Technically Speaking: Advanced Charting Techniques | Pat Mullaly, CMT | 2-14-20

Technically Speaking: Advanced Charting Techniques | Pat Mullaly, CMT | 2-14-20

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hey some traders get their edge by
trading candlestick patterns at the edge you need more light
stick around good afternoon everyone and welcome
technically speaking advanced charting techniques and we’re gonna talk
candlestick patterns and maybe a little bit better or a proper more proper use
of candlestick patterns was talk about those as we get rollin here my name is
Pat Mullaly @p Mullaly underscore TDA is how you can follow me on Twitter
that would be great along with the rest of the investing coaches out there so
before we get rolling let’s get into the the great information here and first of
all I also want to say howdy to Charles and to Mike and George in Texas George
Texas lash me Lakshmi grace Carlos so on and so forth
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65 cent contract fee Delta Gamma Vega theta options sensitivity to changes in
price time and volatility okay so today we’re gonna define mistakes possible
mistakes traders may make when they use candlesticks we’ll talk about what the
where for is there we’re gonna discuss possible areas that may be more
important to that change in momentum using candlesticks and then look at a
sample trade alright let’s get out there and first in foremost again let me
continue let’s see Carlos Eric Francis rod hello
hello let’s jump out to the to the big screen and get rolling here as usual we’re
gonna start with the market the market is down all fractionally today seven
tenths or seven hundred of a percent so which means you know seven basis points not
necessarily a terrible thing we can see here on the chart just drifting sideways
that’s happened before over in here you can name a number of places that that’s
happened and this is why it’s important to what we’re going to be talking about
today because where things occur where they have been where they are now is
very important to how decisions are made as far as momentum goes as far as
momentum goes we’re looking at a conviction indication today down just
very fractionally and the conviction indicator says 36 should really that’s
maybe a little bit overdone so you know maybe a little more relaxation as we go
through next week the end of February we’ll see well say there’s no guarantees
in life the one thing I want to make sure that people understand is that when
when it’s part of what we’re going to talk about today we go through a base
pattern then it goes into an uptrend and that uptrend is usually marked by some
kind of a channel and if we drew a an uptrend line through here and then we
drew a channel line across the top here and we looked at where price was on the
S&P right now it may have a little bit more room to go before it finds before
it finds the top of the channel so right now presently we are in theory kind of
in the middle of the channel banging around at that middle of that channel
there the reason I show that is we’re gonna look at some channels and we’re
gonna look at some whether they’re up trending channels or whether they’re
sideways channels and that’s going to help us make these decisions on
candlesticks so the first thing that we want to do is you know continue our
learning on momentum no matter what kind of investment you’re
making you’re looking for upside momentum and there are the lack thereof
so let’s move on to the next screen here and then this is Amazon now the Amazon
this is way back in time we went in the Wayback Machine and this is January 2018
1st of January 2018 which is the left side of the chart over in here and it
goes all the way to the right side of the chart right in here and that’s
January or excuse me February 21st 2019 so a little over a year in time and I
have a lot of pink dots I don’t know how well you should be able to see those
pretty well and those are what some people consider a and maybe a true
proper place to do to maybe look at candlestick patterns so the first thing
I’m going to discuss is supply and demand supply and demand that’s where we
look at trends that’s where we look at volume those types of things when we so
we’re going to start with the trend line as always trendline support and
resistance lines whatever you want to call them we’re going to give them a
little bit different name today and that’s going to be supply line and
demand line because we’re gonna look at candlesticks that may be supply candles
and demand candles and if you have those two things together or not then we can
make some possibly make some better decisions so what we’re gonna do is talk
about the top channel line the top channel line here is that’s this red
dotted line here that’s you have an uptrend when you draw an uptrend we’re
going from we’re along the bottom of the candles price bars whatever you want to
call them and the channel line is the top of the channel whatever you want to
call it we’re going to call it a little bit different today we’re going to call
it we’re going to call the the top line to the chat top channel
line the supply line that’s where like resistance we see people sell why people
sell it resistance they buy at support they sell when they deem and its place
to take a profit whether the short term long term depending on where they bought
it what their feelings are is you know so on and so forth so the bottom line
the uptrend line we’re going to call that the demand line so we have this
demand line that’s going to be the uptrend line we’re gonna look for a
demand candle so demand what does demand people come in and buy it support that’s
demand so we’re looking for a demand we’re looking for the changes in that
momentum so if we are in an uptrend then we look for any kind of pause to reverse
and head back in the direction of the trend until it doesn’t anymore and we’re
gonna we’re talk about all these things right here on this chart and we’re gonna
look at some candles different types of candlestick patterns because a lot of
times people get it wrong they may have the right structure but it’s not in the
right place okay so it’s it’s that’s an important bias it may make you do
some traders may do things in hopes you know that that greed that fear when they
shouldn’t be doing things so let’s some now that you got this remember uptrend line
is the possible demand line is the demand the the top of the channel is the
supply when we’re at the top of the channel we’re gonna look for supply
candlestick patterns water supply candlestick patterns engulfing patterns
evening stars dark cloud cover shooting stars hanging men those types of things
now when we’re at the uptrend line we’re going to call that the demand line not
the supply line but the demand line what are we looking for there we’re looking
for demand candlestick patterns and those are going to be morning stars
they’re gonna be piercing lines they’re going to be hammers they’re gonna be
inverted inverted hammers you know and the list goes on but
for the most part the most the ones I just mentioned are the ones we see the
most and because we see them the most that becomes more important where they
are as price has made it made its move okay so with that let’s zoom in so make
sure you got this right uptrend line is demand line that’s this uptrend demand
candle is what we’re going to call what we’re going to look for the top of the
channel is going to be the supply line and we’re going to look for supply
candlesticks now you inverse you can invert those to make those down trends
down trend line is going to be if it’s if a stocks in a downtrend we’ll just
use Amazon here if it’s in a downtrend then you flip the what we talked about
here this is the supply line when price rallies up to that downtrend that’s the
supply line and we expect the down the the bottom part of the channel the
channel line the downtrend channel line that is going to be the supply area
that’s our mean it’s you mean the demand area supply on a downtrend is going to
come in when price hits resistance and we should see demand come in when price
hits support hits that hits that channel bottom channel line and if we look at
something that’s gone sideways what are we looking at here resistance is going
to be what supply people sell at resistance that’s what supply is supply
of stock comes on the market and when we find support well that’s going to be
demand and we expect some demand coming on and we just look for those types of
candlesticks doesn’t matter if it’s in a downtrend and then consolidates support
and resistance are still going to be supply resistance demand is going to
come in at support okay and the same thing in a downtrend supply is going to
be resistance demand is going to be support all right let’s zoom in on this okay so we are in an uptrend and so when
you’re in an uptrend and because you can’t see the chart going back further
there was a strong uptrend a bit a small consolidation and then back into the
direction of the longer-term trend okay so to find uptrend and then when we look
at this we’re gonna look at this pattern so what happens price hits resistance
whoops price hits resistance and then comes in
to support when it comes in to support very quickly in this case it it it as
supply came on the market so let’s I’m gonna zoom in on this just a little bit
closer yeah that’s good and let’s move this over to the middle just a little
bit so let’s take a look at what happened here so price runs up to
resistance and then we get the ubiquitous engulfing pattern now the
reason this is an engulfing pattern is because it’s at resistance how can we
tell it’s at resistance well it’s just coming out of this pattern over in here
and we’ve got this zone of resistance and we get this engulfing pattern where
people make their mistakes and we’ll look at some of these is when price is
trending sideways and they get some kind of engulfing pattern or some kind of
hanging man or a doji or all of those things when price is moving sideways
right when price is moving sideways and it’s not necessarily at any major
support or resistance any major demand or supply line then there’s a there’s an
issue was a flaw in our in our research that you’re doing or whatever you’re
considering so when we look at this this becomes a little whoops come on give me
yes this becomes a more important and engulfing pattern and then when it sells
off notice this long-range candle here and
that’s one of the things we’re going to look for when we hit these long-range
candles and then we have a small bodied candle this just happens to be basically
a doji with a little bit of a body’s has a bit of a real body but then at this
point this was a $1,500 almost a $1,500 stock so whatever a few a dollar or so
in there that’s pretty much a doji but the important thing is this supply comes
in on this long red candle to the downside demand comes in at support and
why because it slammed down and bears we’re just having a heyday early on in
that I would I would think they were having a heyday because everything
looked great but it found support and then maybe some of these short-term
short sellers were buying back maybe some other people said this is a great
place to buy maybe some news came out which the next day we did have some news
and that happened to be the earnings announcement here gapped up strong broke
through the supply line and then selling came back in and as you can see here
really just drifted sideways now I did a discussion on on this exact kind of
thing we want to look for when when you can start to get into these long-term
upside channels when he we hit here we expect it to go sideways
oftentimes it may make it all the way back down into the demand line or the
uptrend line this time no it only made it to the middle which often times price
is going to search out whether it’s coming down to it or going up to it
price will search it out in this case it found some support at the middle at the
midpoint of these channels these are areas you can consider doing things
right because think about this if you decided you get this zoomed in here if
you just somebody decided that they thought hey this is a a pretty strong
move to the upside and it followed through here then yeah you know you’ve
got a support you could define support and then it runs up to the demand line or
excuse me the supply line and we make this this morning star or really kind of
an unidealized Morningstar what do I mean
unidealized Morningstar it doesn’t fit the definition that the textbook definition
you’re gonna run into that you’re gonna see that that’s okay the psychology is
still similar in that we have a strong run up into that and then it pulls back
excuse me mm-hmm and then we rally back up now this one
really kind of failed somebody wanted to if somebody tried to go short here let
me ask you a question how successful have you been going totally contrary or
contrarian at in a strong uptrend in a stock that’s in a strong uptrend this
you can do it there are ways to do it but you have to be careful higher
probability ways to do it so this one didn’t pan out so well why because it
started to move back to the upside the next one is the engulfing pattern right
in here which we have a short-range short bodied candlestick and then the
next day it follows through to the to the downside so let me move this forward
and you can see this pink pink oval right in here so we have this engulfing
pattern again pulls down into the zone of this middle portion in here and then
this is where you want to be somewhat careful a gap down and then we have this
harami what’s a harami is when you have a smaller bodied candlestick
that sits inside of the longer bodied candlestick in western
charting you use bar charts it’s called an inside day so an inside day followed
by another down outside day some people might call that a bullish stick sandwich
after a fashion and this did start to move
back to the upside is that inna is it in the proper zone I’d say not so much this
is a you’re taking a what some people might consider maybe a little bit higher
risk buying in here but that’s up to you nothing there’s nothing nothing’s a
hundred percent and then we see that it runs back up into and fails to get into
resistance up to resistance up to the supply line once more so we’re starting
to lose momentum and if I draw from here to here and that’s one of the things I
talked about earlier in the week was these channels where we start to see
these wedge patterns start to come into play so it starts to wedge out we’ve got
a candlestick in here and then it sells off and finally after oh let’s see three
months makes it back down into the bottom channel and we get that same kind
of look that we had earlier on where some pretty strong selling comes in on
these two candles right in here and we get this long range small bodied
candlestick long range our long-legged small bodied candlestick the long-legged
spinning top whatever you want to call it a spinning top is a small body that
has longer wicks on the upside and the downside after a fashion but so anyway
what do we see here we see it now down at the demand line we see bears winning
the day on this candlestick and it rally back rallies back up and then we get
this move to the upside the next day and those three candles right there we’ll
have these three arrows that makes that Morningstar kind of look again non
idealized because there’s not really any gaps down in there but you get the idea
a hammer long this hammer with the tail or the wick or the shadow whatever you
want to call that on the downside it more than twice the width of the body
and then we get a bullish move to the upside the next day if we do some
comparisons with with volume I don’t know I’m not quite sure why that one’s
green but anyway you do some comparisons with volume not so worried about the
colors as we are worried about where we are at demand line the uptrend line big
volume they shake it off and rally it back up this is maybe a higher
probability set up for these candlesticks where were the higher
probability setups well this one over here was what did that mean well
unfortunately it didn’t turn out so great but we had another chance over in
here so if your rules were to take profits when it gets to the demand line
you might be in a little bit miffed over in here when it rallied back up in there
and they you know oh gosh I could have made more money
well you followed your rules and when a lot of people think that’s a probably a
good idea and probably a good trade and then fell back down in here did you have
another opportunity yes somewhere over in here is it found some support and
started to rally back up and you may have gotten in somewhere near where you
got out but ultimately let’s do this let’s look at this demand line down in
here and I’m gonna draw a line over here so bear with me as I try to get this
right try to get that as straight as I can and
the reason for that is if you if you were to be a buyer over in here on this
Morningstar your entry was a little bit higher if you had gotten out over in
here your entry was would be a little bit
higher so that’s another question I want to ask you does your past trade have
anything to do with your next trade the answer is no it does not have anything
to do if this was a sell signal and you followed it great if this was a buy
signal and you followed it great it’s what you’re supposed to do right
anything that happened in between guess what nothing you can do about that
personally I’ve given up all hope of having a better past right so follow the
your plan your guidelines whatever they are if those guidelines if you follow
them the way you’re supposed to follow when you take notes and you can go back
and say every time I do this it turns out to be not a great idea maybe you
need to change that or every time I follow my rules things tend to work out
I don’t lose too much when it goes against me but I make a lot when it goes
my way then you need to keep following those right don’t you can’t trade in the
past you can’t trade in the future you can trade in the now so try to stick to
your stick to your rules and then interestingly enough I’m
going to pan back out here and then we get into this topping pattern we get
that morning or evening star pattern we see up in here so evening star evening
star or excuse me and go a bearish engulfing evening star this might have
been actually a bearish engulfing note and I say no because it’s more of what
we call the zookie line this actually opened a little bit lower than the
previous candlestick okay now we don’t know necessarily that that’s going to be
resistance right now we just know that it’s coming down it’s failing
we drew that line using two marks going back in here using these these
highs let me pan out using these highs in here and we saw that it was starting
to lose momentum coming through the channel and then set up now if you
didn’t do anything right there if used decided that you know what the
it’s a little bit too foggy out there a little bit too muddy in the water can’t
see quite as well then maybe you let it go through this this period of sideways
movement and then notice it gets down to this uptrend line starts to make a
harami actually didn’t start it actually made this harami and then a a
hammer and then a very small body spinning top oh and then an engulfing
pattern okay wait a minute then engulfing bearish engulfing pattern
really can you have a bearish engulfing pattern at support now we know we’re
reasonably close when we have this candlestick in here right here we know
if we’re doing our technical analysis correctly we’re drawing our lines and
where we understand demand that we’re at a support area it’s support when you see
a candlestick pattern that’s quote-unquote supposedly a bearish
pattern you’ve got to say hmm why because it’s already in a downed
trending mode right it’s already coiling up into this into this pattern it could
be anything but when we look at it and look at the fact that it’s been drifting
technically sideways really for all intents and purposes for a few weeks and
we get these engulfing patterns and here bearish engulfing patterns at an area
where we should see demand and then you you try to take it to the downside you
may be in trouble what’s the long-term trend so always go back
ask those questions what’s the long-term trend while the long-term trends up
what’s the short-term trend well the short-term trend is down short-term
trend meaning days to weeks short-term trend is down to flat really just kind
of sideways how do we know that we started drawing lines as well across
here so we see it was resistance resistance broke resistance became
support support support that’s when that’s when people I’ll hear it I see it
all the time oh that’s a bearish engulfing pattern how why is not at the
end of an uptrend right it’s not up here if this could have if this had been a
little bit higher that would have been considered a proper bearish engulfing
pattern but it’s not it’s here it’s down here at demand it’s down here where we
should see some demand come in now people felt vindicated the next day for
maybe half the day and then it rallied and rallied back up above into that
support zone into the demand zone and then it kept rallying right it kept
moving to the upside and at that point we ended up with a gap a gap higher am i
losing that we go we ended up with a bit of a sorry a gap lower kind of a
harami a dragon or excuse me a gravestone type doji in here when I say gravestone
doji what is that Pat you might ask it’s looks like this it’s just a doji with
the T that’s an upside-down T that’s considered bearish when when it’s at
supply line when it’s at resistance okay so that’s that resistance we’re starting
to look bearish it gaps up the next day and then falls down right and so it gaps
up on that day right there moves to the downside and so that’s certainly
starting to tell us hey wait a minute failed there before
over here maybe we’ve got some failure in here where should we expect supply to
car to supply is going to come in there where do we expect demand to come in and
that’s what we’re gonna look for we’re gonna look for demand to come in right
there and it didn’t right and so we have to wait if you’re looking for the proper
candlestick pattern and those types of things you would probably look for some
kind of piercing not necessarily a candlestick pattern but a piercing of
that support and then a rally back up through that support and then you get
and maybe a more proper pattern in this case down gaps down rallies back up gaps
back up mornings the Morningstar rallies back up into the supply line the
resistance line and then it sells off this time it continued to sell off okay
so now what do you do do you look for bullish patterns if you’re defining this
as the possible new downtrend do you look for bullish patterns or do you look
for bearish patterns think about that for a second think about that over the
weekend it’s if you’re off on Monday Presidents Day think about that during
Presidents Day your spouse may not be happy that you’re thinking about this
but if everything works out for you in the long run financially and then maybe
they’ll be happy so the question becomes do we look for
bullish patterns or do we look for bearish patterns so let’s zoom over here
now we’ve got what’s the definition of a downtrend lower lows and lower highs in
technically what you have right here in theory is lower high because it’s lower
than that high it’s lower than the high on the left now we have this high over
in here a little bit lower might be mincing that zone just a little bit but
we look for any kind of bearishness and so this is where your flag ideas come
into play bullish you know bounce trades breakout trades join John McNichol on
Monday technically speaking same time as this
this if you’ve never been to John’s watch that join with for long calls with
Scott Thompson on Tuesdays at let’s see Tuesdays at I want to say 4:30 Eastern
Time I’m probably wrong on there Scott Thompson look it up and you’ll see more
flag plays there but what’s a flag if you don’t know well it’s going to be
just really just a normal reaction in the opposite direction of the of the
trend so we have a trend that we can now start to define and a flag is just this
right the flag is just that movement to the upside and then what do you look for
you look for this kind of bearishness you look for that evening star evening
star bearish evening star what is an evening star or even a morning star
there three can it’s a three candle pattern when I say three candle pattern
that means it has to have a left side to top and a right side and so a three
candle pattern so in this case it is and an up move because it’s in a bearish
flag and a down trend and then it has the gap higher and this is actually more
textbook than any other ones because we have a gap up and then a gap down so it
gapped up this middle candlestick the hanging man there which is a hanging man
is just this type of a pattern that’s a hanging man right and if we look at this
pattern in here that’s what you get you get this candlestick that gapped up and
then the next day a gap down bullish gapped up Bears we’re winning rallied
back up and then ended up closing a little bit lower than where it opened
for the day and then another down day that is considered bearish so we’re looking
for continuation we’re just looking for this to be a continuation of this new
downtrend as it failed and pushed below that demand line so now we have what
think about supply and demand we can draw a line down through here if I can
get that in there there we go a line down through there now we have areas
where we can look at possible taking possible action
so bearish falls back down rallies back rallies falls down hard rallies back up
and it falls back immediately until it rallies back up again so rallies back up
and then we get this move up in here so can we define you’ve you’ve if you watch
me one might want to talk about these basing patterns these can be very strong
but still the long-term trend is up but we’ve got the question becomes now is
all of this accumulation if it is and we’re going to go through the same thing
that we did threw up in here we’re going to have a supply area and a demand area
supply is going to be resistance how did I define that resistance we defined
that resistance with all these touches in here right you could define that as
pretty good a pretty good area where there became a became an important area
once we’re up into that area we’re gonna look for something bearish right just a
normal reaction back against the trend and we get this Morningstar look this is
a long leg doji that we have sitting right here when we say long leg doji
that just depicts this really just pretty much a plus sign in in text book
so that’s pretty much a textbook long legged doji coming in at
resistance gaps down becomes a morning star and then runs all the way back down
to old to an old touch point right rallies back up through there rallies
back up with a lot of effort that day a lot of effort
that day big volume but it ended up closing well off the low so it gaps down
rallies back up that should be telling us hey just like over here demand came
in here looks like demands coming back in here this might be a tradable rally
up into here and we get the gap to the upside that gap to the upside is a your
hanging man again more of a doji and then the long long downward move so we
really have an unidealized evening star at that point and we’re gonna look
for that to be bearish and then look to see what happens when we get down to the
demand area okay so you in our discussions many discussions why does
that keep doing that to me let’s get over here this whole pattern becomes
very important okay even though it breaks that support area it becomes
important because this Morningstar where did that Morningstar come in at
Morningstar is bullish Morningstar downtrend rallies it could just be a
reflex rally we don’t know is this a total change well we do know this that
when it when price got to the demand line before the support line and broke
down at rallied back up this a little bit of a test over in here this was a
major test major test of of the investors out there their fortitude if
you will to hang on to this stock or somebody who wanted to buy it their
fortitude to come in and buy it and that’s what they did
rallied it back up we have this long leg doji so another classic Morningstar type
look gaps down this day here gaps up the next day so gaps down gaps up
big long-range day to the upside and then starts to continue its upward move
so this is something I’ve talked about go back and watch other videos a change
in complexion hi is that how is that a change in complexion Pat you ask well
let’s take a look at this big push to the downside large volume and here on
that long leg doji what do we get not a lot it’s still almost 50% average
of volume but with all that churning right that’s what this is it’s churning
price moving up price moving down and then we get a long-range push to the
upside on big volume on that next bar and then away it goes right stutters
along the way a little bit but that tells us that may tell investors that
that could be a change in this complexion that this pattern that we see
here the the size of that pattern the volatility in that pattern compared to
previous patterns over in here not quite the long range days that we
saw over in here shake out fake out what do you mean by that price broke down
short sellers came in then it rallied back up as it broke down weak long
positions got out and then rallied back up so it shook out fake out shake out
faked out the short positions because it rallied back up shook out the long weak
positions people are now coming back and always a mistake I got to get back in or
it was a mistake to go short I got to cover my shorts by buying and then it
pushed it back to the upside and that’s that story so that was a lot of
candlestick patterns we just looked at there now let’s look at this pattern
over in here I think that is an erroneous dot in any event that’s not the one I was
looking for let’s move on all right so the subject of the day is really quick
is where the proper place to look at these patterns right so we have this
long downtrend and this stock is Duke Energy strong downtrend below it’s a
20-period moving average right we can just draw this in here starts to flatten
starts to curve out you know starts to curve out you can see that on the moving
average as well and then we get this engulfing pattern so it gaps down we get
a lot of indecision with these with this long leg doji’s right in here spinning
top and then this not engulfing pattern excuse me this harami pattern in here
people consider this a bearish engulfing pattern right but it’s at the bottom
right that’s not an engulfing pattern that could be you could look at this as
unidealized something right but we just see that it sold off on large
volume doesn’t seem to want to go anywhere else
now we’re gonna look for patterns that are more bullish and if we look at all
of this that’s happening in here the only real bearish thing that we saw was
that day and that day could not push below these other days in here so we’re
going to start at that point you have to kind of put your hand on your chin and
say he is something changing in here and sure enough what we had was another
hammer pattern bears had control rallied back up and then it took back
off to the upside still wasn’t out of the woods because it still had to get
above for a lot of folks get above these moving averages a 20-period moving
average which is shorter term it’s on the long side of shorter term right it’s
getting close to intermediate term moving average finally gets above the
moving average and then at that point maybe we can make
some some decisions yeah all right and price moves on from there so bad air you
know improper areas when we’re looking at support and resistance remember
support is demand resistance is supply candlesticks when they when they sell
off that’s supply coming on the market and then when they rally back up that’s
demand coming in so when we look at these candlestick patterns the question
becomes where is it how much demand should we have demand or supply in here
and if it breaks and we know demand has overcome our to me supply is overcoming
demand if it holds and they keep buying then we know demand is might be sneaking
in just under the radar in this case under the 20-day moving average but
under the radar and then it’s it starts to make its up move you don’t have to do
anything down in here if you pay attention to this and have a rule that
says if price rallies up and then pulls back and then we rallies up again then
that’s going to be my entry but you start from where it’s been what’s the
demand support resistance and then trend our trend and then for support and
resistance I don’t know how all of this stayed on here but we’re getting rid of
some of this stuff in here now I do want to say this candlesticks
by themselves maybe you can make them work by yourself by themselves
remember Momentum’s what we’re looking for trend support and resistance that’s
how we’re looking at things momentum volume so price volume time how long has
it been been since it was doing what it’s been doing and sentiment that
momentum and here is Microsoft we put a in I think it was Monday’s I think it
might have been Mike follet’s know wasn’t it was the stock and options as
technical analysis Stockton options on Wednesday here we did a short call no
actually we did an iron Condor round in here why did we do that Pat because hey
isn’t this in an uptrend it is it’s parabolic in an uptrend so these are
nuances that you might consider price rallies gets up to the supply area and
then it breaks out with force straight up right straight up we looked at we
didn’t just use the candlesticks we looked at the RSI RSI way overbought in
both weekly and daily and then made some decisions
higher probability decisions to expect neutrality so we sold a call spread sold a
put spread because with this kind of action and then we get this piercing
line on Tuesday now yeah Tuesday and the kind of you know gave us a little more
information what’s a piercing line exactly what
we’re looking at here let’s zoom in on this a piercing line is a long candle to
the earth shoot I wrote piercing line I’m sorry that’s wrong I’m sure
somebody’s probably type that in I’m gonna write it in whereas I’m gonna
scribble that out you never saw that dark cloud cover is what it is it’s the
bearish side of a piercing line so please forgive us our transgressions
when we when we miss speak dark cloud cover what that is is the price gaps up
and then moves below the midpoint of that long range candle that previous
candle not a short range one preferably a long range candle it moves past the
midpoint of that right so that’s in theory showing some much of a bearish
bias coming into that area there so this piercing line we’re looking for not
necessarily some kind of major bullishness if you watch the discussion
I had on channels and breaking of channels and and those types of things
this could just be something of that nature and then maybe drift sideways for
a while before if it before and if it gets going higher again so dark cloud
cover all right so here’s hovnanian hovnanian long channel don’t
touch the screen let’s zoom in on this one and see if anything comes makes
rings a bell from what we’ve been talking about so we have this really a
zukie line which means it gap opened lower than where it closed but inside
the previous body but closed lower than the previous day’s close at resistance
you could say kind of a multi candled evening star we have two to two
candlestick reversal here and then you have your morning star rallies back up
we get some kind of an evening star over in here long just trying to figure out
what I wanted to do in here and then the the
engulfing pattern right in here and then yesterday our Tuesday Wednesday and
Thursday kind of more of that evening or more evening star look so somebody might
decide that you know what this looks like it might be losing some of its
steam an area that we would look to we’re gonna make a trade on this one an
area that we’re going to look to be concerned with is remember my discussion
on the fulcrum area this has been an area right in here that these little
sneaky areas that you don’t really see a great if this breaks in theory the
theory is is that if price breaks the midpoint of the channel that often times
and many times you may see the downside right but this fulcrum area is an
important area if it holds that fulcrum area like it did here whoops
like it did in here it can move to the upside move back to the upside so do we
take a straight directional trade this way or do we use any of our information
while we know about options so let’s go back over here and see if we can put on
a good trade all right so hovnanian just pretty much zigging and zagging so
the question becomes and this is one to watch is it going to do this or is it
going to do this right if we’re looking at this just on the face of it this is
looking a little bit some people might say it’s looking a little bit weak
because of the lower the lower Highness of it right the failed breakout the push
back down to the downside there’s lots of different armaments that’s why you
know unless you are have a strong compelling reason to get straight
directional you might want to be careful come over here and put in HOV and we’re
gonna look to see well I didn’t look ahead of time there are no option so you
would have to actually sell this this stock short okay and so that is not
necessarily what a lot of people want to do if it decides it wants to get bought
out that stock is going to gap up quite high and you’re gonna be in a lot of
trouble so actually I apologize for if you wanted to sell it short you come
over here to the bid and remember there is an immense amount of risk in selling
short like I said it could gap up and run we saw sprint gap up 73 74 percent
the other day just so you know it’s probably better to do this as a defined
risk with some kind of a spread trade option trade so what we’re gonna do is
go back to the charts here move forward Google Baba and LRCX okay let’s look at
Baba Baba had its earnings Baba has broken up out of its channel rallied
back up into its channel and has fallen flat okay when I say flat it really
hasn’t dropped but it hasn’t rallied either so I’m gonna grab a trendline and just
draw these yellow lines in here so you can see it’s really just kind of
pointing it’s getting right to the apex of this ascending triangle and let me
remove that channel so we’ve got this ascending try our symmetrical triangle
in here symmetrical triangle mean higher lows and lower highs and it’s coiling up
trying to figure out which way it wants to go coronavirus so this is one where
you if you looked at this what’s happening in here you have this kind of
this evening star look where it broke it broke hit resistance gapped down
yesterday morning gapped up today and enrolled right back over so earnings not
helping this out coronavirus a little bit tough so in this case if you felt
that the uptrend was going to continue in some form or fashion out there in
time then what we might do is hope that this typewriter works there we go
typewriter that’s how old I am keyboard we’re gonna look at this to sell or
maybe perhaps sell a if you’re bullish on this a put spread if you’re bearish
on this a call spread if you’re neutral on it sell a call spread and put spread
watch getting started with options if you don’t know much about options but
let’s put this on so you can kind of get an idea of what might be occurring so
I’m gonna go out about 35 days give some time I’m going to look for something
that has a higher probability so I’m going to actually sell a put and I’m
going to cover that put by buying one underneath it for a credit right and
that credits 87 cents we have a higher probability that price will be above the
short strike at 205 on expiration which is right here so that’s where our
risk lies right in there and come back over to the trade tab and I’m going to
sell this put spread we’ve got almost is we’ve got four dollars worth of risk so
I’m going to sell this three times options have options have transaction
fees that’s that and we we sent that off so the idea here is that it’s so neutral
right now we’re not sure which way it’s going to go looking bearish but then we
get to support and it bounced back bounces back up we’re very close to that
demand line and so we took some time we we sold some time we sold well
underneath where price is at right now hopefully if price breaks down it’ll
find some support around the zone rally back up so even if we’re wrong in the
direction it doesn’t move up immediately then this this still has a chance of
maybe having a positive P&L when everything is all said and done on that
on that trade so Baba pushing to the upside LRCX I have in here now this is
we’ve already got a position on here let me I’m going to take this stop out so we
can see that a little bit better excuse me must need water broke out so I’m
going to draw a channel in here broke out strong rally pulled back into the
demand line so on and so forth now we are looking at LRCX in the face
of some strong some strength coming into its industry group but it’s looking like
it is a looking like a so far today a possible quote-unquote bearish harami
where is it though well we could we might be able to say well you know what
it’s kind of in the zone up in here where we might see some
resistance somebody might come in and make a rationalization and not
necessarily a wrong rationalization that that yellow line I just drew let me
highlight that is going to be a resistance area but a higher probability
might be when it gets up into the supply line it’s already above the midpoint
pretty well and some strength in the overall overall industry group so this
is an area where if you did something maybe a call spread might be in order
might be a little bit more appropriate than just going out and buying a put
this might be something that if you own the stock that perhaps you you’re not
liking the stutter in it and perhaps that you sell some we own quite a bit of
shares of this well you know when you look at the when you look at the share
price on this is the one I’m thinking of in any event we own a certain amount of
shares of this and the monitor tab we can go back and take a look Wow had to sneeze all day all right
somewhere in here we’ve got LRCX here it is and we own like 36 shares of a you
know $400 stock with a thousand dollars worth of risk so that one is we’re
getting beaten up a little bit today in any event to summarize the idea here is
that we have defined mistakes that traders make we’ve defined areas that it
might be a higher probability to use those candlesticks with and those areas
are going to be support and resistance whether it’s in an uptrend or whether
it’s in a downtrend the next thing we need to consider is how much volume we
have in those areas is it broken out is it starting – are we getting close to
the area but starting to drift sideways use those ideas use that channel to make
a better decision so don’t make the mistake of using candlesticks in
flat sideways action price action look for those edges that’s where if you want
to build an edge look for an edge look for those areas of extremes the upper
side of a channel the lower side of a channel whether they’re horizontal or
whether they are trending so with that I bid you adieu
and I wish everybody a great holiday as well and we shall see you on Tuesday
remember we are closed Monday you are responsible for your decisions that you
make in your self-directed account

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