Technical Analysis Basics
April 30th, 2019
March 19th, 2019
March 14th, 2019
February 28th, 2019
February 21st, 2019
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Right now we're going to take a look at the double top reversal pattern.
We're going into some technical analysis basics and share with you the double top reversal pattern.
What Does It Look Like?
This is the first thing you might want to know. It looks like something like this. We create a two peak system. We have our resistance level and our first and second swing points on it.
You'll also get this supporting level here under the stock as well. We have two swing points that create a double top.
Where is the strength and where is the weakness is what you're looking for in these patterns?
With this pattern, you have the initial trend - to the upside. What happens is that as we move to the upside with the stock price, you don't have enough buyers. That weakness comes in, and people start selling or taking profits. Then more people come back in and then it goes into the second top.
People think it might be a good value and they'll go back in and buy some shares. And that's what happens - not enough people come in. When not enough people come in it reverses, and that's why you get that second top. You get the double top, and then stock comes back down.
From time to time it may test these levels here and get some little bounces here and then roll back over.
Then eventually you'll see it roll further over into lower prices. And that's why it's known as the reversal pattern. Some things to watch for as you're looking at this is that you want the volume to pick up on the selling movements. That's where the trend or the pattern confirms itself a little more.
Anytime you're getting these selling off movements (pink lines), you'd like to see a little bit of higher volume in that spot. Especially as you get into the break, and if you're looking to enter on that position one of the entry points could be just after it breaks that support.
That could be your initial entry point if you're shorting the stock. Sometimes what also will happen is after this break you might get a retest of that support level. That support level is now resistance. As you retest that level, you'll get that rejection.
If you missed that earlier entry opportunity, you could get a second entry opportunity right after. That could give you another opportunity to short the stock. If you're looking to buy on value, this is a little bit difficult to do with this pattern. That's because you're looking for it to go much lower in price and then give it some room and time.
How Long Does It Take for This Pattern to Evolve?
Sometimes it could happen in two to three weeks. Other times I would say more or less four to six to eight weeks. That is more common in the stock market world.
If you're looking for a two-month time span that's more healthy. Or even one month around there.
How Far This Pattern Could Go?
If you're looking for the distance of how far this pattern could go or the projected move, this is what to do. Take the peak right over here; draw a line down to the support level that you have over at this point where we hit the support and bounce. And that gives you a distance. Take that distance and move it right at that break and go again right there.
That way your projected move is right at that same amount. And that gives you an indication. Sometimes these things could go a little bit lower. Sometimes they're a little bit shorter.
It just depends on something else. But that's a rough area. Because it's the number of buyers and sellers that are over at this level will probably be around that level. And that's why you can't be that precise because that may change and some people may get in it earlier some people may get in it later.
Some of the Issues That Can Happen
Sometimes it evolves into a triple top. If you look at another pattern here, you could get a triple top in this pattern as well.
You could get four tops. This may even break out to the upside. Instead of bouncing and rolling over you may get this distribution and consolidation for sideways. That way this pattern could slowly start moving to the upside. Eventually, jump higher.
When you see two points where the stock is rejecting it doesn't mean all of a sudden it's a double top. What you're looking for is this - the volume picking up to this selling side and the selling pressure. That could give you an indication that there's more selling pressure that's coming in.
That could mean that with more selling pressure you could get this thing to roll over even further. That's what you're watching for. In some situations, it does have a double top, but they actually will continue. That's because you get enough consolidation and more buyers will step in because of the digestion, and it goes higher.
Your whole point behind this pattern is to recognize two peaks. That means there's resistance and that says this is a little bit of a difficult level to break through.
And if that's a difficult level to break through and if we continue moving lower and we break below that support level that could be a longer-term downtrend. That can be a place where I may want to hold off on the stock.
On the other approach is if you're looking for a bullish movement. You could wait for that to break out - that resistance level. And this could be a bullish or a buy area up there. That could happen from time to time as you recognize the whole situation with two peaks.
Just because it's a double top doesn't mean it's going to move higher or lower. But it will be classified as that pattern double top reversal once it starts moving into the other direction that it came from. The whole point behind the patterns is to name the chart movement and way to reference one thing or another in our discussions easily.
Otherwise, as you look at the stock, your primary goal is to decide if that stock is going higher or lower. And what you're looking for is where is the weakness which you can get and understand from the volume. Is it selling off on huge volume or weak volume? If it was weak volume, you might see it digest and move higher.
Example of Double Top Reversal Pattern - Groupon
Let's take a look on screen at this double top reversal pattern. We're taking a look at Groupon.
You can see from the stock we first sold off around 2012. Then finally we're trying to move higher into higher prices in 2013. We didn't do so well, and you can see that around August, September, and November time we've created two peaks.
At those two peaks, we have a little bit of resistance, and this is our double top. If you look at our support level, we have slight support that gets retested individually at this swing point at lower prices right around $9. Our high range is just right above $12, and we're moving into from $9 to $12 range.
The stock broke through and then came back up to retest that $9 range. And then it continued moving lower. You'll also notice the volume how big and accelerated it was on that break.
It did pick up. Initially when we were digesting the volume did decline just a little bit. And then we picked up in a big way after that at least with one bar. And then slowly with a few surges in prices or surge bars later on in the bearish sense.
That's our double top right there. As far as our distance goes, you can see the distance from here to here, and then you take that, and you can see the projection will go there.
Groupon ended up going much lower than that. But as far as that pattern goes it's you should expect a little bit lower, but it didn't work out in this case.
Example of Double Top - TRIPADVISOR
Here we're going in from lower prices to higher prices. We get to a specific peak. Stock, as you can see, was very extended at that time. It just moved too far and too fast. You created one peak there, and we'll draw a line across, and you can see we created a second peak a little later.
Once we digested this move moving sideways when we got into the second peak again there was just not enough volume. Notice that volume was declining. We almost created a bowl-shaped pattern, and then we started to pick up the volume.
But it was the bearish volume. That's what created and made the stock roll over. You're shorting opportunity. It didn't last too long because we got positive news and insights shortly after. But then with the time that stock eventually creates another double top that rolled back. That created further lower prices.
As you can see sometimes, they only work for a short period. That's the case because you get more news and hype and then, later on, you'll get that further rollover. That happens with many patterns in general. It's not that they all work out perfectly just to show you what could happen.
Triple Top Example
Let me show you a triple top example. You can even get a quadruple top. Here is our example of STX. We're looking at the year 2006, 2007, 2008. You can see the stock had a tough time breaking above the 27.5 range.
We created a triple top between those few years. Because it was not sustainable and it didn't have enough energy that stock rolled over. Finally, there's your break so your entry point would be right around this point which would be about $18.
That stock continued into about a $3 range. Think of that massive sell-off that happened there. Anyways that's a triple top very similar to a double top. You can see it was moving to the upside for a short time. We did get acceleration in 2003 (very steep), so that's why it came back down as we continue to move into higher prices.
We got that triple top and eventually that stock broke lower because it couldn't break through to higher prices. And that's what happened. Then finally climbed to further higher prices or back in the triple top area.
I hope this pattern was helpful for you to learning and understanding the double top and maybe even a little bit of the triple top. And if you like this video and you want to see more great videos like this then go ahead and subscribe to our newsletter list.
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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Today we're going to go back into the basics of looking at technical analysis and some patterns.
We're going to look at the ascending triangle which is a continuation pattern. That means it continues from the previous trend.
We're going to take a look at:
- what it looks like
- the previous trend
- entry points
- a few tips
These are the points that we're going to cover.
What Does It Look Like?
When you're looking at this ascending triangle pattern, it's going to create a trend that is similar to this.
Now as you make your way and move into this, it'll come up and hit that first level of resistance over here. It'll come down and probably hit another level. There is your support level as we go into the lower level of the triangle.
It could bounce around. It might go into a second point. Finally, we'll break out somewhere. Maybe about 80% of the way of that triangle. You're breaking out somewhere at that level.
The thing to remember is it might hit these points three or four times. But there's your breakout point. That's what the ascending triangle looks like.
The Previous Trend
The previous trend is an uptrend. That means your next trend is also an uptrend as well. That's because it's a continuation pattern.
When you want to look at where the stock is going you're always looking at the volume. You want to see strong volume here at the beginning) coming in but then I'll probably die out. That's why we get that pullback. We understand the selling pressure that comes in.
Then again you get more volume usually on these upward movements. Now sometimes as we go into this triangle pattern, the volume actually may decline. As you compare ticks for ticks, so as you look at maybe the closer ticks daily typically the bullish of volume will be higher than the bearish volume.
The trend may decline. That's because you're just consolidating, distributing, waiting and digesting this move. And then what happens is later you'll get that influx of more volume as we break out again. The volume will pick up and start to accelerate on that breakout.
When Do We Look at The Projection?
You're looking at this range between the triangle. I like to look at a little more conservatively. Look at this big range from that swing point to that bottom range of the triangle.
Does it always hit that exact point? No. It's just a guide. Give it about that much, so we move over here (above triangle). It'll probably hit somewhere around that region from the breakout point. You're looking at the big base of the triangle from that rejection to the bottom.
In other words, from the resistance to the support. After that, take that, move it over to where the breakout point is and that's the target arrange. Would I take some profits before I hit the target? Absolutely. If you had a hundred shares take off maybe 70, 80 shares.
Whatever the case may be on your risk management style. But that's what you're looking for when you're looking for the projection.
You don't know if this could be a triple top. A triple top typically will hold support (a little more flat). But this thing could roll over and head down.
Because of that, you need to be careful about this. That's a little tip. Typical entry point if you do get that breakout right there this would be the entry point. It's right after we break out of that resistance level on that triangle.
At times you'll get this to roll back and bounce. That way you could get a second entry there if you miss the move. It doesn't always happen. Sometimes the breakouts are fast. But sometimes you get a pullback, and then you get a bounce. That could give you an excellent entry point as well.
If the stock ends up rolling over and this is sending triangle pattern doesn't work out you could look at a shorting opportunity somewhere over here right under that support level.
That scenario can appear if you get bad economic news or something like that. It's important to look for volume to pick up and where the volume picks up and where the price goes that's where the stock is going to go.
If you're getting the breakout, you'll get a continuation here to the bullish side. You'll want the volume to pick up, but it doesn't always happen. Keep an eye out. That's why your entry point is above the resistance level. That way you can be a little more sure that it doesn't roll over.
That's my thought and inside on the ascending triangle pattern. These are just guidelines of what you're looking for. Here's our resistance level. It could be creating a pattern. If that pattern is created, you're looking for that breakout that could be an entry point.
Remember it could still pull back a bit to retest that resistance level which becomes support once it breaks it. And then your projection or target area is about that range from the fatter part of the triangle. Take that and see how far it can go there.
The Ascending Triangle Pattern With Ticks And Candlesticks
Here you get a little better insight on what it looks like. Here we have HOG or Harley-Davidson from 1991 to 1993. It's a good example because I find that it's spotless and clear cut. The stock was right around $0.5 to $3 a share.
Stock price continued to appreciate there with time strike at the beginning. I find that this pattern works out very well for moving costs to the upside. What happens in 1991 is we got into a resistance level right around the $4 range. You can see those sweet points a couple hit a couple of times.
The stock price also tried to continue to compress into that triangle level. Between four dollars we were hitting that $4 range and then moving back down to $2.5. Then we hit it again at $4 moved back down at $3. Then finally when we hit third time (you could say a double top that broke out), then we finally broke out past that $4 range.
Notice the increase in volume. Yes, it was a minor increase in volume. However, it did pick up and allowed that stock price to continue moving into higher prices with time.
That's the ascending triangle pattern that I find it works very well. But you can see also that sometimes this can confuse you with a double top. That is the place where stocks could roll over. That's why it's crucial for you to pay attention to what's also evolving on the lower range or the support level of the stock. It's also essential looking at when things break out.
Example of American Express
That one hasn't fully evolved or matured yet. But I want to show you one that's developing. Here we have American Express which is 2018-2019 which is very recent to the current time.
As we look at this right around the $104 range in American Express, you can see we're creating resistance right around that $103-$104 levels. It's hitting it maybe four, five or seven different times. As we go from 2018 January to about August time you can also see we go from about $88 to about $100.
The stock price continued to move higher from 2017 to 2018. We got into $104 a share. We pulled back to about $88 a share. Then we got back into $104, and we pulled back to about $92. After that, we got back to $104, and we pulled back to $96. Got back to $104, pulled back to $100.
And then we finally broke out right here at about $104-$105 a share. Now the volume still is not increasing in a big way. It's not an increase in volume on the breakout yet. It could happen, and it could evolve, and more volume could pick up with time. That's because this is the weekly chart. So, it may take a couple more weeks for the volume to pick up.
We'll see with time if this pattern pans out and works out. But you can see that there's a pattern that we're looking at as it's evolving into the future. And we're not sure if it's going to evolve and manifest into a good trading pattern. That's a pattern right there that you can see on the screen that's evolving right now.
You've learned a little more about the ascending triangle. That one is a continuation pattern which means that it continues from the previous trend.
I hope you found it helpful and insightful to learn a little more about technical analysis.
January 24th, 2019
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Today we're going to go back to the basics of looking at technical analysis on a flag pattern. Let's take a look at the bullish and the bearish case scenario.
This pattern is a continuation pattern, which means you're continuing into the direction that you left from or came from.
The Case With a Basic Flag Pattern and The Bullish Case Scenario
When it comes to the flag pattern, think of it as a digestion pattern. That's why it's a continuation. It pauses digests and then continues moving forward into that same direction.
If you look at just the movement that we have in the bullish case scenario, we are going from lower prices. Then what happens is these prices eventually stall out. What happens then is it goes a little bit sideways to a retracement.
It creates somewhat of a retracement pattern here for a short bit of time. Here you're consolidating in this little range. And then eventually this will break back out and move into higher prices.
Your flag is right here. It's that pullback segment. The angle could be a little bit different. That means that when we look at the previous trend with flag patterns, the previous trend is always moving in the direction that it's following through.
If you are moving to the upside you get a flag pattern then you'll continue moving to the upside.
The Case With a Basic Flag Pattern and The Bearish Case Scenario
If you're in a bearish case scenario (let's say you're moving to the downside), it will retrace it goes back to that side. This is that retracement, and then they'll continue heading lower.
Look at the volume - bullish case.
If we look at the volume, we have high volume in the initial breakout. And then you'll have lighter volume when you're distributing or moving sideways.
Usually, this is the case. Then eventually you'll get some higher heavier volume moving back to the upside. That's what you're looking for when it comes to volume is you want an increase in volume in the direction that the stock is moving in. They usually go hand-in-hand.
Take a Closer Look at Projections
If I take my hand and we moved about a hand span from the initial breakout to the top of this flag pattern. That's what you'll probably get as well from that breakout point to the top.
Maybe your target area somewhere up high over there. That's usually a projection. But keep in mind if you're looking at bullish patterns sometimes they could continue moving for much longer creating new digestion patterns.
And then again moving into further higher prices. As far as the pattern is concerned that's the projection is from the initial breakout to the top of the flag. You'll probably get that next leg again to the upside. Sometimes it'll be a little bit less because this pattern gets so far extended with the amount of energy and movement.
That's because this is a much shorter compression (much shorter retracement). And if it had a longer retracement, you could move much longer to the upside. But it may not be as quick.
What About Entry Points?
If we're looking at entry points, you'll want to do it right after we break out of the flag pattern. If you miss the flag pattern of course initially, it'd be nice to get in the way at earlier prices.
But that doesn't always work out. In some specific situations if you get a pullback in that flag pattern and you move higher to bounce off of the support or resistance you could go and make an entry point over there. That could be another variation.
Useful Tips You Might Use Right Now
Here're one or two little tips before we go into a bit of detail on the bearish side.This pattern can also move even more sideways. If we move sideways, it can go sideways, and that could work the same for the bear case scenario as well.
That means if we're moving to the bear case you're moving sideways and then further lower prices. That could also be a sideways looking flag pattern. Just keep that in mind that it doesn't necessarily have to retract or pull back at this angle. It may be a little more sideways as well.
It's just digesting the move that was created that was very quick. If we're looking at the bearish case you'll want heavier volume as that stock is selling off. That's where the stock is moving the quickest. Then you'll get a little bit of light volume as we're digesting and again heavier volume on the next leg down.
The entry point will be right where that stock breaks that supporting flag pattern. Sometimes it'll retrace and bounce up and then go down. And that could also be an entry point as well.
That's the flag pattern as far as the basics are concerned. Keep in mind sometimes if they're moving a little more sideways and you think of them like a flag pattern it could be a double top. It could be a double bottom. It's just distribution.
All this is a pausing pattern to the next stage. And that's why when you're looking to get into the stock you want to wait until it breaks out of that pattern. If you miss the initial move, could you do it a little bit earlier and get into the stock and the position earlier? Yeah, absolutely.
You could do that, but then you're risking for it to continue moving in a downward direction if you're looking at a bullish case scenario. Or in a bearish case if you're looking for to short stock and it continues moving higher and reverses, and this becomes a double bottom in a way then it could hurt you and damage you as well. Overall that's the flag pattern and what you're looking for getting in and out of that position.
Real-life Example That Help Can Help You
Welcome to the screen and hear what I'd like to do is show you an example of a flag pattern. This could almost be a pennant pattern as well. Take a look at this GoPro example as we look at the chart the GoPro IPO got released right here.
This was our early initial point. It had a double top right at this point. And then as that stock continued to climb up, you can see we accelerated very quickly with quite a bit of volume. Here's where our flag pattern takes place right here, and if you look there it is it's flagging a little bit.
During that flag pattern, we do have a little decrease in volume. And then, as soon as we break out of that flag pattern, you have an increase in volume. Your entry point would be just right above that flag pattern. You can almost wait until even the top of that flag pattern is cleared to get into the stock.
And you can see you had a nice run a little bit forward into higher prices with this example. Take a look at the next example. Here's another one with Tesla as a little bit of a flag pattern. Again, take a look. We had a run up here in prices, the stock pulled back here slightly and retracement. Then again a nice pop at higher prices was breaking out of that flag.
You can see volumes slowly starting to build. Overall it was just beginning to develop, so it's a little less obvious there on the volume with Tesla. But there was that bit slight small consolidation flag pattern that occurred. And during the breakout, we did have a little more volume.
That's a basic flag pattern example. I hope you found this video helpful. Thanks for joining me and be sure to get on the newsletter list so that way you get notified as I release new videos when we have new books and course that get published.
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 long 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 passing 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.