Disclaimer!⚠
I am not a license broker and I do not have a degree in finance or statistics. All of my
information in this book comes from research and experience. I Makarios Aristotle
Varner Jr., use these strategies to give myself a day and swing trading edge. I am not
responsible for any risk you take trading options or long term investing using my
strategies. I highly encourage non-experienced traders to NOT participate in option
trading until they have educated themselves. All examples in this book are screenshots
from my phone and are 100% authentic. I do NOT give any business or anyone
permission to sell my investing guide or distribute it.
This book is brought to you by Aristotle Investments💯 🧠 . Enjoy the read!
Instagram:@Aristotle_Investments
Invest📈, Grind&, and Think🧠!
"Grind in your 20s🌱 , build in your 30s🌿 , chill in your
40s🌳 "
Download the Robinhood 🌿 app using this code http://
share.robinhood.com/makariv to get a free stock 📲 ,(this is
the app I prefer for long term, and swing trading)
Download the Tastyworks 🤪 app using this code https://
start.tastyworks.com/#/login?referralCode=GNZE4RSRBM .
This is the app I prefer to use for day trading options.
RobinHood 🌿 is an app that made investing easy and
affordable. The legendary tale of Robinhood 🏹 is about man
who stole from the rich to give to the poor. That's exactly what
Robinhood is doing! Changing the game 💯 💡 .
1. You trade commission free🤯 . That means they don't
charge you per transaction.
2. No minimum deposit 💰
3. Easy to to use 🍼
4. Option trade for free 📊 (I'll explain option trading later in
more depth)
Tastyworks 🤪 is an app that is tailor made for trading options.
I recommend only using a cash account with Tastyworks
because you get unlimited day trades. When setting up your
account, use a desktop or laptop to make depositing funds
easier2 .
1. You can day trade options unlimited with cash accounts
3♻
2. You can only trade with the amount of money you have
that day. You have to wait until the next business day to
trade with your profits. For example, If you have $1000 in
cash today and you make $200, you cannot trade with
that $1200 until the next day or you will be flagged. Four
flags and they suspend your account for 90 days.
3. Commission is $1.50 for both calls and put options. You
sell options free.
This is the material I'm going to cover:
1. Basic stock market terminology 🤓
2. The best investing strategies for beginners 🌱 , mid level
🌿 , and high level🌳 that I recommend.
3. How to determine when a stock is going up 📈 or down
📉?
4. How to read candlesticks and candlestick patterns 🕯
5. How to analyze patterns in a graph to give you a day
trading edge 📈 🤯
6. Option trading ♻ ( calls, puts, etc.)
7.
How to use indicators 🔭 🔮 and understanding
divergence ⚠
8. Advanced strategies!
(My "Golden Setup") 🍯 💰
9. My chat🗣 and what it offers! (Signals📡 , mentoring= ,
lessons📚 , sources, etc.)
10. My trading rules🧠 📲 💡
🆕 Bonus: Frequently asked questions! For example, what
stocks do you recommend for starters? Where can I sign up
to get notifications on which stocks to buy?
#1 Basic Stock market
terminology🤓🍼
Stocks are the capital raised by a business or corporation
through the issue and subscription of shares. Shares are
pieces of the company. Buying shares make you a
shareholder.
Ex. Look at Apple stock 🍎 👀 . 1 share of Apple= $221.62. I
have 17 shares of Apple currently. But, I bought Apple back
when they were $190 a share at the end of July 2018. $221 $190= $31. So that means I made $31 x 17 which equals =
$527 since July B 2 . When you buy a stock at whatever
price they sell it for, you make whatever money they make 📈
or lose what they lose 📉 . Ex. Let's say I buy that apple stock
at $221.62... When their price increases to $225.62, I made
$4 x the number of shares I have which is 17 ($4 x 17= $68).
If their price decreases to $219.62, I lost $2 x 17 shares which
equals $34. Apple 🍎 is a 🔵 blue chip stock- large Industry
leading company.
🐃 Bull market- is when the stock market as a whole is in a
prolonged period of increased stock prices 📈 (uptrend) and a
🐻 bear market is when the stock market is in a prolonged
period of decreased prices 📉 (downward trend).
Bulls- the buyers. This is referred to as a term that gives a
name to the people who are pushing prices to go up. You'll
also see the term bullish, which also means that prices are
going up.
Bears- the sellers. This is a name given to the people who
are trying to push the prices down by selling their stocks. The
term bearish means that the stock's price flow is in a down
period.
These terms come from a bear and a bull's style of attack F .
Bulls strike up! 🐃 📈
Bears strike down! 🐻 📉
Bid- the maximum price that a buyer is willing to pay for a
security.
Ask- The ask price represents the minimum price that a seller
is willing to receive.
Spread- This is the difference between the bid and the ask
prices of a stock. It can also be the amount for which
someone is willing to buy it and the amount for which
someone is willing to sell it.
Trade is simply when you buy or sell a stock. A day trade is
when you buy and sell a stock within the same trading day.
In a trading day ☀ , premarket last from 9am to 9:30am ET.
The stock market opens at 9:30am and closes at 4pm ET.
After hours last until 8pm ET 🌙 but Robinhood allows you to
trade until 6pm ET. A trading day is usually Monday-Friday.
The stock market is closed on federal holidays (Christmas,
Labor Day, etc.)
Dividends💸 - A portion of a company’s earnings that is paid
to shareholders, people that own that company’s stock, on a
quarterly or annual basis. Not all companies pay dividends.
Open 😀 - the opening price of that trading period. In most
cases this is spoken in terms of the opening price of the day.
Close😐 - the closing price of that trading period. It it usually
associated with the closing price of the day.
High😇 - the highest price of that trading period. This is
usually associated with the highest price that a stock reached
during a day.
Low😔 - the lowest price of that trading period. This is usually
associated with the lowest price that stock reaches during the
day.
Quote- Information on a stock’s latest trading price tells you
its quote. This is sometimes delayed by 20 minutes unless
you’re using an actual broker trading platform.
Volume📊 - The number of shares of stock traded during a
particular time period, normally measured in average daily
trading volume.
Yield🚥 - Often refers to the measure of the return on an
investment that is received from the payment of a dividend.
Portfolio 📜 -a collection of stocks bought by someone
makes up their portfolio.
Short selling⚓ - when a trader (you) closes their position
after making profits (sell your stocks) and expects to buy the
stock back for a cheaper price. It's like a cycle. ♻ You sell
your position, wait for a dip, and then buy it back.
Because RobinHood limits traders who's account balances
are under $25k to 3 day trades per 5 trading days, you have
to approach this strategy with caution 🚧 . I don't recommend
this strategy for beginner investors. Hold your positions R
(don't sell your stocks) until you have a clear understanding of
market movement. Stocks can change direction at any
moment and with your limited amount of day trades, you're at
a disadvantage. Don't worry... I'll show you my strategies to
combat this predicament 3 💯 .
Example
This is a marijuana stocks called Tilray. This is short selling on
a smaller scale for simplicity's sake. I noticed Tilray was going
down, so I sold 7 shares at $160.90. I bought those 7 shares
back at $158. So here's what I saved:
$160.90 x 7 (shares I sold) - $158 x 7 (shares I bought back)
= $20.3.
I saved $20... B 💰 I'll take it.
Margin- when a broker loans you money to buy stocks.
RobinHood 🌿 offers you this option through a subscription
called "Robinhood Gold" 🔑 . Trading on margin can be
dangerous 🚧 because if you’re inexperienced and make a
bunch bad trades, you can lose all the money you borrowed,
and you'll have to pay it back. You must often maintain a
minimum balance in a margin account or you'll get a negative
notice by your broker called a margin call if your account
balance goes under the minimum⤵ .
I bought $2000 worth of stocks with RobinHood gold
subscription and I currently pay a monthly subscription of $10.
I only recommend doing this once you know what you're
doing. 💯 🧠
#2 The best investing
strategies! 🌱🌿🌳
Beginners 🌱
As a beginner it is important to take baby steps 🐾 . Never
dive into anything head first V . I recommend starting off with
$250- $1000. Most beginner's biggest fear 😱 is losing
money. It's to easy get discouraged 😥 and often times you'll
be eager🤑 to hurry up and get on the level of the elite
investors. On my 1st day of investing... I lost $150! ⏳
Patience is key in this game. When you first start off, know
that you will not see gains overnight. In my opinion, it takes
about a month for a portfolio to balance 📆 . I recommend
starting with Robinhood app as a beginner.
In the beginning stages, your focus should be on getting
familiar with the stock market 📊 👀 . Google, YouTube, and
asking experienced investors questions are all tools I still use
today. They say there are 3 types of learners: visual 👁 ,
hands onR , and listeners] . Well in this game, you need to
get out of your comfort zone 🐛 and try all 3🦋 . Watch videos,
get familiar with buying and selling stocks, read news articles,
READ BOOKS and take advantage of the conversations you
have with experienced investors.
The biggest mistake ALL beginner's make is buying stocks
only because we 😍 "like"
the company, or buying a random stock because it's cheap.
Here are a list of stocks that I recommend buying for
beginners: Canopy Growth, Cronos Group, Aurora
Cannabis, Square Inc., Paypal Inc., Facebook, BIDU,
General Motors, Microsoft, New Age Beverage,
Match.com, Nike, Neptune Wellness, Disney, Apple, and
MJ.
Buy them on a dip (unless you're in a bear market)📉 . That
means wait ⏳ until the price drops $2-$7 before you buy so
you can make a profit when they go back up.
These companies will set you up to get some decent gains in
the beginning stages. While holding your positions in these
stocks that I recommended, use that time to study📚 ,
research🔎 , watch YouTube📺 , subscribe to group chats📲 ,
etc.
My thought process on buying a stock
Click on a stock. Scroll down c until you see "stats"👀 . You
want to buy them when they reach a price under "LOW" (most
recent lowest price). This is canopy growth (CGC). I would
buy them at $44 or lower. “OPEN" is the price of the stock
when the market opened at 9:30am that day. "HIGH" is the
stock's most recent high. "52 WEEK HIGH" (52 weeks in a
year) is the stock's highest price that year (if a stock is
anywhere near that... Be prepared for a dip). Never ever d
buy a stock if the price is near "high, or 52 week high". You
will be disappointed when the stock goes down and you lose
money. Always e buy at the lowest price you can get.
Intermediate 🌿
You've been investing for a few months, you are learning the
ends and outs, and you've gained a little experience 2 & .
You've got your feet wet 👣 💦 ! At this point and time you
should have your top 5 stocks. At my intermediate level of
investing, my favorite stocks were Canopy Growth, Cisco,
Apple, Square, and WingStop.
This was me, when I first started out. I was in the
experimental stages of investing 🔬 🔭 . Portfolio
diversification made it so I got decent returns. You want to
diversify (invest in a number of different stocks)
i j k l your portfolio so that you have a better chance of
getting gains, and so that you can easily view which stocks
you like the most.
This was me 2 months after that. I was still practicing portfolio
diversification. I made a few changes to my portfolio, added
an additional $4000 💸 💸 of my own money, and the results
paid offB . Keep reading📚 , learning🧠 , practicing and
asking questions.
High level 🌳
If you purchased this guide, chances are you're not here yet
B , and there's a high chance that when you get here, you
won't need this guide. At this point, you will want to get into
option trading, swing trading, day trading, short selling, etc.
I'll explain all of that later in this guide🤯 😂 . But here's what
my prof olio looked like when everything I've been
researching started to click 3 .
As you can see, I switched my investing style up ♻ . I now
only hold a few long term stocks and I use my additional
money invested to do option trading (calls and puts chapter
7).
This is the Tastyworks 🤪 app. This is the app I primarily use
for day trading options.
It allows me to quickly maneuver in and out of trades. All of
those trades you see were option trades. I ended the day
making $1,152. Not bad at all for 1 day of trading. 🤑
#3 Determining when stocks
are going up 📈or down📉
Prices of stock change everyday by market forces 📈 📉 . This
means that share prices change because of supply and
demand. If more people want to buy a stock (demand) than
sell it (supply), then the price moves up⤴ . On the other
hand, if more people wanted to sell a stock than buy it, there
would be greater supply than demand, and the price would fall
⤵.
What makes a stock go up? 📈 🤔
Let me give you the real...
Of course stocks will receive good news 📰 , they'll announce
a positive rumor, have a great earrings report, etc. But what
people don't understand is market movement. Sometimes
people like you and I can make stocks go up by over-buying
them🤤 💸 . When many people are buying more than they
are selling it's called bullish volume🐂 📈 and the stock will
go up. When buyer participation is high, stocks go up.
Breaking of resistance lines also makes stocks shoot up 🚀
📈.
Stocks tend to move in the category they're in. Large cap
stocks tend to follow the movements of $SPY and $QQQ 👣
👣 (literally). Those 2 stocks are called ETFs, which stands for
exchange traded funds. They are basically a stock that has
shares of many other stocks🌳 🌳 🌳 . Both of these stocks
top 5 biggest holdings are Apple 🍎 , Microsoft 💻 , Amazon
📦 , Google🔎 , and Berkshire Hathaway Bv . When $SPY
and $QQQ are up, the majority of the market is up!📈 🚀
There are exceptions to this and I'll tell you why when I
explain why stocks go down.
There are "outsiders" as I like to call them. Outsiders 👺 👽 👻
are stocks that don't fall under the movement of $SPY and
$QQQ. I still trade them z . But, it is easier to trade stocks
that are going in a direction you are 95% sure where they're
going or projected to go. When the market starts trading side
ways you'll start to look for an alternative. Trust me B .
Here is a short list of stocks owned mutually 👥 within $SPY
and $QQQ:
Apple, Amazon, google, Berkshire Hathaway B.,
Microsoft, Facebook, Exxon Mobil, Intel, AT&T, Bank of
America, Proctor and gamble, Chevron CO, Visa, Coca
Cola, Pepsi, Cisco, Home Depot, Disney, Boeing, etc.
🔎 Google, SPY and QQQ ETF holdings from zacks.com to
view all of them.
What makes a stock go down? 📉 🤔
Bad news😱 , bad rumors] , bad earnings reports🧾 ,
corrections📉 , breaking of support lines 📉 and profit taking
💸 all play a role into stocks going down. I will explain profit
taking in more depth later on. A stock can literally be up, and
out of no where you get a notification of bad news from a
stock that you own. You go back to check on the stock and
sure enough... It went downc .
Remember! 95% of the market moves based on whatever
$SPY, and $QQQ is doing. When these 2 are down, expect a
*majority* of stocks to go down! The market as a whole will
be downc 📉 .
Earnings🧾📆
Every 4 quarters 🌱 🌿 🌳 🍃 companies have to do a
earnings report and publicly 🗣 announce they're earnings
per share, and revenue for the quarter. Most companies do
this on the regular, mostly on a 3 month schedule, but
companies do have the option to follow their own fiscal
calendar. This time period is known as earnings season 🌱
🌿🌳🍃!
Before earnings reports come out, stock analysts issue 👥
earnings estimates (an estimate of the number they think
earnings will hit). These forecasts are then compiled by
research firms into the "consensus earnings estimate". When
a company beats this estimate, it's called an earnings
surprise🥳 and the stock usually moves higher• . If a
company releases earnings below these estimates, it is said
to disappoint🤬 and the price typically moves lower. All of
this makes it hard to try to guess how a stock will move during
earnings season - it's really all about expectations 🤔 🧐 🤯 .
Sometimes a company with a rocketing🚀 stock price might
not be making much money, but the rising price means that
investors are hoping that the company will be profitable in the
future🛸 🔭 📈 .
💡 ƒ Theoretically, if they beat the expected number, the
stock should go up. If they fail to meet the standard, the stock
should go down but that's not always the case🤯 . From my
experience, trying to guess the direction of a stock's
movement after earnings is a gamble🎰 🎲 . Only buy a small
position if you do decide to participate. You can do something
called a straddle and set yourself up for a win-win situation
(see options in chapter 6). A stock could beat their earnings
per share, increase in profits, and still go down because of
some lame bad news. For example, Apple beat their expected
EPS😀 , increased their profits😀 , and still went down
because they failed to sell enough iPads🤬 ... † . Yes... I lost
money.
A bad earnings report consist of many factors. Some
companies do better during certain quarters of the year🌱 🌿
🌳 🍃 . Canadian Marijuana ‡ 🌿 stocks for example, were
way overvalued during their first earnings report and didn't
beat their expected EPS. They kept up-trending based on
hype and optimism from marijuana being legalized federally in
Canada October 17th, 2018.
Volume 📊
Volume is the number of shares or contracts traded in a
period. You use volume to measure the extent of trader
participation📏 📐 🧮 . Volume tells you the number of
shares or contracts traded, not the number of
participants. When you see a price rising accompanied with
volume rising, you're no longer imagining demand of a stock,
but you can clearly see it! 📊 👀 Volume is the easiest and the
most powerful indicator to tell you the movement of a stock
📈📉.
Volume can be measured as an indicator known as “On
Balance Volume” (OBV) or “Chaplin Money Flow”. Or, you
simply by analyzing volume levels. I use OBV and
analyzing volume levels.
Example
This is the app called TRADINGVIEW. I'm using the dark
theme🌚 . The volume is represented by the green and red
bars you see at the bottom of the graph. Green bars mean
there is high participation in buying (bullish volume)• . Red
bars mean there is a high participation in selling (bearish
volume)c . This is $SPY stock. When the stock prices go up,
notice bullish volume rises as well. When it goes down, notice
bearish volume rises. Volume plays a big role into noticing
breakouts or determining patterns. You'll see what I mean
later on. 2 💯
Volume spike 📊 is when a volume number is double or more
the size of volume on the proceedings days 🌿 🌳 . Say
volume has been running at 100,000 shares per day for
several days or weeks and suddenly it explodes to 500,000
shares. If the price had been in a downtrend, this wild
increase in volume means that the crowd is throwing in the
towel and exiting/selling their position Œ • 💨 . This pretty
much means you'll see a spike in red bars, a.k.a. bearish
volume📉 . A breakdown in a support line, bad news, or bad
earnings more than likely took place.
The same thing applies when a stock is on an uptrend and
bullish volume rises📈 . Be prepared to take profits. This
means that traders have used up all their cash and are about
to sell off the stock meaning a downtrend is on its way. Always
keep an eye on volume. So if you see a spike in green bars,
you’re about to engage in profit taking 💸 .
Some people believe that they can predict the movement of
stocks. Others believe that they can draw lines • and use 📊
📐 ⬆ ⬇ ➡ ⬅ ↗ ↘ patterns based on the past movement of
stocks. This is the method I currently use and is the most
accurate.
#4 Candlesticks 🕯
Candlesticks provide traders with a visual representation of
the emotions/status of the market during a trading period. A
trading period can be 1 min, 5 min, 15 min, 30 min, 1 hour,
etc. Candles show you the true 💯 2 price action of a stock
and they confirm volume, buying pressure, and selling
pressure.
Bullish Candle 🐂
A bullish candle says that within that predetermined time
period, (whether it was 1 min, 5 min, 15 min, 30 min, 1 hour, 1
day, etc.), the buyers took control for most of it. To be a
GREEN candle, the close (the closing price of that trading
period) within that trading period has to be higher ⬆ than the
open (the opening price of that trading period). The difference
between the close and open is called the body🚹 . The lines
above the close and open are called shadows. The high •
represents the highest price of that trading period. The low
c represents the lowest price of that trading period.
Bearish Candle 🐻
A bearish candle says that within that predetermined time
period, (whether it was 1 min, 5 min, 15 min, 30 min, 1 hour
etc.), the sellers z took control. To be a RED candle, the
close within that trading period was lower ⬇ than the open.
Long VS Short Bodies 🐍 🐛
Generally speaking, the longer the body is, the more intense
the buying or selling pressure🚀 . Conversely, short
candlesticks indicate little price movement and represent
consolidation🚁 .
Long green candles show strong buying pressure. The
longer the green candle is, the further the close is above the
open • . This shows the prices advanced significantly and
buyers were aggressive. Long green candles🔋 can mark as
potential support levels after a long decline. ✅
Short green candles with short bodies show that buying
pressure is decreasing🍃 . This also shows that buying barely
rose above the open of that period. The Bulls 🐂 won a short
victory over the Bears. Depending on what position the short
candle is in (star, or bearish harami), it could signal a bearish
reversal.🌪
Long red candles🛢 show strong selling pressure. The
longer the red candle is, the further the close is below the
openc . This tells you that prices declined significantly from
the open and the sellers were very aggressiveF . After a long
advance, a long red candle can foreshadow a turning point or
mark as a future resistance level☁ .
Short red candles show low selling pressure and the
prices dropping just a little under the opening price. Short
red candles can signal selling pressure is starting to diminish,
and they can signal a bearish 🐻 reversal depending on their
position (morning star or bearish harami).
Different types of candles 🕯
Marubozu🔋 🛢
Marubozu brothers are very potent examples of candlesticks.
👥 They do not have upper or lower shadows. A Green
Marubozu 🔋 forms when the open is equal to the low and
close is equal to the high. This indicates that the buyer
controlled the price action from the first to last trade🥇 🎊 .
Vice verse with the Red Marubozu 🛢 , the open equals the
high and the close equals the low. This indicates that sellers
controlled the price action from the first to last trade.
Long VS Short Shadows 🐍 🐛
Candle sticks with long upper shadows and short lower
shadows indicate that buyers dominated the session and took
the prices higher. But sellers later forced the prices down
from higher highs, and the weak close created a long upper
shadow🛑 . Conversely, candlesticks with long lower
shadows✅ and short upper shadows indicate that sellers
dominated during the session and drove prices lower.
However, buyers later made a comeback • 💨 to increase
bid prices by the end of the session and the strong close
created a long lower shadow.
Spinning Tops 🌪 ✅ 🛑
Candlesticks with a long upper shadow, long lower shadow,
and small real body are called spinning tops🌪 ✅ 🛑 . One
long shadow represents a reversal of sorts; spinning tops
represent indecision. The small real body shows little
movement from open to close, and the shadows indicate that
both bulls 🐂 and bears 🐻 were active during the session.
Even though the session opened and closed with little
change, prices moved significantly higher and lower in the
meantime. Neither buyers nor sellers could gain the upper
hand and the result was a standoff⚔ . After a long advance or
long green candlestick, a spinning top indicates weakness
among the bulls🐂 and a potential change or interruption in
trend. After a long decline or long red candlestick, a spinning
top indicates weakness among the bears 🐻 and a potential
change or interruption in trend.
Doji✝ ☯
Dojis are very important candles that provide information of
their own and are key 🔑 components in a number of
important patterns. Dojis form when stocks open and close
are virtually equal☯ . The length of the shadows can vary and
the resulting candlestick can look like a cross ✝ , inverted
cross, or plus sign ➕ . Alone, dojis are neutral patterns. Any
bullish🐂 or bearish🐻 bias all depends on a preceding price
action for confirmation. Dojis convey a sense of indecision🤔
or tug of war between buyers and sellers. Prices move above
and below the opening level. The result is a standoff⚔ .
Neither bulls nor bears were able to gain control during that
time period and a turning 🔃 point could be developing.
Long Green and Red candles + Doji
🔋🛢 ➕
After an advance 📈 or long green 🔋 candlestick, a Doji
✝ could signal that buying pressure is diminishing and an
uptrend could be nearing an end📉 . Further confirmation is
require though. A gap down or a long bearish red candle 🛢
can signal that the Doji✝ was a good confirmation of an end
to a down trend.
After a decline or long red candle stick, a Doji could indicate
that selling pressure may be diminishing and the downtrend
could be nearing an end🔚 . Further confirmation is needed
for the Doji to successfully signal an uptrend. A gap up or long
bullish green candle 🔋 could indicate a trend reversal🔃 .
Long-Legged Doji §
Long-legged doji have long upper and lower shadows that are
almost equal in length. This reflects a great amount of
indecision🤔 in the market. Long-legged dojis indicate that
prices traded well above⤴ and below⤵ the session's
opening level, but closed virtually even with the open. After a
whole lot of 🗣 yelling and 🗣 screaming, the end result
showed little change from the initial open.
Dragonfly Doji 🐉 🐲 form when the open, high and close are
equal and the low creates a long lower shadow. The resulting
candlestick looks like a “T” with a long lower shadow and no
upper shadow. Dragonfly dojis 🐲 🐉 indicate that sellers
dominated trading and drove prices lower during the session.
By the end of the session, buyers resurfaced and pushed
prices back to the opening level🚀 📈 and the session high.
The reversal aspect🔃 of a dragonfly doji🐉 all depends on
the previous price movement. After a long downtrend📉 , long
red candlestick🛢 , or at support, a dragonfly doji could signal
a potential bullish reversal or bottom. After a long uptrend, 🔋
long green candlestick or at resistance🔝 , the long lower
shadow could foreshadow a potential bearish reversal or top.
Bearish or bullish confirmation is required for both situations.
Gravestone Doji⚰ form when the open, low and close are
equal and the high creates a long upper shadow. The
resulting candlestick looks like an upside down “T” with a long
upper shadow and no lower shadow. Gravestone⚰ doji
indicates that buyers dominated trading and drove prices
higher during the session. However, by the end of the
session, sellers resurfaced🧟 and pushed prices back down
to the opening level and the session low.⤵
Bullish Reversal Dojis and Patterns🐂📈🔃
Long-legged Dojis § after a long red candle can be a sign
of a bullish reversal after a downtrend. A long green bullish
candle right after the long-legged doji with increased volume
should be used as confirmation.
Duration: 1 min, 5 mins, 15 mins, 30 mins, 1hr for day
trading. 1 day for trend prediction.
Abandoned Baby Bottom (top) 🏃💨👼
A rare 💎 three- day rare reversal pattern characterized by a
gap down⤵ followed by a Doji✝ , which is then followed by
another gap in the opposite direction. The shadows on the
Doji must completely gap below the shadows of the first and
third candle stick for bullish confirmation. That means the
shadows or bodies do NOT overlap.
Duration: 3 days
Hammer🔨
This candlestick forms when prices for that period moves
significantly lower after the open, but rallies to close well
above the period's low. If a hammer is present after a
downtrend📉 , be on the lookout for a up-trending reversal📈
🔃.
Duration: 1 min, 5 mins, 15 mins, 30 mins, 1hr for day
trading. 1 day for trend prediction.
Inverted Hammer 🙃🔨
In a downtrend📉 , the opening price is lower, then it trades
higher, but closes near its open. Therefore, it begins looking
like an inverted lollipop. If spotted during a downtrend📉 , be
on the lookout for an uptrend 📈 with rising volume📊 and
more bullish green 🔋 🔋 candles to follow. Given that long
shadow above the close, it signifies that buying pressure took
place. That's a red flag ⛳ that bullish reversal may take
place.
Duration: 1 min, 5 mins, 15 mins, 30 mins, 1hr for day
trading. 1 day for trend prediction.
Morning Star ⭐
This is a three day candle stick pattern that signals a bullish
reversal. It has a long-bodied🛢 red candlestick extending the
current downtrend📉 , a short middle candle that gapped
down⤵ on the open, and a long bodied green 🔋 candle that
gapped up ⤴ on the open and the close above the midpoint
of the body of the first day.
Duration: 3 days
Morning Star doji ⭐ ✝
A three-day bullish 🐂 📈 🔃 reversal pattern that is very
similar to the Morning Star. The first day is in a downtrend
with a long red body. The next day opens lower with a Doji
that has a small trading range. The last day closes above the
midpoint of the first day.
Duration: 1 min, 5 mins, 15 mins,30 mins, 1hr for day trading.
3 days for trend prediction.
Bullish kicker🐂🥾💥
This is a two-day patten. The first candle needs to be a red
🛢 or bearish candlestick. The second candle (which is green
🔋 or bullish) must open above⤴ the close of the first candle,
forming a gap⤴ . Third, the movement of the price during the
formation of the second candlestick should never drop into the
gap formed between the first and second candle. As you
might have guessed, this means that there is rarely a bottom
wick on the second candlestick.
Duration: 2 days
Bullish Engulfing 😋🍽
This is a bullish reversal pattern so a previous downtrend 📉
should be present. It's a two-day patten. The first candle is a
small red body, followed by a longer candle that completely
engulfs 🔋 the smaller body. It does not require the entire
range (high and low) to be engulfed, just the open and close.
Duration: 1 min, 5 mins, 15 mins, 30 mins, 1hr for day
trading. 2 days for trend prediction.
Bullish Harami ¸
A two-day candle pattern that has a small body candle
completely contained within the range of the previous body,
and is the opposite color🛑 ✅ . It looks the complete opposite
of the engulfing but both are bullish.
Duration: 1 min, 5 mins, 15 mins, 30 mins, 1hr for day
trading. 2 days for trend prediction.
Piercing Line 〽
A bullish two-day reversal pattern. The first day, in a
downtrend, is a long red candle🛢 . The next candle opens at
a new low⤵ , then closes above⤴ 📈 the midpoint of the
body of the first day. To qualify as a bullish reversal, the
candle must close above the midpoint.
Duration: 1 min, 5 mins, 15 mins, 30 mins, 1hr, 2 days
Tweezers Bottom🥢
To identify this bullish signal, look for this (very easy)
criteria: First, there must be two or more adjacent candles of
either🔋 🛢 color. Second, a clear downtrend 📉 should be
present. Third, those candles must reach the same low point.
Having the same low point is the most important factor to
identify a tweezer bottom for a bullish reversal🐂 📈 🔃 .
Duration: 1 min, 5 mins, 15 mins, 30 mins, 1hr, 2 days
Three white (or green) soldiers 👮 👮 👮
There are three things that need to happen for a three white
soldier pattern: First, there must be three long and bullish
green candlesticks in a row
🔋 🔋 🔋 . Second, each of those candles must open above
the previous day’s/period’s open. Ideally, it will open in the
middle price range of the previous day. Third, each candle
must open progressively upward⤴ ⤴ ⤴ , establishing a new
short-term high. Fourth and finally, it is important that the
candles have very small (or nonexistent) upper wicks.
Duration: 1 min, 5 mins, 15 mins, 30 mins, 1hr, 3 days
Three Line Strike (Bullish)
Despite the name, this pattern actually contains 4 candles. 🛢
Red candle must appear on the first day and another candle
on second day 🛢 closing lower than the previous day. Again,
a third 🛢 red candle will appear on the third day, closing lower
than the previous day. Those three escalating red candles
should be followed by a green candle🔋 , which opens
lower than the previous candles but then rises up, closing
above the first candle’s opening price. In the end, this fourth
candle should contain the real bodies of the three previous
candles within its length.
Duration: 4 days
Bearish Reversal Dojis
and Patterns🐻📉🛢
Evening Star ⭐
This is a 3-day pattern. The first day must be represented in a
long green body🔋 to continue the uptrend. Secondly, the
second day must represent indecision🤔 through a Star
candle formation or a Doji, relaying that supply and demand is
fairly equal⚖ . Last but not least, the third day must have a
long red body🛢 that closes down at least halfway into the
body of the first day’s green candle, proving that the bears 🐻
have stepped in strongly and gained control.
Duration: 3 days
Evening Star Doji 🌟
A three-day bearish🐻 📉 reversal pattern is similar to the
Evening Star. The uptrend continues with a large green body
🔋 . The next day opens higher⤴ , trades in a small range,
then closes near its open (Doji)✝ . The next day closes below
🛢 ⤵ the midpoint of the body of the first day.
Duration: 1 min, 5 mins, 15 mins, 30 mins, 1hr for day
trading. 3 days for trend prediction.
Shooting Star 🌠
A single-day pattern that can appear in an uptrend. It opens
higher, trades much higher, then closes near its open. It looks
just like the Inverted Hammer except that it is bearish.
Duration: 1 min, 5 mins, 15 mins, 30 mins, 1hr for day
trading. 1 day for trend prediction.
Abandoned Baby Top 🏃💨👶
This is a 3-day patten. First, there must be a large green
candlestick in an uptrend🔋 📈 . Second, the green candle
must be followed by a doji (either color) that gaps above the
close of the first candle. The last candle in the trio must be red
🛢 and open below ⤵ the doji.
It is very important that there are gaps between the first and
second candles as well as the second and third candles.
There should NOT be overlapping between neighboring
candles.
Duration: 3 days
Hanging Man 🕴
Hanging Man candlesticks form when a stock moves
significantly lower after the open, but rallies to close well
above the low. The resulting candlestick looks like a square
lollipop 🍭 with a long stick. If this candlestick forms during an
advance, then it is called a Hanging Man.
Duration: 1 min, 5 mins, 15 mins, 30 mins, 1hr for day
trading. 1 day trend prediction.
Bearish Kicker🐻🥾💥
First, there must be a green bullish candlestick
🔋 . Second, the green candlestick must be followed by a red
(bearish) candlestick that opens below the first candlestick,
forming a gap. Third, the price during the formation of the
second candlestick must never rise into the gap. Due to this
stipulation, you will rarely find a top wick on the second
candlestick.
Duration: 2 days for trend prediction.
Bearish Engulfing 🐻🍽
This is a bearish reversal pattern so a previous uptrend
should be present. It's a two-day patten. The first candle is a
small green body, followed by a longer red candle🛢 that
completely engulfs the smaller body. It does not require the
entire range (high and low) to be engulfed, just the open and
close.
Duration: 1 min, 5 mins, 15 mins, 30 mins, 1hr for day
trading. 2 days for trend prediction.
Bearish Harami 🐻¸
This is a two-day or day trading candlestick pattern. There
should be a long green 🔋 candle on the first day and small
red candle completely contained within the green candle.
Harami patterns have the longer candle on the left side and
the smaller candle on the right as opposed to the engulfing
patterns. The smaller red candle marks the end of a uptrend.
Buying pressure has diminished.
Duration: 1 min, 5 mins, 15 mins, 30 mins, 1hr for day
trading. 2 days for trend predictions.
Dark Cloud Cover⛈
This patten is made up of 2 candles. Both candlesticks should
have fairly large bodies and the shadows are usually small or
nonexistent, though not necessarily. The red candlestick must
open above🛢 the previous close and close below⤵ the
midpoint of the green candlestick's body to qualify as a
reversal. Just as the bearish engulfing pattern, residual buying
pressure forces prices higher ⤴ on the open, creating an
opening gap above the white candlestick's body. However,
sellers step in after the strong open and push prices lower⤵ .
Duration: 2 days
Tweezer Top
To identify this bearish candlestick pattern, you’ll need to spot
the following criteria: First, there must be two or more
adjacent candles of either color. Second, a clear uptrend
should be present. Third, those candles must reach the same
high point. Having the same high point is the most important
factor to identify a tweezer bottom for a bearish reversal.
Duration: 1 min, 5 mins, 15 mins, 30 mins, 1hr for day
trading. 2 days for trend predictions.
Evening star ⭐
First, the price must be in an unmistakable uptrend📈 (bulls in
control) before the signal can occur. Second, the first day
must be represented in a long green body🔋 to continue the
uptrend. Third, the second day must represent indecision
through a Star candle formation or a Doji✝ , relaying that
supply and demand is fairly equal. Fourth and finally, the third
day must be illustrated with a long red body🛢 that closes
down ⤵ at least halfway into the body of the first day’s green
candle, proving that the bears have stepped in strongly and
gained control.
Duration: 3 days
Three Black crows 🦅🦅🦅
First, there should be a prevailing uptrend📈 in
progress. Second, there must be three long and bearish red
candlesticks🛢 🛢 🛢 in a row. Third, each of those candles
must open below the previous day’s open. Ideally, it will open
in the middle price range of the previous day. Fourth, each
candle must close progressively downward⤵ ⤵ ⤵ ,
establishing a new short-term low. Lastly, it is important that
the candles have very small (or nonexistent) lower wicks.
Three line strike (Bearish) ⚾⚾⚾
First, an uptrend must be in progress. Second, a green candle
🔋 must appear on the first day. Third, another green candle
must appear on the second day🔋 , closing higher than the
previous day. Fourth, a third green candle must appear on the
third day🔋 , again closing higher than the previous day’s
close. These candles continue the established uptrend
📈 . Fifth, those three escalating green candles should be
followed by a LONG red candle🛢 , which opens higher⤴
than the previous candles but then dips down, closing below
⤵ the first candle’s opening price. In the end, this fourth
candle should contain the real bodies of the three previous
candles within its length.
Duration: 4 days
How to use candlestick patterns
To start... You need to download this app called
TradingView. This is the app I use to draw patterns and
analyze stocks. I like to use it on my iPad or laptop as well.
Most of us have jobs or are on the go so I'm going to cater to
this crowd primarily.
Second, you want to make sure your graph is set to "candles"
by tapping the icon circled above.
Third, you want to change your pattern time frame to 1 day
on the TradingView app by simply taping/clicking whatever
time frame is present, and scrolling down until you see "1
day".
Examples of candlestick patterns used on a daily chart
I use candlesticks for volume confirmation during breakouts
and to further my hypothesis of the next day's price action. Do
NOT get too caught up in trying to trade based on candlestick
patterns. Price movement is never 100% predictable. No
patten or indicators is ever 100% right. You always need
further confirmation before executing a pattern. I switch from
the 5min and 15min chart during the day to give me a
clear idea of the emotions of the market in live action.
#5 Analyzing patterns in a
graph📊📈📉
I'm going to cover my top patterns that I use to gain a trading
edge and make a lot of money. There are plenty of patterns
but any investor will tell you that they have favorites. I'm
showing you my favorites!
First- you need to understand basic lines. You will see me
mentioning some of these lines throughout this chapter.
Hopefully, no one forgot these 😂 👀 .
Second - you need to understand your support and
resistance lines. "Resistance" is a series of highs and
"support" is a series of lows. Resistance is your ceiling ⤴ and
support⤵ is your floor. Imagine a bouncy ball 🏀 . If you
throw a bouncy ball at the ceiling, it'll come right back
down⤴ ⤵ . If you throw it at the floor, it'll bounce up from the
floor⤵ ⤴ . That's how you need to imagine 💭 drawing your
support and resistance lines, viewing how prices bounce. If it
bounces down from that line, it is resistance • . If it bounces
up from that line, it's support c .
To make things simple for you, I made support lines red ⛔
and resistance lines green✅ . You'll keep seeing me repeat
throughout this chapter "I saw it break the line of support so I
decided to do a PUT optionÈ 💰 " or "I saw it break the line of
resistance so I decided to do a CALL optionz 💰 " . Breaking
the line of resistance or line of support is called a breakout.
When the price breaks an accurately drawn green line of
resistance ✅ , the price of the stock moves up⤴ . When a
stock breaks an accurately drawn line of support ⛔ , the price
of the stock will move down ⤵ .
The best way I can explain locating a line of support or
resistance is by observing a pattern of prices touching an
imaginary line multiple times. You'll quickly be able to
recognize them forming horizontally ➡ and diagonally ↘ ↗ .
Let's practice one really quick.
What do you see? In the famous words of my homie
Spongebob: "use your imagination🌈 ". Can you spot a
triangle 🔺 ?
In the top left corner you see the name of the stock "MDT",
which is the symbol for MedTronic.
What do I see? I see a bullish symmetrical triangle pattern
🔺 forming and a breakout🚀 . I drew a red line of support and
a green line of resistance✅ . The prices shot past the green
line of resistance. If the the triangle is drawn correctly, you'll
see a jump in prices 9/10 times. At the ending stages of your
triangle, it is called the consolidation period. This is when
volume (trading participation) is low. After every period of
consolidation, a breakout will take place🚀 . You just have to
know when, where, how, and why!
Next, I will be using the "line" feature to give you a better
visual 👁 representation of a pattern. It is important to still use
the candlestick feature when analyzing a chart. Candlesticks
🕯 are best used for price action and viewing EXACT
highs⤴ , lows⤵ , closing🔚 , and opening prices. You can see
more of the flow of prices using lines but sometimes they
don’t provide you with exact highs and lows. They simply
make patterns more appealing to the eye👁 2 .
Now let's jump right into these patterns!
Ascending triangle ↗🐂📈
This triangle usually appears during an upward trend and is
regarded as a continuation pattern. It is a 🐃 📈 bullish
pattern. Sometimes it can be created as part of a reversal at
the end of a downward trend, but more commonly it is a
continuation. Ascending triangles are always bullish patterns
whenever they occur.
Prior trend🔙 : Could be an advance, or a downtrend. The
important matter is the pattern.
Top Horizontal Line: At least 2 or more touches (a.k.a.
reaction highs, meaning every time it gets to this high price,
it reacts to drop down in price) of your ➡ horizontal resistance
line is needed to draw your pattern. You should be able to
connect these highs forming a horizontally straight line across
the top. The highs do not have to be exact, but they should
be within reasonable proximity of each other.
Lower Ascending Trend Line: At least 2 touches (reaction
lows) of your lower ascending trend line is needed. Your
ascending trend line should ALWAYS go diagonally in this
direction ↗ . These reaction lows should be successively
higher, and there should be some distance between the lows.
Duration📅 : 1-3 weeks 1-3 months for ascending triangle.
Volume📊 : Increased volume is preferred during the breakout
but volume doesn't really matter with this pattern. The
breakout is what's important.
Breakout🚀 : Breaking the horizontal line of resistance is key.
Don't make a move until it broke out at least 2-3%.
Target/exiting point🎯 : You should sell and take profits by
measuring from your first touch of your support line, to the
resistance line. Take that same measurement and apply it to
estimate how far your stock will go. Mark your exiting point in
your notes or use alerts. I use Pivot points, candlestick
patterns, or I simply take profits at a comfortable gain to
determine my exiting strategy.
Example:
This is UPS. They are the famous mail delivery company.
They formed an ascending triangle.
•
Horizontal line of resistance across the top and
diagonal line of support converging into a triangle
shape✅
•
Atleast 2 or more touches of support and resistance
lines ✅
•
A breakout of the resistance line ✅
•
Increased volume during breakout✅
My reaction to this:
Once I saw a break in resistance line, I quickly did a call
option! I profited $212.
Descending Triangle ↘🐻📉
The Descending Triangle is another continuation pattern, but
this triangle is a 🐻 📉 bearish pattern and is usually created
as a continuation during a downward trend. Occasionally it
can be seen as a reversal during an upward trend (the
opposite of the ascending triangle pattern), but it is
considered to be a continuation. To qualify, there must be a
breakdown of the support line.
Prior Trend🔙 : It could be both a up or down trend. The
pattern is what's most important.
Lower Horizontal Line: At least 2 touches (a.k.a. reaction
lows meaning every time it gets to this area of ⤵ low prices,
it reacts to go ⤴ upward in price) are required to form the
lower horizontal line. The lows do not have to be exact, but
should be within reasonable proximity of each other. There
should be some distance separating the lows and a reaction
high between them.
Upper Descending Trend Line: At least 2 or more touches
(reaction highs) are required to form the upper ↘ descending
trend line. These reaction highs should be successively lower
and there should be some distance between the highs. If a
more recent reaction high is equal to or greater than the
previous reaction high, then the descending triangle is not
valid. This means that the prices should go down diagonally
like this ↘ to form a triangle.
Duration📅 : 1-3 weeks or 1-3 months for descending
triangles.
Breakout🚀 : Must break the support line to confirm a
breakout. Wait for a breakdown of at least 2-3% for
confirmation.
Target/Exiting Point🎯 : You get your exiting point from
measuring the distance from the peak of your first reaction
high of your resistance line, to the support line. Take that
measurement and use it as an estimate to exit the breakout's
advance. I always exit a little before the estimated target.
I use Pivot points, candlestick patterns, or I simply take profits
at a comfortable gain to determine my exiting strategy.
Example:
This is Adobe stock. I'm sure you're familiar with the company.
Horizontal support line, and the diagonal resistance line
•
slopes downward converging into a triangle✅
•
At least 2 touches of support and resistance lines ✅
•
Breakdown of the support line ✅
I didn't get a chance to do a put option here. But it did bounce
back after the breakdown and I did a call option there. I'll
show you later in this chapter when I explain my trend-line
rule.
Pennant 🐂🐻📈📉
A Pennant is created when there is a significant movement in
the stock, followed by a period of consolidation (steady
movement within a limited price range). There aren’t much
trading opportunities during this period, which creates the
pennant shape due to the converging lines ">". A breakout
movement then occurs in the same direction as the big stock
move. It can also breakdown past the support line, especially
during a downward trend. This pattern will be your bread and
butter because it occurs frequently. If the prior trend is
advancing, it has to breakout in a uptrend in order to be
considered a pennant. These are also similar to flag patterns
because they last between one and four weeks. Consider this
pattern to be a pause in movement before a breakout.
Prior trend🔙 : There has to be upturning sharp movement
that usually contains gaps. The advance should only be 1-3
weeks old.
Trend-lines: 2 or more reactions highs touching the
resistance and 2 or more reactions lows touching the support
line.
Duration📅 : 1-3 weeks. Anything past that should be
considered a symmetrical triangle.
Volume📊 : There will be significant volume at the initial stock
movement, followed by weaker volume in the pennant
section, and growth in volume at the breakout.
⚠ Warning: Wait for the breakout to occur. Never try to
guess the direction of the breakout because it could go either
way depending on which line it breaks. Wait for the breakout
to go up at least 2-3% before making a move.
Target/exiting point🎯 : Measure from the peak of your first
touch of the resistance line to your support line. Use that
measurement to estimate when you should exit.
I use Pivot points, candlestick patterns, or I simply take profits
at a comfortable gain to determine my exiting strategy.
Example:
This is FedEx stock that formed a pennant pattern.
•
Prior trend lasting a couple of weeks✅
•
2-3 touches of the support and resistance lines✅
•
Duration of at-least 1-4 weeks ✅
•
Bullish volume with the breakout ✅
My Reaction:
I executed a call option and profited $178 with a 57% gain. I'll
take it! 3 💰
Bullish Symmetric Triangles
🐂📈
The symmetrical triangle pattern is easy to spot thanks to the
distinctive shape, which is developed by the two trend-lines
that converge. This pattern looks similar to a pennant. The
only difference is the time frame between them. Symmetrical
triangles typically last between 1-3 months and pennants 1-3
weeks. This is a pattern you have to watch closely because it
can either be a reversal or a continuation. But in this case, it's
a bullish pennant. For example, if it's in an uptrend and
breaks the line of resistance, it is a continuation. But if it
breaks the line of support, it is a reversal. By now you should
know that breaking the line of resistance means bullish, and
breaking the line of support means bearish.
Prior trend🔙 : While there are some instances where they're
marked as reversals, more often they are continuation
patterns. Regardless, the trend should be a few months old.
Trend-lines: 2 or more reaction highs touching the resistance
and 2 or more reaction lows touching the support line.
Duration📅 : The symmetrical triangle can extend for a few
weeks or many months. If the pattern is less than 3 weeks, it
is usually considered a pennant. Typically, the time duration
is about 1-3 months.
Volume📊 : As the symmetrical triangle extends and the
trading range contracts, volume should start to diminish. This
is referred to the quiet before the storm, or tightening
consolidation before a breakout.
Target/Exciting Point🎯 : Measure from the first touch of
your support line to the to your resistance line. Take that
measurement and estimate when you should exit.
I use Pivot points, candlestick patterns, or I simply take profits
at a comfortable gain to determine my exiting strategy.
⚠ Warning: Never try to guess the direction of a breakout.
Wait for confirmation of break in a support or resistance line.
In this case of a bullish symmetrical triangle, you want to wait
for a break in the resistance line.
Example:
This is Moodys Co. and I quickly spotted a symmetrical
triangle.
•
•
In this case the pattern became a reversal instead of a
continuation and went through a retracement period. (A
retracement is a temporary reversal in the direction of a
stock's price that goes against the prevailing trend). ✅
2 or more touches of the support and resistance lines.
✅
•
1-3 month pattern. ✅
•
Breakout of the resistance line ✅
My reaction to this:
I did a call option and made a $260 profit with a 72% gain
once I spotted that it broke the green resistance line.
Bearish symmetrical triangle
📉🐻
This pattern will look exactly like a bullish symmetrical triangle
except the breakout will be in a downtrend. This time, it will
break the support line. This is where you do a PUT option so
that you can make money while the stock goes down. You
should also sell your position to avoid losing money. The
duration is the exact same: 1-3 months. During a breakout,
you will see bearish volume aka a sell off. Either bad news
took place, a correction in price, or people are taking profits.
Target/exiting point🎯 : Measure from the first touch of your
support line to the resistance line. Use those same
measurements to estimate an exiting point.
I use Pivot points, candlestick patterns, or I simply take profits
at a comfortable gain to determine my exiting strategy.
Example:
This is Conocophillips stock.
Prior trend a downtrend so it qualifies as a continuation.
•
✅
2 or more touches of the support and resistance lines
•
✅
•
1-3 month pattern ✅
•
Breakdown of the support line✅
I did not get a chance to do a put option on this stock but at
least you get to see an example.
Flag Continuation ⛳🏁🐂📈
The Flag Continuation pattern forms through
Rectangular/parallel lines that developed as a pullback from
an uptrend. The rectangle develops from two trend-lines
which form the support and resistance until the price breaks
out. The flag will have sloping trend-lines ↘ ↘ , and the slope
should move in the opposite direction↗ ↘ to the original
price movement. Once the price breaks the resistance or
support line, this creates the buy/call option or sell/put option
signal.
Prior trend🔙 : Significant moment in a up trend. It usually
contains gaps and heavy volume.
Trend lines: 2 or more reactions highs touching the
resistance and 2 or more reactions lows touching the support
line.
Duration📅 : This is also a short term pattern lasting 1-4
weeks.
Target/exiting point🎯 : The length of the flagpole can be
applied to the resistance break or support break of the flag to
estimate the advance or decline.
I use Pivot points, candlestick patterns, or I simply take profits
to determine my exiting strategy.
Example:
This is Berkshire Hathaway B stock owned by Warren Buffet,
the most famous investor of all time. This stock formed a flag
continuation pattern that I quickly caught.
•
Prior trend gaps with heavy volume ✅
Flag pattern formed (pullback/consolidation period)
•
after significant movement ✅
2 or touches for both the support and resistance lines.
•
✅
Breakout of the resistance line to confirm the flag
•
continuation pattern ✅
My reaction 🤑 :
I quickly executed a call option and profited $183 with a 98%
gain once I saw it break the green resistance line.
Price Channels 🧬🐂📈
Price Channels are used when a stock is trading within a
specific range of prices that either slope upward, downward,
or horizontally. The upper trend line marks as resistance and
the lower trend line marks as support. A bullish price
channel refers to a channel with a positive slope. A bearish
price channel refers to a stock with a negative slope, and
horizontal price channel refers to a channel that is trading
sides ways horizontally. Each channel ends with either a
breakout of support or resistance lines.
Trend lines: To qualify as a channel there should be at least
2 or more touches of both support and resistance lines.
Duration📅 : Hours, days, weeks, or months. As long a prices
trade within a certain range, it qualifies as a channel. I use
them for day trading often.
Example:
SPY marked as a horizontal price channel.
•
2 or more touches of support and resistance lines ✅
•
Prices trading in a range horizontally ✅
Example:
I was able to catch a few of the peaks and troughs with this
horizontal price channel and made a lot of money doing so.
Here's an example of me buying a Put on SPY. I knew that it
was trading within a channel. Once SPY reached resistance, I
knew it would bounce down from it if it didn't breakout.
Rounding Bottom 🥣🐂📈
This is a longterm bullish reversal pattern. This is sometimes
referred to a “saucer bottom”.
Decline📉 : The first portion of the rounding bottom will be the
low of the pattern. This decline can take on many forms.
Some are quite jagged with a number of reaction highs and
lows, while others trade lower in a more linear fashion.
Low⤵ : The low of the rounding bottom can look like a "V"
shape but should not be too sharp and only take a few weeks
to form.
Advance📈 : The advance from the low should take about the
same amount of time as the prior decline. If the advance is
too sharp, you should question the validity of the pattern.
Breakout🚀 : The pattern is confirmed when the pattern
breaks above the previous reaction high that marked the
beginning of the decline at the start of the pattern. There
should be increased bullish volume on the breakout.
Duration📅 : Typically from a few weeks to 1-6 months.
Examples:
This Abbvie, a big pharmaceutical company and they formed
a rounding bottom.
•
Down trend with a reaction high ✅
•
Cup formed ✅
•
Duration of pattern lasting a few weeks✅
•
Break of green resistance line ✅
My reaction to this:
I did a call option after I noticed a break of resistance and only
profited $54. The point is that I successfully executed the
pattern.
Falling Wedge 🐂📈
The Falling Wedge patten is a bullish continuation pattern. It
has a prior uptrend and falls for a few months until a breakout
happens, which will continue the uptrend. It will begin wide at
the top and contracts as prices move lower. This price action
forms a cone shape as reaction highs and lows converge. The
falling wedge is strictly bullish.
Prior trend🔙 : It should have a prior uptrend that forms over
3-6 months, and the down trend should be at least 3 months
old.
Trend lines: At least 2 reaction highs (ideally 3) need to touch
the upper resistance line and at least 2 reaction lows need to
touch the lower support line.
Duration📅 : The pattern usually forms over a 3-6 month
period and the preceding downtrend should be at least 3
months old.
Volume📊 : Volume is only important during the breakout.
Rising volume will confirm the breakout.
Example:
This is Aurora Cannabis!
•
Prior uptrend that formed over 3-6 months. ✅
2 or more touches of the support and resistance lines
•
✅
•
•
The wedge patten lasting at least 3 months ✅
Breakout of the resistance line with bullish green
volume to match✅
My reaction to this!
I profited $405! I'll take it!
Cup and Handle☕🐂📈
The Cup with Handle pattern is a bullish continuation pattern
that marks a consolidation trading period followed by a
breakout. The cup forms after an advance (uptrend) and looks
like a rounding bottom. As the cup is completed, a trading
range starts to develop on the right-hand side and the handle
is formed. If a breakout happens after the handle, you have
confirmation of the pattern.
Prior trend🔙 : There should be an trend prior to the cup
formation. The trend should be a few months old and not too
mature. The more mature the trend, the less likely it'll mark as
a continuation.
Cup☕ : The cup should be U-shaped, resemble a bowl, or
rounding bottom. A V-shape is sharp of a reversal to qualify.
The up will appear jagged at the bottom of the cup. The cup
should be a few months long. The perfect cup should have
equal highs on both sides of the cup but that's not always the
case.
Handle: After the high forms on the right side of the cup,
there will be a pullback that creates the handle. This pullback
will resemble a flag pattern. This is the final consolidation
before the BIG breakout. The smaller the retracement, the
more bullish the formation and significant the breakout.
Volume📊 : there should be a significant increase in volume
on the breakout above the handles resistance line.
Duration📅 : 1-6 months for the cup and 1-4 weeks for the
handle.
Target🎯 : The projected advance after the breakout can be
estimated by measuring the distance from the peak of the
right side to the bottom of the cup. That will give you your
rough estimate. I recommend taking profits as you.
I use Pivot points, candlestick patterns, or I simply take profits
to determine my exiting strategy.
Example:
This is American Express Company stock with a cup and
handle pattern.
•
Prior trend only being a few months old. ✅
Cup lasting 1-6 months. (Keep in mind that the cup
•
does not always have to be equal highs) ✅
•
Handle lasting 1-4 weeks ✅
•
Breakout with matching volume ✅
I did not get a chance to do a call option on this stock but
once again... it made for a great example of a pattern!
Rising wedge 🐻📉
The Rising Wedge is a bearish pattern that begins wide at the
bottom and contracts as prices move higher and the trading
range narrows. This is a reversal patten.
Prior Trend🔙 : The rising wedge usually forms over a 3-6
month period and can become a intermediate or long term
trend reversal.
Trend-lines: At least 2 or more touches of your upper
resistance line and 2 or more touches of your lower support
line.
Contraction: The upper resistance line and lower support line
will converge as the pattern matures.
Support Break☄ : Bearish confirmation does not happen
until the support line is broken in convincing fashion. Once
support is broken, there can sometimes be a test of the
breakdown meaning your support line will turn into resistance.
The stock prices might try to touch the new resistance line.
Volume📊 : Volume will decline as prices rise and the wedge
forms. There will be an more volume during the breakdown
which is confirmation.
Example:
This is QQQ... A notorious ETF that has an effect on market
movement
•
Prior uptrend lasting 3-6 months✅
2 or more touches of the support and resistance lines
•
✅
•
Support line broken in convincing fashion ✅
•
Bearish volume during breakout ✅
The following patterns are ones that I don't frequently see
or use but I never count them out! I account for all
patterns! I literally memorized each patten. And believe it
or not, I often refer back to this guide for confirmation.
Head and shoulders 👤🐻📉
A Head and Shoulders is a reversal patten. Because it's a
bearish reversal patten, there has to be evidence of a
previous uptrend. The pattern contains three peaks. Often the
head will be the highest peak. Although symmetry is
preferred, the and right shoulders do NOT have to be exact.
Prior to the breakdown, your neckline is your support line. The
neckline does not always have to be horizontal either.
Prior Trend🔙 : A prior uptrend must exist in order to
establish this pattern.
Left shoulder: While up-trending, the left shoulder forms a
peak that marks the high point of the trend. After the peak, a
decline will mark the completion of the left shoulder.
Head🗣 : From the low of the left shoulder, an advance
(uptrend) begins that will be higher than your left shoulder.
After peaking, the low will mark the second point of your
neckline.
Right shoulder: The advance from the low of the head will
mark the peak of the right shoulder. The peak should be lower
than the head and usually in line with the high of the left
shoulder. While symmetry is preferred, sometimes the right
shoulders can be a little off. The decline from the peak of right
shoulder should eventually break the neckline.
Neckline: The neckline forms by connecting low points of the
end on the decline of the left shoulder, and the low point of the
end on the decline of the head. Depending on the relationship
of the two low points, the neckline can slope up, slope down,
or be horizontal. The slope of the neckline will affect the
pattern's degree of bearishness- a downward slope is more
bearish than an upward slope.
Volume📊 : Volume is very important when it comes to
confirmation. Ideally, but not always. Volume should be higher
during the advance of the left shoulder than during the
advance of the head.
Warning signs - the decrease in volume and the new high
together and when volume increases on the decline from the
peak of the head.
Neckline Break: The pattern is not complete until a break in
the neckline. It should occur in convincing fashion with
increased volume.
Support turned resistance: After a break in the neckline,
often the neckline/support will turn into resistance. Sometimes
the prices will return to the resistance line to give another
chance to sell.
Price Target🎯 : Measure from the neckline to the peak of the
head. Use that same measurement as a rough estimate as to
how far the price with drop from the neckline/support line.
⚠ Warning: This is a rough estimate and I always recommend
taking profits.
Duration: From a few weeks, to 1-6 months as the usual
timeframe.
Inverse Head and Shoulders
🙃📈
The Inverse Head and Shoulders, sometimes referred to as a
head and shoulders bottom, is a reversal patten. There must
be a prior down trend to reverse. The pattern contains 3
successive troughs (down trends) with the middle trough
(head) being the deepest. Ideally the left and right shoulder
will be equal in length and width but that's not always the
case.
Prior Trend🔙 : A prior downtrend must occur in order for this
pattern to exist.
Left shoulder: The left shoulder should mark as a new
reaction low. After the advance, it will successfully complete
the left shoulder.
Head🗣 : From the high of the left shoulder, a decline begins
that will exceed the previous low and form the low point of the
head. An advance should occur right after the low. The high of
the advance should mark as the completion of the head and
the second point of the neckline. The high of the head can
sometimes break the down trend-line.
Right Shoulder: The decline from the high of the head
neckline begins to form the right shoulder. This low is always
higher than the head's low. While symmetry is preferred,
sometimes the shoulder can be different. It could be higher,
lower, wider, or narrower.
Neckline: The neckline forms by connecting reaction highs
from left shoulder and head. Depending on the relationship
between the two reaction highs, the neckline can slope up,
slope down, or be horizontal.
Volume📊 : Volume levels during the first half are less
important than the second half. The advance from the low of
the head should show an increase in volume. After the
reaction high forms the second neckline point, the right
shoulders decline should have light volume. The most
important volume moment occurs on the advance from
the low of the right shoulder. For a breakout to be valid,
there needs to be an increase of volume on the advance and
during the breakout.
Neckline Break: The pattern is not complete until the
neckline breakouts in convincing fashion.
Price Target🎯 : The projected advance if found by
measuring the distance from the neckline to the bottom of the
head. Use this same measurement for you projected advance
for the breakout from your neckline.
Duration📅 : From a few weeks to 1-6 months as the usual
time frame
Triple Bottom Ô🐂📈
The Triple Bottom is a bullish reversal patten. There are 3
equal lows followed by a break above resistance.
Prior Trend🔙 : A down trend must exist in order to qualify
Three Lows: All three lows should be reasonably equal and
well-spaced. They don't have to exact, but within close
proximity.
Volume📊 : As the triple bottom reversal develops, overall
volume levels usually decline. Volume sometimes increases
near the lows. After the third low, an expansion of volume on
the advance and at the resistance breakout reinforces the
soundness of the pattern.
Resistance break🚀 : A break of resistance will mark as a
reversal. It should break in convincing fashion.
Duration📅 : Usually 3-6 months
Price target 🎯 : Usually long term reversal. Take profits as
you go.
Double Bottom Õ
The Double Bottom is a reversal patten that is marked as
either and intermediate or long term change in trend.
Prior trend🔙 : A prior downtrend must exist in order to
establish the validity of the pattern.
First trough⤵ : The first trough will mark the lowest point of
the initial down trend.
Peak⤴ : After the first trough, an advance should take place
that typically ranges from 10% to 20%. The high of the peak is
sometimes round or drawn out. That represents hesitation.
Hesitation indicates demand is increasing, but not strong
enough for a breakout.
Second Trough⤵ : The decline off of the reaction high
usually occurs with low volume and meets the already
established support line. The time period between the troughs
can last for a few weeks to many months, with the norm being
1-3 months. While exact troughs are preferable, a second
trough within 3% is considered valid.
Advance from trough📈 : Volume is more important during a
double bottom than a double top. There should be a clear
evidence that volume and buying pressure is accelerating
during the advance from the second trough.
Resistance Break🚀 : Even after trading up to resistance, the
pattern is still not compete until a breakout occurs. A
noticeable break of resistance with increased volume confirms
a breakout.
Duration📅 : The time period between the troughs can last for
a few weeks to many months, with the norm being 1-3
months.
Double Top ccReversals
The Double Top is a bearish reversals patten. Its objective is
to reverse an uptrend.
Prior trend🔙 : Uptrend lasting several months.
First peak⤴ : The first peak should mark as the highest
point of the current trend.
Trough⤵ : After the first peak a decline takes place that
typically ranges from 10-20%. The lows are sometimes
rounded or drawn out a bit.
Second Peak⤴ : The advance off of the peak usually occurs
with low volume and meets resistance from the previous from
the previous high. Even after meeting resistance, the
possibility of a double top reversal still needs more
confirmation. The time period between peaks can range from
a few weeks to 1-3 months. While exact peaks are preferable,
a peak within 3% is acceptable.
Decline from the peak📉 : There should be an increase in
bearish volume on the decline, perhaps marked with a gap or
two. The declined shows that forces of demand are becoming
weaker than supply and test of support is near.
Support Break☄ 📉 : Even after trading down to support, the
pattern is still not complete. Breaking support between the
lowest point between the peaks completes the double top
pattern. Of course, an increase of bearish volume should
occur.
Duration📅 : From a few weeks to 1-3 months.
.
#6 Option Trading 🛒
Disclaimer⚠ : Options involve huge risks and are not
suitable for everyone🚧 . I recommend NOT trying option
trading if you are inexperienced. Although options
inherently come with great risk, it offers great reward and
profits💰 💸 💵 . You could lose hundreds, or even thousands
of dollars trying this without understanding market movement,
pattern reading, and how to incorporate indicators. It is
important to understand that when you buy an option, you
must be correct in the direction of the stock's movement💯 ,
and also the magnitude and timing of this movement. In other
words, to succeed, you must correctly predict the whether the
stock will of up📈 or down📉 , and you have to correctly
predict the magnitude of the price change. You also need to
predict the time frame in which all of this will happen🤯 .
What are options? 🤔 🛒
Options are instruments a trader can use to buy contracts.
They are contractual agreements between two parties👥 .
Option contracts give the owner rights and the seller
obligations. I only buy call or put options. Calls are essentially
betting on the prices of the stock to go up⤴ 3 . Puts are
betting on the prices to down3 ⤵ .
For a more thorough understanding....
Call option📈 📞 - A call option gives the owner (seller) the
right (obligation) to BUY (sell) a specific number of shares
(100 shares in Robinhood or Tastyworks) of a stock for a
specific price by a predetermined date. It gives you the
opportunity to profit from price gains in a stock for the fraction
of the cost of owning a stock. You're betting on the stock to go
up.
Put option📉 ⚓ - A put option gives the owner (seller) the
rights (obligation) to SELL (buy) a specific number of shares
(100 shares in Robinhood) of a stock at a specific price by a
specific date. It gives you the opportunity to profit from falling
prices📉 🤯 💸 . Yes, you can now make money while prices
are falling. Some investors use put options to protect their
portfolio, others use it for financial gain. Me? Financial gain!
🤑
Things you be need consider when trading options
•
Don't trade money you aren't willing to lose😳 . Each
option option trade is theoretically a gamble🎲 🎰 .
Using Technical analysis 💡 and staying current with
•
news📰 will further increase the probability of guessing
the stock's direction correctly.
Not all stocks provide option trading capabilities B .
•
Timing is everything⌛ . Give the option some time to
deliver your expectations⏱ . Each contract has an
expiration date📅 . You can always exit you contract
•
•
•
before expiration date to lock in profits🔐 💵 .
You can only lose what you put in to the trade. If you
paid $50 for trade you can only lose $50.
Take profits with gaps💰 . If you happen to purchase an
option contract and the stock gaps in the direction of
your favor, consider yourself lucky and take profits
immediately before the gap gets filled. Not all gaps get
filled, but from my experience, most do, especially
during a bear market🐻 📉 . You're better safe than
sorry.
You must gain trader discipline 🧠 and set up trading
rules. I'll explain my option trading rules later in this
chapter.
Each option trade has a break even price⚖ 💰 . A break
even price is the price that the stock needs to be in order for
you not to lose money before your option expires. You don't
profit or lose money. You're even. Consider this a good thing
lol2 💯 .
Strike price⚾ 💰 - The strike price is defined as the price at
which the holder of an option can buy (in the case of a call
option) or sell (in the case of a put option) the stock when the
option is exercised. Strike price is also known as exercise
price. I'll explain this in more depth provided with examples
and how I choose my strike price.
Volatility📉 📈 📉 📈 is a measure of price variance. High
volatility⤴ z usually refers to a stock with high rate of price
changes. They are riskier to trade, making them more
expensive for option trading💸 💸 . They also offer the biggest
gains or losses. Low volatility⤵ z refers to a stock with a
low rate of price changes. They are less risky to trade and are
less expensive for option trading. It gives you a high
probability of giving you profit, and low probability of delivering
a loss. It's easier on the nerves.
How volatility arises🤔 📉 📈 ... Crowd movement. Volatility
arises when traders get excited about a new move. They
anticipate taking the price to new highs or lows, which
arouses greed in bulls🐂 putting on new positions and fear in
bears🐻 who scramble to get out of the way buy selling their
positions. Volatility tends to be abnormally low before a
turning point and extremely high just as the price is taking off.
Sometimes volatility can be low for no price related reason.
Historical volatility (HV) 🗽 🗿 is a measure of past
movement in a stock.
Implied volatility (IV) 🥴 is one component of an option’s
price and is related to the time remaining until expiration.
A trending stock that has low volatility offers the best trade
because it has a high probability of giving you a profit and low
probability of delivering a loss. It is also easier on the nerves.
Here’s why low volatility means the best trade: You can
project the price range of a low-volatility trending security into
the future with more confidence than a high-volatility security.
RobinHood made it easy for you to see the degree of volatility
for each stock.
By buying an option, you are buying a specific set of rights📜 .
By selling an option, you are acquiring a specific set of
obligations🤝 . These rights and obligations are standard and
are guaranteed by the Option Clearing Corporation (OCC), so
you never have to worry about whose on the other end of the
agreement.
Rules unique to options cost:
Liquidity🐬 💦 - The ease at which you can enter a trade
without impacting it's price. Low liquidity securities are more
expensive.
Time📅 ⌛ - The more time you are purchasing, the more
expensive the option.
Volatility📉 📈 - The more volatile the option, the more
expensive.
Spread- The difference between the market bid and the ask
price. When liquidity is low, the spread widens. Slippage is the
money lost due to the spread.
Liquidity saves you money. Lean toward higher open interest
contracts with higher volumes when trading options to reduce
the impact of slippage costs. These liquid contracts can be
more easily entered and exited without widening the spread
and increasing your costs.
Higher volume and less volatility equals cheaper options
The more time until the contract expires, the more the option
costs. The only problem is, every day you own the contract,
time to expiration is decreasing, and so is the option’s value
associated with it. Theta is the measure that provides you
with the estimated value lost on a daily basis.
Value of options depends on
The type of options call or put
•
The open strike price
•
The price of the stock
•
Volume
•
Volatility
•
Expiration date
•
Leverage with reduced risk.
The greatest benefit of trading individual options is the type of
leverage you access. First, consider leverage with the stock
market —when buying on margin, you borrow from your
broker to buy stock, which gives you the opportunity to own
more shares. As you probably know, using leverage this way
is a double-edged sword: When using leverage to buy stock
you reap additional rewards when the stock moves in your
favor, but You also reap additional losses when the stock goes
down. I recommend trading options with cash accounts only.
Example:
Look at SQ (Square, Inc.). This photo shows a prime example
of how a call option trade can be more beneficial and cheaper
when a stock is in a uptrend. Remember, a call is betting on
the price to go up. The ease at which I can profit trading
options is far greater than buying 10 shares of Square.
The Greeks! ♈♌♐♏♋⛎
Greeks give you the value of expected change in a option.
Delta: Represents the expected change in the option value for
each $ 1 change in the price of the underlying stock. Gamma:
Represents the expected change in delta for each $ 1 change
in the price of the underlying stock.
Theta: Represents the option’s expected daily decline due to
time.
Vega: Represents the expected change in the option value
due to changes in volatility expectations for the underlying
stock.
Rho: Estimates changes in the option value due to changes in
the risk-free interest rate (usually T-bills). Option price
changes attributable to interest rates are much smaller, so this
last measure receives less coverage.
Using an option calculator, you enter the price of the
underlying stock, the option strike price, time to expirations,
and the option quote. The calculator then provides each of the
Greek values listed.
Make money no matter what direction the stock
goes
😱💸📉📈
There are 2 strategies that you can use to profit from trading
options no matter if the stock goes up or down. These
strategies rely on big moves and they are strategies only
unique to options. These big moves consist of accelerating
prices, increasing volatility, increasing volume, and a long
enough expiration date in order to be successful. The 2
strategies that allow you to profit under such conditions are
called a straddle and a strangle. Both of these positions
combine a long call and a long put. This usually requires the
losing price to drop near ZERO while the winning price soars.
I only use the straddle strategy.
Straddle- A combination position you create by purchasing
both a call and a put for the same stock. You use this strategy
when you expect a big move in stock but you are not sure of
the direction. You construct a straddle by using the following:
A long call and a long put. (To account for time decay
•
and to give the big move enough time to be executed)
The same expiration date
•
Around the same strike price
•
The reason why the basic form of this strategy requires a
large directional move is because all the profits are expected
to result from one leg of the position, while the other leg will
expire worthless. This is assuming the move is big enough to
double or be well above a 100% gain.
Here are times you can anticipate big moves🚀 📈 📉
When you see sideways trends or consolidation, you’ll
•
find it common that big moves happen after prices
break away from periods of consolidation.
Prior to scheduled events, such as earning reports and
•
company announcements getting released.
Prior to another scheduled event, such as economic
•
reports. The biggest swings usually occur when the
market is counter to the market’s expectations.
The best advantage of the straddle is the fact that it does not
matter what direction the price moves as long as it moves!
The odds are now in your favor.
There are 2 more ways a stock can make the straddle
profitable:
1. When the winning side of the option is increasing faster
than the losing side of the option is decreasing.
2. If you’re able to catch the right direction of the trend in
time to sell the losing option side quick enough to not lose
all value, and keep the winning option afloat.
Example:
I bought 2 contracts of both a call and a put. The call I profited
$156 and the put I lost $80. I ended up profiting $76. $156$80= $76.
You see the ending result here! Below.
How to Option Trade Step by Step on
RobinHood Mobile🏹
The first thing you need to do is enable option trading by
taping the 👤 , and then clicking on “settings”.
Next, you click on “option trading”. It'll ask you a series of
questions about how much experience you have before
account approval. The account usually gets approved
instantly.
The second thing is that you need to understand how to buy
and sell a call/put options on Robinhood.
How to BUY a Call Option
(puts go through same process)
Search for the stock of your choice and then click the “trade”
icon, and then “trade options.”
I always buy 3-5 days out for short term holds to combat Time
Decay. Options lose value the closer they get to the
expiration date. This means you will not profit as much as you
possibly can purchasing options very close to the expiration.
The sweet spot is 3-7 days out because it's less expensive
and you can still profit a good amount without time decay
effecting your trade. This only for traders who are sure of the
direction the stock is moving.
In this example, I will be choosing 9 days out to give me time
for a comeback just in case things go south. Today is
Wednesday, January 16th. I want to purchase a call option
expiring on Jan 25th. ALWAYS make sure your option says
BUY instead of sell. Also, be sure that your option says
CALL.
I always choose the option strike price 1 or 2 spaces ABOVE
the share price (current price). I personally make sure my
strike price is within $1 or $2 ABOVE the share price. Your
strike price is your target price. By executing a call option,
you're expecting the stock to reach prices higher than your
strike price. The more the stock goes up above your strike,
the more money you make. If it falls below your strike, or
never reaches your strike, you lose money.
You have a break even price as well. That is the price your
stock has to be at in order to be "even". This means that the
value is at zero before your contract expires. You neither win
or lose money.
We're going to select the $155 strike with a limit of $2.40,
expiring Jan 25th. Your limit price is apart of the spread
which we'll view below.
By buying an option contract you are essentially buying a
contract and/or contracts from an unknown person across the
market. Your identity is protected under the OCC (Options
Clearing Co.). Your limit price is automatically adjusted to the
middle of the spread. The spread is a pre-selected priceless
range in which you can purchase an option contract. The
lowest price of the spread is called your bid price and the
highest price of the spread is called your ask. When
purchasing a call or put option ALWAYS buy the ask or as
close as possible to the ask to get you contract executed
quicker! You are trying to convince an unknown individual to
confirm your contract so that means you need to come to
them with a price close to their "asking" price.
Viewing the photo on the bottom left, 1 contract equals your
limit price ($2.40) multiplied by 100 shares ($2.40 x 100=
$240). $2.36 would be your bid and $2.43 would be your ask.
Most apps default contracts multiplying it by 100 shares. If I
want to get my contract executed quicker, I would buy the ask
price at a limit of $2.43. By executing this contract, the final
price will be $240.
If you want to multiply your gains because you are sure of the
big move you can buy more than 1 contract at a time. As you
can see, I executed 2 contracts.
This will be your final screen before you execute the option
trade. All you have to do is swipe up from the bottom.
How to to SELL a call option.
Tap “trade”, then tap “sell”.
When selling a call option you want to make sure that you are
selling near the bid this time! The bid is the lowest price on
the spread. $0.60 would be your bid price. But you always test
your luck by trying to get a “bang for your buck”. For example,
this spread is kind of large, meaning there’s a sizable gap
between the bid and the ask price. I would try to use $0.70 to
get my contract executed so that I can save $10.
This is the last screen you’ll see before selling your option. All
you have to do is swipe up to submit!
How to Do a Put Option!
Purchasing a put option requires the same steps as a call
option. You are essentially betting on the stock to go down!
The first thing you want to do is search the stock of your
choice and tap “trade option”.
Then, you want to select a date that is at least 1 month out.
When doing a PUT option, you want to buy 1 or 2 spaces
BELOW the share price because you are betting on the stock
to go DOWN. So, your strike (target price) will be a number
LOWER than the share price. The share price is $147.44 and
because I believe the stock will go down my target price will
be $146. I'm betting on the stock to fall lower than $146. Make
sure BUY is selected, and PUT is selected at the top.
Now that I've selected my strike and limit price ($146 Put with
a limit of $1.80), I'm going to purchase 1 contract. When
you're BUYING a contract you always buy near the ask price
or exactly the ask price. That will get your contract executed
quicker! I'm going to execute 1 contract with a limit of $1.82
that will end up costing $182 because it's multiplied by 100
shares.
How to buy and sell options on Tastyworks!
😜
First things first... Make sure your filter is set to table to
make it fairly identical to Robinhood.
Next, you want to select "trade" when trying to execute a
option contract and you can manually type in which stock you
want to trade.
Let’s be real... rarely do we hold stocks for more than 4 days
so I ALWAYS select 2-7 days out as my expiration date.
If I’m doing a scalp (quick day trade) and I’m 100% positive of
the direction the stock is going, I’d buy 2+ contracts with an
expiration date of 2 days out. 💯 THE SHORTER THE
EXPIRATION the cheaper the price.
Select “choose strategy” to set what type of option you want.
Make sure this ALWAYS says “BUY” no matter if you’re doing
a call or put.
You tap on the “SELL” and it’ll say “BUY”. That’s what you
want!
Now select “GO”.
So, I selected SPY (S&P 500 ETF). Remember our
conversation about buying near the “ASK” and selling near
the “BID”? Well in tastyworks this plays a major role. Usually
Tastyworks will have the best option preselected. It’ll be
highlighted. That’s a plus! Click on the price near the ask.
You can edit the number of contracts as well.
Make sure when editing you delete the top number 1st and
then put in the number of contracts.
They also let you make last minute changes on your
expiration dates. REMEMBER. The closer the expiration, the
cheaper. The further the expiration date is away, the more
expensive. If you are scalping (day trades), I'd choose a 2 day
expiration date. You could load up on contracts.
How to sell your contracts! 🤑
Tasty works makes it much easier to sell your contracts. They
predetermine the best possible limit price to get you filled
most of the time! Tap "portfolio", then tap the stock you want
to close. I chose "PYPL".
Now, tap on the open contract (the contract you still have
open). A open contract will have a number next to it. If the
contract is closed (you already sold it), it'll have a zero next to
it. Now tap "close".
Tastyworks always sells the bid automatically to get your
contract executed quicker ("filled"). Tap "review & send" and
then tap "send order".
#7 Indicators & Divergences
🔮🔭🦠
Indicators are tools many traders use to confirm price action.
Technical indicators is a series of data points that are derived
by applying a formula to the price data of the security. Price
data includes a combination of open, high, low, or close over
a period of time. Some indicators may use only the closings
prices, while other incorporate volume into to formulas. Each
indicators offers something different and unique.
Indicators serve three broad functions: to alert, to confirm,
and to predict.
An indicator can act as an alert to study price action a
•
little more closely. For example, if momentum is
becoming weaker, it could be a signal for a break of
support. However, if momentum is rising and prices are
falling, that could be a signal of positive divergence
and it could foreshadow an uptrend.
Indicators can be used to confirm other technical
•
analysis tools. If there is a breakout on the price chart,
a corresponding moving average crossover could serve
to confirm the breakout. Or, if a stock breaks support, a
corresponding low in the On Balance Volume (OBV)
could serve to confirm the weakness.
Some traders use indicators to predict the future. Key
•
word “predict”. Predictions are not facts. I RARELY use
indicators to predict.
Period: When I use the word period through this chapter, it
solely means what time frame you use for your charting. For
example, it could be days, weeks, months, or a year. It can
also be 1 min, 5 mins, 15 mins, 30 mins, 1 hour, etc. It all
depends on your preference.
Remember! Not all indicators work 100% of the time.
False signals happen often. Indicators are simply put in
place to indicate price action. I do not recommend using all
indicators as the final say so into whether you should buy or
sell a stock. There are some indicators that I look at each day
and I will only share with you my favorites because there are
hundreds of technical indicators. This guide is here to teach
you my methods. Every trader has a set of indicators they find
useful. There are thousands of indicator combinations traders
use. Indicators should be used with a combination of
other things and should not be a stand alone tool. When
choosing an indicator to use, choose carefully and
moderately. It’s best to start of choosing 2-3 indicators and
learn them inside and out. Try to use indicators that serve
different purposes instead of choosing indicators that
move in unison. For example, it would be redundant to us
the Stochastics and RSI indicators because they both
generate “oversold” and “overbought” signals.
Leading Indicators 🐰
Leading indicators are designed to lead price movements.
Most represent a a form of price momentum over a look back
period. They are most effective in trading markets and short
term holds. Many leading indicators come in the form of
momentum oscillators. Generally speaking, momentum
measures the rate-of-change of a security's price. As the
price of a security rises, price momentum increases. The
faster the stock rises (the greater the period-over-period price
change), the larger the increase in momentum. Once this rise
begins to slow, momentum will also slow. As a security begins
to trade flat, momentum starts to actually decline from
previous high levels. However, declining momentum in the
face of sideways trading is not always a bearish signal. It
simply means that momentum is returning to a more median
level.
Benefits and Drawbacks of Leading Indicators. 🐰 È z
Early signaling and exiting is the main benefit. Leading
indicators generate more signals and provide more
opportunities to trade. They forewarn (warn for the future)
potential strength and weakness. For example, in an uptrend
you should be watching for overbought signals, moving
averages crossovers signals sell, momentum falling, etc. In a
downtrend, you should be watching for oversold signals,
moving average crossovers signals buy, momentum rising,
etc.
With early signaling, it leads to higher returns and with higher
returns comes the reality of reader risk. This comes with a
greater chance of false signals and whipsaws. Whipsaws
occur when a buy or sell signal is reversed in short period of
time. Volatile markets and sensitive indicators can cause
whipsaws. A MACD indicator can be signaling a long buy
when the moving averages crossover and the trader will buy
it. The next day, the MACD crosses back over for a sell and it
causes you to quickly sell.
Lagging Indicators🐢
Lagging indicators follow the price action and are commonly
referred to as trend following indicators. Rarely, will these
indicators lead the prices of a stock. Trend-following indicators
work best when markets develop strong trends (uptrend or
downtrends). They are designed to keep traders in and keep
them in as long as the trend is intact. As such, these
indicators are not effective in trading or sideways markets. If
used in trading markets, whipsaws and false signals will likely
occur.
Benefits and Drawbacks of Lagging Indicators🐢 z È
The main benefit is to catch a move and remain in a
move. They can be very profitable and easy to use. The
longer the trend, the fewer the moves and less trading
involved. The benefits of lagging indicators are lost when a
stock moves in a trading range (like channels). Another
drawback is that signals tend to be late. By the time a moving
average crossover occurs, a significant portion off the move
has already occurred.
The challenge of indicators is to find the ones that fit
your trading style. I am a opportunistic trader. I take what
the market gives me. If there’s a long position, I’ll go long. If
the market is volatile or bearish, I’ll do short positions and
take profits quickly. With that being said, I use both leading
and lagging indicators. For technical indicators, there is a
trade off between sensitivity and consistency. Ideally, we want
an indicator that is sensitive (indicating buy and sell signals
often) to price movement, gives early signals, and has few
false signals (whipsaws). If we reduce the trading period for
an indicator (change the the time period to a shorter
timeframe, such as to 1 week instead of 3 weeks), it will
provide early signals but more false signals. If we decrease
sensitivity by increasing the timeframe, false signals will
decrease but so will your profits. This is known as your riskto-reward ratio.
I use a total of 5 indicators: Moving averages (exponential,
simple), On Balance Volume (OBV), Relative Strength
Index (RSI), MACD, and Pivot Points.
Moving averages🧬🧬
Moving averages are made to smooth out the price data to
form a trend following indicator. They are lagging indicators.
They do NOT predict direction, but they define the current
direction with a lag. Moving averages lag because they are
based on past prices. Despite this lag, moving averages filter
out the noise. They are also the building blocks for other
technical indicators such as Bollinger Bands and MACD. The
two most popular moving averages are Simple Moving
Averages (SMA) and Exponential Moving Averages
(EMA). A rising moving average shows that prices are
generally increasing. A falling moving average indicates that
on average, prices are decreasing.
Simple Moving Average (SMA)2
Simple moving averages are formed by calculating the
average price of a security over a specific number of periods.
Most moving averages are based on closing prices. A 5-day
simple moving average is a 5-day sum of closing prices
divided by 5. This average moves as days go by and closing
prices change.
Example
Daily Closing Prices with a week: 11,12,13,14,15,16,17
First day of 5-day SMA: (11+12+13+14+15) / 5 = 13
Second day of 5-day SMA: (12+13+14+15+16) / 5 = 14
Third day of 5-day SMA: (13+14+15+16+17) / 5 = 15
Calculating moving averages are not important but
understanding how they’re calculated and how to use them
are. In the TradingView app, the calculations are made for
you. I circled where you can find the moving averages in the
indicator section.
Exponential Moving Average (EMA)🔢
Exponential moving averages reduce the lag by applying
more weight to recent prices. The EMA responds more quickly
to recent prices than the SMA does. EMAs calculation
depends on all the calculations for all the days prior to that
day. You need far more than 10 days of data to calculate a
reasonably accurate 10 Day EMA. The formula for calculating
the EMA just involves using a multiplier and starting with the
SMA.
Example
Time period = 10 days
Initial SMA: 10 day sum / 10
Multiplier formula: (2 / (time period + 1))
(2 / (10 + 1))= 0.1818
(18.18%)
Calculating the EMA: [Closing price-EMA (previous day)] x
multiplier + EMA (previous day)
A 10-period exponential moving average applies an 18.18%
weighting to the most recent price. A 10-period EMA can also
be called an 18.18% EMA.
Like I said before, calculating the moving averages aren’t
important but understanding how they work is the important
part.
SMA vs EMA🌀
Even though there are clear differences between simple
moving averages and exponential moving averages.
Exponential moving averages have less lag and are therefore
more sensitive to recent prices - and recent price changes.
Exponential moving averages will turn before simple moving
averages. Simple moving averages, on the other hand,
represent a true average of prices for the entire time period.
As such, simple moving averages may be better suited to
identify support or resistance levels.
A bullish crossover occurs when the shorter moving average
crosses above the longer moving average. This is also known
as a golden cross. A bearish crossover occurs when the
shorter moving average crosses below the longer moving
average. This is known as a dead cross.
Examples
Some traders use two of the same moving averages but
different time periods. For example, they'll use 5-day EMAs
and 35-day EMAs. This is considered a short term system. A
system using a 50-day SMA and a 200-day SMA can be
considered medium and long term. I adjust accordingly. I use
a 9 or 10-period SMA and 9 or 10-period EMA at the same
time for short term trends.
Moving average crossovers produce relatively late signals.
After all, the system employs two lagging indicators. The
longer the moving average periods, the greater the lag in the
signals. These signals work great when a good trend takes
hold. However, a moving average crossover system will
produce lots of whipsaws in the absence of a strong trend.
How I Use Moving Averages as an Indicator!
(Short Term)♻
When the EMA (green) crosses above the SMA (purple) it
generates a buy signal. This is called a golden cross.
When the EMA (green) crosses below the SMA (purple),
that generates a sell signal. This is called a dead cross.
The EMA can also act as support and resistance as well. EMA
acts quicker than the SMA. Generally for both moving
averages, when the prices rise above the EMA and SMA, that
generates a buy signal. When prices drop below the SMA and
EMA, that generates a sell signal. I use both moving averages
at the same time. Remember that these are lagging indicators
and are most suitable for staying in a trend and providing stop
losses. Trying to solely depend of moving averages can make
you miss a chunk of profits. I use them to confirm short,
medium, and long term trends, breakouts, and reversals. You
can use them during short periods but be prepared to sell
your position/take profits in a short time as well.
Theoretically, the longer the moving averages stay within a
trend without crossing over, the longer you should hold. But I
always recommend taking profits as you go. I’ll explain this in
more depth next with pivot points.
Time Frame for Moving Averages
The time frames for moving averages solely depend on the
traders objective. I am typically a short and medium term
trader. I take profits fairly quickly. So I use a 5-20 period EMA
and SMA (I use mostly 10 periods). Medium trends usually
extend to 20-60 periods. Long term trend usually extend to
100 or more periods.
Popular Moving Average Time Frames
200 day moving average is the most popular for long term
traders. Next, 50 day moving average is popular for mediumterm trends. Many traders use the 50 day and 200 day
moving average together. For short-term the 10 day moving
average is popular.
When NOT to Use MAs
•
•
As the only indicator for buy and sell signals
When stocks are trading sideways. They’ll be too many
crossovers and they’ll be late.
Pivot Points 🧱
Pivot points are a levels you can use to determine
directional movement and potential support/resistance
levels. Pivot points use the prior period’s high, low, and close
to estimate future support and resistance levels. In this
regard, pivot points are predictive or leading indicators. I
use the Standard Pivot points.
Time Frame
Pivot Points for 1, 5, 10, and 15 minute charts use the
prior day’s high, low, and close. That means that using
these time frames would make the current chart based solely
on yesterday’s high, low, and close. Once pivot points are set,
they do not change and remain in play throughout the day.
Pivot Points for 30, 60, and 120 minute charts use the
prior week’s high, low, and close. These calculations are
based on calendar weeks. Once the week starts, the pivots
for 30, 60, and 120 minute charts remain fixed for the entire
week. They do NOT change until the week ends and new
pivots can be calculated.
Pivots of a daily chart will be based on the prior months
data. So that means that April 1st would be based on high,
low, and close of March. They remain fixed the entire month
of April. New pivots will calculate on the first trading day of
May. These will based on the the on April’s high, low, and
close.
Pivots for weekly charts use the prior years data.
Standard pivot points begin with a base pivot point. This is the
average of the high, low, and close of the prior period. The
middle pivot point is the solid line between the support and
resistance pivot points.
Example of how pivot points look:
Locate pivots in the indicator section. They'll be labeled
"Pivot Points Standard"
Calculations
Pivot Point (P)= Prior periods (high + low + close)/3
Support 1 (S1)= (P x 2) - High
Support 2 (S2)= (P x 2) - Low
Resistance 1 (R1)= (P x 2) - Low
Resistance 2 (R2)= P + (High - Low)
How to use Pivot Points!
I ONLY use Standard Pivots for day trading. That means I
only use the 1, 5, and 15 minute charts. Realistically, I only
use 5 and 15 minute charts because I’m more comfortable
with the 5 and 15 minute candles. Ideally, pivot points are
levels that you’re projecting a stock to reach. From my
experience they are extremely accurate and easy to use. In
fact, this is definitely in my top 3 must use indicators
everyday! For example, if you see prices crossing down the P
(pivot), it’s next projected stop will be S1 (Support 1). If you’re
in a put option, I suggest you take profits the moment the
prices touch S1. S1 is your 1st level of support. That means
prices can bounce up from it. If the prices break S1 pivot line
convincingly and it’s heading downwards, consider re-entering
the put option because the next stop is S2 (Support level 2).
Another Example:
This is a good example of the strategy I use when using pivot
points. Pivot points are meant to be adjusted accordingly. If
prices rise above support 2 (S2), that line becomes my new
support and support 1 (S1) is my new target/exiting point/
resistance. Make sure you are aware of the trend. Make sure
that you draw the trend line to confirm up and down trends as
well. Also be sure to recognize where the market opened!
Remember that stocks move left to right. The first candlestick
furthest to the left where the new pivot lines start is your
opening price.
On Balance Volume (OBV)🔌
On Balance Volume measures buying and selling pressure as
a cumulative indicator that adds volume on up days and
subtract volume on down days. This indicator measures
positive and negative volume flow. You can look at
divergence between OBV and price to predict movements or
use OBV to confirm price movements or use OBV to confirm
trends. This is one of my favorite leading indicators!
Calculation🔢
The OBV line is simply a running total of positive and negative
volume. A period’s volume is positive when the the close is
above the prior close. The period’s volume is negative when
the close is below the prior close.
Remember knowing how to calculate indicators aren’t that
much important but understanding how they work is. But for
those of you that are interested, calculations are listed below.
If the closing price is above the prior close price then:
Current OBV = Previous OBV + Current Volume
If the closing price is below the prior close price then:
Current OBV = Previous OBV - Current Volume
If the closing prices equals the prior close price then:
Current OBV = Previous OBV (no change)
The Rundown on OBV• 💨
The theory is that volume precedes prices. OBV rises when
volume on up days outpaces volume on down days. OBV falls
when volume on down days is stronger. A rising OBV reflects
positive volume pressure that can lead to higher prices.
Conversely, falling OBV reflects negative volume pressure
that can foreshadow lower prices. Research shows that OBV
would often move before price. Expect prices to move higher
if OBV is rising while prices are either flat or moving down.
Expect prices to move lower if OBV is falling while prices are
either flat or moving up.
The absolute value of OBV is not important. You should
instead focus on the characteristics of the OBV line. First,
define the trend for OBV. Second, determine if the current
trend matches the trend for the stock. Third, look for potential
support or resistance levels. Once broken, the trend for OBV
will change and these breaks can be used to generate
signals. Also, notice that OBV is based on closing prices.
Therefore, closing prices should be considered when looking
for divergences or support/resistance breaks. And finally,
volume spikes can sometimes throw off the indicator by
causing a sharp move that will require a settling period.
OBV can be spotted in the indicator section as "OBV"
OBV Divergences
Bullish and bearish divergence signals can be used to
anticipate a trend reversal. These signals are truly based on
the theory that volume precedes prices. A bullish divergence
forms when OBV moves higher or forms a higher low even as
prices move lower or form a lower low. A bearish divergence
forms when OBV moves lower or forms a lower low even as
prices move higher or form a higher high. The divergence
between OBV and price should alert you that a price reversal
could be in the making.
Bullish OBV Divergence🐂📈
This is an example of bullish divergence because as prices
were trending downward, notice that the OBV broke
resistance days earlier. This should alert a trader that a trend
reversal is about to take place. This is a leading indicator so
that means it’s intended to predict the future. As you can see,
after that resistance break of the OBV, prices went into a
uptrend.
Bearish OBV Divergence
This is an example on bearish divergence because as prices
were trending upward on SPY, the OBV was on the verge of
breaking support. That vertical dotted line shows that they're
in the same time frame. The OBV broke support nearly a
week before SPY did. This should have alerted traders to
either sell SPY or enter a put option position.
Also
Rising OBV during an uptrend is a good indicator that the
trend will continue. Falling OBV during a downtrend indicates
that downtrend will continue.
Oscillators
An oscillator is an indicator that fluctuates above and below a
centerline or between set levels as it’s value changes over
time. Oscillators can remain at extreme levels (overbought
and oversold) for extended periods, but they cannot trend for
a sustained period like the OBV can.
Relative Strength Index (RSI)
&🔨
Relative Strength Index is a momentum oscillator that
measures that speed and change of the prices movements.
RSI oscillates between 0 to 100. RSI is considered
overbought when above 70 and oversold when below 30.
Signals can also be generated by looking for divergence,
failure swings, and centerline crossovers. RSI can even be
used to identifying the general trend. RSI is an extremely
popular momentum indicator.
The default look-back period of the RSI is 14, but this can
be lowered to increase sensitivity, or raised to decrease
sensitivity. This means that the shorter the period, the more
oversold and overbought signals. In contrast, the longer the
period, the the less amount of signals but comes with more
accuracy. 10-day RSI is more likely to reach overbought and
oversold levels than 20-day RSI. The look-back period also
depends on the stock’s volatility. 14-day RSI for Tesla is more
likely to become oversold and overbought than General
Motors (GM).
Although RSI is considered overbought when above 70 and
oversold when below 30, they can be adjusted to better fit the
stock or the trader’s requirements. I personally say “if it ain’t
broke don’t fix it”. Raising the overbought to 80 and oversold
to 20 will decrease the number of overbought/oversold
readings. Short term traders sometimes use 2-period RSI to
look for overbought readings above 80 and oversold readings
below 20.
The RSI is located in the indicator section labeled as "Relative
Strength Index".
RSI Divergences
A bullish RSI divergence occurs when the stock makes a
lower low point and the RSI forms a higher low. RSI does
NOT confirm the lower low and this shows strengthening of
up-trending momentum. A bearish RSI divergence forms
stock records a higher high and the stock forms a lower high.
Bullish RSI Divergence
This is an example of bullish divergence because as the stock
(SPY) prices are falling and made a lower low, RSI rejected
the trend and formed a higher low. When this happens it
should alert the trader of a possible trend reversal in the near
future. Sure enough, the stock prices begun to rise after the
bullish divergence.
Bearish RSI Divergence
This is an example of Bearish RSI Divergence because as
SPY formed a higher higher, the RSI rejected the trend and
formed a lower high. When this happens it should alert the
trader of a possible trend Reversal in the near future. Sure
enough, the stock prices begun to fall after the bearish
divergence.
MACD (Moving Average Converge/Diverge)
✂🔗
The MACD is one of the most simple and most effective
indicators. It turns two moving averages into momentum
oscillators by subtracting the longer moving average from the
shorter moving average. As a result, the MADC offers the best
of both worlds: trend following and momentum. The MACD
fluctuates above and below the zero line as moving averages
converge, cross, and diverge. Traders can look for things like
signal line crossovers, centerline crossovers and diverges to
generate signals. The MACD shouldn’t be used to identify
oversold and overbought signals.
MACD is located in the indicator section.
Calculation:
MACD Line: (12-day EMA - 26-day EMA)
Signal Line: 9-day EMA of MACD Line
MACD Histogram: MACD Line - Signal Line
The values 12, 26, and 9 are default values but you can
change it depending on your trading style.
The MACD is all about converge and diverge of the two
moving averages. Converge occurs when the two moving
averages move toward each other. Divergence occurs when
the two move away from each other. The shorter moving
average is faster and responsible for more movements. The
longer moving average (26-days) is slower and less reactive
to price change.
The MACD line oscillates above and below the zero line,
which is also known as the centerline. These crossovers
signal that the 12-day EMA has crossed the 26-day EMA.
Positive MACD (buy signals) indicate that the 12-day EMA is
above the 26-day EMA. This means momentum is increasing.
Positive values (prices going up) increases the further the
shorter EMA diverge from the longer one.
Negative MACD (sell signal) indicate that the 12-day EMA is
below the 26-day EMA. Negative values increase as the
shorter EMA diverge further below the 26-day EMA. Negative
(prices going down) values increase as the shorter EMA
diverge further below the longer EMA.
Centerline Crossovers
A bullish crossover happens when the MACD moves above
the zero line to turn positive turn upward and cross above the
signal line. A bearish crossover happens when both of the
EMAs cross down below signal line. This happens when the
12 day EMA of the stock moves above the 26-day EMA. A
bearish centerline crossover occurs when the MACD moves
below the zero line to turn negative. This happens when the
12 day EMA moves below the 26-day EMA.
Centerline crossovers can last a few days or a few months. It
all depends on the strength of the trend. The MADC will
remain positive as long as there is a sustained uptrend. The
MACD will remain negative when there is a sustained
downtrend.
Example:
This is a good example of how simple the MACD is. It works
the same as moving averages but now the moving averages
help act as a momentum indicator as well.
MACD Bullish Divergence
Divergences form when the MACD diverges from vine price
action of the stock. Bullish divergence occurs when a stock
records a lower low and the MACD records a higher low. The
lower low of the stock affirms a downtrend but the the higher
low of the MACD shows less downside momentum. Despite
less downside momentum, downside momentum is still
outpacing upside momentum as long as the MACD is in the
negative territory. Slowing downside momentum can
sometimes foreshadow a trend reversal or a sizable rally.
This is great example of bullish divergence of the MACD
indicator. As UPS recorder a lower low, the MACD recorded a
higher low. That foreshadowed a future uptrend and
confirmed bullish divergence! Sure enough, UPS broke out
and made a run.
MACD Bearish Divergence
A bearish divergence forms when a stock records a higher
high and the MACD Line forms a lower high. The higher high
in the stock is normal for an uptrend, but the lower high in the
MACD shows less upside momentum. Even though upside
momentum may be less, upside momentum is still outpacing
downside momentum as long as the MACD is positive.
Upward momentum can sometimes foreshadow a trend
reversal or sizable decline.
Example:
This is a good example of bearish divergence! As spy
recorded a higher high, the MACD recorded a lower high.
This foreshadowed a downtrend and confirmed bearish
divergence!
#8 Other Advanced
strategies I use! 🧪🔬💉
Buying on the Third Touch of Support
Ô
The “three touch rule” and “breaks of support lines” is
something I keep in mind each and everyday. There are
plenty of times when I’ve bought on the third touch Ô of a
support line and it worked out perfectly. 📚 Studies show that
a high percentage of uptrends are followed after three
touches of the support line. But, it is very risky to buy on the
second touch. You want to draw ✏ a support trend line and
sell when the prices break that line of support.
Example:
This is Adobe and I applied the 3 touch rule Ô to perfection
back in November. I sold at the break of support. I did a call
option and profited $447! I’ll take it. 💸
Selling on the third touch of Resistance Ô
Selling on the third touch of resistanceÔ is another strategy
to use. It's very effective when used to confirm a downtrend
📉 . Studies show that it is safer to sell during three touches
of your resistance line. I usually close my position after I make
a good enough profit🤑 , I do not recommend waiting as long
as the example above states.
This is a good example of selling on the third touch of
resistance. I sold at the third touch by executing a put option. I
was very confident in a downtrend so I added in 5 contracts. I
ended up profiting $707!💸 🤑
Trend Following 🐾🐾
Trend following 🐾 🐾 is my very first strategy I ever used.
Trend followers usually wait out sideways trading or
retracements and only buy when the prices trade back into a
trend. Some also use momentum indicators like the RSI and
take profits when stocks are overbought💸 📈 and buy the
stock back again when the RSI indicates oversold📉 💸 .
Example:
Here's the result of me holding CGC for that long below. I
came out profiting $1,068🤑 ! CGC will always be my first
love. This is the first stock I ever analyzed and kept up with.
Notice how I waited until it broke out of a sideways market
before buying. That is trend following executed to perfection.
Swing Trading õ⛳
Theoretically 💡 🧠 the example above is how swing trading is
supposed to work and I've done it this way on numerous
occasions. But another strategy of swing trading that I use is
holding a stock position (options or buying shares) for days in
efforts to get the most profits 💰 . It can be an overnight 🌃
hold, or it can be held for weeks. This usually occurs after a
breakout that I see medium/long potential in. Swing traders
operate whether a trend is present or not. The key is to buy at
relatively lows and sell at relatively highs. Swing trading is
more effective because you can apply these techniques under
different market conditions (bearish, bullish, or sideways
markets). The draw back to swing trading 📲 📲 is that it
requires more frequent trading than trend following.
Example:
This is an example of how I used swing trading effectively
when prices are trading sideways. The key 🔑 is to draw ✏
your support and resistance lines once you see an
established trend of reaction lows and reaction highs. Once I
saw a trend taking place, I started to buy💸 at the lows⤵
and sell at the highs⤴ .
The picture below shows the money I've made executing this
strategy🤑 . On the left side you see that I executed a SPY put
at the 2nd reaction high "#1 sold here", and on the right side
you see where I executed a SPY call at the 2nd reaction low
"#2 bought here". This is swing trading executed to perfection.
Gaps ⤴⤵
Often when you look at charts you’ll see empty spaces known
as gaps. They represent times when no shares were traded
within a particular range. Normally this happens between the
close of one day, and the open of the next day. You’ll see
them quite often on candlestick charting and you won’t see
them at all on line charts.
Up gaps⤴ are considered bullish and this happens when
there’s a space between two candles. The candle that gapped
up will be above the previous candle.
Down gaps⤵ are considered bearish and this happens
when there’s a space between two candles. The candle that
gapped down will be below the the previous candle.
Example:
Gaps result from extraordinary buying and selling interest
developing while the market is closed for the day. For
example, if a earnings report with unexpected high earnings
comes out after the market has closed for the day, a lot of
buying interest will be generated overnight, resulting in an
imbalance between supply and demand. When the market is
opens the next morning, the price of the stock rises in
response to net increased demand from buyers.
Gaps can offer evidence that something significant happened
to the fundamentals or the psychology of the crowd that
accompanied this market movement.
Timeframe of Gaps
Up and down gaps can form on dialysis, weekly or monthly
charts, and are are significant when accompanied with higher
than average volume.
Gaps appear more often on daily charts, where everyday is a
new opportunity to create an opening gap. Gaps on weekly or
monthly charts are rare. I never focus on weekly or monthly
charts, only daily for the most part. A daily chart is one with a
time frame of 1D (1-day).
Price charts with gaps almost everyday is typical for thinlytraded stocks and should be avoided.
Type of Gaps
Gaps can be divided into four categories: common,
breakaway, runaway, and exhaustion.
Common Gaps 👤 💨
Sometimes referred to as a trading gap or area gap are usually
uneventful. This means no significant news, or rumors caused
buying or selling interest. The gap just happened. That’s why
they are called common gaps. These gaps tend to get filled
fairly quickly. Most of the time they get filled within that trading
day, but other times they can get filled days or weeks later.
Getting filled means that eventually, prices will retrace (for up
gaps) or rise (for down gaps) to fill up the gap. This is usually
the case.
Example:
This is Apple and they presented two common gaps that
eventually got filled. The prices gapped down after market
and continued down the next day. That’s why they say gap
downs are typically bearish. It provides huge selling interest
during the after and premarket. When prices close the gap,
that means it got filled.
Breakaway Gaps 🔓 💨
Breakaway gaps are the exciting ones. They occur when the
price action is breaking out of a trading range or congestion
area. To understand gaps, one has to understand the nature
of congestion areas in the market. A congestion area🤒 is
just a price range in which the market has traded for some
period of time, usually a few days or weeks. The top of the
congestion area is resistance and the bottom of the
congestion area is support. To break out of these areas
requires market enthusiasm, and either many more buyers
than sellers for upside breakouts or many more sellers than
buyers for downside breakouts.
Volume should pick up significantly, not only from increased
enthusiasm, but because many are holding positions on the
wrong side of the breakout and need to either cover their
positions or sell them.
It is better if the volume does not happen until the gap occurs.
This means that the new change in market direction has a
chance of continuing. DON'T fall into the trap thinking this
type of gap (if associated with good volume) will get filled
soon. Go with the fact that a new trend trend in the direction
of the stock has taken place.
A good confirmation for breakaway gaps is whether they
are associated with a good chart pattern and break either
the line of resistance or support.
Example:
This is Canadian marijuana stock Tilray and they presented a
good example of a breakaway gap because the gap broke out
of a pennant pattern. Notice that after the breakout, the prices
continues to rise and the gap has yet to get filled.
Runway Gap • 💨
Runaway gaps are also called measuring gaps and are best
described with increased interest of the stock. For runaway
gaps to the upside, it usually represents traders who did not
get in during the initial move of the up trend and while waiting
for a retracement in price, decided it was not going to happen.
Increased buying interest happens all of a sudden, and the
price gaps above the previous day's close. This type of
runaway gap represents an almost panic state in traders.
Also, a good uptrend can have runaway gaps caused by
significant news events that cause new interest in the stock.
Example:
This is apple and they presented a good example of a
runaway gap. This happens when increased buying interest is
still present even after the breakout.
Exhaustion Gaps 😩
Exhaustion gaps are those that happen near the end of a
good uptrend or downtrend. They are many times the first
signal of the end of that move. They are identified by high
volume and a large price difference between the previous
day's close and the new opening price. They can easily be
mistaken for runaway gaps if one does not notice the
exceptionally high volume. It is almost a state of panic if the
gap appears during a long down move where pessimism has
set in. Selling all positions to liquidate holdings in the market
is not uncommon. Exhaustion gaps are quickly filled as
prices reverse their trend. Likewise, if they happen during a
bull move, some bullish euphoria overcomes trades, and
buyers cannot get enough of that stock. The prices gap up
with huge volume. Then, there is great profit taking and the
demand for the stock totally dries up. Prices drop, and a
significant change in trend occurs.
Example:
The high volume was the giveaway that this was going to be
either an exhaustion gap or a runaway gap. Because of the
retraced right after the breakout, this was a clear indicator of
an exhaustion gap.
My Golden Setup ⭐ 💰 🍯
After Market
This is the set up I use after market before I go to bed at
night. SPY is always the first stock I look at. I have my 3
favorite indicators and I use them all for confirmation to either
stay in a trend or get out it. Remember that everyone's setup
will be unique to their trading style. No one's setup will look
the same. Every trader is unique. My trading style is very
precise and by the book. I consider my trading style to be very
accurate in terms of technical analysis. You do NOT need a
spaghetti bowl to be good at technical analysis.
•
•
•
I make sure that the OBV, RSI and MACD are staying
in accordance to the trend. I want to be sure that there's
no divergences present.
I use my pivot points on the daily chart (1-day) to get a
projection of what level I think the stock is heading.
When I look for patterns I am watching for support and
resistance lines. Patterns come in all shapes and sizes.
Don't get accustomed to one pattern, learn them all.
Every Night I go through a basic watchlist before bed:
1. Futures: SPY, QQQ, DIA, VOO...etc
2. Tech stocks: APPL, MSFT, MA, FB, SQ, V, AMZN, INTC,
CRM, PYPL, NVDA, TSLA, ATVI, EA, AMD, MTCH, ZG,
TTD, YELP, ADBE, UTX, CSCO, VZ, T, ORCL, MU, AMD,
ADBE, SHOP, BABA, BIDU, BAND, MRVL, CSCO, IQ,
NFLX, QCOM, NXP, STNE, TWTR, FTNT, GOOG, VMW,
etc..
3. Marijuana stocks: TLRY, CGC, CRON, ACB, NEPT, MJ,
NBEV
4. Pharmaceutical Co.: JNJ, CVS, CNC, ICLR, ABBV, ZTS,
ALGN, BDX, ANTM, BMRN, PFE, MRK, BMY, VRX, LLY,
LGND, MED, INGN... etc
5. Banks: BAC, CFG, MS, CME, JPM, GS, PYPL, BRK.B,
USB, IBKR, AXP,...etc
6. Food & Beverage: KO, PEP, MCD, STZ, LW, MDLZ, TAP,
SBUX, KR, WLMT,..etc
During the Trading Hours (9:30am-4pm)
From 8:30am to 9:30am, I am reviewing my watchlist,
checking on last minute news articles, and seeing about any
last minute news articles.
During the day I am using pivot points, support lines, and
moving averages to formulate a entering, exiting, and target
point.
During a uptrend, I stay within the trend with a call option
until
1. Prices fall below the moving average
2. The prices officially break the support line
3. I take profits at every resistances point on the Pivot point
chart.
Example:
During a Downtrend, I stay within the trend with a PUT option
until:
1. Prices fall above the moving average
2. The prices officially break the resistance line
3. I take profits at every support line on the pivot point
indicator
Sources I Use to Get the Latest News and Rumors
These are the apps I use to get the latest News. I bunch them
all together on my phone to make them easily accessible. My
Top 3 are Seeking Alpha, Bloomberg, and Yahoo Finance.
Make sure you add all of the stocks in your watchlist to each
one of these apps. I know it's time consuming but it'll benefit
you in the long run! Staying current with the news is
important.
#9 My Chat🗣💰📚🧠
What does my chat offer?
My chat offers 1 on 1 training, mentoring, daily signals,
webinars (live video training every Sunday), daily
watchlist, teaching technical analysis daily (patterns,
indicators, and charting), daily news updates, price alerts,
a library full of free books, hand crafted PDFs on charting
by me, hand crafted option trading guides step by step by
me, and unlimited answers to your questions by me or a
person in the chat. This chat is designed to be family
oriented. We share all of our ideas. The link to pay and
subscribe to my chat is $100.
Here are my money making channels!
#aristotle-scalps: This is where I post day trades, gap fills,
and quick plays for those who have apps other than
RobinHood with capabilities of day trading more frequently.
Example:
#aristotle-alerts: These are hand crafted alerts that I set up
and provide to my group. They have a whopping 95%
success rate on swing trades.
Example:
#option-signals: This is where we discuss random option
trades that are working for us and shout out it out to the
group.
Example:
#aristotle-targets: These are my projected targets and
exiting points.
Example:
#aristotle-swing-trades: This is arguably everyone's
favorite channel. This is where I tell people what to buy and
hold for more than 1 day at a time. These have 90%
success rate when entered.
#track-our-trades: This is where I track every trade we
enter as a group, mainly swing trades.
#small-account-trades: This is a channel made exclusively
for those interested in building smaller accounts-low risk
trades with profitable gains.
We have more channels as well that gives my chat
an edge in trading options and overall stock
market education!
Here’s a few more examples!
#Watchlist: I and a few other members post or daily
watchlist. To prepare for the next day.
#training: A great source for getting ahead. I hand craft
PDFs and post my favorite books in there free of charge.
If you want to subscribe to my group, feel free to DM me
@aristotle_investments on Instagram. There’s a link in my
bio As well.
#10 Trading Rules for CALL
and PUT Options💯📚
•
For a CALL OPTION, do you have a BULLISH
pattern?
- Pennant, flag continuation, falling wedge, cup and handle,
bullish symmetrical triangle, ascending triangle, bullish
channel, triple bottom, head and shoulders bottom, or
rounding bottom
For a PUT OPTION, Do you have a BEARISH
•
Pattern?
- Pennant, rising wedge, double top, descending triangle,
bearish channel, triple top, bearish symmetrical triangle, or
head and shoulders top.
•
Did it noticeably break the resistance (call option)
or support (put option) line in convincing fashion
with rising volume?
For long term pattern's that formed between 3-6 months wait
for a break of at least 2-3%.
Is the latest news negative (put option) or positive
•
(call option)?
Check Seeking Alpha, Investing.com, and yahoo finance.
•
Do you have a day trade or unlimited day trades
available just in case things go south?
For Robinhood users, go to account summary, scroll all the
way down, and check.
Is the call or put option too expensive?
•
Never risk more than 10% on a trade.
Ex. If your account is $2000, you shouldn't risk more than
$200.
•
What does the indicators say (OBV, MACD,
Momentum, RSI, Pivot Point, etc.)?
Make sure there’s no bearish divergence when trying to
execute a call option. Bearish divergence occurs when the
stock makes a HIGHER high but the indicators makes a
LOWER high. Red flag for potential downtrend.
Make sure there’s no bullish divergence when trying to
execute a put option. Bullish divergence occurs when stock
makes a LOWER low but an indicator makes a HIGHER low.
Good sign for potential uptrend.
•
Is it a quick scalp? Is there a clear trend line
present going up or down?
Use pivot points for day trading targets. Patience is key.
🆕Frequently asked questions
ú🙋⁉
How long have you been investing?
I've been investing for over 1 year. I’ve been studying
Investing for about a year and a half.
How did you learn so fast?
I learned fast by reading and studying every single day. The
knowledge I have is equivalent to 5 years of experience. I
accelerated my investing knowledge.
What's the most money you've made in one day?
What made you start investing?
I knew that I had to do something with all the money I saved.
Investing always struck my interest. It was my New Years
resolution for 2018 to learn investing and take it seriously. I
invested all of that money you see below.
What is your ultimate goal?
My goal is to be wealthy and find ways to mentor the young
men and women from my community about investing and
financial empowerment.
What stocks would you invest in long term?
So far, I'm going with Canopy Growth, Cronos Group, Aurora
Cannabis, Square Inc., Paypal Inc., Facebook, BIDU,
General Motors, Microsoft, New Age Beverage, Match.com,
Nike, Neptune Wellness, Disney, and MJ.
What is your favorite stock?
Canopy Growth is my favorite stock because it's the first stock
I thoroughly researched, analyzed, and fully invested in.
How much money should I start investing with?
$500 is my recommended starting amount.
What's the most money you've lost in 1 day and why?
$2000... I betted on an Apple earnings report going up and
did not do my research.
If you had to start over what would you do differently?
I would not hop into option trading so quickly. The best thing
you can do is educate yourself. A lot of people want others to
do the work for them. You'll never be successful that way.
What made you think of writing this book?
You guys are getting robbed by these instagram investors. "If
you give a man a fish, he'll eat for one day. But if you teach a
man how to fish, he'll eat forever." I got tired of seeing these
guys give everyone the bare minimum. I decided to give you
guys a full meal!
Where does the name Aristotle come from?
My real name is Makarios Aristotle Varner, Jr. Aristotle is my
middle name! It plays into my character as an intellectual
person. Makarios is Greek for being blessed and highly
favored. I believe my names describe me well.
What drives you to be who you are?
Honestly, as I grew up in this world I saw a lot of flaws in our
system. I see a lot of successful but selfish individuals who
can do more for others but choose to look down on them
instead. It's a lot of talented young men and women just like
me who deserve someone that'll discover them, listen to
them, and help them. My motivation is my family as well. I
want to be a role model for them. As I'm currently writing this,
my wife is 2 months pregnant and I want to give her and my
child the life they deserve. My baby is due August 2019.