7 Common Patterns of Bullish Reversals | James Boyd | 8-8-19 | Technically Speaking

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[MUSIC PLAYING] Hello, and welcome
to Technically Speaking on technical
analysis and options. We’ll be talking about trading
the trend, weeks to months. My name is James Boyd. We welcome you here today. Today we’re going to talk really
about the seven common patterns of bullish reversals. And today’s date is August 8. My name is James Boyd. Great to be with you here today. Just real, quick,
remember– just want to give you
a quick reminder that this class
is for 45 minutes. Also remember that,
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to what we’re talking about, go ahead and type
those questions in. Let’s see if we can’t get some
of those questions answered. If we talk about options,
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investment decision we make in our– in this
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purposes only. Also remember that any
investment decision you make in your self-directed account– solely your responsibility. And also remember that, if we
talk about options, remember, here’s the definitions of
delta, gamma, theta, and vega. Know how they apply to the
strategy that you’re picking. All right, so let’s go
ahead and get started here. So just a quick
reminder, what are we going to cover here today? Well, first thing, if you want
to follow me also on Twitter, you can follow me @JBoyd_TDA. You can follow me on Twitter. I do post on a day-to-day basis. Also, we’re going to be talking
about the market update. That’s going to kind of
go right into our agenda item and our learning outcome. We’re going to talk about
the seven common patterns of bullish reversals. Now, this is important not just
if you’re a bullish investor, but also if you’re
a bearish investor. In other words, if you’ve
been playing bearish, what would you not
want to see, if you were looking for the market
to continue to go down? But if you’re a bullish
investor and you’re looking to actually buy, this
might be something of interest to you. So we’re into about
seven things– seven common patterns
we actually see in bullish reversals. We’re going to talk about also
new stock and option examples– probably lean
towards more stock. And the learning
outcome is I want you to go out and review the
seven common patterns that we discuss here today. And I’d like you, with
number three and– three through seven, I would
like you to find examples. Now, as we go through,
this is not just going to do the teaching. We’re going to be talking about
examples, as we talk about some of these bullet points. Now, just real quick, let’s
go ahead and take a quick look at where the market is. When I say the market,
I’m going to bring up, in this case, the S&P 500. And if you take
a look at this, I want you to recognize– we
talked about yesterday some of the longer shadows here. And so let’s take a
quick look at this. The red line, that’s your
30-period moving average. The blue line right there,
that is your 10-period moving average. And that green line down there,
that is your 200-day moving average. So let’s set our sights now. So now, we understand
what those are. And you could also see those
are the top your chart, as well. Now, first off, what I
want you to understand is the price fell down near
some horizontal levels. So far, we’ve actually started
to get some longer shadows– or you could also
call them tails. Now, is this really
the support level? Well, that’s a– what we
could call a tradable bottom– or a tradable low,
technicians call it– but we haven’t come
back down to retest. But the biggest thing–
we actually said yesterday that, if we break support,
we actually drop down, we’re going to make a lower low. We were in the process of it. We did make that lower low. But the downtrend is
not just lower lows– it’s also lower highs. Now, let’s talk about this. So if we take a
look at this, you’re going to see that we did get
above the middle of that candle right there, the
large red candle. We’ll talk more about that. We did actually get above
the gap down open on the SPX. And again, remember, these are
markers or lines of resistance where technicians will
be looking to see, can we get above that? We’ll talk about that. And then the price today
actually hit the 10. Now, clearly, if
the SPX is up, that means a lot of the
volatility is down. Now, this class is really
on trading the trend weeks to months, and so
seeing actually the market go back up, seeing
the volatility actually come down, that’s actually
pretty interesting. Now, let’s talk just real
quick about the sector front. Sectors real
quick– you’re going to see that utilities
has still been strong. We’re going to talk
about that area. We’ll mention that, as well. Utilities for the
week is still leading. We see health care at the
top– we’ll talk about that– basic materials, staples. But again, if we’re talking
about a bullish rally, that has some legs to it,
technicians really want to actually see–
and also investors– fundamentals as well–
don’t forget about them– want to see the discretionary
and the technology space coming off the bottom and
going up near the top. That’s important. Yesterday, those were
down near the bottom. In one day, they have come up
halfway up through this list. And so we are seeing
some more sectors where we’re above the 10– above the 10, above the 10. And there’s a lot
CAHOLD examples. All right, now, let’s
break into this. What do we talk about what we
mean the seven common patterns? Have you ever
studied a pullback? Have you ever taken
the time out and said, I want to see that
common relationship? Well, let’s take a look at this. And we’re going
to break it down. So first off, what’s the first
thing that we start with? Now, to some of you,
it might be subtle, but I’m going to write down,
in this case, number one, what are the– the first of the seven common
patterns are really fear. And this is actually where
the VIX is increasing. Now, I’m just
going to say this– the whole setup of a bullish
bounce starts with fear. It starts with news. I wrote on Twitter
actually earlier today that news is the fog
where some people can’t see what’s going on. And that mist or the fog
maybe disguises an investing opportunity. That’s very important. That’s how it sets up. Now, when we take
actually a look at the VIX just real quick,
quick point on this– then we’re going to
come to trade examples. Let’s show this on
the big board here. First thing I want to
actually take a look at is we’re going to
look at the VIX. And we said yesterday
that we really want to see the VIX
go up near the high. So when we talk about a tradable
bottom or something where the market has
pullback, we want to see the VIX in the upper end. Now, I’m going to
give you some numbers. Some investors say
the VIX gets above 18. Some say maybe 19 or 20. I don’t care what
the numbers view. You identify where
those highs are. If you said to me,
I’m going to take 20, you’ll see that lately,
we have been really above that 20 number. Now, if you take
a look at the 20, you’re going to see that,
like we said yesterday, that if we said that
this was the upper end– and when I say this the upper
end, let’s just write 20 there. All right. So if the VIX gets above, let’s
say, that 20 number that you gave me in this
example, that actually means there’s a lot of fear. That also means that
there’s a lot of investors that are willing to buy puts. Why are they buying puts? Because they’re trying to hedge
their portfolio, their risk. And the higher the
volatility actually gets, that actually means that
they’re kind of squirming to hurry and buy those puts. And sometimes we, as
investors, can do things at the opposite times. Now, what you’re going to
see is– we noticed yesterday that, when the VIX goes
up, the VIX doesn’t tend to stay elevated for
a long period of time. What does that mean? That’s why investors try to
also do short vertical puts, selling puts– try to do some
selling strategies to try to get compensated
for that volatility. So the first thing out of
seven is, really, it all starts with fear. The whole setup of a bullish
bounce in a longer term trend is volatility has to
get in the upper end, they’re speculating wider
fluctuations in the market, and news is very prevalent. All right, now, let’s
go back to number two. When we take actually
a look at number two, the first thing we would
also say right here is sector performance. When we actually take
a look at number two, I’m going to label it
as sector performance. If the volatility
is higher, if it is, what sectors will
actually tend to lead? We said this on Monday. If you looked at the performance
of those utilities, staples, telecom, and REITs, we could
also include health care. Those are the signs that
investors have ran for safety and said, please
give me a dividend, please give me something
that doesn’t have– that has a lower beta
relative to the index, relative to probably
some technology companies or discretionaries. So number two would
be sector performance. If an investor’s seeing
lower beta stocks dividend paying companies at the top
on that one week percentage, or maybe on a
one-month percentage, that’s a pretty
good sign that we could be getting down near a
longer term area of support. Now, number three– now,
how many of you watch that? How many of you have seen that
as a potential telltale sign that we might be nearing
a tradable bottom area? How many of you watch that? And you see people
all the time go on TV, when the market’s going down,
they talk about utilities, they talk about telecom,
they talk about dividends, et cetera. Now, number three– let’s
talk about something I think is very important,
which is understanding R1. I’m going to label it as
R1, R2, and I’m also going to label it as the 10-day EMA. Let’s talk about some
levels of resistance. I’m going to go back
just real quick to– I’ll bring up the NASDAQ. So let’s bring this up,
and I’ll strip the chart where it shows nice and clean. So first off, when
you’re looking at, let’s say, pullbacks
you’re looking at the point of control. And I’ll zoom in
on hard on that. Let’s go back to the big board. Now, if we go back, what
you’re going to see right here is we’re going to look
and see, where do sellers start to lose the control? Now, if you take a
look at this, I’m going to actually
bring this up and I’m going to watch some levels. We’re going to
bring up, let’s say, the middle of this red
candle, which is about 74.50– think of that middle of
that large red candle. Think about it
like a tug of war. If investors are
able to keep it down below the midsection of
that large red candle, the sentiment is still bearish. But for example, if we start to
see that the price action can get above the middle of
that tug of war line, the bulls are starting to bite,
and buy, and push it back up, and the bears are losing
that point of control. The midsection of that red
candle technicians know as R1– R for resistance number one. So let’s mark that. So we’re going to
label this is R1. If the price can get
above that level, the open of that
large red candle– guess what we call it– it’s really called R2. And if we look at that,
I’ll mark that– whoops– mark that. We’re going to call that R2. Now, what you’ll
notice is, once we got above the middle of
that large red candle, what happened? Once we got above the middle
of the large red candle, the path of least
resistance was go up to the open of the candle. If we can get above
the open of the candle, what’s that next
potential target? Well, if the bulls knock
it back it up and close it above the open of
that red candle, the path of least resistance
could be the 10-period moving average. If we go back and say, OK,
that R2 level is about 75.25, where’s the 10-day
moving average? Well, the 10-day moving
averages right around 76.92. So what happens is
investors might not have the skill set to no
where these levels are, to watch for them. If the prices can get
above the midsection of the large red candle, known
as R1, path of least resistance could be the open of that
large red candle, known as R2. The price closes above that R2,
the path of least resistance then becomes the
10-day moving average. Now, James, is this
actually– is this chart out of this downward trend? Not necessarily. It could be making
that lower high so far, and it could be dropping
down, coming back up, and then maybe trying to
pull back a little bit. But we’re going to
talk about that. So I want to make sure that
you start watching these areas. I know, when I first got
started with investing, I did not watch these areas. I didn’t have the skill. No one told me that. Now, number four
here– and this is where we start talking
about some examples. So when we actually look
at, let’s say, examples of– example number four of common
patterns of bullish reversals, we’re going to
label this is really a bullish MACD divergence. And what I’m going
to do is I’m going to bring up the example
we talked about yesterday. So there was four examples
we talked about yesterday– McDonald’s, MasterCard– we
also had Adobe, and then TTWO. So the fourth of the
seven common signs of maybe basing or reversals– let’s bring up a chart
where we have a MACD. I’m going to go to Style
on the left-hand side. I’m going to click
on the test tube. Let’s just bring up a MACD. I can even quickly
say right here, we’re going to look
at a MACD histogram. Now, the histogram that
we’re going to look at is– I’m going to set the
setting as 8, 17, 9– something that’s a little
bit more sensitive. The default setting
is 12, 26, 9. So if you’re trying to have
something more sensitive, you might lower these
numbers, just like I did. Now, let’s go ahead and
take a look at this, and let’s talk about
that point number four– bullish MACD divergence. Show me that divergence. Well, let’s take a look. So as of lately, what
you’re going to notice is the price on McDonald’s
was making a low right there. It actually made
another low right there. We can see that. And then what you’ll
notice is, right here, you’re going to see that those
were more equal lows right there. Now, if you take a look at this,
what I want you to recognize is, on the bottom there, when we
look at that point right here, this is on 7/31, where the MACD
was down its deepest point. Number two, you’re going to see
that, when we go to the right, it’s not quite
making a lower low. It’s close. But what I want you to
recognize is this red bar right there is not as low is
where it was previously. If we’re starting to see
where those red bars are not as low as where they
were previously, that’s saying we’re not having
that negative momentum anymore and that buyers are
buying on that pullback. And so technicians will look
for a bullish MACD divergence. That doesn’t happen overnight. But you’re going to
see, in this case, is it’s still getting a
little push to the upside. Now, so we talked about
number one, fear rising. Fear is the whole
foundation of a shorter term bounce in a longer term trend. Number two, sector performance–
you should typically be seeing lower beta areas leading. If they’re not, you’re probably
not at a tradable area yet. Number three, understanding
R1, R2, and that 10-day moving average, watching those
areas of reversal. Number four, bullish
MACD divergence– so we got long on that stock
in this example yesterday, and that was one that
actually is getting a little bouncier here today. Number five, let’s
take a look at this. And we’re going to start
putting on some trades here. I’m going to actually
go to the number five. Now, some you might say, well,
James, this is my favorite. OK, well, let’s bring this up. So I’m going to label this as
a diagonal resistance breakout. Now, remember, the diagonal
resistance breakout is created from lower highs. Most investors are
just programmed to just look at
horizontal, or that’s what they think is
the most relevant. It’s the diagonal
resistance breakout, which can be intermediate flags. Now, the example I’m going
to look at here– now, have you guys seen any
lower highs as of lately? I’m going to pull up
a stock, for example, and the stock that I’m going
to look at is American Express. And so let’s just
do this together. So when we look at lower highs,
how do we draw the angle? Because if you get
a pullback, we’re looking for where’s
the point of control. Now, what I’m going to do,
just so we can be clear, I’m going to circle these highs. And this will be our
first rate here today. I’m going to circle the high. This is where the stock
went down, came back up. I’m going to circle that high. Then the stock went down. The stock went
down, came back up a little bit– circle
the high again. And then the stock went
down, stock came back up, and then currently,
this is where we are. Now, notice what I did. I looked for where it– where
do we drop down, come back up, drop down, come back up? Wherever we came
back up to, that’s where I circled the high. That’s where I circled the high. Now what I’m going
to do is I’m going to connect those yellow ovals. I’m just going to
take a tool here and I’m now going to go ahead
and just click right there. And now, what I’m going to do
is just connect those spots. And when I connect
those spots, we’re going to see an angle or
the line of resistance. And remember, downtrends–
lower lows, lower highs. If the price can not get above
that angle of resistance, the sellers could
still be in control. Now, when we talk about
diagonal breakouts– and this is where there were
some questions yesterday on order types– we’re going to talk about
this one right here. If we just want to get in
now, it’s a market order. I just want to get in or
out now– market order– greatest chance to get
filled almost immediately. Whatever the next
order is, get me in or out as soon as possible. That is a market order. If we said buy limit,
you’re really saying, look, I want this price or
lower, if you are a buyer. I think most of you probably
do that in your life. You buy a car at a
certain price or less, buy a house at a
certain price or less. You’re saying, I want it, but I
want to pay this price or less. I want to know what I’m
actually paying for. But the buy stop is where you’re
saying, look, it’s setting up, but it’s not really a
setup yet for an entry. So you’re saying,
what would the stock need to do for an
investor, let’s say, to take a bullish entry? Now, that’s a very
important question. What would you need the stock
to do to get a bullish entry? If you said, well,
I need the stock to get above resistance by– and I’m going to
throw out an example– $1, well, let’s go
back and put that on. Well, if we’re
saying, I’m not going to get in yet, because
we’re not above support, we have not broken
resistance yet, that order type is a buy stop. Now, this is the question– why didn’t you just
wait to do it later? Are you going to be watching
one stock the whole day? It’s doubtful, right? Doubtful. You got other
things in your life. Hence the order. If you’re saying
it’s setting up, but it’s not an entry setup
yet, that’s the buy stop. Now, what I’m going to do is
I’m going to put my cursor right on that 125.46. If we use an
example of $1, where we’re saying $1 above that– we showed a 1%
example yesterday– I’m going to go ahead
and right-click on 125– let’s go down and do this– 125.46. So I’m going to type in 125.46. This is a stop. That is actually saying,
do not buy the stock until we get to that
price or higher. If the stock go to
that price or higher, it does not guarantee
that the stock is going to continue to go up. But the idea is if it’s
breaking resistance, maybe there could be
more buyers than sellers, and change from a
lower level high. Because of the price
gets to that spot, it’s not making a lower high. It’s actually now
making a higher high. And what comes
after a higher high? Could be a higher low. Now, what I’m going
to do is I’m going to change this day to GTC. Why? Because I don’t know
if it’s going to go up to that high today, or if ever. And then now underneath
what we could do is say, well, where is this
recent low or area of support? And what I’m going
to do, in this case, is I’m going to set that right
underneath this recent low– about 121.18 less– 2% to 3%– and it’s going
to give us a stop at 118.75. So this is saying,
don’t buy this stock until we go to
125.46 or higher– that’s GTC. If we then buy the stock– we have to own the stock
first, and if we own the stock, then sell the stock, if we
get to that price or lower. Notice how both of these
are market orders, which is stating, we don’t know
the exact price we’re buying or we’re selling it for. We could talk about that. But if that’s what
I want to do, I’m going to go ahead and
actually say day to GTC. Most are familiar
with the sell stop, but the buy stock
becomes more typical, when you’re saying it’s
setting up for an entry, but it’s not meeting
the criteria yet. But the likelihood of the
stock that it could do that is becoming higher
and higher and higher. Therefore, we’re
setting up in order to try to take advantage
of a potential breakout versus saying, I’ll wait, and
I’ll be watching it all day and all day tomorrow. I don’t know about you, but I’m
not going to watch something– one stock all day long. There’s other things to do, and
I’m sure you feel the same way. Now, I’m going to
go Confirm and Send. Remember, the price has to
get to that price are higher– the sell stop–
that price or less. There’s the capital and
there’s the transaction fee. Now, if this is
what we want to do, I’m going to go ahead and
actually send that order. Send it. So when we talk about the
fifth bullet point here– diagonal resistance breakouts. Let me show you what
we mean by that. If I go take a
look at, let’s say, that market watch, and
what I’m going to do here is I’m going to
bring up, let’s say, a list, and I’m going
to bring up, let’s say, the public list– I’m going to look at the Dow
Jones Industrial Average. If I look at the Dow
Jones Industrial Average and I look at– see how many
stocks are above the 10-day moving average today,
I would say about 35% of the stocks in the Dow are
above the 10-day moving average right now. What does that tell us? That tells us that that
condition number five, one of the seven
common patterns, a bullish reversal
since the stock getting back above the
10-day moving average. Remember, the 10-day moving
average is a gauge of momentum. Price above, more bullish– price below, more bearish. Simple as that–
don’t confuse it. Now, number six– if
we take a look at this, we’re going to call
this the W patterns. And this is why I think we’re
not seeing as many examples, but I happen to find some. Now, W patterns– and I’ll
bring up an example here– now, remember, this
is not just teaching. We’re going to really talk
about here some examples we might look at to enter
in the portfolio. Now, let me bring up an example. Now, how many of you have
kids that are going to school? I have four kids. One’s in college, second
one’s going to college. The two younger ones are
going to middle school– and so back to school shopping. Now, I’m going to bring up
an example of what we really mean by W patterns. This is the sixth
common pattern that we see in bullish reversals. Now, what I’m going to do
is I’m going to bring up the example here of Ross. Let’s first bring up, what do
we mean by these W patterns? So first, when we
talk about W patterns, I’m going to label this
as that would be more of a double-bottom pattern. Double-bottom– that
the lows are equal. The second type of
pattern here would be where the price drops
down, comes back up, drops down, and
then comes back up. This is where the lows
are actually lower. The W is more tilted down. But the point is the same. The investor is watching
to see the middle of the W. That middle of the W is
what’s called a lower high. And if that price can get
above the middle of the W, it’s now saying that the price
is now making higher highs. And if the price actually
makes higher highs, what’s that next potential step? A potential high or low. We’re going to talk about that. Now, when we take a
look at the last one– probably more common in
the current markets– price goes down, pulls back,
and then comes back up. Now, here’s the deal– we’re not trying to become
just an investor who can spot the patterns. We want to know how
can we use the patterns and practice the patterns. Now, if I take a look at
there there’s, the lower low. Price runs back up,
this is the lower high. This right here is where
the price falls back down, but doesn’t go back
down to the prior low. And then the stock gets
above the middle of the W, and that means that this area
right here, in the circle, is now making a higher high. So we really have three
different type of setups. So when we take a look–
but they’re all W patterns. They vary how they look. So now, what I’m going to do
is I’m going to quiz you now. So if we go take a look
at, let’s say, the Ross, what type of W do
we see right now? When we take a
look at Ross, Ross is really showing more of
example where the price– whoops– price dropped
down, came back up, price dropped back down. And if you take a look
at this, what you’re going to notice on the
chart is the middle of the W is right there. What do you notice about
the price action today? Well, the price action today
is getting above that middle of the W area. Now, if you take
a look at this, we could look at the prior
low as maybe a spot– if I look at that
area, that might become a new potential
area of support, and that’s probably right
about the 104-ish area. So if that stock can go
up, make a brand new high, pull back, use this prior
low spot as a higher low, it’s changing the trend. But it starts with getting
above the middle of the W. So in the example that
we’re going to look at here, we’re going to bring
up, let’s say, Ross. And we got earnings actually
upcoming right here. Now, the joke might be, well,
based on how much people spend on back to school shopping– and I know there’s been a lot– someone said to me yesterday,
man, back to school shopping, it was not cheap. My kids always say, I
don’t need anything, but then they go into
the store, and then they say– the person said
to me, all of a sudden, they need everything. I thought that
was kind of funny. But if we take a
look at this, you’re going to see that
this is really showing more of that intermediate
flag, as well. We recently had a
run up in the price– check. And now, what you’re
going to notice is the price is trying to
break up above that area there. Now, let’s use this. What I’m going to do is, just
like we drew on the chart, on the big board, I’m going
to use this prior error right where that 30-day
moving average is, as far as the example. Now, here’s the
question– a market order, a buy limit order,
or a buy stop? Market order says
we’re going to try to get in at the first
available price, if we’re trying to buy it. If we’re saying a limit order,
we’re saying, I want to buy it, but I want to put a
ceiling on what I’m willing to buy the stock for. Buy stop says, it’s
not an entry setup yet. Well, let’s take a look at that. Is that stock above a support? Is that stock above– did it just get above
an area of resistance? Think you might answer
yes to those last two– above support, up
above resistance. Well, if it’s doing that, then
probably doing a buy stop– that’s probably
not the order we’re looking for there
unless you’re saying, I want it to get above
108, for example. So in this case, we might
just use a standard, more of a limit order. Now, what I’m
going to do here is I’m going to actually
right-click right on that current price. Now, some of you
might actually say, James, I want to maybe
put that order right in the midsection
of the candle, try to get the price
to come back down. Understand. If I right-click, and I’m
going to go to Buy Custom, and I’m going to go With Stop– now, remember, when
we do a limit order, we’re saying, OK, what’s
the current price right now? 107.09. And if we go back and look at
this, what I’m going to do, in this case, is
I’m going type– I’m going to change
the price to 107.09. If Bob– hypothetical Bob– does a market order
at 107.09, Bob could probably get
filled potentially sooner than we could. But if I said buy
limit at 107.09, I think those
orders will probably go very, very close together. There’s not a big difference
outside that, in this order, we know there is a ceiling. So when go to buy a car, do you
just open your wallet and say, whatever’s in there,
whatever’s on that window, go ahead, take what you
need out of my wallet? When you bought the house,
did you just say, look, here’s my check, just writing
the amount you’re asking for? That’s kind of like
a market order. Now, if you do
that, you probably like to do a lot
of market orders. But a lot of investors
might not like that. They may be a
little apprehensive on what am I paying– what’s the ceiling of what I’m
willing to buy the stock for? So outside buy stop
orders that are markets, we don’t typically do a
standard market order. If we’re going to
buy the stock now, they’re typically limit
orders with a ceiling price. In other words, that’s the limit
of what we’re willing to pay. Now, what I’m going to
do is I’m going to take, in this case, 103.89– which is that support area– and I’m going to set the
stop underneath that. And that stop is going to be
underneath, right a 101.81. I’m going to go day to GTC. Now, if you take
a look at this, I want you think about
something just real quick. This is one of the stocks
that’s above the 10. This is one of the stocks
that’s also above the 30. So from a relative
strength standpoint, has Ross been
something that has been relatively stronger than the
general market and most stocks? How would you answer that? Now, what I’m going to do is I’m
going to go Confirm and Send. Remember, on this order,
we’re saying 107.09 or lower. We have a stop underneath this. If the price goes
to 101.81 or lower, sell the stock–
which could be lower. There’s the capital
that’s involved and the transaction fee. And now, what I’m going
to do, in this case, is I’m going to send that order. Now, number six– number six
we talked about was W patterns, and the last one here I’m
going to label as candles. So in other words,
we’re looking for, or technicians would be looking
for candles that would be showing signs that that scale– or if you want to
call it that– where we’re seeing a shift from
sellers and control to buyers are in control. Now, we’re not making
these seven to say, I want to feel smart, and I
could tell you all about them on a sheet of paper. What we’re saying
is, can we find examples where we
see these seven pieces of what technicians
who call potential evidence, or increasing probabilities
of directional trend change? Well, candles might
be like hammers. Candles might be,
let’s say, long– and I’m going to
call it long tails. Course, that would be
like a hammer, as well. I’m going to also include, in
this case, an inverted hammer. I will include in
this piercing lines. And I will also include the
last one, bullish engulfing. And I would also include
right there, CAHOLD. So I just wrote down
these seven points. Now, let’s look at some. Now, when we take a
look at piercing line, a piercing line
would be– and I’m going to choose the
example of Lam Research. So here’s the stock where it has
fallen back down near support. And I’m going to label
this as these old highs. Now, let me just mark that. Now, if you take a look at
this, what I want you to see, in this case, is the price fell. And as the price
fell, the price falls down to where the old
breakout area was. That’s not unusual. This goes back to number one– fear. And when the fear is there,
fear goes up, price down, and/or vise versa. That stock can go back to longer
term support areas or longer term moving averages. When we look at a piercing line,
what you’re going to notice is the piercing line candle
is where the stock opens up lower, but then closes
back more than halfway inside the previous day’s body. But wait– there’s more. And then, for
example, in this case, the stock then
gaps to the upside. That is saying that
there was from last night and this morning, there
was an abundance– or net buyers, if you will– standing there and
saying, I would like to buy those shares,
hence, the price gapping up. Now, I didn’t buy the
shares, but I’m just saying investors net were
more net long or net buyers right at the start of the
day, which caused the price the gap to the upside. Current candlestick,
what do we have? Hammer. Now, what I’m going
to do is I’m going to use this going back to
where these old lows were. And what I’m going to
do here is I’m going to mark two different lines. So we have a support– a low point or a support area
about right there, and we also have, if I
draw this, probably a diagonal angle of a resistance
probably about right there. And you are probably thinking
that exact same level. Now, remember, if
we’re saying, hey, look, I want to see the stock
get above resistance before we get in, you might consider a
market order or a limit order. This is not something
that’s below resistance. It’s something that’s getting
above resistance based on that line and
where the 10 is. Now, what I’m going
to do, in this case, is I’m going to
show the example. The third stock trade– I’m going to right-click
on the price graph, drop down to where it
says Buy Custom, and I’m going to where
it says With Stop. Now, if I take a
look at this, I’m going to show the
example of 205.21– that’s the limit order– and then what I’m going to
do, in this case, is I’m going to change that stop
where that stop could be set underneath 192.63. That line is drawn there. Now, that’s a looser
stop, but this class is trading the trend
weeks to months. That’s the point. And you’re going to see
that I’m going to mark that. I’m going to set the stop
2% to 3% below the 192.63. I’m going to change the stop. Stops can be day orders. But if we’re saying, I want this
on going up to a certain point, I’m going to change
that to a GTC. All right, now, one thing I
want to also make mention of is when we recap
these seven points– so when we recap these seven
points, we talked about– and I like to hear your
questions on these. Number one, the setup
of a shorter term bounce in a longer term trend
always starts with fear. That fear can be caused
by price and/or news, and that news is typically
the fog that disguises investing opportunities. If you trade how you
emotionally feel, you could miss those
potential entries. If you trade what
you see, you’re really aligning
yourself to the criteria that you personally are
looking for potential entry. In other words, you’re
being more disciplined. You’re not letting an
emotion control the process. Second, we talked about
sector performance, looking for lower
betas to outperform. Third, we talked about
understanding the resistance levels and what happens
in those key areas, especially on those
lower low areas. Four, we talked about a
bullish MACD divergence. Five, we talked about a diagonal
resistance breakout, which I think gets underestimated. W patterns– talked about the
three different variations. And we also talk about candles,
hammers, inverted hammers, piercing lines, and
bullish engulfing. Now, if you want to see
an example of a hammer, we could look at SNPS– more of a hammer. Zoom in. You’re going to
see that would be more of an example of a hammer. And if we’re looking
for something that really has more of a
bullish engulfing example, that would really be more
of an AMAT, something where it engulfs the
previous red candle. Does that make sense? Now, Pat actually says, did
you peek at my watchlist? Yes, I peaked at your– no, of course I didn’t. No, I didn’t. Anyway, all right. Just a little fun there. So are there any
questions on that? Now, here’s the
questions I was thinking. If there’s any
questions, let me know. Do you have to have all seven
lined up in a row perfectly? No. But if you start to see
the majority of these– you define majority– five out
of seven, six out of seven, four out of seven– whatever
it is– more than less, let’s just call it– the probably tells you that
that scale that was so bearish is now actually starting
to kind of neutralize, and maybe shift and turn over. Now, one thing just real
quick, as we take a look at, let’s say, where the Dow is,
if you take a look at the Dow, if we kind of said
going forward, what might we potentially see? We’re kind of coming up to
some key areas of resistance right here– the 10. Could it be plausible
to maybe think that we might try to pull back
to the R1 level, the midsection of that large red candle,
and try to make a higher low? Yes. It’s not probably just going
to go down and then V back up. That can happen, but
it’s not as likely. But something where it might
try to exhale a little bit, pull back, look for
that old resistance, now to become the new support. The reason why I
did this topic today is I think sometimes,
when markets pull back, we have all this news
and volatility all around us, we don’t really
know anything to grab onto outside
the smoke of volatility and the smoke of
news, so to say. And we don’t really
what we should– maybe how we should
set our bearings, or things we should
even consider. Now, what I want
you to do is I want you to go and take a
look at examples of three through seven– so what you should
expect from you. What you should
expect from you is I would like you to go
out and find examples of stocks that are
really doing conditions number three, four,
five, six, and seven. So find stocks that
showed a reversal. Find a stock that also has
a bullish MACD divergence or a diagonal breakout– W patterns and candles. Can you spot them? James, it looks so
easy when you do it. I know. That’s why I’m giving you
this homework assignment. I want you to go out, and
in your paper money account, practice seeing these. Practice paper trading those. Hard to learn how
to ride a bike, when you don’t sit on
the seat, isn’t it? So that’s very important there. So I challenge you to go out
and do that actually– practice. And so with that said,
I’m out of my time. We will send actually
that LRCX entry in. The stop is saying
that price or less. There we go. Want to also give
you a quick reminder, coming up at the top of the
hour, my good friend Ken Rose will be doing a class on the
advanced options coming up right at the top of the hour. Also want to give
you a quick reminder that, as well, in
order to demonstrate the function of the platform,
we did use actual symbols. Remember that TD Ameritrade does
not make any recommendations or determine suitability of
any security or strategy. That is up to you to decide
what you want invest in. With that said,
thank you so much. Stay tuned for Ken
Rose coming up right at the top of the hour. Bye-bye.

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