Lets Talk Stocks

Cup and Handle Stock Chart Pattern: Technical Analysis Ep 204

October 4th, 2018

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Take a look at the Cup and Handle Pattern

It is a reversal pattern and also a continuation pattern.

When you look at the bars, in a way create this rounding movement in a stock. Then what you'll do is it'll pull back slightly and eventually go out and break out into higher prices.

If you're looking at this on a tick basis, you'll get this movement that's a little bit up-and-down, but it's rounding the bottom.

When you're looking at the resistance level of this stock, you're taking these swing points of where this goes. You're making a look also of where the end of the cup goes and then what you have here is this little pullback of the handle.

That's what creates this cup and handle pattern.

Trend

Initially, the trend could be from the lower prices, and it could come up. Then you'll pause, and then you move higher, but it could also come from higher prices. Eventually, to change direction and go into higher prices, it starts and it becomes a reversal pattern.

If you're starting from higher prices and then you pull back, you round out, you pause. It's a digestion pattern, and then it moves higher, that would be a reversal pattern. A continuation pattern is you're starting at lower prices, and you're moving higher then the stock needs to pause. You pause a bit, you create this rounding cup and handle pattern, and then you move higher again.

That's what it looks like as far as just the basic cup and handle pattern is concerned.

When we look at the volume

Typically, you have the right amount of volume. Initially, right so this is high or strong volume, whether you're moving in an upward or downward. You have a reasonably strong volume because that's what creates kind of the move.

Eventually, that volume slowly starts to decline here in this cup and handle area. But, as you start moving in the next direction, sometimes you'll see a little bit of increase in volume picking up because you're just going to start to move to that next breakout point. When you look at this pullback of that handle, you'll see probably light or weak volume as well. And then again, as you move into higher prices and breakout, you'll probably see some more strong volume.

Sometimes, that strong volume can be more accelerated and just slowly gets there. Other times, it can just pick up very quickly because you're breaking above this resistance level.

Your entry points would usually be here. The standard is right above that resistance level. So that's the entry point. You could go ahead and get it as if you draw a descending trendline on this handle part. You could create an entry point here, but that's an early entry point in that area just because you don't know if it's going to continue moving lower.

If you're going to look at a projection

The projection is from that resistance level or that swing point all the way down to that base of the cup. You could take that and go from that next level of resistance all the way up to the top, and this could be your target of where that stock could move.

That's a projection.

You can see the pattern is not too complicated. All it does is slowly digest in a way it's like a sideways pattern. You're just moving sideways to digest the move.

The difference is you sometimes have some buyers coming in from looking at value. Then, other sellers are slowly selling, so there's not a lot of intense action in any direction. That's why it's just a soft cushiony found an area rather than booms like a quick bounce or an immediate rejection. Instead, it was much smoother and cushioned because there's not a lot of enormous action or news that happens.

If we look at it the opposite approach, an inverse cup and handle or an upside-down version

You also have the same thing that can happen right here as you have this upside down bowl, you have that movement there and then a further lower in prices sell-off.

This one is also very similar to the to the previous one. You have your support point here. Your entry point would be a break in this support so that would be your entry area, your target and projection are also from that tip or the bottom. Let's say this is our base and you go there you move that over. You're looking at a target in this range for the stock.

Volume, also very similar. Strong on the brakes. Breakdowns when there are massive movements. This one could even come from higher prices or lower prices.

Typically, it'll move this one when you see that cup and handle upside down.

You see that rounding top, and then it rolls over a reversal pattern.

I've seen it more of a reversal pattern than a continuation pattern. It can be both.

Socializing About Stocks is Useless : Mindsets of a Master Trader Ep 203

September 27th, 2018

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Today, I'm going to share with you a little bit of insight from my upcoming book - Mindsets of a Master Trader.

We're going into socializing about stocks. The psychology behind socializing stocks. At least a little brief insight behind it and why it's pretty much useless most of the time.

I'm going to cover four main points here:

  • My Facebook friends
  • Quantity versus quality
  • Look at introvert, ambivert, extrovert and
  • most conversations

Let's start with Facebook friends

I'll share with you the average or most people's Facebook friends or the amount that they start collecting. Let's say 500 plus.

As you start building and accumulating people, that number might go to 700, and it just depends who you consider a Facebook front.

The reality is that very few are going to be close relationships. Most of the Facebook friends are in the far distance, so they'll be over here, and you have a very limited or few people that you're actually hanging out with, talking with, making pleasant conversation with, discussing things in general about ideas, big picture, concepts to take you to the next level. Many of them are just connections that you've built over time, and it's just like collecting trading cards and playing cards.

Quantity versus Quality

When you look at the stock market, it's very similar that for a lot of people. You have to decide how many stocks am I going to own versus the quality of stocks.

What is more essential for you to - to have 10,000 Facebook friends or to have five close relationships or even one close relationship such as a significant other a partner?

Again, you got to recognize what is more important - quantity versus quality.

Is it important to own as many stocks as possible?

You'll probably want to be somewhere in a balance between quantity and quality. Here would be maybe quality because you're having little and there would be a quantity where you're just trying to add up as much as possible.

Introvert or Extrovert?

For some people, they want to be a little more active - they're extroverts. Maybe they're looking more at quantity or socializing more.

Introvert maybe a little bit more focused on the inside. That's when you don't want that many could be falling somewhere in between ambivert.

It's the same concept of Facebook friends, how do these things tie together? Could be more of your personality.

Conversations

As we socialize and we look at socializing, many of the conversations that happen in news reports and just a lot of things that occur about the stock market are pretty much useless.

With those Facebook friends, most of the conversations that you have with those 10,000 people are general conversation.

There's a famous phrase by Eleanor Roosevelt that says "Great minds talk about ideas average Minds talk about events and small minds talk about people."

If you look at the lowest form of conversation, you're just gossiping.

This is what's juicy.

You look at the news headlines, and they're gossipy. They suck you in.

If you look at those news reports as well especially stock market channels, a lot of them are talking about people. And people in the stock market world is stocks.

Let me bring you back to this point of when you're talking about stocks, and you're talking about people. It's because it's in gossip form. It's a form to suck you in to say hey this stock is hot, and this is a sexy stock. Why is it sexy? It's sexy because hey they got this new product coming out. This is launching next week. The earnings are great, the CEOs got this going on, and it is interesting because we're gossiping about it.

That's not great socializing. That's not a great conversation for you personally to help your portfolio, to take you to that next level.

What will take you to the next level?

Let's look at events

As we start taking a look at events, we're looking at history. You look at what's happened in the past. You're looking at what could happen in the future.

Now you're talking about historical chart patterns, maybe you're talking about what could happen in the future. What do they have coming out?

This is much better.

We look at this, this is much better because you're talking about what have they done in the past, how have they grown, and how are things involving these are events.

You're looking at a perspective of time.

What's the best form? Ideas

But you get very little of that on TV news channels and a lot of the reports that maybe have huge viewership.

Very few have ideas. If they do, it's a very small or limited amount. It might be a minute clip.

When we talk about ideas in the marketplace, we're talking about looking at a trade setup.

Here's a trade setup idea for you, this is how you manage it.

How do we make things better? How do we make things better for education? How do we make things better, so we have less poverty?

That's not an idea. It's more talking about people.

How do I do the trade set up? What would I do to take profits? Or what would I do to take losses? What is that set up? What is that idea? What is that situation going to do for my portfolio?

That's really what you want to focus on.

But the majority of the conversation is not about ideas - a majority of discussion in the stock market world is gossip. Just like it is in nine out of ten news reports and channels. It's about people.

Which, in our industry, if we look at stocks, it's about stocks. What's the hottest stock? What is the stock doing?

It's gossip about stocks which is the same concept of gossiping about people.

Then you get to events - which is a little better because now you're looking at historical things. If you can get and find the ideas, which is very rare, that is the best approach because that's where it takes your mindset to that higher level.

Beyond that, you're just really looking at tons and tons of quantity tons and tons of juicy gossip that sucks you in. Talking about those hot things that are attractive, that you can't avoid. But it doesn't take you to that next level.

It doesn't make you better in this space.

How to Read Stock Charts for Beginners w/ Simple Examples Ep 202

September 20th, 2018

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A Line Chart

This chart right here is a chart of Apple. We have price usually on the right or left axis, and then you have the time axis that's on the bottom.

This chart is a more extended data chart - from 2010 all the way to about mid-2018.

If you take a look at the current price, you line up today's date with the price. That'll give you about 218.28 for the Apple chart.

If you want to go back in time and see well what was a price at the beginning of 2016, you take a look go straight up to 2016, draw that line across and you can see the price was right around about $100 per share.

There are different types of charts out there in the stock market. You can look at data in all sorts of different ways.

We have an Area Chart

Very similar to what you saw before. It's just that things underneath are filled in.

A Candlestick Chart

This is the standard chart that is used in the market or what most traders and investors look at. That is because it gives you more data or signals.

What it does is it tells you in every single one of these bars the high, the low, and the open, and close. The way that it wiggled around throughout that period.

This is actually if we look at this, it is a monthly candle. So every single one of these is a month, tells you the lows, the highs, and where it opened and closed within that month or period.

That way you're not just getting a dot of where the price closed at the end of the month. Instead, you get to see the magnitude of the movement of wiggle room, also within that month. That's what it represents.

Bar Chart

The open, high, low, close chart example - this does the same thing. I find this is a little bit easier for people to digest when they're just getting started. Because if you take a look at this bar here, you can see we opened here. We got down to a certain price level, we got up to a certain price level, and then we closed over here.

It's an input-output model of where you start the movement, the wiggle amount, and then where it exited. That's really what the chart looks like.

Let's take a look at the Candlestick again

I want to share with you an example. This one is McDonald's also a monthly period.

You can see here we've digested from 2012 to about 2015-2016 moving sideways and then price took off. You can see where we went from about a hundred dollars per share, moved a little bit higher and then pulled back a little bit in 2017 and then again continued to power higher into higher prices. As we got into 2017 and 2018, it's just moving a little bit more sideways. We're digesting the move again.

That's how you're looking at chart and reading chart.

You can see periods of digestion, periods of acceleration, or movements higher. and it allows you to spot the price differences across multiple timeframes

Looking at this time frame and Tesla here, we have 2012 to 2013. You can see a digestion period at that time point. The price was right around $30/$40 per share. After 2013, we started to get a ramp-up at prices. Price got into these highs around September/October, and we were at about 180/190 per share.

We then had a little bit of a pullback right before we got into 2014. The price bounced, and we got into higher prices of about $250 per share.

As you look at some of these swing points, which are basically where prices change directions, you can see we're creating a support level or a support line.

In May of 2014, we've hit that support level of about 175. We did it also in 2015 right before May. We've broken beyond that support level early 2016 but then managed to get back above it and then right around late 2016, maybe December time, we've hit it again to hold that support level.

You can see how stock charts are convenient to see - where is that supporting price level. You can also see some resistance levels as well - where are the stocks struggling a little bit at higher prices.

Here with Tesla, you can see again around September time of 2014, and we're hitting higher prices of about 275 where the stock struggled again in 2015 about May/June a timeframe and then also early 2017 as well. It gives you an indication here of how to look at the chart and read the chart.

In simple terms, you got a price on one of the sides, usually the left or right axes there, and then you have time on the bottom side. Then combining these, it allows you to match up the time with the price, and that'll give you an indication of what the price was at a certain period.

If you're looking at bars or candlesticks, it allows you to see how much wiggle room was there for that period. For example, a month or you could do this also on a daily basis.

If we're looking at Amazon on this chart, you can see right now we're on the monthly timeframe, but I could change it to a weekly. Now, you're seeing Bar is a week or on the day, how much wiggle room was happening in the day period.

3 Different Ways to Scale Into a Stock to Manage & Reduce Your Risk #201

September 13th, 2018

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Today, what we're going to do is take a look at three different ways to scale into stocks. There are many more ways than just these three ways, but I want to show you three different ways to think about scaling into stocks or scaling out of stocks.

What scaling do?

The whole point behind this is to reduce your risk because you don't know if that stock is going to continue heading higher or continue heading lower. So, you break these things apart from your entry positions that way you hopefully have a better average.

The disadvantage is while if the stock continues heading higher into higher prices and it works in your favor, it would have been better to buy all your shares at the beginning because then you could get out sooner with a much larger profit.

But of course, in the other approaches, if the stock headed lower, it's good you didn't buy that many shares.

Linear Approach

Linear approach is stacking things on a linear level.

Let's say stock increases. I'm going to go ahead and do this 500, 500, and 500.

What you could think about, as you start looking at things in this way, is you could almost break these apart in different trades. This first trade, you don't have to think about saying this is where my out position is. Instead, you could think of your early exit, your second exit, and your third exit.

So, you tie these together to your exits. You're staggering your exit positions as well. So, you could break it apart that way as you start thinking about scaling.

One of the advantages to this is you have a linear amount at every single entry point, and everything's balanced. It's a right approach in one way because everything is working out okay to the upside and it's working out the same way to the downside.

Increasing Approach

This is the approach where you're testing the stock. When you're doing the increase method, you're checking to see that's not going to go higher. If it does well, you'll go ahead and add a little more. That's where you add in 500, and then you could go ahead and add in 800 if it continues and the stock proves to you that it's working out.

The advantage to this is you're looking at stock to prove itself to you.

The problem with this is all give and take. Not one is better than the other. It's just a give and take.

The problem with this one with an increasing method is that you're already at way higher prices and you have a much more significant share amount at higher prices.

The advantage, of course, if you didn't have a lot of risk at the beginning. You didn't have to put up a lot of capital because if that thing actually started to go down, your loss would have been much smaller.

Decreasing Approach

I could go really big at the beginning. Let's say 800 shares, then I might go 500 shares next, and then a little bit less 200 at the end.

This is another different approach. You're decreasing your share amount, and this is good when you're relatively strong about the stock. You have a reasonably stable break out, but you don't want to put all your capital in at once.

The advantage of this, of course, is that I'm getting in on a stable position at the beginning. I can peel off and take shares off much sooner and so I have an excellent position at a lower level.

The disadvantage, of course, is if this thing started actually to roll over it would create much more significant losses than it would if you did the 200 shares at the beginning.

If you're brand new to scaling and you're just trying things out, then I would say a good starting point does this balanced approach.

This is more of a balance where you're even, that's our linear way. Where you're going in 500 shares, 500 shares, 500 shares, and staggering things. It allows you to peel off those things as you move up in strengths or downward.

The increase approach is excellent if you're testing a stock and the decreasing approach is really when you feel right about the stock, and it's got a pretty strong breakout, but then you want to slowly get into it still through this different way of scaling.

If you're wondering how many times should you scale, the number of times I'd say for most people three to four times.

Once you start going into ten or twenty times, it starts to become irrelevant or not necessary or just more work than it's worth.

Double Bottom (Reversal) Stock Chart Pattern: Technical Analysis Ep 200

September 6th, 2018

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We're going to go back to some basics of some technical analysis. I'm going to take a look at the double bottom which is a reversal stock chart pattern.

Typically, it starts with upper left, and we're moving lower. It's a bearish-like pattern, initially. But then what happens is because it's a double bottom, it's going to turn into a bullish trend.

We first create this swing point where it changes directions, and the stock will initially generate a bounce.

We also create a resistance level that the stock starts to get into. It comes and retries to go into higher prices.

But often, it can't because there's just so much negativity from this previous movement where the stock is moving lower and lower and lower. Then you got value buyers that step in, so this creates our support level.

Those value buyers, as they step in, they try and buy the stock, but there are so many short sellers. People are still afraid of the stock going lower. They're just trying to get in or get out early enough. So this is our resistance level up here.

The stock then continues to move lower and then it creates another bottom. This is how you get your first bottom. Then you'll get your second bottom, and then eventually that stock will go ahead and try and break out into higher prices.

That's what the double bottom looks like.

Typically, as far as volume goes, which you want to see if you're going to look at this volume slowly start to dry out. As we begin to continue into that double bottom, the volume would be good if it starts to dry out because that means the trend is slowly changing. There are fewer sellers taking place. That would be nice.

As we move into higher prices, as we get that bounce, it would be good if we had a little more bullish volume starting to come in right there. Then what would also be nice is that as we decline right here because again, we're changing direction. It'd be good if that also started to weaken since remembering. In the end, we want more volume on the breakout right here.

For that to happen, we want very strong or an increase in volume there towards the end as we breakout.

Ideally, that would be nice, but typically just for the pattern itself, you're looking from the support level to that resistance level as the amount of movement or the projection that you're looking at.

That's the conservative approach but of course, it could with time as it continues to move higher with inflation and all those things. It could get back into those previous all-time highs and even make further higher prices way into the future.

At times you get this stock that actually will pull back and retest these levels and then bounce. In that case, if you missed that entry opportunity, you could get a second entry opportunity, after that bounce right there.

That's another entry point that you could take a look at if you missed the first one.

That's the double bottom pattern. Of course, this could turn into a triple bottom, quadruple bottom. It could be a lot of things that change in this pattern.

The Key Things to Watch

How far has that trend been moving lower?

If it's been going down for quite a long time, maybe it's time for things to reverse.

That could be one clue. It could be a double bottom triple bottom whatever the case may be.

Also look for the volume

Is volume starting to pick up? As we start doing these bounces and if that's starting to happen, it's going to be very subtle, but that could also mean that you could be breaking out or you could be finding a bottom.

This consolidation could be six to eight weeks. It could be four weeks. You got to give it a little bit of time.

It's not going to be one or two days. It takes a little bit of time to create this.

What you're looking for is just the overall volume and trend and the behavior of the stock to be able to see is that the bottom is created. Otherwise, you could be creating a double top, a triple top. It could be rolling over. This could also turn into a triangle pattern sometimes.

Just be careful with that as well and then again you could roll over. That's why the entry points are usually above that resistance level. Give it a little bit of room to break back out and confirm it with some volume.

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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