10. Now the typical definition for a penny stock is for stocks under $5 and actually used to be for stocks under $1 hence the name penny stocks but through inflation and as things move and adjust now it focuses on stocks that are less than $5.
However for this book what I did was focused on stocks less than $10 because people who are interested in trading penny stocks are people who are looking to trade the cheaper stocks and it really focuses on a different type of person and there's nothing wrong with trading penny stocks for my opinion because we all have different things that work for us.
Risk tolerances, goals, objectives and account sizes so there's nothing wrong with trading penny stocks there are some great advantages in fact because the big boys or the operators don't really trade the penny stocks however there's also disadvantages so you just need to be aware and understand of what's going on beneath the surface behind penny stocks and why you may want to trade them.
Now as far as for me to trade them I don't trade penny stocks anymore as a full disclosure you know I don't really trade the penny stocks anymore for one major reason and that is because if you take a look at this stock as an example SSY you can see that the stock is $1.72 and I'll give you an insight of why I don't trade penny stocks anymore.
For example if you look at the amount of shares traded we have three point three thousand shares traded in at the highest peak or averaging we’re averaging around 30,000 shares so far as to really trade let's say sixty thousand dollars’ worth of this stock I would just move it way too much because you know your average volume on a day-to-day basis I mean you're looking at twenty three thousand shares and 23,000 shares times $2 you know even 25,000 shares times $2 you're looking at $50,000.
The stock really is moving on $50,000 of capital on a day-to-day basis same thing with some other stocks like this so if we take a look at let's see where is another one, PIP so here again $1.70 for this stock trading 32,000 shares so you know with the capital requirement once you start trading you know $100,000 portrayed you would just move the stock too much.
That goes the same with stocks like this APT which are trading 15,000 shares today and at $2 then we got LEI so what happens is the larger your account grows the more you need to trade to capture that move and as you start growing your account size, trading lighter stocks like this or stocks that trade light volume it's going to be very difficult to get into them and also get out of them. You would just move the stock too much and what I mean by movement is take a look at this movement right here when somebody gets into that stock and they trade a large amount they move it and then probably that same person is trying to get out of it, it pulls the stock back down.
So this becomes problematic and as you start trading larger you'll probably want to do the same thing as go to a larger and more expensive stocks unless you get the liquidity so that's one of the reasons why I don't personally trade penny stocks.
I think studying charts is fantastic because of the manipulation that happens. I think you can learn a lot and you can see some spikes on why stocks moved away that they move so there's a lot of great learning lessons and I enjoy studying charts that's one of the reasons that makes me better, a better trader, better investor is by studying a variety of charts and movements and behaviors but I still think that penny stocks do have their place in the trading environment and there's a lot to learn from it.
They do have some great advantages for example you know if you're looking to trade just a thousand or two thousand shares you know five thousand $10,000 account it's fantastic because the runs that you can get the pops that you can get the percentages that you can get are phenomenal. They're great but you have to really be mindful and be aware that there is manipulation that happens.
In either case if you're looking to study some charts about penny stocks looking to get a lot of insight about my thoughts on Penny Stocks I also have a 1015 page intro there as well the talks about the advantages and disadvantages and things to watch out for regarding penny stocks then take a look at this book it'll probably be up available on Amazon by Monday or Tuesday and definitely by Thursday next week's Rapid Recap and you can take a look in and check that out when you get a chance.
Now as far as this week's lesson I do want to cover finding a hot stock to trade versus finding your technical pattern to trade. Before we get into this I do want to take a look at the quick market and some of the other stocks that we have been watching trading and looking at. So really overall the market when you look at it and break it down you can see that we're coming up to this level and then we rejected it now we're trying and attempting to bounce again but we're doing so on lighter volume.
For me you know it doesn't convince me on these moves until we really get some huge surge and influx of volume and some good movement. Now, does that mean I'm holding on to my positions if my stops are hit no I do not so some of you know that we were short the banks and the financials in the past the last couple weeks.
When we look at things like WFC such as Wells Fargo so you can see in this chart what happened was that this stock and a lot of the financials in fact are bouncing right now so they're bouncing right here and they’re pulling the market higher.
You got Goldman Sachs as well that's moving here on this bullish engulfing barn when things engulf the charts like this you're out there is no ifs ands or buts you simply get out and that is because you don't need the risk and even if you got into this stock way up here at the top you're still out. So make sure you're sticking to your stops rather than hoping praying. Stick to your rules and stick to your plan and then you'll be in a better situation with your trades and your account.
We also have Bank of America popping heavily so again more financials doing well so mostly you know I was short over here in this level and then we added to the position over in this area so you know you take some profits here and as that stock now comes back you get out. If your stop is right here you're out you should be gone take your profits move on to the next stock. So that's what you should be doing in terms of if your trading financials and this goes with GoPro this goes with Tesla, this goes with Apple with Amazon.
All those different stocks if you're looking at these different stocks and you have a stop and you're moving and adjusting your stop something is wrong so if you’re adjusting your stop you shouldn't be in that position. Le t's talk about finding a hot stock to trade versus trading a technical pattern.
A lot of people that I talked to in terms of email people who email me people who call me on the phone and we just do a brief discussion they're always looking for the next hot stock or they're looking to ask me what I would do with let's say CMI or what I do with Tesla, what would I do with Alibaba.
They're asking to find the next hot stock and looking at things like that is typical and traditional and that's not necessarily to say it's bad but if you are trading and if you're trying to become active in the market you don't care what stock it is and I know for some of you may be just starting to watch this Rapid Recap that haven't watched some of my previous Rapid Recaps you might be wondering what is he talking about.
I want to trade stocks I want invest in stocks and you know that's how you make money is by investing in stocks and in theory, yes and at fundamental level yes you’re trading the stock but if you're a trader you don't care if it’s Alibaba, you don't care if it's Apple, you don't care if it's you know Caterpillar you don't care if it's Harley-Davidson you don't care which stock it is and you don't care which direction it goes in which you care about as a trader is the movement and the action you care about the pattern the pattern that you're comfortable with to trade.
For example if all you know in technical analysis is the moving average and you only know how to read the weekly chart here's what you would do you would wait until a stock breaks that moving average right here and you get in it long when it breaks the moving average again to the downside you get out right there and you would ride that stock.
You keep things simple and you would trade the technical analysis you don't care if it's Apple you get into that stock when it gets into that moving average let’s say where ever I was moving average and then you would get out right here when it breaks the moving average.
If it's Netflix here’s our moving average, breaks it or bounces on it you get in it and you'd get out when it breaks that moving average so if that's all you know then that's all you trade that's the only way you trade. If you're looking at support and resistance this is the one I was going to give an example of McDonald's looking at this resistance line if all you know is a straight line support and resistance then these are the stocks you're looking.
You're looking for support and resistance and when this stock is coming up to resistance and if it breaks it on heavy volume or breaks it and you see it if that's your system if that's your trading system then that is the way that you should be trading then you're looking for these patterns you're looking for straight line pattern.
CSX look at this pattern here is the weekly here's the monthly look at this we show weakness coming down on this bar, weakness here and now again there's weakness. You're waiting for this break of this bar.
Look at this one how this one worked out for you Walmart. If we're looking on the weekly here's the straight line pattern stock broke right here if you shorted it. Boom! What have you been up right here $70 shorted it and you'd be up 10-11 points. Right here sixteen percent on your money in just two months less than two months. So if you only know straight line patterns then that's what you trade if you only know moving averages then you get in you know right here at this area and then you get out right here so you'd be long for that period of time.
Again trading the pattern and the technical analysis pattern that you know is more important than looking for the high stock I know that a lot of people they want to trade the hot sexy stocks they want to trade the stocks that you know oh it's Apple are my goodness it's just got great phones or they talk about the GoPro. The cameras are phenomenal and yes the cameras are great but investing in something is a lot different than looking at the product.
Investing and trading is a lot different than just looking at the company, it's also about reading your style of trades so you look at the company you look at the fundamentals that's not to say you ignore the fundamentals but if you only know one way to trade you trade it based on the technical simple version for you rather than trying to do every single different type of trade and you know somebody mentions to Alibaba then somebody mentions YELP which is doing horrible.
If you only know a technical pattern you can do really well with one technical pattern as you start getting into longer-term investing you know you have to look at things deeper you start putting more and more puzzle pieces together this is just a starting point this is just a starting point for you to trade and then as you start building on this you start adding your moving averages you start adding these things together.
Look how this plays out here we have a 200 day moving average here’s our upward supporting trend line and its rejecting right there at the upward 200 day moving averages. It’s rejecting prices there comes back to it rejects it so you start adding a second piece together and you could have done this with other stocks.
Wells Fargo, we talked about this one. Boom! there was the move so if you got into this move right here when it was breaking initially on heavy volume all the way down here would you be psyched out right now that the stock is popping a dollar? Popping a dollar and you're all the way up here at 55 and it's at 52. No! you don’t worry about it you’re not worried because you took profits down here you took some shares off that’s the system, that's the plan.
Goldman Sachs the same thing here's the upward channel pattern or the upward support pattern breaking continues and now it's popping hiegher, popping higher quite heavily $6 huge volume I would step out. I wouldn't wait to ride it back up here to the top that's not something you want to do but if you're looking at a pattern, patterns specific thing you're much better off you just cover-up which stock or which thicker it is and now you can start looking at exactly the pattern.
The patterns that work in your favor and why am I saying okay ignore the company I'm only saying this as a little drill as a little exercise for you I'm saying don't worry about the company at the beginning because your mind is going to be going crazy in a lot of different directions initially especially if you're just starting out in trading you’re going to think about the company. You're going to be thinking about the products or the services that they offer who they are especially if you bank with Bank of America, if you bank with Wells Fargo you’re going to be thinking about these companies and the services they provide.
You’re too emotionally attached,once you can get out of that habit you start putting other things into perspective then you start looking at the financials the products the GoPro. Yes, it has a great camera it has a great functional business model but is that also going to be great for investors? It’s going to be great for traders then you go into the next level. Is it healthy right now?
How are the investors trading the stock now? So maybe it has great fundamentals maybe it has great cash flow maybe it has a great product but what are the investors doing. So if all those other three things at the beginning are fantastic but then the investors are not stepping in then why would you step in? Why would you step in if all the other big investors aren't stepping in?
That means the company isn't going to have money to invest in the future because as you're buying shares the company has money it gets money to invest into future products, services, development and so on.
If you're not convinced that the investors are stepping in why would you step in so at the beginning looking at just the initial technical analysis pattern that works for you learn to trade those simple patterns whether it's just a straight line at how many times something hits and I'm trying to keep this really simple because we can get more complicated into evaluating how much they come into the swing point, how fast they come into the swing point, how hard they come in, how hard they bounce and then when they take amount out how long they're supposed to be consolidating.
All these things we need to be watching very closely. Let me summarize this for you. Do I look at the fundamentals? Absolutely. Do you want to look at the fundamentals? do you want to look at how the stock is doing? Absolutely, unfortunately when you’re new when you're beginning trader in the market we get too attached to the names. We trade the stocks that we know as companies because we've had relationships with them so if you're looking to build up your technical analysis and trade correctly the right way and things that are more favorable for you it is better to learn to trade one or two patterns that work for you.
There's tons of stocks out there that many people are making a killing off of many people are making hundreds of thousands of dollars off of them but I don't trade them and there's plenty of other stocks that I trade that many other people wouldn't even touch and why is that? Because there's certain things that work in my favor certain trades that I like to trade because they work for me.
You need to find which technical patterns are going to work for you, which ones are you comfortable with are you comfortable with you know shooting the two-point shots the foul shots or the three-point shots if you're playing basketball, what area with distance from the left side of the court from the right side of the court.
Are you better at blocking? Are you better at dribbling ball or handling? What are you good at so you need to find your edge and trade the patterns that work for you and if you only know one pattern that's perfectly fine then trade that pattern until you learn more and then you can trade another pattern.
Now why is it that I don't trade the other patterns? Well number one because they're not profitable for me. I tend to lose many times if I trade stocks and patterns that aren’t profitable for me, that aren't in my favor if I don't see the pattern if i don’t see the investment reward I don't trade those stocks. It's kind of like if you're a fish would you be living in the desert?
Probably not because there's not a lot of water there, on the other hand if you're a camel would you want to live in the ocean? Again probably not it just doesn't make sense it's not favorable to that environment. It’s not favorable to the lifestyle that a camel would want to live, it’s to live in the ocean.
The same things here what you want to do is find a pattern, find a technical analysis pattern that works for you rather than getting attached to a stock emotionally attached to their products to the phones that they make to the banking provider that you have and I know this is the initially what most people do but go beyond that especially if you want to be consistent at trading you want to go beyond that and then later to start putting more and more pieces together rather than asking for the hot stock which stock is going to go up or which ones going to have you know FDA approvals or traded on the news.
Of course all those things you put it together so if you're looking at Wal-Mart let's just say since we have this chart up you're looking at it and you're saying okay how are Wal-Mart's financials how are the product selling? is the company profitable? If everything right there looks good on the balance sheet for you because there's a lot of things I look at before I even get to the charts.
If all those things already look good then you go to the charts now you wonder what are the investors doing, what are the big multi-billion dollar investors doing, what are the CEO's doing and this is what the chart tells you this is what these patterns tell you it also tells you what the other retail investors are doing and right here when the stock broke you can see that it broke right here.
It tells you the investors are getting out they don't want to invest in Wal-mart anymore especially right here, here is the spike this was the area where investors started to get out and now the stock is selling off. Is there going to be a point where the stock is going to be favorable again to invest in? Of course more than likely this is going to happen because stocks, what will they do? They move up, power higher they consolidate, they power higher again or they sell off after they consolidate.
Look at what happens, look at what happens to the stock they power higher pullback things get favorable again they get back in things sell off again then they get back in again they sell off again so investors change their mind and when you look at these charts you are looking at what are most of the investors doing what is the global view of that company from the investors side and this you're doing after you've already done your evaluation analysis of the stock of the company itself.
Now you're looking at the pattern because all the companies that I'm already looking at already have great fundamentals, great financials and so forth and those are the ones that I want to be trading and now I'm just looking at what are the traders and investors doing for the longer term. Now yes from time to time I will get into a stock or a trade just for the short term where they may go up or power higher for let's say a week or two because you know it's unknown company or the volume is there or just the technicals look good to me.
Yes I will trade some companies from time to time based on that but in general look at not just the company on what they do whether that's a GoPro but look at also what the investors are doing, if you only know one way to read a chart with the straight line hitting these different swing lows and swing points if that's all you know then those are the ones that you should stick with find patterns and there's plenty of them.
Look at McDonalds here there's a straight line multi-year straight-line the stock is trying to break higher Wal-Mart just happened right there.
You got CSX right here building nice straight line you look at the monthly there's our straight line you can see it. Now it can bounce here that doesn't mean it's going to be shorting here but it can bounce so you can play the bounce or you can play the short.
See how things come in how is the speed of that so then you start building in adding to your knowledge and your analysis but rather than just looking at the company and how good it looks you know what product it's selling look at the pattern, stick to the patterns that you are comfortable with that why oh you that are in your favor rather than asking or trying to find that next hot stock because this pattern right here might be boring. Even a Wal-Mart pattern might be boring but what could you have made.
Here's the TripAdvisor here's the pattern their consolidation pattern and if you would have shorted the stock for me is the short side right here at these points that was your opportunity to short the stock because you know it's a straight line pattern there's resistance so you short the stock.
Now of course the stock we were preparing to short it right here again we didn't get an opportunity to it because it bounced we knew that this could happen. So it could bounce or stocks power higher because what happened here, here it bounced and here it bounced as well. So you’re paying close attention to the pattern to behavior of traders.
GMCR same thing here is a straight line pattern and if you got into the straight line pattern you would have made 60 points in three and a half months 50%. I don't know where else you can get those kinds of returns but that's phenomenal so focus on trading the patterns the technical patterns that are in your favor and not the hot sexy stocks choosing them simply by name.
Always watch the fundamentals of the company I had a time so that way you can filter and get rid of the 95% of the other stuff that you don't need to trade it’s kind of like walking into a grocery store when you walk into a grocery store typically there's a lot of junk food in there there's a lot of things that are unhealthy and I want to stick to the top 10% of the food.
The food that's most healthiest in that store so where do you hang around the greens the veggies hang around in that area so that's what I want to do in the stock market as well I want to hang out with that top 10% of the company's or the top 10% of the foods or companies that are in my favor.
Then the ones that look good then you get into more specifics like looking at a peach you start squeezing it how hard or soft is that peach. You start looking at you know Apple's you start looking at bananas how green or ripe are they. That's the same thing here now you start looking at patterns, technical patterns and how they are how strong or weak are there how are they coming into the swing points. You start evaluating this.
I hope this recap was helpful gives you some insight to sticking to things that are in your favor the patterns that are working for you and then your favorite. If you haven't found your patterns to keep , keep it simple keep it in a straight line and then eventually evolved you'll add more things to your arsenal to your weapons list or to your toolbox and then you'll be able to use those things as you get better and progress as a trader.
Thanks for joining me I do want to let you know that Penny Stock Book coming out here in about three to five days it will be available for print it's going to be in black and a white. Next month we will be focusing on adding a lot of these other books into eBook format and so forth one of my assistants helping me out with that she does a fantastic job with all of this.
She's handling all that and we will start releasing these overtime in eBook format and basically I have some business things that I need to take care of for the business consultations and things that I do and once those wrap up with the business projects that I'm working on within a couple weeks we’ll be focusing only on that options course and that options course is going to be very big very massive and that's going to be my main focus.
If you're looking for an expected release date for the Options course I can't promise one right now so please don't hold me to what I say here but my goal is probably right in early January. I would hope to do it ended December but unfortunately with December we have a lot of holidays and you spent a lot of time with the family so I'm not sure if things would get done by then but January would be my projected estimated goal if things run late and the course becomes bigger might turn into early February or sometime then but otherwise that's basically my main project right here.
Once this book was released after we take care of a few business things, thanks again for joining me I hope you truly enjoyed this recap it's always a pleasure definitely a pleasure doing these recaps because of what emails and success stories that I hear from you guys.
You know I don't have to do this this this isn't something that I really have to do I could also just read a bunch more books I probably read thousands upon thousands of books on different subjects to human psychology and I could do those kinds of things out but you know for me I enjoy the connection aspect that's it's fun for me it's great way to connect with a lot of other people and to hear the light bulb to hear the success stories and the phone calls of gratitude that I get that's just rewarding and I guess I'm a sucker for education.
I started teaching about fifteen seventeen years ago in the martial arts I don't know if I shared the story with a lot of you but when I first started martial arts basically just like a little kid and you get better at martial arts as time goes on and eventually up to take on more responsibilities so by the time I was 14 to 15, I started doing a lot of assisting and teaching and helping out the instructor and from there I taught martial arts for about ten to twelve years.
Then the next four to five years actually ran my own dojo but we didn't take on any new students after I was given that dojo because my instructor wanted to retire. I just said ok we'll work it with the new students and we'll just teach them as far as things go and that's really where I got my start with teaching.
We all have different places where we start and if you're just at the beginning if you're just starting the trading journey at the beginning don't be scared just take it one step at a time one in front of the other and you’ll get there but there's a lot of steps that you need to do to get to the destination and the destination is never-ending you going to keep going and you going to keep moving forward so long as you keep walking or moving your feet or crawling if you got to crawl there then crawl there but keep moving forward alright thanks again I'll see you next time.