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There are a lot of things in this world that play tricks on our minds, so there’s a lot of things that we see as one thing, when really they are something completely else. Or maybe our initial perception or our subconscious transforms our thinking of what we’re actually seeing, or what we’re actually thinking into something else.
The eye typically works in this way as well, we have light that hits our eye socket and then you have that light that bounces back, hits the nerves and it’s a projection of the thing that we’re attempting to see, because light is bouncing off the object, comes back, bounces and hits our eyes and then those nerves transform it into an image. So really we somewhat get a distortion of what’s really out there or what’s happening.
There are a lot of tricks that get played within your own human mind, between what you see visually, between what you initially perceive and also then your own previous experiences also have an impact on what you think and believe.
Welcome to episode number 69. I’m Sasha Evdakov, it is January 28th 2016 right now of the let’s talk stocks session, and in this session what we’ll be talking about is a trick to finding new patterns and to read stock charts slightly differently.
I’m going to give you a little technique and share with you some insight to using this technique to finding new patterns and read stock charts slightly differently.
If you’re joining us on the podcast, you may want to go ahead and watch the video here on the -YouTube channel at tradersfly.com or just go to the tradersfly.com website and then just pull up the video for episode 69, because we will be doing some exercises.
But if you’re driving in the car, then just follow along as best as you can, and then do the exercises when you can or have a moment, or at least visualize and understand what’s going on and what’s happening as we go through the lesson.
Society programs your mind
One of the things that I’ve noticed over the years is that we all have a conscience or subconscious that kind of goes deeper into our minds and it starts playing tricks on ourselves.
This is similar to how society programs your mind, there’s a lot of programming that happens out there in your mind and in your brain, so as you start looking at a lot of different ads, as you start looking at products, you might have this social habit that becomes programmed into you from your friends, from your family, from other people that tell you what’s right, what’s wrong, what religion to go to, what you should eat, what you shouldn’t eat.
It’s kind of like right now we are in that gluten free diet and everybody is looking for gluten free things, whereas 10 or 15 years ago, I didn’t hear of any such things, but now you have these new craves.
You also have these new craves for different workout systems, or fitness. From the TRX, straps, to bands, to the cross fits.
There’s a lot of new things that come out into the market place and as you start integrating into society, many people will tell you that this item right here is not really the optimal thing for you. You should go ahead and try this.
And we get programmed into this because of society, because of our social interaction. Humans themselves are naturally social. And we slowly start changing course into another direction, or we start believing what someone says, or what someone tells us.
And not to say that this is a bad thing, they’re not intentionally doing this to harm you. But it is not your own pure, natural choice. So if you think about it, when a baby or a child is initially born, and if he was raised kind of like Mowgli in the jungle book, or in the jungle, then you give them a choice at let’s say midyear of about age 15 or maybe 20, what religion they would choose, or which religion they would follow, you might get all sorts of different answers.
However, as we get programmed into one way or another, or pulled into other directions, whether that’s from our family, whether that’s from our friends, or whether that’s from the advertisements that we have, whatever it is, we get pulled into various directions for all these things.
And the stock market kind of applies in the same way. As you start listening and hearing these things through the news medias, through looking at the company itself, you start to wonder, “this stock is stock x, y and z”, or because it’s Facebook, or because it’s this company, it’s can’t, there’s no way it could do this. Or it’s just unlikely, I’ve got to go big on this one, or there’s no way I would trade that stock.
Don’t fall in the fantasy world
And as we start looking at stock charts, they also start playing a little bit of a fantasy role in our minds. A fantasy role of “Oh well, if the stock goes up 5 more points, then I can buy that new jet ski I wanted, or I can buy that new video camera, or I can go ahead and buy that new computer, and then I can trade more”.
And we start getting into this fictitious world of “what if”, and it really starts to change our risk management profiles. And we start looking at the charts in a way that’s biased.
And when you start doing that, it’s really detrimental to your risk management and to your trading in general.
What I want to do with you is share with you an exercise that I’ve incorporated over the years at least to teach some things with the people that I’ve mentored over time to look at charts slightly differently.
This exercise, of course, is just a sample of really how deep I take things, because we do go into even deeper things, as you go through the exercise, and you’ll see what those things are here shortly. This exercise is just there to help you see things a little bit more natural, without that much bias.
Do what artists do
If you have studied a little bit of art or painting, or know about how people do their drawings and have done some of those things, you know that a lot of the basic courses or the fundamental things that an art teacher will tell you is to draw this picture or this item upside down.
For example, if you’re drawing a tree, you may flip that tree, that picture of that tree upside down and then you go ahead and draw it. And the reason for that is because we’re so used to seeing trees rather than seeing the tree that we’re actually drawing, we would draw the tree that is actually in our mind. And the same thing happens when you’re drawing a dog, when you’re drawing people.
Many of those artists that are really good at drawing things into detail, they see the shapes of how they are, and they’re not biased to what their mind is telling them to draw.
They look at the shapes and they mimic it, or they replicate it. Some of the fantasy drawers, they make an object in their mind and then they draw that object, rather than transforming it into something else. Like a creative vehicle, or something outer space.
That’s what you want to get to when you’re looking at charts. You want to get into that none biases state where you can start looking at the chart with a very neutral opinion.
With a very neutral mindset, similar to how if you were raised by a pack of wolves, or raised in the jungle, whatever helps you see the picture clear, use that to your advantage, and that’s what you want to do. So you want to use it to your advantage.
Flip the charts
The exercise that I want to do and share with you is just simply taking a few charts and what we’re going to do is put these charts up on screen, and we’re going to look at them slightly differently.
What I’ve done here, I’ve copied a few charts over here, and what I’ve done is took these charts and just extracted them. I just extracted a picture of them. So what we’ll do is we’ll go ahead and flip these charts, and then we’ll take a look at the charts.
Notice, because I flipped this chart or rotated it a few degrees, this is the windows photo viewer; you can use a different program if you want to rotate them, but we just rotate them 180 degrees, and because we’ve rotated them, the chart is actually backwards. You want to read it from right to left, rather than from left to right. But you’ll get the exercise and the point that I’m trying to make here. Because what we’re going to do is start looking at these charts and looking at them in a completely different way, and start looking at some patterns.
Find the patterns
Here in this example, what I have is, I actually have the Facebook chart. And as we start looking at this Facebook chart, we’ll start looking at it from left to right. What I want you to do is start looking at this in a different way. I want you to start looking at again, the patterns.
I want you to start looking again at where is the volume, I want you to start looking at what are the patterns that are being created, such as the lines of support, the lines of resistance. And once you start doing that, it’ll allow you to see things just may slightly differently. And some things that maybe stick out.
For me, I’m just going to look at the chart and not really worry about the company or what I remember about the company. But I start noticing this little volume spike over here, I notice this volume spike here. I’m also noticing this volume spikes, I’m pointing out some of the volume spikes right here.
One thing that I’m also noticing is, I’m noticing somewhat a descending volume pattern right here, and then slightly ascending and again descending and ascending. I’m slowly pointing out a few things that I see in the chart.
I’ll also start looking at some support and resistance lines. For example, if we start drawing some lines right here, you’ll start to see some of the things that are going on over here.
And if you struggle, looking at these support and resistance lines on the real chart, sometimes flipping it upside down really starts to help. Because you start to look at it without much bias, and you’re really just looking more on patterns, rather than you’re looking at, you know, the stock and what it’s doing and what people are talking about.
Don’t look at the name of the stock
For this one, for this example, I just briefly looked at Facebook right here.
But in this next example, what I want you to do is not look over here in this lower area of what stock it is, and we’ll just go ahead and just start looking at the patterns, the shapes what it’s doing and what we project based on the pattern.
Here, in this example, I’m just going to go ahead and take out my pen tool, so what I notice is, right here, right away I start noticing some of that… I look in the middle of the chart. My initial focus is the middle of the chart, because I want to see what it’s doing, and I start seeing what it did and then where it’s going.
And we’re reading the chart in this way, ok? So we’re reading the chart from right to left, rather than from left to right, like we normally do.
I start looking at it from the center, and looking at the big picture, and I start looking at some channels. What’s been going on with some channels, and then what is it doing, what is happening right now?
And now I start looking at some volume, so I’ll start looking at some volume, so here’s some volume, here’s some other big volume.
I notice there’s a little bit of a weak volume, a little bit of a curved volume right here, and a little bit of a curved volume right here. So I start looking at that volume that has some curvature. We have a few spikes over here as well.
Look for the swing points
Once I start looking at this, I’m trying to find where are the swing points, and I see the tops are right here.
These would be my swing points, and then this right here, these are some peaks right here. Those are some swing points, and those are some swing points right here. So we start putting our areas where those swing points are. And I’m starting to get a better understanding of what that chart is doing and how the chart is starting to look.
Unfortunately with this one, I can’t really flip it right away with all these drawings out, unless, actually what I can do is save it.
What I’m going to do is I’m starting to do and see that there’s a little circle here as well. I’m going to save this chart, I’m going to pause the video, save this chart, and flip it for you and that way you can see how it looks back in the regular view.
Flip the chart back to its regular view
We’re back on the chart, and now we’re flipped, and we start looking at it, and you start noticing that this stock is Goldman Sachs on the weekly.
And you can see that our projection, actually the way that we start looking at the chart, actually pans out really well. And you can see and notice some of the critical swing points that I marked. So now what I want to do is start drawing these areas and start taking them into account.
Notice that right here I’ve circled this volume area, I’ve circled this little swing point over here, and we have another swing point in the February area, we have a swing point in the October area, we have a swing point high in November, this swing point high in July.
Reanalyze the chart
In this way, I can now start creating or relooking at the chart and start seeing what the support or the main critical line of support is.
Looking at this chart, I drew a yellow support line at that 170 and since we broke this 170 region right here, this to me is saying that there is a major support and resistance line at that 170.
I’ve also noticed that there is a slight head and shoulders pattern on this stock, which I didn’t really noticed before until now, I start looking at it and start flipped it.
We have a little shoulder over in January 2015, we have a head over here in June and we have another little shoulder in November, and then that stock continued to go lower.
And those of you who reviewed the blue course for technical analysis, you know that that’s the head and shoulder pattern, it’s typically bearish.
We also have this major swing point it 2014 of April and also a little swing point in September of 2013, and what I want to do is I want to see if taking this all the way across, could become support, and right now we’re slightly bouncing there, which is around the 150 level, and it could be, but if it breaks this could also turn it into a heavily shorting position, or a heavy area, where you could short the short the stock if it breaks again.
You could dig deeper into it and get into further analysis, but that’s another way to take a look at the stock.
Let’s look at another example
Let’s go on with this process, and let’s take a look at another chart. So again, what I’m going to do is do the same kind of thing, and I’ll just start drawing something. So I’ll look at the swing points. I’m looking right there, there’s a swing point here, and it looks like a 09, so in 2009 there’s a swing point.
We have another swing point over here, I’m just identifying some swing points, where the stock changed direction.
There’s this slight little support region here. A little support level here, we have some highs here. So I’m starting to mark all the support and slight resistance levels where that stock changed direction. And then what I want to do is go ahead and start creating some channels lines, so I’ll start looking at some channels lines, and I’ll start seeing, what is this stock doing? How is it acting or behaving? And how has it been moving?
There’s a few of my channels, as I continue to draw these channels. Some are not perfect, so I’ll go ahead and redraw those, and then I’ll start looking, also I’ll look at volume at those swing points, so how is the volume at these different swing points? Was the volume high at these swing points or low?
If it’s high, like our swing point in 2009, I’ll go ahead and circle it. In the 2005 - 2006 swing point, we have weak volume, so maybe that’s not as important. That might not be as important, it’s all relative to how the other volume in that region is, so here we have an increase in volume, and here we have a decrease in volume.
We start looking at all these different volume shapes that start becoming and creating, and we just mark on the chart. You can just draw on the chart, they’re your charts.
And as you start drawing on them, I’ll go ahead and save this little diagram again, and then what we’ll do is we’ll go ahead and we’ll flip it back, and then we’ll take a look at it.
Let me open it up over here on this side. As we open it up, and now I can go ahead and flip it. So there it is, it’s opened up, now I can flip it back, so you can see, this one was IBM, and you can see we have from 2006 to 2007 and 2008, we had a slight little pop, then we had a little pull back.
Which was a major turning point in 2009, because we have that volume spike in 2009. And then we had decrease in volume.
That means the stock was running to the upside with less fuel, and now as we sell off and pull back, volume is slightly starting to pick up but not anything major.
If it was major volume, I could see it coming back to maybe this level. Something like the 75 level, right now is at 122.
However, because it’s not major, maybe what we can do is get to this region right here at this level, and that’s where we’re at right here.
And I call it a region or range, because we have a few swing points right there, at the 120, 130 level, and the 120-20ish level, and we’re starting to approach into this next support level.
And if we break this next support level of this 120 level, which we’ve already kind of touched it a little bit. If we break that, you could probably see the stock come back to this 75 level that we marked on the chart.
There’s no need to complicate things
And you notice how easy I drew these items, I didn’t make anything complicated, there were no fancy indicators to tell me which direction the stock is going, up or down.
I’m simply looking at the direction; I’m simply looking at which way that stock is turning its head. Is it turning to the left or to the right? Is it turning it to the up or down, is it looking up or down?
That’s all I’m doing, I’m just looking at these different levels. And I start looking at where these little hash marks that I drew on the charts start connecting.
Once you start looking at these charts in a non-bias way, it really starts to allow you to see the support, the resistance a lot differently. It allows you to look at charts without bias.
Do your homework
And that’s why when people start telling me or asking me, Facebook had earnings, or IBM had earnings, or Amazon had earnings, what are you going to do? Are you playing it today? Are you going to the upside? Are you going to the downside?
And that tells me they didn’t really do their homework. You don’t have a plan in mind for your personal trade.
Instead, what you need to do is start putting in your homework and start doing your homework for these different stocks. Because if you’re trading based on just simply what I do, it might make your head spin, because my risk profile and my risk strategy is probably different than yours.
For example, those of you who wanted to trade amazon for today, or traded amazon and saw a spike, right now it opened at about 60 and it popped 52 points.
Right now if you look at it, we had earnings coming out, and with earnings it’s down 78 points. So we pop 52 and although that was phenomenal pop, then we had earnings and we’re down 78. So you have to know what’s our risk strategy and how does that chart look.
And those of you that have been following me and have been in the charts, you know that this was that support line that we’re watching, and in part you can get this by looking at the charts in a unique or different way.
I think I have amazon in here, as well somewhere. So here’s actually amazon that we have in this reversed or upside down charts.
You can start looking at it, and start marking these things, and you start taking a moment to evaluate these patterns, for any stock you do.
Whether that’s apple, like this one, we’ll just go through it real quick now. So you see like a slight little curvature bottom here at 2013.
You see and upside and another little curvature downwards. So now you’re kind of slitting to the downside in this stock.
And you start getting a little picture, and we’ve analyzed this one before many times.
There’s the Netflix right here, that I put in. So the Netflix as you start looking at it, this one, because it moves and it hops around so much, you start seeing and spotting a lot of different things.
But you start noticing these two tops that are right there, and that is a fairly solid area, and for me, I wouldn’t go long this stock until this area breaks, which right now is about, you know, I can’t see the exact price, since this is a picture, but it’s around that 134 level, 133 level, 135.
And you start evaluating it, and then you’re looking at this, this kind of creates a support resistance area right here, because here we have a major point at September, and you have this little volume bar, and you had a pop right around May - June. And then you draw that across, so as we draw these lines across, it creates that line of support, and if that line of support breaks, at right around, let’s see, that is about 88, then that stock could fall further.
Now I can go ahead and apply this to my real charts. So I go and I pull up Netflix, so now I’ll go ahead and draw this line out, there it is, and then I can look at this swing low right here, right around this level, draw it across, so we have this range or region that we’re watching for that break.
The highs of that swing point was 133.27, so until that stock hits 134, 135, I would not even trade it. And this is just what we did off of the Netflix chart right here; we’re looking at this line of support and that line of resistance.
We’re looking at those levels from just seeing it upside down. And it sometimes makes it easier to spot, because you’re looking at things a little bit differently.
Here is another stock example, which is actually MasterCard. So this one has had a fairly good run to the outside, but what you see is, you’ll see this little pocket here in 2014, that had a little pop, so that’s a swing point I want to take note of.
I also see a few little support points right here, or resistance, depending on which way you’re looking at the chart, you can see that that’s crating a fairly solid base, and if we draw it across, that’s a huge level I’m watching.
I’m also seeing that this little level right here, where that stock had a little swing and pop. And then that way I’m watching this level, and if that level breaks, which is right around 82, then I could short that stock, it’s a little more favorable to short, and you can draw it right here and see how that really looks.
If we take it back to the chart and we do MasterCard, so you’re starting to look at this chart, and you can go back if you lost it, you go back to that chart and you start reevaluating it. Ok, where is this point right here? Where is the point in October - November of 2014? Where is that swing high? And we’ll take the lows of that. So where is that? That’s what I’m doing.
I could take it to the weekly, so that’s right over here, so I’ll take this all the way across and that is the place where I would want to short that stock.
Of course you could do it a different way, you could’ve shorted it right here where it broke that channel, going to be upside, if you have a diagonal line moving to lower left to upper right, you could short that stock.
But if you’re looking at reversing the charts, this was a nice, clean line and we could get a potential bounce right here, depending on volume of course and depending on how the stock moves and acts and behaves.
Because this used to be a $700 stock, I remember back in the day, 7 or 8 hundred dollar stock.
Now we’re just watching this line, this $80 region for potential break, which could bring this stock right around this level, right around the $70 level.
That’s a little exercise that I wanted to share with you that you can do on your own time, and you start looking at charts, and if you’re new to the market and you struggle finding stock charts patterns, and you struggle looking at patters, similar to how an artist draws objects, he flips the portraits upside down to really get a sense of the shapes, to get a sense of what the picture looks like, rather than drawing what they think in their own mind. They draw the shape.
For you, what you’re looking for, and what you’re trying to evaluate is to look at the shapes themselves on these swing points.
You’re looking for what shapes the volume makes. You’re looking for what stands out, what stands out a little bit differently, what is getting your interest and attention? And what is it that then you can use to benefit your trade or your portfolio?
See things from a different perspective
Because sometimes you see things that you don’t normally see if you look at things with another pair of lenses or magic glasses.
And if you’ve never put on those magic glasses where they start transforming things or distorting things, that’s kind of what you’re aiming to do, to see things from another view.
And if you have a different view, a different perspective, it allows you to get all these perspectives and merge them together to make your trading decision. But again, these are still all your perspectives.
A lot of times in the real world, we get many other people’s perspectives, but it’s very rare that we get multiple perspectives of our own. And this is one of those ways to do that.
I’ve mentioned before that how I used to figure out my productivity levels by filming myself through the day and then just speeding up that camera and speeding up that footage, just to see where you’re spending time, wasting time or how you could really speed up certain processes, that’s another way to really see yourself from another perspective, and this is another way to see your charts from another perspective.
And the more ways that you can do this, the better you’re able to really see the natural state of what the chart is. You’re looking at the chart for what it is, rather than looking at the chart with a predetermined mindset, or with bias, of what someone said on the news, or what product they have.
The better you can get at this, and look at things ore naturally, look at things without bias, the better you will be at reading charts, the better you will be at looking at and finding patterns.
And that really just allows you to apply those skill sets into your own personal trades, into your own personal risk and reward styles, and not just the stock market, but also in real life.
You’ll be able to see things in so many different ways that you probably can’t even imagine. And then you’ll notice that when you start talking to people that have a limited perspective, you’ll probably start noticing that they’re a little more closed off and it’s kind of one of those things that slows down their own personal success, or their own personal growth.
Start looking at things with limited bias, looking at things from multiple angles, perspectives, looking at things from upside down, from lower levels, higher angles.
It’s like what photographers do, they get down on their knees, they look up, they look from the down area, and you’re looking at things in all these areas to find what is important, what’s the key, what’s the focus in these charts, between the swing points, between the support, the resistance, the volume, what are the important things that sometimes you might now see because you’re so used to looking at the same chart time and time again.