How to Read Candlestick Charts (with ZERO experience)

welcome to today's Deep dive into technical analysis and how to read Candlestick charts in this class I'm going to give you a comprehensive breakdown of how to use technical analysis the right way you probably know that most Traders out there lose money and you may also know that most Traders do not understand the right way to read Candlestick charts and to apply technical analysis now one of the things that's really cool is technical analysis is a univers I language of the financial markets it doesn't matter if you're trading Bitcoin ethereum Forex futures or stock any Financial instrument when you pull up the Candlestick chart will give you the opportunity to perform the same level of technical analysis so once you understand the fundamentals of technical analysis and you learn the right way to apply it you can use it for any Financial instrument I encourage you to take some notes and at the end of the this episode I'm going to have some recommended reading for those of you that want to keep going on the journey so let's go ahead and jump in on the Whiteboard now prior to Candlestick charts we had just simple line charts the problem with a line chart is that the line is created by connecting two dots or more these dots are just based on one point of data that one point of data is typically the closing price and while it's important to know the closing price that's only one piece of data so let's introduce Candlestick charts a Candlestick chart gives us four pieces of information for each Candlestick it tells us the close but it also tells us the open the low and the high now here's what's really interesting the shape of the Candlestick is now communicating a message because let's just say for a moment let's flip this over let's just say for a moment that you pull up a Candlestick chart and you see a Candlestick that looks like this what kind of message does that tell you that tells you clearly that the price opened High it went straight down and it closed at the bottom in contrast to these two candlesticks here these two candlesticks have a Candlestick body which is the middle section that's the body of the Candlestick right there and they both have an upper candle wick and a lower candle wick the upper and the lower candle wicks cannect the low and the high when you have a Candlestick that doesn't have any Wicks it just has a body that shows really strong sentiment in the market so a red Candlestick like that a lot of weakness the opposite would be true of a big green Candlestick like that and so what we've actually learned is that once you understand the language of the financial markets it's almost like learning to read uh traffic signs they become so obvious you don't second guess them you see a stop sign and you stop so for instance when I'm trading and I all of a sudden I'm watching something it's going up the price is going up and then all of a sudden at the top of that move if I see this candle right here I know that it's about to change directions why is that what is this candle communicating it opened low right here this was the open this was the close this was the high so it moved up but the Bears pushed it back down and it closed down here this candle is called a shooting star it's a candle that shows a reversal may be coming that's the message this candle's communicating and it communicates the same message whether it's red or green if the price has been moving up and we see a shooting star that's green reversal likely we see one that's red reversal is already started the same is true of this candle right here now this candle is called hammer it it looks sort of like a mallet this is the head of the Mallet and this is the handle right here and this candle when it occurs after the price has been declining it's considered to be hammering out the base because what has happened here is the price declined dropped and then who was able to push it back up the buyers the buyers came in they pushed the price back up and so it closed as a small Hammer indicating a Poss reversal so these candlesticks are communicating messages the question right now is do you know how to read the messages and there are times where we're going to get false signals from candlesticks for instance if we actually saw a chart that looked exactly like this I wouldn't think much of it because these are all candles of indecision right through here but isn't it already showing indecisiveness by the fact that it's going sideways so the place that I really get interested in the shape of a candle is when the price is reaching really high levels we're getting really high extension that's when we're starting to worry about possible reversal indicators that's where we're worried about that hammer candle or the shooting star candle or what's called a dogee or the gravestone dogee or the hanging man dogee that's when those candles start to be an indicator of a possible reverse coming back down and then of course the same would be true when it's in when it's flipped in sort of mirrored where the price has been declining rapidly and then you have that hammer at the bottom or you have the dogee at the bottom or a hanging man dogee or something like that that indicates a possible reversal for a move back up so there are really two strategies when it comes to trading there's counter Trend trading and then there's Trend trading most beginner Traders are Trend Traders because it's easier to understand something that's already moving and to jump on that existing momentum than to try to predict a reversal having said that it's very important to learn to recognize these candles that indicate a reversal of trend may be approaching one of the things that we're going to start talking about here is connecting individual candlesticks to form multi Candlestick patterns so while we have individual candlesticks that can communicate Market sentiment when those candlesticks are clustered together and form a pattern that can create an even stronger signal so let me show you for example let's say we have three big candles going up like this and then we have one candle going P uh as a pullback and a second candle as a pullback what we're seeing here is that the price has moved up quickly now it's pulling back a little bit this is actually a pattern that we recognize very well is being a bull flag this green um lineup is considered the flag pole this is considered kind of like um the actual flag the pennant right here that's the the the shape and what we look for in this pattern is for the price to break to the upside of this line here for the first candle to make a new high and then we look for the price to move back to New highs now to help you understand the psych ology of what's Happening Here you have a stock or a commodity or a Forex pair uh cryptocurrency doesn't matter that's moved up quickly in price and the trend right here for the short term got exhausted buyers were no longer willing to keep buying it higher and higher and higher and higher and maybe some short sellers came in or some people who were holding it from down here wanted to take some profit so we see the decline in price a little bit however these are three small body red candles they're not a huge body red candle they're not communicating a massive reversal this is just an orderly pullback and so when we get this type of formation we look at this as a buying opportunity the price has really two options it can either break this level and continue lower right here or it can break to the upside and so we we get to a point where it's sort of a fork in the road and which way is it going to go now I suppose of course it could just sort of slow down and go sideways in which if it did that there's no trade there whatsoever it's not going to be something that we buy it's not something we would short it's just going sideways but generally when these have made big moves like this due to some type of catalyst they're going to be forced to break out in a strong way one or the other so in this instance the momentary pullback and then here's the next wave of momentum now what's often common is that then we'll see up here a second pullback and this brings in another round of buyers as it continues even higher and so if we look at my screen share here what you'll see on the chart is actually um the S&P 500 and this isn't um any anything particularly exciting really but you can see how it's trading in these waves of price action where we have this uh this strong move up this pullback and then it breaks to the upside then it pulls back again like I was just showing you it breaks to the upside it pulls back again and it breaks to the upside it pulls back again it breaks to the upside and so each time it pulls back those become buying opportunities so notice uh this candle shape right here if you recall that is our Hammer candle if we look at this candle right here this is a dogee which which is the the bottom reversal and then this was a doge right here which was our top reversal so we're seeing very clearly these candlesticks that we've already been discussing there's the dogee right there where the open and the close are basically the same and of course we have a couple of really nice longbody green candles that are forming the bulk of the move up so this is just an example of multi Candlestick patterns when it comes to time frames this it doesn't matter what time frame this is this could be a one minute chart it could be a f minute chart it could be a daily chart what's important to understand is that each of these candlesticks represents a period of time and so if you're an active Trader you're going to be more inclined to use short time frames like the one minute or the five minute chart and if you're an investor or a swing Trader and you want to hold things for a few days you'll probably be looking at hourly charts 60-minute charts and daily charts to help you find these type of opportunities these are the patterns that I absolutely love trading so I'll switch back to the Whiteboard here and I'll show you a couple of uh couple other patterns that I like so the first pattern that I showed you right here this is called the bull flag and usually on a bull flag pattern we'll see anywhere from one candle of pullback to three I don't usually like to see four candles of pullback I do not like to see the pullback here retrace more than 50% of this initial move so that means the most it can pull back is right about here so an example of a bull flag that would be a broken pattern would be one that goes like this and then has a longbody red candle right here that's no good that don't like that it's retraced more than 50% of the move all right alternatively we if we have 1 two 3 four five six red cand Les we're running out of steam that's not good either if this was really strong we should have had just a momentary pullback before the next round of buyers came in and said I want a piece this action for the next leg up I like TR to trade the first pullback right here the first bull flag and I like to trade the second one right here I have often found that after the first two when you get into the third the fourth the fifth they're not as clean because most traders who are aggressive and are successful have already made their money on the first two and are not going to overstay their welcome it's usually the rookie traders that end up overstaying their welcome so it's better to get in get green and get out okay so this is the bull flag that's a pattern that I really like it's a multi Candlestick pattern that requires two well it could even be just one huge green candle but requires a nice big move up with some longbody candles light volume pullback not retrace more than 50% before moving higher there's another technical indicator that I use to help me make sure this doesn't pull back too much I'll talk about those in just a moment all right so this is the bull flag another pattern here uh that I'll show you is called a Flatt top breakout pattern um now this is formed this would be a little bit of a gap here if that really happened U basically a flat top breakout pattern occurs when the price is hanging out right underneath the highs and what ends up happening is it pulls back just a little bit and then it goes back up and what we end up sort of seeing is that we have this support line right here and what ends up happening is it pushes the stock through this level and when it finally breaks out we usually get a nice big longbody green candle this is called a Flatt top breakout pattern we have a Flatt top breakout pattern a pretty close flat top breakout pattern um on the S&P uh right here it's pretty close to that right there this I would say is a pretty good example of a classic bull flag two nice big green candles two Candles there pull back and then making a new high this right here is called an ABCD pattern an ABCD pattern occurs when the price goes up hopefully this just kind of Mark this separately price goes up we get a little bit of a pullback here and then we come back up but it fails it doesn't go through the high the way it should on a bull flag and it pulls back again now this is okay because this can create a really powerful breakout so long as when it pulls back here it doesn't break below this price here so this becomes an ascending support line that has to hold it's like a flat top breakout pattern but a typical flat top breakout pattern all of the price action is within like 10 15 cents it's like right underneath the high before it squeezes up it never really pulls back whereas an ABCD pattern right here does pull back and then is really a failed bull flag that pulls back a second time but the second pullback is actually an opportunity for it to acculate even more buyers so when it does break out usually the breakout is even stronger so this pattern is just fine I really like that one uh I would say these are these are three patterns that I trade pretty much on a daily basis something that's worth mentioning is that as an active Trader it's more important that you love what you're trading than that you're necessarily trading the perfect pattern so if you love trading a certain stock or you love trading Bitcoin whatever it is you want to focus on trading that and look if an ABCD pattern forms the pullback the move up and then it goes you trade the ABCD pattern if it's a Flatt top breakout pattern you trade the Flatt top breakout pattern if it's a bull flag you trade the bull flag you trade the pattern that is presented the most important thing is that you make sure you're focusing on the right thing to trade you're looking to trade something that has liquidity that has volume that people are interested in because that's where you're going to see the volatility as active Traders we thrive on volatility we need things to be moving look we don't make money if we're trading something that's not moving in price so we're looking for things that are moving and moving relatively quickly so now let's talk about those technical indicators what these do is they help provide more context for the current price so this is a stock chart and we can see obviously the price is going up but what we have found is that most stocks most currency pairs most Futures Commodities respect certain technical indicators one of the ones that is very popular is called the volum weighted average price I'm going to turn that on first so the volume weight average price I have down here in Orange this tells us the average price of the stock over the period of day with volume factored in and so this really shows us our exact equilibrium point of the stock or whatever it happens to be that you're Trading this is important because if the price is below the equilibrium well that's when you've got the Bears this is going to be a picture of a bear okay he's got like a little smirk all right that doesn't look a lot like a bear but bear with me so this is bearish now if you're above the volume weight average price that's when you're bullish I'm not even going to try to drw ble so that's when we're bullish so we're green above we're red below so this is really helpful because when we look at the chart what we want to see if we're thinking about being bullish on the position is that the price is above the volume weighted average price level so you can see how early in the trading session this actually dipped below that level and then it got back above it so just from that perspective the moment it was back above it right here from that point forward this was in the hands of the Bulls now if it had gotten back below and held back below the vwap this would have been back in the hand of the Bears so I'm understanding the the general uh who's in control is important when you're considering taking a position because obviously you're going to be choosing long or short so volume weight average price super important indicator it's used for intraday trading now one other thing I want to mention about vwap is that it's considered a uh very well respected level of support and resistance and so what that means is that if for instance the stock has been um below the vwap and I'll just do black here just to make it easy for me um and then it comes up to it right here it's very common that the price will fade off of this level and that this is resistance sometimes we'll see a stock will will try to break and it won't be able to hold over and immediately comes back down and when it comes back down that is just reaffirming that the Bears are in control because it tried to get above it but they brought it right back down now this is the same as of course true if a stock is on uh the upside so you know you could have a stock that made a really big move it pulled back came back down and then at vwap maybe it dips for a moment holds that level and then heads back up very common this would be a dip off of vwap which essentially is buying very close to support with profit Target back up to high this is your risk that's your reward so your profit to loss ratio is great same with a fade off of vwap you know shorting right here with a stop just above vwap and then your profit targets way down here however something that's also really interesting with support and resistance levels in general and we're going to talk about this more in just a moment is the way price behaves when we do break so when we have a stock that's bearish and it's been below vwap so maybe it it came up it hit vwap it did a fade off vwap came up again faded and then came up again and it's like this thing it's holding and it busts through it gets Above This resistance level so sometimes dramatic rejection back down all right but let's talk about the other situation other situation it breaks it comes back down and now the Bulls are defending this level and buying off of this level because the price VAP it's above vwap so what you now have is a break of resistance a retest to see if it's going to hold and if it does then prior resistance becomes support and now people start buying right here with a stop just down here for a move back up and this is when we have that uh that that sort of trend change of the stock being in the hands of the Bears to being in the hands of the Bulls you know it's different from the trend changes that we have when we have a stock that's been you know trending up nicely has two candles of pullback you know goes higher you know in this context this is kind of like the tide is coming in this is the wave and you know the even when the Tide's coming in you have waves so you have a wave that comes up it comes down a little bit and then the next wave comes up a little further then it comes down a little bit then comes a little bit further when we break over vwap that is more like the tide changing from going out to now we're we're making a much more significant change when we break over that volume weighted average price so volume weight average price is probably the number one most important indicator for day trading however more important than indicators ultimately are the Candlestick patterns Candlestick patterns are number one but these indicators are really helpful to understand context of current price and they're important to use because pretty much everyone uses them so if you're trading without vwap that would be like driving around without looking at stop signs I mean other people are using them and if you're not you're kind of an idiot so not to be I mean that's a little bit mean but if of course if someone really was driving around not using stop s signes you you would probably say that so uh again my job here is to teach you how to use these technical indicators so you can apply it in your trading this is all about how to read stock charts for active trade Okay so we've got the vwap what's next next indicator that's really important the nine exponential moving average it's a gray line right here and notice how the price keeps coming back to the nine moving average the nine moving average represents during these flag patterns a good place to take that entry so a lot of these will stair step up see I'm kind of drawing these stairs here and a lot of these edges of the step are going to come down towards that moving average now it kind of flattens out here and then it's starts to break away again all right so finding entries near this moving average is usually a safe place I find that if the price breaks the nine the next level that we looking at is the 20 so we've got the nine moving average which is our first level of support and then we have the 20 so there are a lot of times where I'll see the price coming down and I'll say I could take a starter right here at the nine with my stop loss at the 20 now I'm not going to get into strategy as much in this particular class because this is really focused on technical analysis but just for your understanding these are very well-respected levels of support so you could see really this held the nine moving average through this whole stretch of the day so as long as it doesn't stay below it I'm bullish and I'm happy to keep holding a position or look to add to the position the next level is the 200 moving average which is going to be much further down in this case it's below volume weight average price so it's not really relevant for um the price right here because I wouldn't be a buyer if it was below the two the volume weight average price anyways anywhere below that is bearish all right so those are our indicators all right so let's mark this out we've got vwap we've got the 9 EMA we've got the 20 EMA we've got the 200 EMA and let's not forget on all of our charts we have volume bar so at the bottom of the chart down here we have the actual volume total which is telling us the number of shares that we're traded during each one of these Candlestick periods and this is important because what we look for is when we have strong upward momentum like we have right here we want to see that the volume is picking up so we want to see the price is going up but we also want to see higher green volume bars that are associated with those long body candles so this is called the volume profile and the volume profile does communicate Market sentiment so if we had an instance where we were looking at let's just say a um a bull flag forming and we initially had this nice move up right here you know two big green candles and then we have a red candle and another red candle well let's just say that the volume on the green candle was like this and like this and then the volume on the red candle was like this and like this if you have more volume on the red candles more selling volume that's a factor in this pattern so you have to factor this in as part of your technical analysis volume bars are an important indicator if you have high volume during this pullback that indicates a lot of people are selling into this pullback and it may not hold you may not it's unlikely that you're going to get a huge move like this on light volume it's not going to happen on light volume bars you need high volume to get those kind of moves so the pattern that you want to see from a volume profile is high volume green candles light volume red candles on the pullback and then volume coming back in for the next leg up and even just looking at the volume profile if it was looking like this let's just say and then like this what I could visualize without even seeing the candlesticks is that this is continuing to give pullback squeeze up pullback squeeze up pullback squeeze up pullback this is a volume profile so once again you learn this language now you're going to be better equipped to capitalize when you see this opportunity and to know the difference between the time when yep I want to be a buyer right there or nope we've got high volume selling this is if anything a short with a stop at the high or it's not a trade at all if I'm not interested in going short on this position now something that's kind of interesting is that what a lot of Traders do who are active Traders is we look for what's called multi-timeframe alignment so what we're looking at here on this particular chart this is a five minute chart all right it's just a f minute chart and these are stock scanners I'll close these just for right now so let's go ahead and we're going to open another chart right here all right so I'm going to link this um over here to this one it's going to be the spy and we're going to make this um that's fine we can make it a one minute chart that's not a problem all right so I'm going to go back here a little bit further and what we're going to do is we're going to look at let's see so this is about 1240 so 1240 right here okay so actually let's look let's look at this um setup right here so we're going to look right here if you see right here this is where had the price move up and then we went into this period that kind of formed a flat top of consolidation before it broke out so this is a 5minute pattern this pattern is occurring on the F minute chart however it's important to take a look at what's happening on the one minute chart so the one minute chart is showing the faster time frame and what we're seeing on this chart right here is that the price peaked pulled back came up pulled back came back up pulled back for moment and then it started the breakout and so what you essentially have happening in this area is this right here is a zoomed in version of what's happening right here this is these are five minute candles which means this is five 10 15 20 25 minutes this is 25 candles so it's showing you the same thing but it's showing it in Greater detail now what if let's just say for instance this candle which is red also had extremely high volume it was like a super high red volume candle well we could interpret that as a warning sign and so now we might say well the five minute chart looks fine but when we zoom in here there's a bit of a caution flag out on the one minute chart and as a result we do not have one minute time frame alignment we like to see multi-time Frame Alignment where I could look at this on a one minute chart and say yes I like this trade and I would take it and you look at on a 5 minute say yes I like this trade I take it or where you say I'm going to switch this to a 15minute chart and you look at it and say yes I like it I would take that trade again so that's called multi-timeframe alignment now on an even higher level what active Traders will do is we'll all go all the way back to our daily chart and when we look at our daily charts that's where we're looking at the big picture that okay this just broke above the price um let's see right around here so if we've broken above the high of that candle and the high from just the other day well where's the next level of resistance so in order to understand support and resistance when it comes to technical analysis you have to be able to look at all time frames one minute 5 minute and daily time frames so let me show you um on the daily chart the way I look at these type of chart patterns so what I do is I grab my horizontal trend line and I look to the left and up so the first thing I would look at here is I would say well what was the high of this candle right here and the High shows 13847 so that means when this came up to that level it was right around let's see um it was right around this price here that it came up to that 138 level right 13847 and there was some high volume as it broke over that level because as it broke that level it was breaking a critical resistance level on the daily chart the high of the previous day now once we understand that 3847 level how do I find the next level of resistance on the daily chart where's going to have resistance next what I do is I look to the left right here and then I look up and I see oh what's the high of that candle the high of that candle right there is 444 44 interesting memorable number so I'll say all right that seems like well it's certainly the top of this candle right here and I would say that this is a window on the chart this is a window where we really have no resistance between 13847 and 144 as a result it's very possible that we'll see the price continue higher up towards that 14444 price if it breaks that 14444 price then what do we have and again I look to the left and I look up and this is how I find the areas that I consider possible resistance there's a high there of that candle there's a high of this candle right here there's a high of this candle right here and I look to the left and up there's a high of this candle right here then I look to the left and up and you'll notice something interesting here there's a gap so we're looking at the S&P 500 here this is not a 24-hour market so the gaps are created when the market closes something happens overnight and then when the market starts trading at the next session it opens at a different price and this happens all the time in fact it certainly happens when companies uh individual companies have like really really good news or really really bad news that happens overnight so if you look at the Whiteboard um I can kind of show you the way this works so let's say a stock is trading at $20 a share and the market closes so the candle for that day you know whatever closed at $20 a share then overnight they have earnings and they're bad they're really bad so now people are like I want to sell this stock I want to get out I I don't even care about 20 I I'll sell it for 19 and you know someone else is like I screw that I'll sell it for 18 so now you have people that are just trying to get out someone's selling at 18 and people that were saying I want to buy it initially at 20 well they're like I don't want to buy it at 20 uh but you know what n maybe I'll buy it at 1750 1750 that's still that's a discount so maybe I'll buy at 1750 so what ends up happening is you have the people that saying I'll buy oh I'll buy it at 17 I'll buy it at650 so you have the buyers on one side you've got the sellers on the other and in order for the stock to start trading when the Market opens the buyers and the sellers become matched so you you have the best highest pric buyer that meets up with the lowest price seller essentially or or sorry you have the highest pric buyer and yeah yeah the lowest price seller and they meet up right there in the middle and that creates the opening price all right so when that happens uh the stock opens let's just say at $17.75 and now it's opening significantly lower and so on the daily chart it closed to 20 and then the next day it opens at 1775 and maybe it's a red candle it goes down you know maybe it's a green candle it bounces back up a little bit whatever but in any case what's most important is that we have a gap right here that's formed on the daily chart and that Gap is a window right here essentially it's a gap where there's no support or resistance so in the future if the stock comes up to that level and it breaks over that high now there's no resistance until it gets back up to $20 a share so these are levels that we look at uh very closely on daily charts all right so what's formed right in this area is a gap and that was formed because on this day right here the price closed but then it opened substantially lower and sold off and so what ended up happening on the chart was we formed a gap and the Gap was formed between the low of that day and the high of the previous day so both gaps and windows are areas where we don't really have any support or resistance which means once the price gets over this level of 252 the next stop is 254 or 25389 all right so once we get over that level once again I'm looking to the left and up now that there there is another element of understanding support and resistance on these charts so we could go back even further if we need to we could go all the way over here and we would say all right we've only got a couple more levels to draw on this before we are at all-time highs ever so left and up right there there's a small high right there so a teeny bit of resistance potentially through that level we've got this and then boom we're at all-time highs so that draws all of those resistance levels however and I would do it the same if I was looking at something declining in price however while we have these resistance levels drawn there's something else that we haven't factored in we need to look at the possibility of ascending and descending resistance levels so just as I showed on the intraday time frame when I was showing you how uh these uh flag patterns look so right here we have uh ascending support so the price comes down holds support goes a little higher hold support goes a little higher so this blue line becomes an ascending support level on the daily chart here it's the same way and these levels make a difference when it comes to intraday price action so now you see all right we've got this level here we could change this color here so we've got this yellow descending resistance Line This is a resistance line it's descending now what I'll sometimes do I like to draw and create channels so I would connect the low of two candles back here for instance and I would try to see that feels like that might be a good connection connecting those two right there and then what I often will do is I'll copy and paste this trend line so it's at the same exact angle which forms a channel and then when I bring it up here I'll usually line it up like that and what we find is that it's very common that these will trade uh these financial instruments will trade in channels so it's true that sometimes we'll have um a really strong angle where it's a wedge form so when we form a pattern like this we've got this wedge that's happening right here um but it's also common very common that we see uh real perfect channels so I had this drawn just like this um from a couple weeks ago and so when I saw the price coming up right here I expected that we were going to run into this descending resistance level and we kind of struggled here for a couple days we got above it we came back down we tested it we held and now we're back up so something that's really important to know and you could see it back here as well so there's sort of this resistance underneath this level right here then it broke above it then it's support support was below it for a second and then got back above it let me show you an example uh right here this was a um ascending support trend line that I drew by connecting right here and right here I connected those two lines those two dots and it created this long extension so I drew that right there at that time so when this came back up right here I already knew that we have potential ascending resistance that it was going to run into and it did it ran into it here it ran into it here so at the very beginning of this class I said most Traders don't know how to use technical analysis properly which means they may not even have drawn this blue line whatsoever and they're buying right here and i' would say you're buying right into resistance it should be no surprise if you lose money on that trade right this is a stock that had a descending resistance line here it got below it it struggled to get back above it it was able to get back above it and then it ran into its ascending resistance line here it's very common that levels that at one time were support turn into resistance on the other side I do like to look to see where we have gaps where we have Windows and if there's obvious levels of ascending or descending resistance and I do the same thing on an intraday basis and what we find like that screenshot that I just showed you um is that it is very common to see these patterns where the price is just it tests this level it breaks it and then it retests it coming back down so if you're not drawing that you could get stopped out prematurely right here when this is just a retest of Prior resistance can that prior resistance become support and if it can become support then all of a sudden it's game time here's another example all right so this trend line here is support right here it gets below and is resistance resistance but it broke through it boom big deal that's a big deal because we broke through resistance a lot of volume came in and shorts covered it pulls back and when it pulls back where does it pull back to right back to that support level boom there and there and there I mean this is a support level that is showing validity over the course of multiple trading sessions you know in the S&P we've got trend lines that show they hold validity over the course of even years so you have these levels that are very well respected and if you're not seeing them because you're just not looking at that part of the chart then you you really are missing out on something that's very significant it's almost like you're trading blindfolded I mean you're you're missing that much there are times where you'll see okay we connected one 2 3 this is a trend line here that's showing in 2023 this connects back to 2020 that's 3 years ago right so these are very significant technical levels so you have to be aware now some Traders will ask how to draw ascending and descending support and resistance levels and my rule of thumb is that you want to make sure the trend line is touching in the most places possible because the fact is it it can be a little bit arbitrary you know do you connect the the high of candles or do you connect the low right here should I connect this trend line to the top of that candle wick right there the very top because see how if we zoom in on this there's a candle wick at the very top do we connect that to the candle wick or do we connect it to the candle body because obviously it's going to change you know if we connect to the body it draws it pull pulls it down if we connect to the top it's up there so my rule of thumb is that I'll I'll sort of connect the line and then I'll move it around and see which one feels more valid the more times a ascending or descending resistance support line is tested the more validity it gains so while you might initially have drawn it this way and then it's not really respected you realize oh if I adjust it there actually that does seem to be what probably most the most uh people have on their charts so that's how I should keep it in other words it should be fairly obvious so down here connecting this and this area you know that that does kind of look fairly accurate you've got to dot a connection there connection here approximately through here it is okay if um we do break through some candle wicks because what can happen is the stock on a particular day might have a candle wick that tests this daily level and it tries to break through it and then it gets back above it it tries to get above it it get and then it goes back below it so if we switch this to let's say the 15minute chart we're able to actually see that daily trend line and like right in this area for instance look at how the intraday price action how much it's driven by this daily level right so it tries to get above it and then slams back down it tries to get above it slams back down it gets above it and then sells off hard it comes back up to that level tries again and it's not able to hold so it's like you can tell this is a very well-respected level breaks below it try gets back above break back below right in here this is where we saw that um consolidation around I think it was um on the F minute chart we were looking at that consolidation there that was just above that level so you could tell that these are significant uh levels where we have support and resistance so now let's step back from the technical analysis for a moment and just talk about strategy so when it comes to strategy high level how are we using and incorporating this technical analysis into the decision-making process so this is the way I do it what I'm going to share with you right now is based on over 24,000 trades I've taken so I have a lot of metrics that back up the choices I make when it comes to the price of stocks I trade why I choose stocks and instead of Forex you can apply technical analysis generally speaking to any Financial instrument because the Candlestick charts and doing this type of analysis is valid as long as you've got the chart okay but for me what I do each day my number one goal is to try to find an instrument that is moving quickly and that's going to be the vehicle that I'm going to trade so if you're trading cryptocurrencies you're looking for a currency that's moving quickly right so for stocks I'm looking for a stock that's moving quickly for futures you're looking for a commodity that's moving quickly typically that happens because there is some type of underlying Catalyst that's driving the move some type of news it could be Global News it could be specific to that instrument but there's some type of news and what that effectively does is it brings a lot of volume into that Financial instrument when you have volume high volume you've got a lot of retail traders that are participating in the move we see that high relative volume that's where we're going to see more volatility that's when we're going to see those bigger green candles those bigger red candles when it's bad news this is the volatility that as active Traders we thrive on this is what we need we need to see things that are moving so my first order of business is not to search the news every single morning my first order of business is I sit down I open up my platform here and I'm pulling up my scanners to try to figure out you know what what's actually moving today what are our top gainers uh this morning so I'm looking at my top gapper scanner and I'm looking at my top Gainer scanner and this is showing me the the Securities in the stock market that are moving the most today so 89% 87% and then from there I'm pulling up the charts and I'm doing my due diligence so for me it begins with looking at the scanners and then that's how I find what's moving once I found something that's moving that's when I get into the charts and so one of the first things that I look at is I is the daily chart I want to look big picture what's the daily chart on this and you know I say daily chart actually let me correct that I would say the first thing the very first thing I look at when I see a stock that's on my scanners the first thing I look at is some of the data points I check the float how much it's up on the day how many shares of volume it has uh the relative volume and then I check the news then I open up the chart and I look at the chart and actually the first chart I look at is our intraday chart because sometimes I look at the intraday chart and you'll see that the price popped up and is already down a lot the price may be up 25% versus yesterday but it was up 50% and now it's down a lot from the high and so I would say no that chart's broken if I pull up that one minute or the five minute chart and I like what I'm looking at so far the we've got some nice longbody green candles we've got some good-look price action we're above volume weighted average price volume profile looks good that's when I open up the daily chart then I check on the daily chart and what am I looking for I'm looking to see if we have any gaps if we have any windows and one thing that I look at on the daily chart which I'll show you here I want to see whether or not on the daily chart the price is above or below the 200 moving average so the 200 moving average is a very well-respected indicator on the daily chart okay so that purple line is my 200 moving average and what you'll see on this uh stock is that it's well below the 200 it's been below the 200 for a long time now the S&P uh has struggled around the 200 a little bit uh in the past couple of years because we've had this uh pullback we've kind of come back up so there was a little bit of a struggle we we were above it for a long long time and we did pull back below it in 2020 during that big drop we got back above it and then really any dip off the 200 was it's almost like the vwap on a day level if it's above it it's bullish if it's below it it's weak but with the S&P it doesn't stay below it for long now with individual stocks like Ino or this other one let's see which one was it um M AI these ones are stocks have been beaten up for a long time what we know about these types of stocks is that when they come out with news they can have big days we could see something like this that goes from 68 cents to $2 a share in one day we had one last month it went from about 30 cents a share to $11 in one day on an FDA announcement so these beaten up uh Securities can be great for bounces off the low but the first level that I look at as resistance is that 200 moving average and so that's the first thing I'm looking I'm saying okay we've got this technical level on The Daily it's at $2 so is there room between the current price and this resistance to take a trade and if the answer is yes and I'm happy to trade it if it's above it then I'm also happy to trade it but if we're right below it I'm not likely to trade because I know we're going to have resistance at that price it's just not really worth taking uh an entry that close to that critical resistance level now as it turned out um there were a number of uh Securities that were on the scans on um just the last trading day that were lower priced and a lot of these lower priced names are going to be well below uh that 200 uh moving average let's see this one is a little higher priced this one you can see was below that 200 quite a bit as well quite a bit below it got above it and then dropped back below it so now if it comes back up resistance yeah going to be around $28 a share now we can also draw descending resistance lines and things like that but at this point a descending resistance line from up there well not going to have to worry about that because we have this issue in the way first and below from this area we could say there's probably something right here but that's not really valid so we don't really have maybe there was something in that area right there you can sort of see how these candles connect so you know sometimes I'll connect these and then I'll pull up the intraday chart and I'll just sort of ask myself does it feel like this is um being respected does it seem like this is a valid line that other people are noticing as well so what we could actually do here is switch this to a five minute time frame and take a look and see how did the price behave around that resistance level that possible resistance level support resistance so it opened far above it came back down to it bounced off below it above it below it above it I don't know it kind of cuts right through there um it seems like it does respect it maybe right there but then it gets under it here so I don't know if that was a super valid line uh but may maybe maybe one that would have been worth keeping an eye on in the future so as I said at the beginning of this class I have some recommended reading for those you guys that want to keep learning there's a lot to cover when it comes to technical analysis one of the books that I enjoyed when I was getting started and and really trying to better understand technical analysis myself was this book by Steve niss which is um it's called a Candlestick course what I do like about it is um just that it gives you a real breakdown of these candlesticks and their formations in more detail and so you can see you know I marked it up when I was going through it the hanging man the tweezer top you know for us as active Traders we really want to be experts on candlesticks so you know of course I teach classes that go extensively into this kind of depth as well but for those of you guys watching here on YouTube that want to just keep learning as much as you can I would check out this book this is a great one let's see Shameless plug here for my book how to day trade the plain truth you could check that out um intelligent investor this one I I would say this is another good one uh trade mindfully for those of you guys who have gotten yourselves into a pickle at one point or another getting emotionally impulsive while you're trading trade mindfully is a good approach for helping you find coping strategies to stay FOC focused while you're trading and to not allow emotions to overtake your trading because one of the things that we know for a lot of Traders is that you understand all the concepts you understand technical analysis you understand how to find strong stocks of trade you know how to get in how to get out mechanically you know how to do all these things but In the Heat of the Moment you screw it up and that's a lot of times because emotions are taking over and when you're trading from fear from greed from fomo that's that's not the calm cool colle Ed part of your brain that's not the analytical part of your brain That's The Reptilian part of your brain that just like is craving and alleviating emotion that's not where our best trading comes out so learning to recognize that is super important this is a book that um was written quite a while ago but um but is valuable I think uh you would find this interesting so trade mindfully this is a good one the Candlestick course by Steve niss this is a good one um and for those of you guys that want to keep learning about my strategy you're welcome to check this out um here as well all right so I hope you guys uh really enjoyed this class and if you want to check out another full length class that goes into this amount of depth Deep dive check it out right here this is one I think you'll enjoy and this is an episode that YouTube thinks you're going to love I hope you hit the thumbs up I hope you're subscribe to the channel and I'll see you for the next upload real soon

Channel: Warrior Trading

Views: 407,347

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Id: ul34Jfh-LOk

Length: 55min 18sec (3318 seconds)

Published: Wed Nov 29 2023