Technical Analysis Basics
March 19th, 2019
March 14th, 2019
February 28th, 2019
February 21st, 2019
February 12th, 2019
Today we're going to take a look at another trading question.
If you have a question be sure to submit it at Tradersfly.com
Go to submit a voice question and that way you can get answered by video. It's like a little quick consult.
Today's question - It's all about the momentum of looking at resistance as stock prices go into higher levels.
Question About the Resistance Point - Submitted by Abdul Rahman
The question: "When a stock reaches an all-time high, as there is no historical point of resistance, how do I know when the stock is possibly approaching a new resistance point. And where do I stop and start taking out some or all of my positions?"
Quick Look At Charts and Angles
The main thing is to recognize how greedy do you feel or how happy do you feel when a stock is reaching highs.
The simple approach is looking at angles. The way I like to phrase it: The angle of elevation at 30 degrees it's an ordinary healthy dividend playing stock.
A stock that starts to accelerate very quickly is, in my opinion, a rocket stock.
If you're somewhere in between you might be okay, but the faster (the steep) the incline and the longer, the more stretch things get.
Here we're taking a look at examples that really can clear up this matter for you.
Example #1 Nvidia
If you take a look at Nvidia you can see here on the yellow - it starts accelerating very quickly. It starts to get a little scary, and it accelerates very fast for a long time.
And that's why eventually these things pullback. The smartest thing you can do is look at it as an angle.
Example #2 Microsoft
If we look at Microsoft that angle is a lot slower. And the situation seems more stable. Maybe you want to start drilling things down into a daily chart if you're trading more actively.
Then, you can do the same thing. Pay attention to those angles. You can take a look at the weekly chart or on a daily chart. It doesn't matter. What you want to see is how fast angle is.
Sometimes things as pullbacks, resistance, and retracements happen even if the stock is moving at a normal angle: the main reason - market conditions.
Example #3 Boeing
If you have something like this, you have to pay close attention to the variation. First, we had an angle that was healthy; then you had a more accelerated angle. After some time there is again normal angle. Actually, It was more of a sideways.
But now if you look at the shorter term - boom! That thing's accelerated, so I wouldn't be surprised if this thing pulls back.
When Do You Want to Take Profits?
The faster this thing goes, the more profits you want to take. Some people will say: I look at the RSI, I look at the MACD, I studied moving averages. All those things can give you some clues, but the reality is that you have to notice this:
- Is that stock is moving too fast?
- Or is it moving normally?
If it's moving too fast, it's probably too stretched which means you should take some money off. Keep things simple, because the more complicated you get into, the more it'll play tricks on you.
Example #4 CMG
Now, let's take a look at CMG. You don't have to hit every point when you're drawing the angle and the range of the movement.
Look at that part on the picture. Pick points where the stock changed direction to where it is now, and there it is.
I found that making things more complicated is a bad idea. That just drove me insane, so keep it simple and analyze those angles throughout the desired period.
That's the way I would look at it when a stock is making some all-time highs where you can't even see where the resistance point is.
The steeper that angle is, the higher the chance that pullback is going to happen. And if it doesn't happen for a while, then it is going to be nastier on the longer term.
Be careful and understand that if your stock accelerates and you see your account positive, when everybody's happy and when they're all buying - that's when you're taking some profits.
February 7th, 2019
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January 10th, 2019
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Hey, this is Sasha and welcome to another episode of "Let's talk stocks."
In this episode, we're going to go back and take a look at some technical analysis basics.
We're going to take a look at that Pennant pattern.
It is a continuation pattern which means it's a pausing pattern. It pauses and then it continues moving in the same direction that it originally came from.
We'll look at the:
- Bullish side and the bearish side;
- What does it look like;
- Some of the previous trends;
- Entry point; and
- Few tips
When we look at the Pennant Pattern
You can think of it like a triangle pattern just a lot more compressed. It's a lot smaller of a trend.
Usually with a Pennant pattern, what happens is let's take a look at the bullish case scenario -- is it runs up very quickly. So the movement is very fast on the bullish scale.
Then, what happens is you create this triangle a tiny triangle, symmetrical triangle pause. What this does is it hits one point here. This will be resistance one, and it slowly isolates here for maybe four bars. It could be eight bars depending on what you're looking at, but it separates here for a couple of points.
We could do maybe three or four points.
Then eventually, it'll break out very quickly to the upside.
The pause is very short, and that's the critical difference here comparing it to let's say a symmetrical triangle. This is much shorter a symmetrical triangle maybe two or three times longer or takes a lot more time, and this is much more violent here.
Again, this could come back and retest this supporting resistance level. So it'll go back and then go higher, but that's what the pattern looks like.
Of course, it's going to be in the same direction that it's moving in because it's a continuation pattern. The volume, if you're looking at the volume, you're going to have much more substantial volume. This is heavy in the movement of the direction of the stock.
Then once we get into this little digestion period, it might die down or get a little bit lighter or weak. Then again, you see a massive amount of volume coming in as we get another breakout move to the upside.
If you're looking for Projections
What you're looking for is the distance here that we've gone from the initial breakout point to that resistance level.
That's typically an excellent level to go with and then move that to them from the breakout of the resistance to the next stage. It'll probably be somewhere up at this level will be. The target area that you're looking to hit is somewhere right around that point.
It doesn't always work out that way. That's a guideline. I also think of it that it's going not to hit those levels because we've already moved with such great steam and power. And when things move like a rocket ship, eventually, they pull back.
Typically, the target from what I've seen is -- it doesn't always hit those targets. Usually, a little bit less especially with these fast acceleration movements.
It just runs out of steam. It runs out of energy. It runs out of fuel. It's just flooring the gas pedal, so the movement is it doesn't always hit those targets.
If you're looking for entry points
I would take a look at just right where it breaks out these levels or retest those levels.
So this could be your entry point one and two and that might be an excellent level to get in is right after the breakout.
The issue if you get in earlier is --
During this digestion, a pattern sometimes it could turn into a longer consolidation pattern and then it'll roll over.
That's why you typically wait for that high volume.
And once that high volume comes in along with the breakout in price, nice full price bread, that's a much safer entry point.
If you take a look at the bearish case scenario
It's very similar so again. We'll look at this tight pennant pattern, and if I draw it a little bit backward here, you can see we're coming from higher prices. We move lower, and we get this little pause move around in here a little bit. Then you know we break down and move lower.
That's the way it works on the bearish case, very similar to the bullish case just flipped a little bit volume the same thing.
You're looking for a tremendous significant volume anytime that you're moving lower. So that would be high volume, this might be lower volume and then higher volume again on the breakout or the breakdown. Just because still there's more selling pressure that comes in.
Anytime that the movement is strong, just like here, we're moving down anytime the movement is strong. They'll probably get the higher volume.
If you're looking for the entry point
Here for the shorting side, this would be your shorting entry opportunity.
If you're looking to go long on this, I will wait till you follow through and continue all the way down and create a consolidation pattern down here somewhere or find a reversal pattern before you look to enter in an extended position.
But that's the bearish case scenario. The projection on this one is similar to what we do with the bullish. You look from where it started that sell-off to where it began to do the bounce and consolidation pattern. And then, take a look at that and move that range to the next stage from where we're breaking that support level in the pennant.
As far as tips go
Sometimes, these things can look a little more like a sideways digestion pattern.
Sometimes, they might look like this and then move lower. This could be considered maybe a flag like a pattern just because there's not a lot of ticks and not a lot of candlesticks in that area. But again, very similar to the flag pattern.
If you haven't seen that video, take a look at that, but sometimes these can look similar to a flag pattern where they're just a tight consolidation range that's pausing and allowing the stock to continue moving in the same direction. That's why it's a continuation pattern.
December 27th, 2018
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Hey, this is Sasha and welcome to another episode of "Let's Talk Stocks."
Today, we're going to go back to another technical analysis basics video. We're going to look at Symmetrical Triangle Patterns.
We're going to take a look at both the bullish and the bearish case scenario. We are going to take a look at:
- What they look like;
- Previous trend;
- Entry point; and
- A few final tips
Let's start with the bullish scenario
I want you to keep in mind that the symmetrical triangle pattern is a continuation pattern. Which means, it continues. It's just a pausing pattern that slows things down. Allows things to digest and then moves forward into the same direction that it came from.
You also have reversal patterns that change direction, but this one is a continuation pattern.
What a Symmetrical Triangle Looks Like
You have a triangle that's pretty much like this. It's going into a V formation sideways. Think of it as a bracket on your keyboard.
When you're looking at this, it could almost resemble a pennant pattern, but it's a little bit longer.
When you look at a bullish case scenario for this, it's starting from lower level prices and the stock price then continues to increase until it hits the first resistance level. I'll call it R1.
We then start a pullback, and we start creating a second point this will be our supporting level one.
We'll move up into higher prices, again at resistance level two.
This is where you can slowly start creating a slope where the pattern may slowly begin to looking and evolving like a triangle.
Right now, you don't know if it's going to be a descending triangle or this symmetrical triangle because you only have one supporting point.
But here, as we start continuing and creating, let's say support level two and moving up, and we have resistance level three, you can slowly begin to see how things will evolve.
Now, what happens with this pattern eventually because it is a continuation pattern. This pattern eventually will break out in the same direction that it started from.
This triangle was just a pausing moment.
A moment for you to digest the upward trending movement.
Because that movement on this upside was a little too far too fast.
Prices get a little stretched. People think, "Hey, I need to take a few profits." So, it pulls back, but they say hey this is a good deal other people are starting to come in it's a good deal to get into that stock. It's been heading higher. Let me get in on it. They've been waiting.
They continue to do this motion where you know you have some buyers that are selling better. Then, you have other people buying in at lower prices.
It creates this a crowd psychology effect to the point where enough buyers are now fully stepped in. More buyers are getting in to allow the price to continue to move higher.
When You Look at Volume
You want a higher volume in the direction that it's moving or continuing. So, higher volume there.
When you're doing this consolidation phase, you might get a little bit lighter volume here. So, it'll be light and then more massive volume also as you're moving to the upside.
Now, if you're looking at individual bars, what you'll generally want to see and it's a little harsh to look at those things. Anytime you're getting pops or movements to the upside, and it would be nice to see higher volume there because remember that movement is going to continue into higher prices in the future.
It'd be good to see those. But it's a little bit more difficult because usually in this consolidation triangle phase, it's a little bit more of a distribution pausing pattern. A little bit less volume will be traded.
As far as the Projection Goes
You're looking at kind of this R1, S1 -- so resistance one support one that's being created and you're looking at that distance.
If that distance is this long or I'm going to say half of my hand. Then, you'll go about half of the side, and that's your target.
Doesn't always work out that way. Doesn't work out perfectly but this is around your goal on that projection.
Now, in all big case scenario and the way you look at things with time with inflation that thing could run up 10, 20 times higher. If you look at it a hundred years from now, that thing could skyrocket to the moon.
But in general, from a pattern perspective, you're looking for about that range width of the triangle to hit your target.
If You're Looking for Entry Points
One of the proper entry points would be right after we break out of the triangle pattern and just a little above it to give it room to make sure it breaks out.
You could do it also on the bounces. You'll probably notice these on like support two, support three levels.
You could do it there, but that's a little early because what happens is if this thing rolls over. You could be in a little bit of trouble because you don't know if this could start digesting, distributing and then roll over.
Usually, you'll wait till entry point right up here above all these resistance levels or this descending resistance line and when the volume picks up, and it's moving to the upside.
That's what I would do as far as the entry point goes.
Sometimes, you'll also get slight little pullbacks here where this will retest that triangle pattern. Then you could get in it, just on that retesting of that resistance level which will be supported.
That'll be entry point number two.
If We're Looking at the Bearish Case Scenario
It's very similar the main difference is when you're looking at your triangle pattern on the bearish side. Instead of going from lower prices, you're going from higher prices to lower levels. Then you do the same isolation movement, and you'll expect that stock price to head lower.
Here you have resistance levels, and that'll be a one, two, three, four. Here, you have some support levels that it may hit and then again support level 1, 2, 3, 4.
You may not know that this pattern is evolving here up until about the second point even then it's tough to see.
Usually, by point 3 and four is a little easier to see if you're looking at an entry point. This, of course, would be for a shorting opportunity.
But an entry point would be somewhere right after it breaks the supporting level of that symmetrical triangle and then it moves lower, and of course, you're looking for higher volume this time as we go down in price.
You're looking for a heavier volume especially as you break probably lighter volume as you're moving sideways and then maybe heavier volume on that initial sell-off.
That's what you're looking for because you want the volume to always be heavy in the direction that the price is moving to or when the price is moving very quickly. Typically, you'll get heavy volume. They work hand-in-hand together.
That's what you're looking for when you're looking at a symmetrical triangle.
It's a continuation pattern. If you have a bullish movement, you're going from lower prices then you're pausing a bit, and then you're moving higher.
If you're looking for a bearish movement, you're moving from higher prices, and you'll pause a bit, and then it'll move lower.
Then eventually, you might get into lower prices here where the stock basis and then continues moving higher could create a double bottom over here. It could build multiple things here, could digest here, and then continue moving higher.
Remember, this is just a pausing pattern and most of the time stocks appreciate with time.
It's just a question of how long are they going to pause here, or how big is that sell-off.
Also, when you're looking at the distance of how far this will go bearish, it's the same as it would be in the bullish side. You're looking at the range of that triangle in the fatter area and then move it down. That would be your target.
Of course, just like in the bullish scenario, in the bearish scenario, it could come up and retest those levels and then roll over and move into lower prices giving you another entry opportunity if you've missed the first one.
Anyways, that's the symmetrical triangle pattern, and you know it can work in both directions bullish or bearish.
December 13th, 2018
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Hey, this is Sasha and welcome to another episode of "Let's Talk Stocks."
In this episode, we're going to go back into some technical analysis basics.
Rounding Bottom Stock Chart Pattern
I'm going to take a look at the rounding bottom stock chart pattern.
A rounding bottom when it comes to stock charts is a reversal pattern. It doesn't always have to be a reversal pattern but typically what happens is -- you go ahead, and you create this rounding bottom effect.
Often, it comes from let's say higher prices then stocks play around and isolate here kind of like a digestion pattern to change that momentum around of that direction.
You got a little bit of resistance right up here at these swing points or levels, and then the stock will eventually break out.
Often, it can retest that support or resistance. So this will be a resistance or support level that'll retest and then it can continue to move higher.
You're looking at it like this.
Sometimes, it can also come from lower prices. Meaning, being a little more bullish and then you have a pause, and then you move higher.
This is the way that the pattern looks like.
Sometimes also known as a saucer pattern, when you're looking at it because it is like a saucer.
It's a little different than the cup and handles pattern.
The cup and handle would have a handle here, whereas this one is retesting this support right so your entry when you're looking at this stock would be probably over here or when it retest, so these would be your two entry areas.
When you're looking at the volume for this, often the volume declines on this pattern because you're digesting the movement.
Sometimes, later on, as it starts to pick up speed because you're changing directions, you might have or see an increase in volume and especially on the breakouts if you see a strong breakout that volume might be a little bit strong. So keep an eye out on that just because of the decline in volume here as you're digesting.
Overall, the pattern works in the way we're digesting sideways.
Instead of just going sideways, like many other stock patterns do where they're just isolating in this range, well this one creates a little bit more of a friendly turn around.
Think of it like a big boat turning around.
That's really what it does. Sometimes, you can move here and then it'll go back down. It may look a little weird that maybe it's not a perfect saucer or a perfect rounding bottom, but it creates that rounding softens the cushioned effect.
If you're looking for a target or a projected move in this
You're looking at the, let's say the top of that saucer almost to the bottom of that, that's a good range and then take a look at how far that can go and draw that up here.
This would be your target, of course, if your stock is moving to the upside. I mean, it can go much further. It's just that initially with the pattern, that's the target.
And then with inflation just due to price rising, it can move much further and beyond those prices.
But that's a good guideline for a primary target where you may want to take some profits.
I've also seen that this chart pattern sometimes, depending on the number of ticks can get confused with let's say kind of like a Head and Shoulders pattern. Because overall with a Head and Shoulders pattern, when you see that pattern, you might see something like this. It looks like a rounding bottom as well.
What I want you to remember --
It's not as important how to correctly identify -- is that a head and shoulders or are that a rounding bottom? These patterns do have some technical specifics to when you can claim them a rounding base or a head and shoulders or a cup and handle.
But overall, your primary goal and objective are to say, hey where's my entry point and often it's just that top of that saucer or where it starts with that resistance level.
So, you're watching that and the influx of strong volume.
When you see strong volume coming in and price moving past resistance levels really, that's more of a key and more important than is it the rounding bottom or is it the cup and handle.
It does not matter. What's more important is hey where do I get in, how do I manage my money, how do I manage that position and that'll be a little bit more favorable.
But as far as the rounding bottom pattern goes, understand, it's more of a pausing pattern.
Often, it's a reversal pattern, but it can be both. It pauses that stock to allow it to consolidate, to distribute the shares so that it can build more energy to move to the next stage.
Stocks don't go up every single day. They need time to pause and digest, and that's what this pattern does.
It's usually a little bit of a more extended pattern. Many patterns are six to eight weeks, just like the cup and handle. This one might be eight to twelve weeks, and it could be a little longer depends on market conditions.
But just something to watch that is just, you're looking for a change in direction often or just a pause and break in an excellent movement to the upside or the downside. Is only pausing that movement allowing things to digest so that way you can continue further into higher or lower prices.