Technical Analysis Basics

Pennant Stock Chart Pattern (Continuation) & How to Trade it: Technical Analysis Ep 218

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:

  1. Bullish side and the bearish side;
  2. What does it look like;
  3. Some of the previous trends;
  4. Volume;
  5. Projections;
  6. Entry point; and
  7. 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.

Previous trend

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.

Symmetrical Triangle Stock Chart Pattern: Technical Analysis Ep 216

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:

  1. What they look like;
  2. Previous trend;
  3. Volume;
  4. Projections;
  5. Entry point; and
  6. 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.

Rounding Bottom Stock Chart Pattern: Technical Analysis Ep 214

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.

Triple Bottom Stock Chart Pattern (Reversal): Technical Analysis Ep 210

November 15th, 2018

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Hey, this is Sasha and thanks for joining me here for another episode of "Let's Talk Stocks."

Today, we're going to go back into some basics of technical analysis. I'm going to take a look at the triple bottom reversal pattern.

Keep in mind patterns can be a continuation of where they continue the trend or reverse the trend from where they're coming from.

We're going to look at six main things:

    1. What does it look like;
    2. Previous trend;
    3. Volume;
    4. Some projections;
    5. Entry points; and
    6. Some tips beyond the pattern.

The Triple Bottom

The triple bottom it stems from hitting three bottoms similar to the double bottom. So if you know about the double bottom, this is going to be very similar.

If we look at our supporting point, it's going to hit a couple of points here.

It starts with a downward trend -- so this is our previous trend.

It moves here when we have this downward trend, and this is our first bottom that we hit.

As we move here in the downward pattern, there's a lot of selling pressure that goes into the stock.

Now eventually, you get to a point where there are buyers that want to step in. They say, 'Hey, it's a good value on the stock.' It may go ahead and do a little bit of a bounce here.

Then other people say, 'Hey oh I'm glad to get it to get out of this stock, so it bounced. I'm ready to get out because it'll probably continue moving lower.' It goes ahead and hits another bottom point.

This is our second bottom.

Keep in mind -- this is our support point or support level here that's being created.

Now, this also starts to create a little bit of resistance up top -- so this is our resistance number one.

And then again, we could go ahead and try and get up to those upper prices because people are again buying it on value. But maybe it doesn't make it that far, so we go and create a triple bottom there -- so this will be our third bottom.

Eventually, this stock what it tends to do with this pattern is it ultimately goes in and breaks out past this resistance level.

Sometimes, this will come in and hit a double top here. So this is one thing to watch out for that we'll talk about here in a minute.

But in general, you got three bottoms here that are created and then eventually the pattern reverses because it's a reversal pattern. And it continues moving into those higher prices.

That's the pattern and the way that it looks.

Now, if we're looking at volume

When you look at the volume of this chart, you typically will want this volume to slow down as the stock is moving lower.

Initially, it's going to be high, especially if you're starting from really high prices. But with time, you want that to decrease because you want those prices to slow down and change direction.

To change direction -- let's say you're driving 50 miles an hour. How do you change course? Well, you got to slow down and make a turn, or you know you got to have a curve.

That's really what we're doing -- we have some time here to make that turn and that curve. So, to change that direction, we want to slow things down as we're coming in to bounce.

Then, when you bounce, you'll probably want a little more volume on the bullish side. Anytime you get these bounces, and you'll want more volume and especially on this later bounce on the breakout. That volume should be excellent or huge on that break out especially breaking out of that resistance level.

That's what you want the volume to be.

As we decline on these depreciating levels, as we pull back from resistance, you want those to be lighter because now you got more buyers that are coming in. More buyers are stepping into the stock and that's why the volume should be picking up to the buy side because we're going to reverse.

Projection Wise

You're looking for it's a little difficult to project these movements because this stock could have been selling off from really high prices.

When you get into a triple bottom like the double bottom, a primary projection might be well, let's say I take this first or second supporting level and go up to the resistance.

When I do that, here's my level or range. Then, what I would do is take that consolidation range and put it kind of from the break of the resistance to right there, and that could be my target or projection.

But the reality is the stocks usually appreciate with time and with inflation. They continue to go into the moon. That's just the essential nature of stocks.

Until you get the crash, of course, and then again they keep inflating. That's inflation for you.

We could get back into those upper higher prices where the stock initially started the sell-off. You might even go into even further higher rates into the future over the next five or ten years, depending on how long you're looking to be in the stock or watching the stock.

As far as entry points go

What you could do is you could get in on these bounces, but you don't know if these bounces will continue further to roll over into the next leg or the next down leg because this could be a double top.

It could even create a triple top right.

You see how these patterns could look like something else.

So instead, the better approach is to wait for that breakout right there, and this could be your entry point.

Sometimes these patterns will come back and let's say they come back and retest. They're testing that support level because before it was resistance now it supports and when that bounces that could be an entry point right there.

If you missed entry point one, your second entry point could be right there on the next bounce as you come back to retest that level.

That could be another entry point.

So, to leave off with a few final tips

Remember that this pattern is a reversal pattern. So as you're coming down the trend, you're going to reverse. Eventually, you want that to slow down, and that you-you see it slowing down by watching the volume.

As you get bounces, you want that volume to pick up.

Let's say this peak to start to pick up a little more volume. This peak puts possibly to be a little bigger than the last peak. It doesn't always happen. Then again, as you break out past that resistance, you want even more volume.

So that's a tip.

But remember that this could also look like a double top or a triple top pattern, where this thing could actually continue and roll over even further.

That's why you're waiting for that entry point on those brakes to confirm which direction this stock is moving. Otherwise, you might get a movement in an unexpected direction because remember the pattern won't be called that pattern until this kind of completes itself.

But for you to do the trade, you have to do it almost early enough to get in on it. To capitalize and profit from it.

Descending Triangle Stock Chart Pattern: Technical Analysis Ep 208

November 1st, 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 take a look at the descending triangle pattern -- which is a continuation pattern.

I want to take a look at:

  1. What it looks like;
  2. The previous trend;
  3. The volume;
  4. Projections;
  5. Entry point; and
  6. A few final tips.

First off, let's start with what it looks like

Here, the descending triangle pattern looks like a flat support line.

So here, we have our support level.

And then the upper part of the triangle descends or declines.

Our previous trend starts from the upside. So, we're going from the upper left, going down -- to the stock price is declining.

As it declines, we come in, and we hit a little peak or where we start bouncing.

Then, we move up, and we hit a resistance level.

We'll call this R1 -- so that's our first resistance.

This is our support one over on the lower level.

As we play around in this level, we may get a second support point. We may get a resistance level 2 over here.

This is what the stock does for a little bit of time.

Up to the point where we start rolling over and start moving into lower prices.

Now sometimes, this pattern can -- you might start trying to think or create this pattern at these upper peaks or before the trend began.

Really, by the time you evolve and see this pattern, you'll probably be in the second or third or fourth resistance level.

Sometimes, this could be resistance 3, resistance 4 -- where you start noticing it and discovering it.

That's what the pattern looks like.

The Previous Trend

Of course, starts at the upper left. Moves then, to the lower right and we're continuing on that pattern.

This is just a pausing pattern where some buyers are thinking of coming in.

They may think that this is maybe a double bottom something to that effect, but the pattern as it continues to evolve and you don't know that this is a descending triangle till the pattern completes.

Once the pattern moves, it's moving the lower level and into lower prices.

When You're Looking at the Volume

The volume, typically on this pattern, will be stronger as we decline.

So, as you're moving here on the decline, you have relatively strong volume.

Then typically here, as you're moving through the triangle, you might get lighter volume. The volume starts to dry out.

As you look at individual bars day to day or maybe moment to moment, typically, you'll want to see stronger volume on the declines because it's a continuation pattern, it's a bearish pattern.

You're looking at it being a little more strong as we decline and even stronger as you start breaking that support level.

The Projection

You're looking for the level of this fatter part of the triangle, as we start from the resistance to the support. You take this, and you move it from that breakout point, and that's your target.

So, your target will be that same range or distance.

Again, that is just a guideline. Doesn't mean it's going to hit it every time. Doesn't say it will even get there but that's the typical goal.

That's because you've had so much energy up here moving and now you're bouncing and playing around in this triangle area. You'll probably have about the same amount of power there.

The amount of energy you push a ball would probably be the same amount of energy that it expels that energy is moving forward.

Here, you're looking at that same amount from that fatter range of the triangle.

As far as entry points go,

Your typical entry point will be when it breaks the support level.

That'll be an entry point there and this, of course, is shorting the stock.

At times you may get a potential bounce here where it retests the support and then it rolls over.

A second entry point could be again when it bounces.

When it bounces and then rejects those levels, that could be kind of entry.

So you're looking at those levels.

Of course, you could enter at these rejection levels because it is a shorting pattern.

But you don't know that at times this thing could play a few tricks on you, where it could start breaking and moving to the upside -- which is what some people have trouble with.

And Here are a Few Tips for You

Sometimes, people will think and see that this is a descending triangle pattern, but it could be maybe a double bottom, perhaps a triple bottom.

You can see how you have two supporting points here that are hit where it creates kind of a double bottom or a triple bottom.

In that case, it may fake you out. We're okay now; we're moving to the upside, where it's a reversal pattern.

When you see this declining on the trend on resistance 1, 2 & 3, it does more or less confirm that it is a triangle pattern. But that doesn't mean that you can't digest for an extended period and then kind of move to the upside.

Stock can do anything they want, or you may get a surge of good news, and it changes this whole pattern completely.

The whole pattern is just a way for us to discuss chart trends and how they perform and behave in a particular segment.

For you, what you're looking for the safer approach for entry points is really when it breaks support that would be the shorting opportunity.

If you're looking for a bullish opportunity, sometimes these things could break out right here. This could be a bullish trend here, and you're trying to buy on value.

That's another way of doing things and getting into the stock at you know lower prices because the trend was moving lower.

Just be aware that at times that may play a little bit of a trick on you.

Volume, of course, is beautiful to see as you're declining and then moving. Depreciating in volume or decreasing in volume reduction and volume as we move through this triangle pattern and then again an increase depending on where you're breaking out.

Sometimes, that doesn't happen. Sometimes that happens after you make the break, and then you roll back over a second time. The volume will pick up even more so there because it's confirming the rejection of support which would then be resistance.

But overall, that's what the triangle pattern looks like.

It's a bearish pattern.

Starts from the upper left or higher prices move lower, consolidates because now you see some value buyers stepping in. But there are not enough value buyers.

And because there are not enough value buyers, the stock continues to roll over and goes even further.

That's really what happens within the pattern is that -- there are not enough buyers, and there are even short sellers that could be coming in.

So, in the end, the Bears end up winning.

Just keep in mind that sometimes you do get that bullish break out as this pattern could look into a double bottom, triple bottom or maybe just a distribution consolidation pattern.

Those are usually more horizontal or sideways, but still, it could play a little bit of a trick on you.

Head & Shoulders Top (Reversal) Stock Chart Pattern: Technical Analysis Ep 206

October 18th, 2018

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Hey, this is Sasha and welcome to another episode of Let's Talk Stocks.

Today, we're going back to some technical analysis basics, and we're going to take a look at the head and shoulders reversal pattern.

We'll take a look at:

  1. what it looks like,
  2. the previous trend,
  3. volume projections,
  4. the entry point, and
  5. a few tips.

When we look at this pattern, typically I've seen this pattern be a little more bearish than really bullish. But there is an Inverse Head and Shoulders pattern which would be more of the bullish way or the bullish pattern where it goes to the upside. But I've seen it more in the bearish context.

Let me show you what the bearish pattern looks like because this one's a little more common


This is a reversal pattern. We're going to roll it over. It goes up like this.

We create a little bit of one single peak here then what ends up happening is the stock pulls back and then it will create another more prominent peak. Finally, a third peak

Over here, this creates a little bit of a neckline.

This stock then breaks through, comes back, often retest, and then it'll go lower.

This is what the head and shoulders pattern looks like.

This is one shoulder over here. This is another shoulder. Here is your head right there.

That's why it's called a head and shoulders pattern.

Typically, this first peak compared to the second peak is a little bit higher. That's just because this shoulder can slouch a little. Meaning, buyers are not stepping in as much into this second peak.

What is happening is -


You have this influx of buyers coming in initially.

They say hey well price is getting a little too high so they go ahead and you know they start selling, and then other people get in due to the value and that creates another influx or wave but is there's not enough of them.

When there's not enough of them, that stock again continues to pull back and they recognize that hey this could be a topping out point, so on that next bounce it may not reach those high peaks anymore.

That's why it then rolls over.

We break that supporting neckline, which your support level. We may come back and retest this and then further roll back over.

That's your Head & Shoulders Reversal Pattern.

If we take a look at the volume, often, you'll get the right amount of volume initially as you start to head higher.

Then, as you start doing these pullbacks, the volume will slowly shift from being more strong during the upward movements, or the bullish parts to it'll shift more into being stronger.

As you start selling off, especially here as you get into this breaking area, it's going to be stronger volume as you break that support.

Watch for that strength on that break right there as well could be a little bit strong on the volume and anytime you get these pullbacks and that should also continue to increase.

Otherwise, the volume could be a little flatter. You could also see things dry out a little bit because this is distribution.

But the key points are -


You'll get high peak volume as you're going up but then to change direction. You need that volume to shift more to the bearish side slowly.

That's why as you start these sell-offs and pullbacks, that volume should start to pick up.

Your projection and the goal of this pattern is as far as the distance goes.

If you take from the head here draw a line down to that neckline, so looking at it this way, you're going to do about the same on that from the neckline all the way down to this level.

Your target will be about the same distance from the top of the head to the neckline.

If we're looking for entry points potentially to get in, this, of course, is a shorting pattern, so you're going to short. You have a couple of opportunities here, but this will be entry point number one when it breaks kind of that neckline.

If you miss that, you could take a look at entry number two - where you break and retest this resistance level now. In the past that was support, but then it becomes resistance where it rejects, and it follows through.

But again, this is for shorting the stock.

It's not for a bullish movement.

That's the thing with these patterns.

A little quick tip about this is -


Just watch this second shoulder, whether you're doing a bullish or a bearish pattern.

Watch the second shoulder that sometimes it slouches a bit simply because you don't have enough movement on that second bounce. There's not enough volume maybe coming in or not enough buyer so that it may be a little bit smaller.

Sometimes, that neckline can also be a little bit angled. You might see it a little bit sloped a little this way. These bounces where they come in could be a little bit in a diagonal fashion as well.

If we take a look at the bullish side.

It looks very similar except it's coming down from the higher prices.

What typically happens is -


Again, you'll get your one peak or bounce, and you'll get another one there's your head okay, and then still there's your shoulder. Your neckline will be right about here.

As that stock breaks out, you might see it retest. They'll move something like that.

Your head will be right here, and these are your neck areas and again the distance, if we're looking at distance, you're just drawing kind of the distance between the head to the neck, and then again you're looking for kind of your target right there.

If you're looking for entry opportunities on the bullish side, of course when it breaks, this is the more usual one people trade because this is looking for an extended opportunity. This could be your entry point.

Another one is if it comes back and bounces, that could be your second entry point right there.

Anyways, that's the head and shoulders pattern.

The bearish one is a lot more common. The bullish one, you're going down and having a very strong pullback and then it kind of reverses.

In a way, sometimes this could also be a consolidation pattern if you start looking at it a double bottom, triple bottom. In a way, it starts to disguise itself.

What you call it, is up to you.

It is just really the pattern.

If the head is further down below a consolidation area, then it'll be a Head & Shoulders pattern.

If they're more in alignment, it'll be a triple bottom.

That's just a name that we give it to reference and discuss these patterns quickly, but overall it's only a consolidation period where it provides the stock with time and room to digest the sell-off to be able to shift direction and reverse.

Same thing in the bearish pattern.

Here, you're moving to the upside. You're digesting. Give it time and room and then it sells off further.

Anyways, watch these patterns.

You're just looking for areas of support/resistance.

Sometimes, if they breakout above things and you'll notice hey well the stock broke out, and you let's say tried to get in over here.

But then, it rolled back over, and you lost out on that trade. It may start to become a head and shoulders pattern because you tried to get in on it but it went a little higher, and it's real instead of a horizontal resistance area it went above it because of that headline.

Then again, you'll see how it evolves

It's just a little clue and tip for you.

If you're getting into a trade and it just rolls over a little bit after that, it could turn into a Head and Shoulders pattern.

I want to take a look at a couple of Head and Shoulders patterns here.


This one we have is ATI, and I want you to put your attention towards the center of the chart here around March to July.

We have one shoulder that's being created here on the left area right around March.

Then around May, you have the head that's being created, and then you also have the other shoulder that's around July timeframe right there.

If you combine the two shoulders, you get a little bit of a descending trendline there between the two shoulders, your neckline or kind of the support line would be right under those armpits. You can almost say that that's a triangle pattern, but it's not a triangle pattern because you have that head above there.

Your entry opportunity will be just under or below that neckline. Going right under around the 56 levels in July, that'll be the shorting point.

You can notice the volume also starting to build as we increase the selling pressure.

Anyways, that's a head and shoulders pattern on ATI.

Here's another head and shoulders pattern on Caterpillar but it's inverted.

If we take a look at this one right here, the stock trend is going down. Again, this is a reversal pattern if we change direction. That's what the head and shoulders are going to do.

There's our head in 2009 around February, and then we have the other shoulder around June/July.

This neckline is a little different. Again, it could also look like a triangle pattern, but because we have that head, it's not going to look that way.

So, the descending trendline is what you're watching for, which is that neckline. You're looking for it to break and when that breaks, that would be your entry point right around that time frame.

You'll also notice the volume slowly starting to build as we do the breakout. When we are in the head and shoulders pattern, the volume is declining a little bit.

Anyways, that's a little bit of a head and shoulders pattern for you that you can also take a look at.

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.

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.

Ep 187: 4 Key Points to Spotting When a Stock is Coming Into Resistance

June 7th, 2018

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I want to cover a handful of different charts for you and discuss a little bit more about resistance.

What resistance mean? We've had a lot of bounces in the past after major sell-off. You get a nice big pop and bounce.

How do I look at resistance? What should you be thinking about as stocks get into resistance? Just the overall concept of a stock stalling out.

Why is it important to look at charts for resistance?

Resistance is a place where problems occur. There's always turmoil that happens in the marketplace; there are the Bulls and the Bears that are fighting.

It's kind of like a chess game that's always going back and forth, and sometimes a piece gets taken off-white, and other times the piece receives taken off black. There's this back-and-forth that happens.

Naturally speaking, the tendency of a human being after they're born, they grow up, age, and eventually die. That's the natural cycle and tendencies.

If we look at stocks, the natural tendency of stock does they inflate. Prices keep inflating. The gas used to be 59 cents a gallon to $1.20 to $3 a gallon.

It continues to inflate with time because the value of money remains to kind of rise up in a way that you have to pay more for things and goods. This is what inflation does. It's just the natural tendency of money because it just becomes worth kind of less and less over time.

It's a fiat currency. You can't do much with it besides burn it and make fire.

When it comes to the stock market, the natural tendency of stock prices is to go up. This is why the typical buy-and-hold approach works.

When you want a peace of mind, buy some dividend stocks. Let them sit and in a way forget them and accumulate things.

It's in the problem areas where you take some profits. This is why it's good to look at resistance. It comes down to where things are struggling, where things are stalling.

For example, you get to your college years; you start struggling a little more with your tests. Maybe you get into your elder retirement years, and you struggle a little more financially. With stocks, it's no different.

As a car gets into a particular area with its speed, it struggles to go beyond that level.

With stocks, we get the same kind of concept. They've pushed that gas pedal so fast that eventually, it runs out of gas just like any machine would.

You need people to constantly be buying things for a stock price to keep going higher.

If we take a look at Apple, notice that we've had this sell-off from mid-April.

We had a major rise up from 160 to 170, 170 to 180, 180 to 190 and then the stock stalls out.

We had resistance at 190.

Now we got the next little flood of gas. Another little push to 193, 194, 195 level. But again it's stalling out a little bit.

When you push the gas hard, eventually things will stall out. The further you push that gas pedal, the more you should be taking off profits in the strength.

Now, this is a daily chart from May to June. Within just about 11 to 12 days, we went up 17% in Apple stock. That's amazing and remarkable.

If you can do that, you should be taking some off from the strength as you get into some digestion, even if it's half. Eventually, add that half back in sometime in the future.

That's the way you think about it. As we get into resistance levels, it's a good time that takes them off because eventually, stocks will come back.

Take a look at our sideways pattern from January to May. We got into this level of resistance, we got into these higher prices, around March in Apple. When you get into this higher price level, you start creating a little bit of turmoil. This is where you take some profits.

Eventually, you got that pull back to that 165 level. This is where you could add some.

Again, we get back into it, resistance - takes them off, come back into support and you can add some for that stock to continue moving higher.

You don't know that it's always going to go ahead and reject that resistance. Sometimes it breaks through like we did here in May and it continued to move higher.

That's entirely okay then you wait for the next pullback.

You can do this on a daily timeframe. You could do it more on a weekly timetable.

It just comes down on your perspective. Your time horizon. How long you're looking to invest in.

Overall resistance is a place to take some profits because this is where stocks start rejecting and pulling back. It's a good time to cover this because there's a lot of stocks right now that are in resistance, especially today.

You could see at the 1700 level on Amazon we're hitting some resistance. This could be just minor resistance, but it's resistance.

Many of these stocks, when you take a look at them, they are at some critical points where you could get a pretty significant pullback.

You might only get a single pullback, but you have to wait to see if this accelerates to know if it's going to be a small pullback or a major pullback.

The more times it kind of hits resistance, the more chance or probabilities that it will break to the upside or reject it nastily.

Often, when it hangs and lingers at those highs or the tops for a while, chances are it'll break through.

But right now as you're noticing a few of these stocks, they're right at resistance. You can see with a handful of these stocks, they're all at a consolidation area, and they're coming into resistance.

How do you spot this resistance? How do you know it's going to happen?

Three simple ways to recognize resistance:

  1. Look at some sideways action and look at some high swings where they got rejected in the past. - as we approach those, you're kind of aware and prepare for that as well.
  2. Look at the whole numbers.
  3. Being stretched from an oversold situation. Here we are oversold. We counter-trend bounce. We had a major bounce, and now you're starting to reject things.

Those are three simple ways. Of course, there are many other ways, but this is a way to see where resistance is and where it is coming from.

The first one is looking at the past a swing points where it rejected. Then, looking at some whole numbers. Looking at how far and elevated that move is from there.

For some of the advanced people - those that have been with me for a while - you're looking at a reduction of volume.

As volume starts to dry up, that also begins to put pressure on stocks because you're reducing gas on the gas pedal.

You can see right here why we're getting a 2% pullback in Facebook. But then, when you look at it, if you get another day that's significant down date, you could take out about a month's worth of gains in one or two days. Imagine that.

That's definitely where things get a little scarier.

You can see here Google. 1150, nice whole number. You can also draw this across our swing point, that we've talked about. You look at the steepness or that angle, how fast it moved. Now that we have rejection, you can see there what's happening and what's going on. That's really what you're looking at.

As far as identifying some resistance levels, let's take a look at Johnson & Johnson.

We got into a swing point. We got into it. We even broke above it so you could see sometimes you get a break above it. As I always like to say, does your friend always show up at 6 o'clock for dinner? Not necessarily. Sometimes it's 5:55, sometimes it's 6:03. It's not till 6 o'clock on the dot.

If some stocks break a little higher, they fake you out, and then they get that massive lower movement.

Here's our swing point. When you look at where this rejected, it was almost 150, was 148. Our other resistance was right around 145.

Whole numbers didn't apply here much, but when you look at the steepness of the angle, you could see here was our initial upward trend in 2017.

If you look at a long-term trend, that's a little more healthy. You're looking at maybe a 30/25 degree angle. That's more logical and realistic.

The more days that you see in one direction, the more likely it'll snap back in the other direction. 

You'll see some of these that are hit the hardest are the ones where they're hitting key resistance levels from the past. Here we are with PayPal about 3% because we're moving here in this sideways action.

Shopify also has a vast stretch that's why in one day you'll get a 3 to 4% pullback because you were already up 20% in about 14 days. So 3/4% is pretty typical and average.

This is what you're watching for as you're looking for when the stocks will stall out

  1. Where are we coming into some past resistance levels?
  2. Are we coming into some whole numbers whether it's 60, 70, 80, 90, 100, 150, 180, 200?
  3. How far stretched are you?

Don't make it too complicated than we'll allow you to find where or when a stock will start probably pulling back or where it should begin to act weak.

You could be an accumulator - regularly collect stocks up until when you retire, and then you slowly sell with time.

As you start seeing these pullbacks, if you're a collector of the square, you buy a little more so you always have cash on reserve and you're just constantly accumulating.

Main concepts to look for in stocks

  1. Previous swing points okay that's number one number
  2. Round numbers
  3. Look how fast a stock accelerates. The faster it goes up, the more likely it's going to come back down. Then, combine that with a decrease in volume
  4. Helps confirm the move - when you have a growing bearish volume or a reduction in bullish volume that also proves that you'll probably get further lower prices.

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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