When a stock breaks out and gaps, it is important to know what levels it is likely to use as support. Try this on for size: the lowest level it respected on the bar of breakout. For example:
This is important to know because when the stock finds a second level of support, you know have two points to determine which will help you determine the next likely level of support. Good entry to go long with awesome good risk management.
style: swing trader
indicators: technical, primarily reading price
device: options (as opposed to stocks)
workplace: home and office work stations
education: mentors, self taught, hard knocks
experience: I read that it takes 10 years before one truly masters something. I am less than half way there - I’m going to be a damn good trader come ten years.
I have been hearing, and not just from one person, that they are interested in learning to trade stocks, options, whatever – just learn to trade. I guess you can look at this as lesson one.
I must tell you, this is hard to begin. I guess I will be going over the basics here. By basics, I mean the raw, boring, ground zero stuff. I will probably get beyond this later today – I had a cup of coffee this morning which doesn’t happen too often. You sould say I am a bit wired.
Today we will be covering the fundimentals of price charts. This should be a short class, I’d like to get you guys out of here early if possible. I may throw in a bit of extras at you towards the end of the course though; you can choose how long you want to stick around for.
Here is the basic price vs time chart. Price is located on the Y axis and time on the X axis. This chart is using ‘candle sticks’, a way of showing the price movement throughout the given day as well as past days.
You may recall BRE from my watchlist posted last week. The lines are drawndifferent here, but you don’t worry about that for now. What you should take note of are the 4 different ‘candles’ inside the green box I have drawn. Because of the time frame of this chart, each of these represent the price movement of one day. This is not always the case – I have seen candles used to represent price movement during periods of 1 minute to 1 month. Time is a huge factor with charts and must always be considered before inferring anything. Price is only half the equation and has very little relevance to anything unless it is related to time.
Moving on. Each of those 4 candles in that box I have drawn is unique; not just in size and shape, but in color and shading as well. This is important because each of those aspects represents a different combination of closes relative to that day’s open and the previous day’s close.
The extremities of each of these bars represents each day’s high and low in price. This would be how far the narrow section of each of these reaches. Simple enough.
Now, red bars always represent a close lower than the previous days close. Always. This can be seen in two of the highlighted bars. However, one of these bars has a middle section which is solid, the other, outlined. The solid bar represents a close lower than that days open. Outlined bar represents a close higher than that days open. Both represent a close lower than the previoius days which is why the bars are red.
The white bars. They represent closes higher the previous days close. Outlined bars represent closes higher than the days open, solid bars represent a close lower than the days open. Again, both represent a close higher than that of the previous day.
Confusing? Maybe at first, but this won’t last for very long. You will get accustomed to looking at these charts very quickly and understanding these facts will soon come as second nature. At least this is what I hope – there are only four combination.
Above all, remember that each of these represents a day. The other popular chart type is OHLC or Open High Low Close charts. They are simple to read as well. Digest all that?
Next we talk about that bar chart at the bottom of the image. No need to spend much time on this, so here we go: volume bars are custimarily located at the bottom of most charts in bar graphs. They represent the number of transactions for a given stock in relation to each price bar. This means volume is time sensative as well. Y axis is volume, X axis is time.
Volume is often color coded, white bars for days with a higher close, red bars for days with lower closes. That is about that.
If you are interested in practicing reading charts or have a stock you would like to follow, I recommend using this website. I used their services for a long time before finding myself a trade broker. Play around with the different options, have some fun with it, and have a nice day.
if some of this (all of this) makes no sense. I haven’t particularly targeted an audience yet, I am just sort of writing stuff for myself. The stock list that I put up, that is for anyone who already trades; maybe give them a few ideas. It is also acts of a documentation of my greatness.
I want to be accessable though. If you genuinely want to learn, or are just curious about trading stocks, I want to be able to provide some of that for you. I don’t know why, maybe I’m just a nice guy.
Either way, I will begin adding content that will provide a basis for understanding my actions and thoughts about trading. This means some damn basic and boring stuff in my eyes; things I haven’t directly thought about in over a year because I just respond to it automaticly now. Maybe it will be good for me to go over all this, who knows. Regardless, there will be a bit of both sides of things. Some of the basics, some of my random thoughts, and probably a weekly list of stocks which I will be watching. Thats what you can expect.
Stock list. Check it out:
AXP: Good entry going long at the highlighted area. Exit if price goes below orange line. This is a breakout pattern so any violation of the resistance or support lines (lines on top and bottom respectively) with increased volume should put you in a position in that direction.
EWZ – Good entry to go long at the highlighted area. Exit would be at the orange line of support. If this area of support is broken, the stock could be expected to retrace to the next white line of support.
HES: Ideal entry to go long was this morning when price touched the white support line that is drawn. Exit would be a violation of that support line.
JOYG – Look for entry long just above the white support line around the $71 price level. Exit at the white line. 
KWK – Entry long when stocks reach level of support at white line. Exit in violation of support.
MER – This one I have going short. Pretty much any time now, what is important is a close under the upper white line which is resistance. This is a pattern which MER will have to break out of soon, I would guess short, if there is a close today above the white resistance line (top), you can expect this stock to move about 7 points or so to the upside. Otherwise, look for it to break out to the downside.
OMG – The price of this stock is currently in between the my two lines, not how it looks in the image where price has broken to the downside. If price closes beyond either of these lines, expect the stock to move in that direction.
OXY – Look for this stock to go long at the support line drawn. Entry in the highlighted area with an exit if support line is violated. 
RIG – I would probably wait for the 145 support line before entry, but as long as your exit is tight, this shouldn’t really matter.
ADM – Awesome entry to go long. I really, really, like the set up on this one. Perfect entry was at highlighted area with an exit just beyond the support line.
CELG – This one looks to be on its way up. Another safe point of entry today where I have highlighted. Exit just beyone the line of support. Get into it.
CF – I have my money on the $120 support line, but I could be wrong.
DE – I’d get in here now. I don’t think its going any lower than where it went earlier this morning. Exit at todays low.
DECK – Another long set up that I am really liking. Entry at highlighted area. Exit below support.
ETN – I am really liking this one too for going long. Yup. Can you guess where I would exit?
ICE – This one is pretty too. Going long. One trader I really like is following this one too.
ISRG – Looks like a perfect entry for going long on this trendline bounce. Exit is…..? Violation of support line. Nothing new.
PBR – Bounce off the highlighted area or it will probably be headed down for a while. Get in and stay ready to get out.
RS – I like this one for going long. Maybe steele is on its way back up?
CMI – Short. Short. Short. Not long. Take note of that. Look for entry at the resistance line its at right now. If that breaks, sell and re – enter at the further resistance line. Exit again in violation of that.
ICF – Short. Enter in highlighted area close to resistance. If violates, exit. This could easily be violated, I would probably not enter this stock until the end of a day in which it touched this line, possible went through it, then retraced back below resistance.
IYR – same as ICF. No need for another image, I promise.
JPM – Short, wait for stock to reach resistance, exit with a violation of this line.
LVS – Two days ago, perfect entry. Just something good to look at. I wouldn’t enter any longer, but I believe its still going down. Its a risk/reward thing, if you think its going down, get in for the ride.
PCLN – Pattern, once it chooses a side, jump on for the ride.
POT – I liked this entry short a few days ago.
BRE – Long. Trendling bounce.
I have a couple more, I am a bit bored with all this though. I think there is enough to keep you hands busy right here though. Have a nice day. More later.
Big difference with these two. How could the be played the same, one is breaking through a trendling, the other is bouncing off it. Some quick rules:
Breakouts: Unless volume is just spiking, don’t enter a position until the close. A close above prior resistance signals a breakout. Look for volume as well. If entry prior to this happens, make sure there is an exit if it makes its way back through that trendline. A lot of times this will signal a bounce and you’ll wish you were going the other way.
Bounces: End of the day entries are good too. They always seem to be. But they are not perfect – enter at the trendline, close if it makes it through, enter if it goes back again. Otherwise, wait. Stocks seldom ‘kiss’ the line and then head the other way. Sometimes they will reach an invisible point beyond that before turning around. Other entries, since bounces are in a sense reversals, it is good to look for reversal patterns.
Good question. I’ll answer that tomorrow.
If a stock has a tendancy not to respect a trendline until the close, expect that of it. Enter a position at the line, but close that position if it break through it. The other prime time to enter a stock that acts in this manner is to enter the position at the days close. If the stocks price at the days close is not in violation of the trendline, it may be a good time to enter. However the close rule work best for breakouts, not bounces.
Both triangles and consolidation are price movements ‘restricted’ between two ‘lines’. Though the lines do not actually exist and the price is not actually restricted, price movement remains within these areas.
Maybe I will explain the psychology that is underlying that later, but what is most important to that price action is that it will eventually have to leave from within those boundaries. I do not like choosing a side. Saying that this shape generally means the stock will break out to the upside or the downside. This will happen either way, and I have found that it is best to play on the actual break out. You may get in before this, but that is more advanced and I will cover it later.
Examples of these patterns; I will give them later. Not in the mood for posting those right now.
Trade the break out not the pattern.
Why do I like patterns? I don’t know but I can’t help it, its in my nature. They are predictable… most of the time. That probably has a good deal to do with it. Also, patterns can be defined. If it cannot be defined, it is not a pattern. Don’t trade it.
