Advance Technical Analysis

Candlesticks

Candles show us three things visually about the market:

1. Who’s in control, buyers or sellers

2. The strength of those in control

3. If a shift in control or a Trend Reversal might be likely

“Candles are real time and the fastest short-term reversal tool I know.”

•Visually see if up or down day

•Shows the strength of buyers and sellers

•You must identify the preceding TREND to correctly interpret candles

•Candle patterns at support or resistance levels are even more significant

•The message of the candle is more important than the name

•Dave’s TIP: consider being more conservative with candles when trading counter trend and more aggressive when trading with the trend

Quiz

I’m a Great Trader, I’m a Great Trader, I’m a Great Trader and a darn Good Looking one too! 

  • I identify trend, support & resistance and momentum on every trade
  • I know the intermediate and short term trend on every trade
  • I know if I am trading the intermediate or short term trend on each trade
  • I buy where I am supposed to buy and sell where I am supposed to sell
  • I have a stop and a target on every trade
  • I trade with the trend on every trade
  • I have written rules and a written system that I follow on every trade
  • Like a master chess player I think several moves in advance but only trade based on market action
  • I trade the market not my thoughts
  • I follow and trade my rules and the profits take care of themselves
  • I take consistent action and I am consistently profitable

Sample Trading Journal

•Date_____

•Stock Symbol_____Stock Price_____

•Option Symbol_____Option Price_____

•Target Price_____

•Stop Loss_____

•Trailing Stop_____

•Why take the trade?_____

•Evaluate Completed Trade_____

Journal at least this minimum information on paper trades

Courtesy of: Dave Johnson

Sample Bull Flag Pattern Trading Rules - Courtesy of Dave Johnson

What to Buy

  • Volume > 1,000,000 shares
  • Able to get in and out by Earnings Release Date
  • Stock price greater than $25
  • Uptrending stock making higher highs and pulling back to higher lows

When to Buy

Buy Signal

  • Close above top of flag pattern (breakout) OR
  • Confirmed bullish candlestick pattern occurs at support
  • Buy 25 cents above the high of the low day in the pullback

What Time to Buy

  • End of day buy 5-15 minutes before close of bounce

How Much to Buy

  • Buy 1 contract 1 strike ITM with 30 days to expiration after forecasted move
  • Increase number of contracts when risk to stop loss is less than 2% of account size.
  • Do not buy if total risk on all option positions would be more than 10% of account value.

When to Sell

Target Price

  • Set target 1 at previous high
  • Set target 2 measuring flagpole up to high before pullback and adding to breakout of flag resistance

Written Stop

  • 25 cents below the low day of the flag
  • Sell on close below stop

Trailing Stop

  • Move to break even after $2 gain
  • Move up $1 for every $1 move thereafter
  • Once within $1 of target 2 move trailing stop to 90% of profits

Time Stop

  • 7 days

Daily Routine/Discipline

  • Monitor Watchlist each evening
  • Make list of stocks setting up
  • Check list mid-morning to see if buy signal setting up for day
  • Check 30 minutes before close to see if signal pending
  • Place orders on confirmed buy signals
  • Close positions on any sell signals
  • Adjust stops in evening on any open positions

Investools does not provide financial advice and is not in the business of transacting trades.

One Green Arrow or Single Moving Average Strategy

By Dave Johnson –

This paper trading strategy was designed to be simple and require no subjective judgment on the part of the trader. It was designed to help traders who were looking at hundreds of charts but taking no trades because every chart they looked at didn’t look that good at the time three green arrows appeared. Since the chart didn’t look that good they didn’t enter trades including not entering paper trades. Entering no trades meant they were failing to learn how to trade. No practice was leading to no skill. This is an intermediate term strategy and is designed to stay with an uptrend for several weeks.

This trend following strategy will produce erratic results in a sideways or down markets and is best applied when the market isin an uptrend. Paper trade when the market is above its 30 day moving average.

Step one is to do a Global search using the INVESTools Method fundamental criteria. This search selects what to buy.

The Global Search settings:

All settings in the minimum column:On the new website:

Phase 1: 5Set Max No. Results: 150

F-E Score:3.25Select Optionable Stock Only

Price Pattern:2.5

Volatility:2

- Save the Search Results into a Portfolio on the new website.

- Review each day the saved Global Search list on the Technical Page on the Portfolio tab.

The Technical page is updated each day approximately 2 to 3 hours after the market close.

- Sort the list by clicking on the 30 Day MA column.

- Scroll down to the green 1’s in the column.

- Paper trade – Buy - the green 1’s and set a stop 3% below the MA.

- Use the money management position sizing rules in the Investools Method.

- The exact level of the MA can be seen on the Prophet (Interactive) Chart.

- Then allow the trend carry the stock up, often for several weeks, or let the stop close out the trade if stock fails to rise.

- You can trail the MA as the stock rises with a trailing stop 3% below MA. This will need to be done manually and doing so on a weekly basis will save time.

- Exit when the trailing stop sells the stock out. The trailing stop is the target price.

Some stocks trading less than 600,000 shares may have large bid/ask spreads on the options, making option trades less desirable on these stocks.

FOR OPTION PAPER TRADES:

Remember, this is an intermediate term strategy and successful trades are expected to be maintained for several weeks so be sure to buy plenty of time. Leaps or the longest available options ITM with a high delta will most act like the stock. Of course, in paper trade you can experiment and trade ATM and OTM options in addition to the ITM.

DISCLAIMER: Investools does not provide financial advice and is not in the business of transacting trades.

Courtesy of: Dave Johnson

I’m a Great Trader and I apply the skills of a Great Trader every single day!

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