- Write a reason to enter a trade and write a reason to exit it
- Identify the entry price for a trade and capture the chart pattern for it at that time
- Identify the exit point of the trade and capture the chart pattern when you exit
- By analyzing the stock you need to find the balance of power between bulls and bears
- After a trade write down what indicators were useful for this situation
- Keep a before and after notebook along with the chart patterns before entry and after exit
Stop Losses
- Put a stop loss order around 5% of the trade amount value
- Once the trade is made you are under water. So try to get to breakeven point and then adjust the stop to go to breakeven point
- After you made profits again adjust the stop order to keep your profit intact
Support and Resistance
- Draw a line through the upper and lower edges of congestion areas. The bottom marks the support and the top denotes the resistence
- At the support the buyers are in control
- At resistence the sellers are in control
- Support and Resistence are strengthened by time. A weekly time frame is more reliable
- Tighten your stops when the trend you are following approaches support or resistence
- A trend reveals its health on how it reacts to Support/Resistence
- If it penetrates the S/R it continues in the direction of breakout
- Traders usually buy at breakout (on high volume) and put a stop in the middle of trading range which defines a clear exit point of a false breakout
- Uptrend is higher highs and higer lows
- Downtrend means lower lows and lower highs
- The most important message of a trendline is the direction of itz slope
- When slope is positive go long and if it is negative go short
- Sometimes price breaks the trendline but then approaches it back from below. This is the perfect time for a short since the trend has reversed
- If the uptrend becomes a downtrend short only when the price approaches the trendline from below since this keeps the risk low in case you are wrong
- The important factor is also the angle of the trendline
- To identify a trend reversal, find the lowest low (C) and the highest high. Draw the line between the highest high and the inermediate high(B) just before the lowest low. The price break above this downtrend line is the first indication of a trend reversal. The price will now rally to a point A (lower than B) and then retest this lowest low (C) on low volume. It will again try to rally towards point A and when it breaks the barrier at A that is the last opportunity for you to buy. Ideally you should buy if the price retests C on low volume and holds there and move up towards A.
- Volume must increase in the direction of the trendline
- Volume must decrease as the price pulls back to the trendline this is healthy pull-back
- If the volume increase on a pull back to the trendline that is a warning signal of a potential break
- If the volume decreases as the prices increase away from the trendline, that is also a sign of warning that the trend is becoming weaker
- A break in trendline gives an opportunity to short when price rellies towards the trendline from below on low volume
- Rectangle - Defines a trading range. A break is possible in any direction. Wait for a pull back on low volume after a break.
- Ascending Triangle - This has a flat upperbound and an increasing lower bound. The flat top means that bulls are maintaining their strength and a increase lower slant means that the bears are losing power. This is a bullish pattern
- Descending Triangle - This has a flat lower boundary and a decreasing upper boundary. The lower flat bound means that the bears are maintaining pressure but the slant on the top bound means that bulls are losing the game. This is a bearish pattern.
- Fourier analysis is used to find cycles in large amount of data
- Maximum Entropy Spectral Analysis is also used
- MACD rising from below zero -> Sow the seeds/buy since this is Spring
- MACD rising crossing above zero -> Water the plants/hold or sell as this is Summer
- MACD falling from above zero towards centreline -> Sell/Sell Short this is Fall season
- MACD falling below zero and going down -> Cover shorts and prepare for the next Spring
Volume
- High volume confirms trends. Price and volume must go together to confirm the trend
- If the market falls on high volume "climax bottom", it will usually be tested again on low volume. That is the best entry point
- If the volume shrinks as the trend continues, the trend is bound to reverse soon
Retracements
- Retracements of 61.8% means a trend change
- Retracement of 38.2 means a healthy pullback
- Crazy moves give back at least 50% of the gain back
