Transcripts
1. Preview: Hey traders, thanks for checking out this course.
My name is Travis. I'm a full time day trader and investor in
the stock market, and I'm going to
be your instructor today for this swing
trading course. Now before getting started, I wanted to quickly discuss
some of the things that we're going to be talking
about within this course. So that way you can preview the content that is going to be taught and make sure that this is the
right course for you. So with that being said, this is going to be a beginner
friendly course. So if you don't have
any experience with swing trading or trading in
the stock market in general, you're not going
to feel lost later on in the course once
we start talking about the real trading strategies because we are going to
start from the basics. So we're going to start off
with the differences between swing trading and day trading
and other types of trading, as well as the pros
and cons of each. We'll talk about
some of the basics of technical analysis, so that way you can
start to learn how to read price action
on your charts. I'll show you exactly how
you can look at charts and quickly find levels of
support and resistance. You'll learn how to identify market trends and use trend
lines in your own trading. Following that section,
we're going to talk about a momentum trading strategy that actually uses market
trends and trend lines. You're then going to learn
exactly how you can determine price targets and risk levels
on your trades because, of course, having a good
exit on your trade is going to be equally as important
as having a good entry. You're then going to
learn about different stock market
reversal indicators. We'll talk about the RSI and the RSI swing trading
strategy that I've used over the course
of my trading career to help me make thousands
of dollars in the market. Show you how you can actually scan and screen the market for trades meeting your exact
criteria, and, of course, how to actually take
those stocks then and diversify your portfolio in a way that is going
to help you manage your risk and maximize your potential returns
in the market. Okay, so with all
of that being said, if you want to learn how to
invest your money and make your money work for you with low stress swing
trading strategies, this course is the
perfect place to start. Without further ado,
let's go ahead and get started right now with
lesson number one. If you have any
questions along the way, please feel free to
reach out to me, whether that be by email or using the Q&A section
of the course, I'd be happy to
answer any questions that you have along the way. Oh
2. Swing Trading vs. Day Trading: All right, so to
start off the course, I wanted to simply talk a little bit about what exactly
swing trading is and go over some of
the ways that this is going to differ from
other trading styles. Now, one of the other
very common ways that traders look to
take advantage of the price action in the market is by doing what is
known as day trading. Day trading is essentially going to be exactly
what it sounds like. It's getting in and
out of positions in a very short period of
time within the same day. That can be anywhere
from a couple of minutes to a couple of hours, but as long as that
position is being closed within the same
day that it's opened, that's going to be
considered a day trade. Now, in order to
successfully day trade, you really need
one of two things. The first is going
to be a large amount of money because if
you're in and out of these positions so quickly and you're trading stocks
that maybe don't have a lot of volatility
and trade within a pretty small range
on a day to day basis, then you're going to need
a lot of money to make a worthwhile profit in
those kind of stocks. Or alternatively, and
this is the way that most day traders
seem to gravitate, you could look to focus on
highly volatile stocks, ones that move large percentages
on a day to day basis, whether that be 10%, 20%, sometimes even 50% or
more within a single day. And by doing that,
you don't need as much money to make
the same amount of dollar profit as you
would by trading a stock with much less
volatility. Okay. So because of that, day traders are generally going
to be drawn more to these highly volatile
stocks in order to really take advantage of these quick price fluctuations
in the market. I do actually personally
have a lot of courses that are
dedicated to day trading, but this one is, of course, dedicated to swing trading. Swing trading is when you're
holding those positions anywhere from a few days all
the way up to a few months. So of course, this is a little bit longer term
than day trading, but it is still much more
short term and a lot more of an active trading style than any kind of long term
investment would be. Now, aside from the length of time that you're holding
these positions, another difference
between swing trading and day trading is that
with swing trading, most of the time you're
going to be avoiding the highly volatile stocks that a lot of day
traders focus on, and we're going to be
looking to invest in much more stable and
consistent stocks. And our investments
are, of course, going to be made on
the strategies that we'll talk about later
on within this course. But for now, you just need to
know that we're going to be looking for these less
risky investments in order to swing trade them and take advantage of
their price movement over a period of anywhere from a few days all the way up
to sometimes a few months. Now, with all of
that being said, just a few benefits here
of swing trading as opposed to other trading
styles is first, because of the types of stocks
that we're focusing on, we're going to see a
lot less volatility in our actual portfolios. And this less
volatility also kind of goes hand in hand
with the lower risk. Again, this is just
because we're focusing on these more stable and
more consistent stocks, and we're avoiding the
ones that have a lot of risk in a lot of
potential reward, which is exactly what a lot
of day traders focus on. Another big benefit
to swing trading is all of the free time
that comes along with it. Most of the time
with swing trading, you can focus on looking for
your best swing trades and your best upcoming investments
at any time of the day whether the market is currently opened or even if it's closed. You're going to learn how
to scan the market for these investments and
once you find them, you don't need to be
constantly watching every single little price
fluctuation in that stock, which unfortunately is something that a lot of day
traders do have to do. The next benefit to swing trading is you really don't need any fancy trading platforms or even any advanced indicators. You can use a very
simple brokerage platform as long as you're able to look at charts and see the basics of
technical analysis, that's going to be
more than enough to get started with
your swing trading. And last but not least,
even though a lot of brokerages now are
completely commission free, there is a big benefit
here to actually save on commissions because some
of the better brokerages, if you decide to go
with one of them, do still charge
commissions on each trade. And as a very active day trader, those commissions are
going to add up very fast since you're constantly going to be in and out of positions. But of course, with day trading, since you're going
to be in and out of positions much less frequently, that's going to mean that you're going to
be paying less in commissions and
keeping more money in your pocket by doing so. All right, so very quickly, just to show you here some of the potential of swing trading, I wanted to show you a
compound interest calculator. And really, this is just
to kind of motivate you because I know a lot of people get started
with swing trading, and they seem to think that
because they're starting with a small amount as
their initial deposit into their brokerage account, it's going to take them
forever to actually see any big profits
in the market. And because of that,
a lot of people that start swing trading
end up moving on to day trading to look to take advantage then of those
highly volatile stocks, which ultimately is a much
more risky way to get into the world of trading and into the stock
market in general. So let's just go
ahead and say that you're starting off
with $5,000, okay? On top of that, you're
not going to be adding in any other money other than that initial $5,000 investment. So we're going to
go ahead and look over a period of one year, which is, of course, 12 months. And we're going to
say that each month, you're able to have a 20%
return on your account. Now, just by doing
that with your initial $5,000 investment, at the end of 12 months or
at the end of the year, your account would be
up to about $54,000. 12 more months giving you
a total of two years, and your account would
be up to $584,000. Just from that initial
$5,000 investment, again, making about 20%
per month and then reinvesting those profits
into future swing trades. Now, believe it or not, 20% per month is definitely something
that is achievable, even though it is
very ambitious, and these type of returns happen much more commonly
than you may believe. So hopefully, this
motivates you that if you are starting
with a smaller account, you don't need to shoot for any massive returns
on your trades. These small and consistent profits are going to
add up over time, and it may only take a
year or two for you to see some serious profits
start to build up in your investing account. So I'm going to go
ahead and link this compound interest calculator in the following lesson
in case you do want to check it out and plug in
some of your own numbers.
3. Technical Analysis Basics: All right now here in the
beginning of this course, I did want to start
off with some of the basics of
technical analysis, and that's because later on
in the future of this course, once we start talking about the specific and more advanced
trading strategies, it's going to be very important
that you do understand the basic concepts of reading charts and looking into
technical analysis. So with that being said,
first and foremost, technical analysis
is going to be a financial analysis
type using patterns in market data to identify
trends and make predictions. So anytime anybody is talking about chart patterns,
trend lines, volume, indicators, order
flow, and so on and so forth, all of those things fall into the category of
technical analysis, and all of those things are
going to be used in order to make up strategies
for swing trading. Now, just as a comparison, another very common type of analysis is known as
fundamental analysis, and this is going to
be the analysis of a business's
financial statements. So things like their revenue, their earnings per share or EPS, their operating expenses,
and so on and so forth. Really anything
that you can find within a company's
earnings report that is going to
tell you how well that company is
financially performing. That's all going to fall within the category of
fundamental analysis. And although both of them can be very beneficial for analyzing a stock and looking for potential swing trades,
for the most part, throughout this course,
we're going to be focusing on technical
analysis and looking more into
the price action and different chart
patterns and trends. Now, with all of
that being said, one of the main components
of technical analysis, that can really be thought
of as the foundation of charts in chart patterns is
going to be the candlesticks. And these candlesticks
that you see on your charts are made up
of four main points, those being the open, the
high, the low, and the close. So to kind of state the
obvious, of course, if it is a green candlestick, that means that it opened at a lower price than it closed. So, in other words, while the
candlestick was still open, the price action went up. And if it is a red candlestick, that just means that
the price action went down within
that period of time, and the candlestick closed at a lower price than it opened. Now that main section of the candlestick that is
either going to be red or green is known as the real
body of that candlestick. And for the most part,
you're also going to see a line that is sticking out from the top and the
bottom of these real bodies, which are known as the
upper and lower wick, and those simply show us the highest and the
lowest price that the stock went within
that period of time before that
candlestick closed. Now, it's very important
to understand that these candlesticks can really represent any different
period of time, and that's going to depend on the time frame of your chart
that you're looking at. So to explain what I mean, if I go over to think
or swim very quickly, this is a very commonly
used charting system. You can see that I have two
separate charts up here, both of them being
for the same stock. The only difference
is that they're looking at different
time frames. Over here, I'm looking
at the daily chart. That simply means that
each of these candles is representing an entire
day of price action, showing us the open,
high, the low, and the close for
that entire day. Now over here on the right
side of the screen, again, this is the same stock,
but in this case, we're looking at the
five minute time frame. So that just means that
each of these candles is now representing just 5
minutes of price action, again, still showing
us the open, the high, the low, and the close
for that period of time. But in this case,
that period of time happens to just be 5 minutes. And what you're going
to realize throughout your technical analysis
is that the time frame of the chart has a lot
to do with how that chart pattern is actually
going to play out. For example, if you
see a chart pattern over here on the right side of the screen on a shorter time
frame like the five minute, most of the time that
pattern is going to take a much shorter amount of time to actually play out
and to completely form, compared to one that is seen over here on a longer timeframe, such as the daily or
even weekly chart. And for that reason, one of the main time frames
that a lot of people that are doing swing trading focus on is something that is midterm. It's not necessarily
very short term like the 1 minute or five
minute and it's not very long term like
the daily or weekly, that happens to be
the four hour chart. The four hour timeframe is
really nice because it does often lead to trades that you hold for anywhere from
a couple of days, sometimes up to a
couple of weeks, which is really exactly what
most people are looking for when they start to get
into swing trading stocks. Moving on to something
that ties in very closely with candlesticks
on our charts, and that is actually going
to be supply and demand. Now, believe it or not,
supply and demand is actually the sole reason for price fluctuations in
the stock market. A lot of people think that
something like news or press releases are
the sole reason that stocks go up or down. But at the end of the
day, what those things do is actually just influence the amount of supply and demand
for that stock, which is then what directly causes the stock price to move. So if there happens to
be stronger demand or stronger buying at a
specific price for a stock, then there is supply or selling, then that demand
is going to cause the price to rise
from that area. On the other side
of the spectrum, if there happens to be
stronger supply or selling, and there is demand or buying, then the prices are going
to fall from that area. And the very helpful thing about looking at
candlesticks and doing some basic technical
analysis is that candlesticks can really help us visualize levels of
supply and demand. Now, of course, because
green candlesticks represent price action
that is going up, that is going to
represent that there is strong demand in that
area for that stock. On the other side
of the spectrum, red candlesticks going
to the downside. Tell us that there is a
lot of selling going on, meaning there is stronger
supply than there is demand, and that's really
what is causing the bears price action that we see over here on the
right side of the screen. Now additionally,
candlesticks can also help us look for reversal points in
the market by showing us when sellers or
supply is starting to overtake the demand or
buying and vice versa, they can also show
us where buyers or demand are starting to take
control of the market, and the sellers or supply is starting to get
weaker and weaker. And many times how
we can spot that is by looking for a
price action that is cruising slow and steadily to the upside, and then
all of a sudden, we start to see long upper
wicks on our candlesticks, which simply means that sometime within this
period of time, the price was able to
reach up at these highs, but because there was
not quite enough demand, it was not able to sustain
that move, and at some point, the sellers or the
supply started to take control and push the price back down before that
candlestick closed. So when we start
to see these long upper wicks form on
our candlesticks, many times that is a
reversal point indicator. So if you happen to be in
a position at the time, that can often be a
great indicator to sell and lock in your
profits on that trade. Of course, the same is true,
but with the downside, if we are cruising down with
multiple red candles in a row and then we start to see some long lower wicks
on our candles, that tells us that the demand is starting to take
control in that area. There's not quite
as much selling or supply as there was before, and that can often lead to a bounce back up in
the price, which is, of course, something
that would give you confidence to buy
into the stock and then be able to sell
at a higher price for a profit in the near future.
4. Support & Resistance: Now, carrying on here with these simple concepts
of technical analysis, before we start to get into the strategies in the
more advanced patterns, it is important to know about
support and resistance. Now, very simply put,
a level of support is going to represent a
price level where a stock historically has a difficult
time breaking below due to stronger demand or buying than there is supply or selling. And because at a
level of support, the price has a difficult time breaking below, this
can, of course, lead to a great
opportunity to buy into the stock at a low price
before it bounces back up, giving us an opportunity to sell then at a higher
price for a profit. And many times that can look
exactly like what we see down here on the diagram at
the bottom of the screen, we'll see a stock
pulling back down. It starts to bounce back up repeatedly from the same level. That level turns into
a level of support. You can then go
ahead and actually draw that line on your chart. And from there, you
can simply buy into the stock and profit once the stock is able to bounce back up off of that level of support. Another very nice
thing about support is that if the stock happens to break below that support level after you did already
buy into the stock, you can use that as a
risk level as well. So if the stock happened to
move back down below here, that's going to be a
bearish sign for the stock since it was unable to hold
on to that level of support. And again, you can use that as your risk level to
then cut losses on that trade and then
potentially look to rebuy the stock down
at a lower price. And this is really nice
because it gives us a very clear level of risk every time that we buy
at a level of support. So you don't have
to buy and then be concerned about
where you're going to cut losses if the trade
happens to move against you. And if we take a look
here at this chart, we have a real life example
of a level of support. You can see that this
is on the daily chart. So again, every one
of these candles is representing one entire
day of price action. And if we were to
buy the stock on these green dots and then
sell the stock up here on these red dots by simply buying at the support level and
then selling into a bounce, you can see that there are three really great opportunities here to buy at the support
level and then sell for a profit in the near
future just by doing this very simple technical
analysis on this chart. Since we now have
support at the bottom of our charts as a level that we can use to actually
buy into a stock, it's important to
also have a level to sell out of our stock and
lock in our profits on a trade without getting
greedy and without having to completely guess when the right time to
sell that stock is. And that's kind of
where resistance is going to come into play. Resistance is
essentially going to be the exact
opposite of support, which means that it's
going to be a price level where a stock historically
has a difficult time breaking above due to stronger supply or selling
than demand or buying. So because of that,
resistance is going to offer us
an opportunity to sell up the highs and lock in our profits on a trade
that we took previously, or we can also look to short sell into a
level of resistance, which is then going
to allow us to profit from that stock
actually coming back down. And again, to take
an example here of a level of resistance
on a real chart, let's just say that
we happen to buy into this stock DHR during the middle of December
here on this green dot. One of the big problems
that new traders have is not knowing when to sell and lock in profits
on their trade. Because of that, a lot of
times they get greedy and they watch their winning trades
turn into losing trades. In order to prevent
that, in this case, what we would do is look
for a level of resistance, draw that up on our chart, and then we would
look to lock in our profits just below
that level of resistance, knowing that the price is
naturally going to have a difficult time breaking
above and because of that, there's going to be a good
chance that the price is going to start pulling back from
that level of resistance. And that's exactly what
happens in this example. Instead of getting
caught in that pullback, what we would want to
do is simply look to buy and then sell into
that resistance level. You have to remember
if you're ever in a position where you start
to feel like you want to make more on the trade and you start to get a
little bit greedy and wish that this
was just going to break out above resistance, you can always look to rebuy in the future if the
stock pools back down, or you can always look to
actually trade the breakout, which is something
we'll talk about in the future of this course. But it's really
never going to be a good idea to hold on to a trade when it's running into a major level
of resistance. So it's always going to be in your best interest
to lock in some, if not all of your profits
at that level of resistance. Now, to finish up this section talking about support
and resistance, one very important
aspect that a lot of new traders don't
realize is that broken support can
actually become a level of resistance in the
future, and vice versa. Broken resistance can actually
become a level of support. So if we take the example down here on the left
side of the screen, if this sky is kind
of bouncing around and holding this as
a level of support, then we see that the stack breaks down below
that support level, and as it bounces back up, that previous line of support
is now becoming resistance. Same thing is true when there is initially a level of resistance. If the stock breaks out above that resistance and then
starts to pull back down, that past level of resistance can now become a
level of support. And you would use
this new support and this new resistance, the same way that you
would use any other level of support and resistance, just like we talked about in the previous few minutes
of this section.
5. Market Trends & Trendlines: Follow the trend, the
trend is your friend. That's a short and simple
quote from Jesse Livermore, who is a multibillion dollar self made trader and investor. He's one of the most
well known traders of all time and he's made the
bulk of his money by simply following the trend
of a stock and going with that trend and going
with that momentum as opposed to somebody that is fighting the trend
in trying to catch the exact top and the exact bottom of a
move in the market. So the entire focus
of this section of the course is going
to be dedicated to market trends and
spotting these trends and being able to draw
trend lines on the charts to then be able to follow these trends and be able to ride the momentum that we see in
the market in real time. With that being said, the
first type of trend that we see in the market is
known as an uptrend, and pretty self explanatory, this is going to be an upward
moving trend created by a chart that is making both
higher highs and higher lows. So as we know, stocks don't just go straight up
or straight down. Whether they're in an
uptrend or a down trend, they're still going
to have peaks and they're still
going to have highs, as well as they're
still going to have dips and they're still
going to have lows. When it comes to dealing
with an uptrend, it's going to be defined
by those peaks or those highs getting
progressively higher and higher
every single time. And the same is going to be true for the dips or the lows. They are also going to progressively get
higher and higher. And those two things,
those higher highs and higher lows are exactly what makes an uptrend in
the stock market. So once you've
actually determined that a stock is in an uptrend, and you're starting to
realize that there are higher highs and there
are higher lows, it's very beneficial to
actually go into the tools on your chart and actually draw yourself a trend line
on the chart itself. So that way, instead
of having to kind of imagine that
there's a line there, you can actually draw that
trend line in by connecting the lows or connecting the
dips of an uptrending stock. And what this trend
line is going to do then is act as a
level of support. So what we talked about in the previous section of this course, when we talked about
support and resistance and all the different uses of
those levels on a chart, those are also going
to apply to levels of trend line support and
trend line resistance. In fact, really, that's
exactly what a trend line is. It's just going to
be a slanted level of support and resistance. When a stock is in an uptrend, that trend line is going
to be at the bottom of the price action because
you're connecting the lows, so that's when the trend
line is going to again, act as a level of support. So if we were to see
this in real time, we would look to take
advantage of this just like we would any
other level of support. We would want to buy right at or slightly above the
level of support, giving us the lowest risk, as well as the best potential for a return on this investment, and then you can lock in profits
as the stock bounces off that trend line and continues
to go higher in the future. So very quickly, I'm
going to go ahead and jump over to Think or Swim, the platform from TDM E trade. This is going to be pretty much the exact same concept regardless of which trading
platform you're using. But I just wanted to very
quickly show you how you can actually draw these
trend lines on your charts. So you can see right now we have a trend line drawn on the
daily chart for Apple. I'm going to go ahead
and remove this. And if we go up to the top here, under drawings, you
can see that there are actually many
different drawing tools. But for a trend line,
there's one that is specifically
called Trendline, and you're just going to
go ahead and select that. Again, when we're
drawing a trend line for an uptrending stock, the way that we do that is by connecting the lows or the dips. We're going to go
ahead and start at the lowest low for the trend
line and start connecting all of those lows and we end up with our level
of trend line support. Again, this may be slightly
different if you are using a different
charting software. But for the most part, any
different platform is going to offer the ability to draw in
trend lines on your charts. So I do highly recommend
that you actually draw them once you see a level
of trend line support, so that way you
don't have to guess where that exact level is, and you're going to
actually be able to visually see it
there on your chart. So anyway, just to give you another very quick example of a trend line on a real chart, this is the chart for Microsoft, and we're looking at the
chart for an entire year. And you can see that
the first touch of this trendline
support is all the way down here in the
bottom left corner. But one thing to keep in
mind is that if we were looking at the chart
on this specific day, then all of these other
candlesticks on the right of this candle are not
yet going to exist. So we wouldn't
necessarily know that this is going to be
Trendline support yet until there is another test of that level and until we have
another low or another dip. So realistically, in this case, we would have to wait
till right around here or even around here before we can start connecting
these lows and before we can start drawing this
level of trendline support. With that being said,
Microsoft, in this case, does offer many different
opportunities to buy at this level of trendline
support because you can see that every single time it does balance almost
perfectly off of this trendline support and goes higher in
the short term. And if you wanted
to be in this a little bit more passively
and longer term, you can always look to buy into this trendline support and hold for a much larger move over the course of months
or even years. Now on the complete
opposite side of the spectrum from an uptrend, we have, of course,
what is going to be known as a downtrend. And a down trend is really the polar opposite of
what an uptrend is. It's just going to be a downward
moving trend created by a chart that is making both
lower highs and lower lows. So just like we have
higher highs and higher lows with an
up trending stock, we're going to have
lower highs and lower lows in a down
trending stock, and that's really
what is going to define a stock being
in a downtrend. Now, just like we want
to draw a level of trendline support with
an up trending stock. It's also very important to draw trend lines on a
down trending stock. But the way that you do that in the case of a down trending stock is by connecting
the peaks or the highs, which is going to
put that trend line above the current price
action of the stock, meaning that it's going to
act as a level of resistance. So trend line resistance
is going to offer us an opportunity to sell if we do happen to
be in the stock. Or you can always look
to short sell into that trend line
resistance to profit from that downward momentum that the stock is currently having. And a quick example of this is, if we look at the
chart for Ali Baba, this is the chart over a
one year period as well. And you can see that there are multiple different occasions where the stock bounces into
this trend line resistance. And every single
time that it gets at that trend line resistance
or even close to it, the stock pulls back and
continues to go lower. We see both lower
highs and lower lows, meaning that this is, of
course, in a downtrend. So, in other words,
this would offer us some great opportunities to short sell into this
trend line resistance. So that way, we can of course profit from that stock coming down and reversing to the downside from that
trend line resistance. So to very quickly recap and reiterate some of the important
notes from this section, Again, it is very important to not fight the
trend of a stock. In other words, that means that you want to avoid trying to short sell the top
in a strong uptrend, and you want to
avoid trying to buy the exact bottom in
a strong down trend. Instead, you want to go with
the trend of the stock, which means if the stock is moving upward and
it's in an uptrend, you want to look
to take advantage of that upward momentum by buying into the stock at a level of trend
line support. As long as that trend
line stays intact, you're going to be able
to sell higher and make a profit on that
investment in the future, once the stock starts to bounce off of that
trend line support.
6. Momentum Trading Strategy: Okay, so now that we've
covered market trends, and we've talked
about how to actually draw and use trend
lines on your charts, I wanted to talk about one of the specific strategies that I use for my own personal
swing trading, and it's a very simple one that uses the same
concepts that we've talked about over the previous few sections
of this course. Now this is a momentum
trading strategy, meaning we're looking to again, take advantage of these
uptrends in the market, and we're going to look to
ride the trend and ride the momentum using what is
known as a price channel. What these price channels are are patterns involving
a stock that is trading between a
defined level of trend line support and a defined level of
trend line resistance. The very nice thing about this is the trend line support and the trend line resistance
are essentially telling us exactly where
to buy and sell the stock. Ah, so we're going
to look to buy at that trend line support and then sell at the
trendline resistance, and we're able to repeat this process over
and over and over, as long as the price
is remaining between the trendline support and between the trend
line resistance. So again, because this is a momentum trading strategy and we're looking to go with
the trend of a stock, just to reiterate what we talked about in the previous section, you want to avoid fighting
the overall trend in a stock. So if it is in a downtrend, although you can still be
profitable by buying at the trend line support and selling at the trend
line resistance, like we see on the
left side over here, at the end of the
day, that would still be going against the trend, and you will still
have a more difficult time than you would if you were looking to simply use this strategy with a stock
that is in an uptrend. So step one for this
strategy is, of course, to find stocks that are in
an uptrend and then look to take advantage of that
trendline support and trendline resistance, and trade between those two, buying and selling
over and over while the stock remains in
that price channel. So now at this point, you're most likely wondering
how exactly you can find stocks
that are going to be in this price channel. And there are really
many different ways. You're going to need
some kind of different screener or some kind of scanner that you can use to find stocks that have
been in an uptrend, and there are countless
different options. Most brokerages are going
to have a platform that has a screener or scanner
built into them for free. So if you're using
Think or Swim, the platform from PD and ertrade or something
like I tra Pro, if you're using
interactive brokers, or if you're actually paying for a scanner like trade ideas or equity fee you're
going to be able to do the same thing that
we're going to do here in just a moment. But for this example, I want to use the website finbiz.com, and this is completely
free to use, so you're going to be
able to do exactly what I'm doing here in just a moment. And what we're going to
do is go onto finfis.com. We want to go up to
the top left section here and click on screener. Then I'm going to
go ahead and select the tab for technicals
because this is going to show us all things related to technical analysis, which is involving the charts in different chart patterns
and formations. What we want to see first
and foremost is that the performance
over the past week has been at least 10% up. That's simply going
to tell us that the stock has been moving
up over the past week, which is really the
first step in finding stocks that are
potentially in an uptrend. Next, what I'm going to
do is go over to all. This is going to give
us some more criteria to filter down the market, and I'm just going to find
stocks that are in the USA. I want them to be
above $10 per share. And last but not least,
I'm going to put the average volume at
least at 500,000 shares. So right away, you can see
that we've narrowed down the entire market to
just 58 total stocks. All of these are going
to be potentially in an uptrend and potentially
in a price channel. So now what I'm
going to do is just hover over this
price tab over here and just start looking
at these charts to find stocks that are
potentially in a nice uptrend, before I can start
doing some more analysis and looking
if they have any trendline support and trendline resistance that we can use to start swing
trading these stocks. Okay, so you can see that FNKO here looks to be a
pretty good example. If we click on this chart, it does appear to
be in an uptrend. We see higher highs
and higher lows, and it does actually
look like it is in a bit of a price
channel right now. We have our trendline
resistance up here shown by this purple line, and this blue line
down at the bottom is showing us our
trend line support. So just like that, we found
a potential swing trade. And what I would
do then is simply keep this on a watch list, maybe set some price alerts
to actually notify me, once the price gets down
to maybe $22 per share, which is right about where the current level of
trendline support is at. And once it's down near
that trendline support, that's when I would look to
take advantage of this stock, buy into that trendline support. And then, of course, later
on, look to sell up near the Trendline resistance
for a profit on this trade. Now, another way that
you can do this if you are using FINVs is if I go back now and if I go ahead and reset all
of this criteria, what I'm going to do
actually is go to Technical, and we can see that
under Pattern. They actually have an
option to search for stocks that are specifically
in a price channel. So we want to find
a price channel that is going to the upside. So I'm going to
select channel up. And then very quickly, I'm going to put in the other criteria here just to find stocks
that are in the USA, have enough volume for
us to actually trade. And just my preference,
I want to find stocks that are
above $10 per share. So now all of these
should be potentially in a price channel
that is already uptrending and that are
going to potentially make really good swing
trades in the near future. You can see that most of
these do appear to be uptrending just based on a very quick view of
their daily charts. So AGNC, for example, looks to be in a very clear
and consistent uptrend. It's trading in a
nice price channel. This again would be
another one that I would probably look to
swing trade once it gets down to that level of trend line support right
around 17 50 per share. Hopefully, this gives
you a quick idea of how to actually find stocks that are in
an uptrend and that are potentially trading
within a price channel. Again, if the
screener on finvs.com is not available to you
for whatever reason, you can use any different
screener or scanner to put in the same or similar
criteria to be able to find these momentum
stocks for us to trade. Now, carrying on with this
momentum trading strategy, the next step is to realize that not every trade is going
to be a profitable trade. And unfortunately,
nothing is going to work 100% of the time when it comes
to trading or investing. So the other nice thing about this strategy is that the level of trendline
support that is going to be below our stock that we're using to
actually buy into this for a swing trade can also act as a very
clear level of risk. And what I mean by that
is we can actually use this trendline
support to cut losses on our trade if
this stock happens to start breaking down below
that trendline support. So if we take the example
diagram at the bottom, let's say that we
buy in initially at this trendline support. The stock bounces up. We're
able to sell for profit. We repeat the process over, buy a trendline support, sell for profit,
and we look to do the exact same thing by
buying a trendline support. But this time the stock
actually breaks down below that trend line
support, that is, of course, going to be
a red flag now that the price is no longer trading
within this price channel. So the smart thing to do in this case is to sell our shares and cut losses on this trade in order to simply
manage our risk. And if we take this example here looking at the chart for DKNG, we can see there is a
very clear price channel that the stock is trading between over the
course of a few years. So there are multiple different
opportunities here to buy a trendline support and sell
at Trendline resistance. However, eventually,
the stock does break down below that
trendline support. And let's just say, for example, that you look to buy at the trendline support right
here around $60 per share. Now if you were
managing risk and you were looking to cut losses, if the stock broke down
below trendline support, you would be able to sell
and take a small loss of maybe just one or $2
per share on that trade. However, if you got greedy
and you were stubborn and avoided cutting your
losses and managing your risk, you can see that there
was a pretty big sell off to the downside afterward. So you would unfortunately be holding onto a much larger loss. This just goes to show
how important it is to manage your risk on
every single trade. And again, the nice thing
about this trend line support in this momentum
trading strategy is that it tells you
exactly how to manage your risk and exactly when
to cut losses on the trade.
7. Stock Market Reversal Indicators: A stock market reversal refers to a stock that
is reversing from a down trend to an uptrend or from an uptrend
to a down trend. In this section, I want
to talk about some of the reversal indicators
that can help you spot these reversals early on
and use them to get into a new trend in order to
profit and ride the momentum. The first reversal trend
that we're going to talk about is known as
volume exhaustion. An analogy that I like to use is to think of the volume
as a person running. The person can jog at a slow, steady pace for a while, but once they start to
sprint, inevitably, they're going to get exhausted and they're going
to need a break. And really the same concept
is true in the stock market. A stock can trend in a slow and steady pace for
an extended period of time, but once it really
starts to spike upward or drop
downward very quickly, and inevitably the stock
is going to get exhausted, it's going to run out of supply or demand at
those price levels, and it's going to need
a break from that move. And there are two sides
of volume exhaustion. There are buyer and
seller exhaustion. Buyer exhaustion comes when a stock moves up too
much too quickly. The amount of demand
that it takes for that stock to spike up the way that it did is going to
eventually become unsustainable, and it's going to cause
the stock to slow down or even cause an entire pullback in the
opposite direction. And we can spot these levels of buyer exhaustion by looking
for a candle in the volume that is simply much larger
than all of the other candles that have gone on
throughout the rest of the day or on the entire chart. The diagram at the
bottom of the screen is a great example of what
this may look like. We can see that as the stock really starts to spike
up very quickly, we also get a volume
candle at the same time that has been much larger than all of the other
candles on the chart. Again, what that represents is that there has been
a ton of demand and a ton of buying
that has gone on within this volume candle, and that level of
demand for the stock is going to again
become unsustainable. So there is a good chance that the supply is then going to take over and at least temporarily is going to push the
stock price back down. And if we take a look at
the chart here for eBay, this is a really great
example of buyer exhaustion. We're looking at the
daily chart here. So each of these candles is representing an entire
day of price action. And just by looking
at the chart, you can see that there
is a pretty clear level of volume exhaustion here, and it also happens
to be at the top of the move before the
stock does pull back. That is, again, because
volume exhaustion is a reversal indicator. So on this day that
there was a big move up in the price of
the stock for EBay, at some point, within this day, the demand for the stock slowed down and the supply
started to take over. And that, of course,
led to this being the temporary top
for EBays price. And over the following weeks, there was a pretty big sell
off in EBay from all the way over $64 per share down
to under $52 per share. So really, unless you're short selling in the stock market and you're looking
for these moves to the downside to profit from, the way that you would use this buyer exhaustion is simply as a red flag for any of the investments that
you're currently in. If you happen to be in
on Ebay on this day, and you realize that maybe a couple of hours
into the market open, the volume is already
significantly stronger than it is on
average for an entire day. That would be a
sign that this is a potential level of
buyer exhaustion, and you would have
been able to use that information to
sell out of some, if not all of your
position in eBay lock in your profits and protect yourself from the
downside reversal, that is going to come
from this reversal point. Now, on the other
side of the spectrum from buyer exhaustion,
we of course, have what is known as
seller exhaustion, and this is really going
to be the exact opposite. It's when a stock moves
down too much too quickly, and that amount of
supply that it takes for the stock to go down so
quickly is, of course, going to eventually
become unsustainable, which will often lead to a
bounce in the stock price. So seller exhaustion
can actually be used for us to find
stocks that have gone down so quickly lately and that are due for a bounce
back to the upside. And we can use that once we're confident that the
stock is about to bounce to actually buy in and profit from
that upside reversal. An example here of this is if we take the chart for PayPal, if we just look at
the volume candles here on the bottom of the chart, you can see that on
this day, there was, of course, a big volume
exhaustion level. On this day, the volume
was multiple times stronger than it was on
any other day before it. And it also happened to
be on the same day that this short term pullback found bottom before the stock
price bounced back up. So again, if you were
watching this in real time, of course, hindsight is 2020, but the way that you
can find this in real time is to keep an eye on the volume and know what the average volume is for any given stock that
you're looking at. Just for this example,
let's assume that PayPal's average volume is about 5 million shares per day. And if you were looking
at this stock on the day that we see this
level of seller exhaustion, and let's just say that a couple hours into
the market open, the volume is already at 7 million well above the
average daily volume, with still multiple hours left
before the market closes, that right away is going
to tell you that there is much stronger volume coming in today than there is
on any average day. And if you pair that with the
fact that PayPal was down significantly for the day and is actually running
into a level of support, all of those things would
be a good indicator that this is at a
temporary bottom, and the price is likely going
to bounce from that level. And, of course, we
see the price then bounce from about $175 per share to a few days later being at about $205 per share, and it actually
pulls back a bit, but then ends up running
all the way up to $309 per share just a few months
later in the future. Okay. Now the next reversal indicator that I want to talk
about is going to be an indicator that is known as the relative
strength index, which is often just
referred to as the RSI. The RSI is a momentum indicator that measures the magnitude
of recent price changes. Simply put, it is a scale 0-100 and anything
on the RSI over 70 is considered
to be overbought where anything below 30 is
considered to be oversold. When a stock is overbought
and the RSI is above 70, the RSI is going to be
shown in most cases as red, and that tells us that the price has gone up too
much too quickly, very similar to a level
of buyer exhaustion, and you're typically going
to see the price pull back from a level of being
severely overbought. The same is true for when
a stock is oversold. You can think of it as a
level of seller exhaustion, and typically once it
becomes very oversold, we will see the price of
the stock bounce back up. And if we look at this
chart for Twitter, you can see that this is a very common pattern that we see in the stock market from stocks going from overbought
to oversold. Overbought, to oversold,
overbought to oversold, again and again and again, and you're able to
buy and sell at these reversal levels
over and over and over, making a profit each time. So, for example,
Twitter, in this case, becomes oversold first, right here at about
$45 per share. If you were to buy in at this
price level, $45 per share, once Twitter's RSI becomes oversold and tells us that the
stock is due for a bounce, you would have ended up
with a really nice profit as Twitter's stock actually bounced all the way
up to about $80 per share in the
following few weeks. Fast forward to about
a month in the future. Twitter again
becomes oversold for just a moment at
about $60 per share. If you were to buy
in at that level of being oversold, again, you would have had potential for a really nice return as
it then bounces back up into overbought territory
to about $73 per share. And you can see that
this process, again, is going to repeat
over and over and over in many stocks
in the market. And we can use this
to our advantage to buy and sell at these
reversal points.
8. RSI Trading Strategy: Alright, so carrying
on with the RSI, which we previously talked about in the past
section of this course, before we get into the RSI
trading strategy itself, it's important to understand why this strategy is
actually so important. And the fact of the matter is that stocks can
actually remain in overbought or in oversold levels for an extended period of time. So just because
the RSI gets down to 30 or less and
the stock becomes oversold does not
necessarily mean that it's going to be a great time to buy the stock because unfortunately, nothing is going to work 100%
of the time in the market. So even though the
RSI being overbought or oversold is a good
reversible indicator, it is no exception to that rule, and there are going to
be times where the stock continues to trend
in that direction, even if the stock is already overbought
or already oversold. So for example,
if we take a look at the bottom left side
of the screen here, this is looking at the
chart for Home Depot. And if you take a
look at the chart, you can see that it actually started to get into
overbought territory with the RSI reaching over 70
right here on about March 16, and the price of the stock
at that time was right around $280 per share. Now, this is just
one of those times where the RSI does end up remaining overbought for a
very extended period of time, actually for well over a month. And in that one month period, the stock continue to trend
higher and higher and higher, going from about $280 per share, all the way up to about $330 per share before it finally starts to pull
back a little bit, and before the RSI
does finally come back below those
overbought levels. And really the
same thing is true with the right side
of the screen here, we have the chart for IMVT. IMVT actually became
oversold on this date here, which looks to be a couple
of days after February 1. And as you can see, the
RSI stayed well below 30 for about a month before the stock finally got a
good bounce to the upside. And within that
one month period, the stock went from
right around the $25 per share mark
down to under $12.50. So again, that just goes to show that if somebody
were to buy into the stock immediately
once it became oversold at $25 per share, this is just one of the times
when the RSI being used on its own as a reversal
indicator would have failed. And if you would not
have cut losses, that would have
unfortunately ended up being a pretty big loss. So the whole point of
the strategy that we're going to talk about
here in just a moment is to avoid getting into
these situations and to put a little bit more
strategy into the RSI. So what we're going
to do instead of just blindly buying a stock
that is oversold and blindly selling or short selling a stock when it becomes overbought is we're
going to wait for what is known as a bullish
RSI divergence. Now, this may sound a
little bit complicated if you're not aware of
divergences in the market, but simply put what
this is is when the stock is actually
making a lower low, and at the same time, the
RSI is making a higher low. And what that's
going to look like is something along the lines of what we have here with
this chart for Nike. You can see that
the stock price up here is making a lower low. The first low looks to be
right around $130 per share, and the following one breaks
down briefly below that low. At the same time, the RSI is actually making a higher low. So you can see that
it gets down to under 35 during the initial low. But on that second low, the RSI only gets down to just under 40. This is known as a
bullish RSI divergence. And once you see one
of these forming, it's going to be a great
indicator to buy into the stock, it is very common to see
a bullish reversal to the upside following one of these bullish RSI divergences. And as we can see
from this example, immediately after that forms, the stock price
starts to bounce back up from about $130 per share to just a few days later
being over $145 per share. So just like that, by spotting this divergence in the market, there would have been potential
for an over 10% return in just a few days by swing
trading this divergence. And just to give you another quick example of what
this may look like. This is the chart for Shopify. And you can see
actually that there are a few examples here
on this chart. We have the first one over here. The price is showing
a lower low at the same time that the RSI
is showing us a higher low. So again, we want to look
for these in real time, and we want to look
to take advantage of them as that second
low is forming. So we would look to buy
anywhere in this area down here right at about
$900 per share. And as you can see,
there is a bullish move following this divergence, going from about
$900 per share to just a few weeks later being
over $1,250 per share. So another potentially
great return on this RSI divergence investment. And if we fast forward a
little bit to the future, we get another lower
low with the price, as well as a higher
low with the RSI. Buying into this bullish
RSI divergence just above $1,000 per share would have been
another great return. As the following days,
the stock price ended up bouncing back up
to that 12 50 area. Okay, so that's the
whole idea behind this RSI trading strategy. It's going to take a
lot of the risk out of buying into these
oversold stocks, and it's going to make
these reversal points with the RSI a lot more accurate than it
would be by just looking at overbought
and oversold levels. Now, as far as actually
finding these types of setups, again, you're going
to need some kind of screener or some
kind of scanner. I'm going to first go over to the Think or Swim platform
with TD Ameritrade, and I'm just going to show
you first and foremost, how to actually find stocks that are reaching oversold
levels in the market. So first, what I want to do is make sure that I'm
on the scan tab, and I'm going to go ahead
and create a new scan here. And we'll go ahead and title
this something like oversold stocks and click on Save. And what we're going to do
is pull that scanner up now. And we're just going
to go ahead and add some criteria that we want to see when we're looking
for these oversold stocks. So first and foremost,
I'm going to go ahead and put the last price as being anywhere
from $10 up to $100. And this is entirely
just preference. If you prefer higher or
lower priced stocks, you can go ahead and make
some adjustments to this. But I personally prefer to swing trade stocks
within this price range. After that, I'm going
to go ahead and remove these two pieces of criteria
that are there by default, and I'm going to
go to add filter. I'm going to go to study
and over on study, I'm going to go down to volume studies and select
average volume. I just want to see that the
average monthly volume of about 30 days is greater
than 500,000 shares. And that's just to make sure
that the stocks that are popping up on the scanner
have enough volume and have enough liquidity
for us to easily get in and out of them without having any problems with
the volume itself. And the next thing that's
actually going to find over sold stocks is to go to Ad
filter, click on study. And this time, we're
going to go down to custom we're going to go ahead and click
on Edit the default. And instead of the
ADX crossover, what we want to do
is select study, and we're going to
search for the RSI. After that, we want to see that the RSI is going to
be less than or equal to 30 Because again, that's when the RSI is going
to be considered oversold, and we're going to
change this 1-5 bars. So this is just looking
over the past 5 bars or five candlesticks for any stocks that have had an
RSI of 30 or less. Then we're going to go ahead
and click on Save and Okay. And from there, we can go
ahead and click on Scan, and all of the stocks
that are meeting that criteria are then going to go ahead and pop up
on this scanner. So from there, now that we have a list of stocks
that are currently or recently have been
oversold on the daily RSI, what I would do is simply go
through some of the charts, do some very brief
technical analysis, look at the RSI, and
see if I can find any bullish RSI divergences that are forming
on these charts. Once you start to get
the hang of spotting these divergences on the charts, it's going to be much easier, and you're going to be able
to breeze right through this list and narrow it down to just a few potential
swing trades that are all meeting the criteria of
the RSI trading strategy. Now, very quickly, if you're
not using Think or Swim, this platform here from
TDM Aer trade, again, you should be able
to use some kind of other free screener or
scanner that is built into your trading software
to do something very similar and find stocks
that are oversold. But I'm just going to show
you very quickly how you can also do this on finbis.com, which again is a free
screener that we can use to find a bunch of stocks that are meeting our specific criteria. So first, what you
want to do is click on Screener up at
the top of FNBIs. We're going to select
all so we have all of the different criteria
that we can use to filter, and I'm going to go
ahead and select on price being over $10 per share. I want the average volume to
be at least 500,000 shares, and I want the RSI to be
oversold at 30 or less. So as you can see,
just like that, we were able to
narrow the market down to just 12
potential stocks. All of these are
currently oversold. So all of these,
again, are potentially going to be swing trades
in the near future, especially if we see them start to form some kind of support, or especially if we
see them start to form a bullish RSI divergence.
9. Swing Trading Chart Patterns: Alright, so in this
section of the course, I wanted to go over a few of the more common chart
patterns that we see as traders that in
my personal opinion, you should always kind
of keep an eye out for because they can help
you open new positions, and they can even
help you manage the positions that
you're already in. And the first of those
patterns is going to be known as the
bull flag pattern. And what the bull
flag pattern is is a continuation pattern that happens after a bullish move to the upside that indicates
that the stock is going to continue higher after it
breaks out of the pattern. So in other words, the
bull flag pattern is kind of a level of consolidation after a stock spikes
up and kind of trades sideways for a while before
it continues to the upside. And because of that, we can use this pattern to buy
into stocks that already have upward momentum without chasing them all
the way up the highs. So it's kind of a way for us to buy a pullback or
a dip in a stock. And for the most part, it's
going to look something along the lines of the diagram that we see at the
bottom of the screen. Again, we start off with
a big move to the upside. Following that, the
price action is going to kind of get more and
more narrow over time, kind of starting to form a
bit of a triangle pattern. And eventually, if it
is a true bull flag, it's going to break out above that trend line resistance that forms within the
bull flag pattern, and the stock is going to
continue to the upside. And for a real life
example of this, we have the chart for Facebook, and we're looking
at the daily chart. So this is looking over the
period of about a year, a little bit over
a year, actually. And you can see
that we start off initially with our BL
move to the upside. And just like the diagram
on the previous slide, you can see that there is
the consolidation period, which is actually
the flag itself in the bull flag pattern, and this is where the price
kind of trades sideways for a period of time
before the stock actually breaks out above that trend line resistance and follows through with its
continuation to the upside. So this is a really long
term example because it is, again, on the daily chart. And you can see that the
consolidation period in the flag itself actually lasts from
about September of 2020, all the way until
nearly April of 2021. So I just wanted
to point that out because sometimes these are going to pan out over the
course of a couple of weeks, and other times they
may take months or even over a year for them to actually completely finish
the Bull flag breakout and continue to the upside. So when you're dealing
with a bull flag, really there are two ways
that you can kind of take advantage of these and look to buy into the
bull flag pattern to profit from that
upward momentum. That's going to follow when the stock is able to break out. And the first is going to be at the bull flags
trend line support. So when you look at a bull flag, it's really made
up of a level of trendline support and
trendline resistance, the trendline support being at the bottom of the bull flag, and that's going to
be a potential level that we can buy into the stock anticipating that
there is going to be a breakout above that
bull flag resistance. The other way is
going to be to buy at the bull flag actual
breakout above resistance. The reason that I
generally actually prefer the second
method is because the bull flag is not
actually validated or confirmed until
that breakout happens. So for example, if we were going back to the Facebook example, this entire consolidation period here when the bull flag
is actually forming, of course, in hindsight,
we can see that this is a bull flag and there is
a breakout that follows. But during this period when the price action is
actually happening, we don't necessarily know
that the stock is going to be able to break out above that
trend line resistance yet. So there's really
nothing to say with 100% certainty that this is actually going
to be a bull flag. That's why buying at
the trendline support can sometimes be thought of as being a little bit riskier than actually waiting for
the confirmed breakout. But at the end of the day,
this is going to be up to your personal preference and whichever way that you
prefer to trade them. So moving on from the bull flag, the next pattern that I
want to talk about that can be very useful
for swing trading, day trading, and even
long term investing is going to be the head
and shoulders pattern. Now, what the head
and shoulders pattern is a bearish reversal
pattern that can be used to sell
positions and avoid holding a stock during
a temporary pullback. And the reason that I
wanted to include this in is because a lot
of times you'll be in a position and you may not
necessarily know when's a good time to sell and when's a good time to lock
in your profits. You want to, of course, avoid
from getting greedy and you definitely don't want to
watch a winning trade turn into a losing trade. By spotting patterns
like this one, it's going to be a good
indicator to sell and lock in your profits before
the stock does pull back. The reason that it's
called the head and shoulders pattern is because it resembles a person with the left shoulder, the
head in the middle, which is higher than
the two shoulders and the right
shoulder, of course, on the right side,
which is going to be about parallel to
the left shoulder. So for example, if we
take the chart for Snapchat, stock symbol SNAP, you can see we have a bit of
a head and shoulders pattern here starting off with a move
to the upside and because, of course, the head
and shoulders pattern is a bearish reversal sign. After the pattern is confirmed, the stock ends up going
significantly lower. And if you look closely up here, you can see that we
have our left shoulder. We have our head, and then
we have our right shoulder, which is actually perfectly parallel to the left shoulder. And in between those
two, the lowest point is going to actually act as a
bit of a level of support. So once the stock is
able to break down below that support level that forms
between the two shoulders, that's when the head
and shoulders pattern is going to be confirmed, and that's when the stock
is most likely going to break down and have a
pullback in the near future. So the way that
we take advantage of the head and
shoulders pattern, if you are in a position
and you're looking for that opportunity to sell
and lock in profits, you would want to do is
actually use the right shoulder of the pattern as your
indicator to sell. That's because this
is a very easy level to spot because you can use what looks to be
the left shoulder as a clear level of resistance. So you would go ahead and draw
this level of resistance, and as the stack bounces up
into that resistance level, unless the stack is able to have a very clear and easy breakthrough
above that resistance, then you're going to
know that this is most likely going to be the head
and shoulders pattern, and the stock is probably going to pull back in the near future. So you can look to sell in that area and avoid having to hold through
that pull back. Now, one other very important
thing that I wanted to mention about chart
patterns is that your charts time frame
is going to play a huge role in how your chart
patterns actually play out. So what I mean by
that is, for example, a bull flag on the 1
hour chart may only take a week or so to actually break out and continue higher, whereas a bull flag
on the daily chart, something longer term is going to most likely take
longer to break out. So it may take anywhere
from a few weeks to a few months or even longer. So when it comes to swing
trading and people looking for positions that
they're going to hold anywhere from a few
weeks to a few months, the most common time
frames on their charts for that type of trading
is going to be the 1 hour, the four hour, and
even the daily chart. Any pattern or strategy that's used on these
time frames are most likely going to
take at least a week for them to completely play out, which of course is ideal
for swing trading. And when you compare that to something like the
1 minute chart, here we're looking at the
1 minute chart for NOV N, you can see that
there is a pretty nice head and shoulders pattern here on this 1 minute chart. We have the left shoulder,
we have the head, and we have the right shoulder. Although this is a
pattern that you can use for day trading,
swing trading, and long term investing, the type of trading
is again going to depend on the time
frame of the chart. Since this is a very
short term time frame, the 1 minute chart, this head and
shoulders pattern from start to finish
really happens within the period of about
30 minutes from about 10:15 A.M. To about 10:45 A.M. So this just goes to show that just because you see one
of the chart patterns that we just talked
about on a chart doesn't necessarily mean
it's going to make a good swing trade because
it's going to again, depend on the time
frame of that chart, and it's also going to depend on your goals and your preferences in your own personal trading.
10. Price Targets: Okay, so now that
we've talked about a few different trading
strategies and we've gone over some different chart
patterns that you can use to actually find some good
swing trade opportunities. I wanted to take a step back and talk a little bit
about price targets, which are actually a
very important part of any trading strategy, and it's really going
to be a part of your trade plan that
you should have before you actually
enter the trade. So first and foremost, what a price target
is is going to be a predefined level that you're going to exit out of your
position at a profit. As I just mentioned, this price target is
going to be part of your trade plan that's
usually going to be based on some
technical analysis. So look, we've talked about already in the
previous sections. Obviously, if there is
a very clear level of resistance on a chart and you just bought
into that stock, you know that there's a good chance that
the stock is going to fail to break out above
that resistance line. So one way that
many traders will define their price target is to look for a level of resistance and set their price
target just below it. This way, they're able
to lock in profits at the highs in case the stock does fail to break
out above resistance. And by having this
price target in mind, it's going to kind of keep
your emotions in control, and a lot of times
it's going to prevent from greed taking
over while trading. So just for a very
quick example of how you can actually
find a price target, if we take this example here for AAL, this is the daily chart. And as you can see, there is
a very nice uptrend forming. You can see from last
year in October, all the way up
until now, which is currently in about
the middle of June, there's been a very strong
inconsistent uptrend forming on this daily chart, higher highs and higher
lows consistently, and the stock is holding this
level of trendline support. So let's just say, for example, that you bought into this
stock at the Trendline support right here when it pulled
back at about $21 per share. Now again, it can
be very beneficial to before even getting
into the trade, have an idea of where
you're going to lock in your profits if the trade
does move in your favor. Just by looking to the
left side of the chart and looking for any past highs or
past levels of resistance, that's going to give you
a really good baseline as to where the stock is likely
going to reverse back down. In other words, that's
going to give you a really good baseline as to where you should
probably lock in some, if not all of your profits
on that swing trade. So in this case, if we bought
at about $21 per share, we can look back a
few months behind, and there was a peak up here
at about $26 per share, which is naturally
going to become a slight level of resistance
since that was the peak, and that was the high before the stock started to pull back. So what you would
do is you would set your price target and you
would maybe set in order to sell some of your shares just below that level
of resistance in case, again, it fails to break out and ends up reversing back
down to the downside. And by doing this
in this example, this would have been
a really great time to lock in your
profits just below $26 per share because as
we can see that $26 area, it ended up holding as
a level of resistance, and the stock started
to pull back down to that tremine support after
failing to break out. So to kind of just reiterate what I've
already mentioned about price targets and why they're so necessary and
essential when trading, simply put, what they do is kind of prevent you from
getting greedy in a trade. Although none of us are
necessarily trying to be greedy, at the end of the
day, we're all in the stock market for
the same reason. We want to make as much
money as we possibly can. So with that mindset, a
lot of times comes greed, even when we don't necessarily
think we're being greedy. So anytime that you're
in a position and the chart and the
price action is starting to look a
little bit shaky, and maybe there's
been a few different signals on the chart telling you that now is a good time to
sell and lock in your profits, but you continue to
hold hoping that you're going to make
more and more and more. That is, of course,
being greedy and we do want to avoid
that at all costs. Now, just for
example here, if we take a look at this
trading diagram, let's just say that we bought in while the stock was up trending. After we bought in, the stock continued to trend up
higher and higher and higher without any
major pullbacks and without any major
signals to sell. If you're still holding
all the way up here, even if you're up
ten, 20, even 30%, I wouldn't necessarily say
that that's being greedy, just because the stock has
not necessarily given you any signals at that point to actually sell and
lock in your profits. So in other words,
there's nothing wrong with letting
your winners run. If you're right about a trade
and the stock is moving in your direction and everything
is going as planned, then it's actually
a really great idea to make the most out of your winning trades and let them continue to run and
make you more money. However, of course,
greed again is going to take over when
you're in a position, and you're already profitable on that position. But
there's some signals. Maybe there's a chart pattern like we see here
for this example, you can see that this is a bit of a head and shoulders pattern. So if we were seeing
that in real time, that would, of course, be a red flag because we know the head and
shoulders pattern is a Barish reversal indicator. So if you were still
holding your position after that pattern completely formed and the stock broke down, that's when Greed is going
to start taking over, and that's when hopefully
you can kind of realize what you're
doing and lock in your profits on
that trade before that winning trade turns
into a losing trade. Now, with all of that being
said, what I recommend doing when it comes to
price targets is to exit out at least 50% of your position once your
price target is reached. By doing this, you're going to lock in some of your profits, which is going to naturally, of course, reduce
your overall risk and your overall
exposure in the market. But additionally, it's
also going to give you the ability to make the most
out of your winning trades. So if you sell half of your
shares and you reassess the chart and everything still looks to be
going as planned, there's no clear signals
to sell, then again, you can keep holding onto the
other 50% of your shares, and hopefully the
stock will continue in your favor and you can sell
them at a much higher price. But the nice thing about doing this is that if it
doesn't happen to go higher and the
stock pools all the way back down to where you
entered in the first place, you're still going to be up and profitable on the trade
because you locked in 50% of your profit once the price of the stock
reached your price target. Now, one other thing to keep in mind is that a trader with ambitious price
targets should expect more frequent losses than a trader with conservative
price targets. So if that happens to be
you and you're looking for more ambitious price targets
and more ambitious profits, it's going to be very
essential for you to manage your risk and keep those
losses small, so that way, your profits can still
outweigh your losses, even if you have a larger amount of losses than you do profits. So in the next section
of this course, we're going to
talk about how you can actually manage your risk, and I'm going to be
giving you some tips on keeping your losses small.
11. Risk Management & Cutting Losses: Now in the previous
section of the course, when we talked about
profit targets and we talked about locking
in profits on a trade, I briefly mentioned
that your profit target should be part of
your trade plan, which you should
actually have before you enter the trade
in the first place. And aside from your
profit target, the other half of
that trade plan is going to be made up
of your risk level, which is going to
help you manage your risk and keep your
losses in the market small. At the end of the
day, risk management is the most crucial part of any type of trading or investing because unfortunately,
if you think about it, it really only takes one
bad trade to wipe out days, weeks, even months of profits if you're not properly
managing your risk. With that being said,
there's going to be a few different ways
that you can help yourself manage your risk and keep your losses in
the market small. The first way is going to be a little bit more
manual and hands on, and this is going to be to set price alerts so
that your brokerage is going to notify you when a stock reaches
a certain price. With most brokerages, you're going to be able to
set price alerts. So if you're using TD anderi
trade or E Trade, fidelity, interactive brokers,
and so on and so forth, most of those are going to
allow you to set price alerts. And very quickly, if
I jump over here to the Tinker Swim platform
with TDM Meritrade, just to show you, for example, how this is going to look, if we take the chart here
for Bank of America, currently, Bank of America
is trading at $41.54. And let's just say, for example, that I wanted to
set a price alert for Bank of America so that I'm going to be notified
if the stock falls down to $41 per share. The way that I can do that in this platform is going to be to right click on the
chart and down here, click on Create Alert. I want to be notified
when the price of Bank of America is at or below $41 per share. And I'm going to go ahead
and create that alert. And as you can see,
a line pops up here on my chart at $41 per share. So now because I
also have the Tinker Swim mobile app on my phone, if I'm not on my desktop
computer and the price of Bank of America falls
to $41 per share, it's going to
actually notify me on my phone that Bank of America has fallen to $41 per share. And the reason that this is
so helpful when it comes to trading and managing risk is because let's just
say, for example, that I decided to buy Bank
of America earlier on in the day today at
$41.50 per share, and I only wanted to
risk $0.50 per share. So if the stock falls
down to $41 even, I'm going to want
to at that time, manage my risk and cut
my losses on that trade. So if I go ahead and set this
exact same price alert to notify me when
Bank of America is at $41 per share or lower, I can immediately get
on my phone and get on the Tinker Swim app as soon as I get that price
alert notification, and I can go ahead
and sell out of my position and cut my
losses on the trade. Now the other way that you
can actually manage your risk is going to be a little bit
more of an automated process, and this is going
to be with what are known as stop loss orders. Now a stop loss can be set
below the stock's price to automatically exit out
of your position for you when your risk
level is reached. When you place a
stop loss order, it's going to ask you
for a stock price and that stop price is going
to be your risk level. When that risk level is
reached by the stock, that order is
automatically going to turn into an order
to sell out of your position for you
at the market and immediately get you
out of the position and cut your losses
on the trade. Now there are a few downsides to setting stop loss orders as opposed to setting
price alerts and just manually exiting
out of your positions. And the first of those downsides
is that stop loss orders are not going to be effective
in extended hours trading. So if the price
of the stock that you're in falls down and reaches your stop loss order during pre market or in
after hours trading, it's not going to be executed
until the market opens. So if you're not aware of
this and you're not careful, this can cause you to
take larger losses than you would have expected if that stock happens
to continue going down before the market
actually opens for the day. Now the other downside to using a stop loss order is that if
you're trading stocks that don't have a ton
of volume and if there's large spreads
between the bid and the ask, since your stop loss order is automatically going to turn into a market order to sell once
your stock price is reached, a lot of times it can
lead you to getting a very bad fill and selling at a lower price than
you would have liked to, especially again
if you are trading stocks that don't
have a ton of volume, and maybe they're only trading a couple of
hundred thousand shares on a daily basis. Okay, now, with all
of that being said, I wanted to show this example
here for Facebook's chart. And you can see that there
is a bit of a level of support down here at
about 3:30 to 80. As the stock opens for the day, that forms as a low
before it spikes up. And after it pulls back down, that same level holds as a
bit of a level of support. Now, because of that,
a lot of traders are going to see that this
is a level of support. And right here in this area, that's where a lot of traders
are going to be buying, expecting the stock
to bounce back up from that support level. However, another thing
that many traders do that you want to avoid is set their stop loss order just below that
level of support. So if this support level
was at $332.80 on the dot, a lot of traders,
believe it or not, would set their stop
loss order at $332.79, $332.78, and so on and so forth. But, you have to understand
that levels of support and resistance are not
always going to be perfect to the penny. So if you set a stop loss order so close below a
level of support, what's going to happen
a lot of times is exactly what we see
here in this example. The stock very briefly breaks
down below that support. Many traders in that
case got stopped out and took a small
loss on the trade. But aside from taking
that unnecessary loss, they also missed out on the
big run that happened in Facebook just after there was that false breakdown
below support. Okay, so the very
obvious solution to this problem is to give your stop loss some wiggle room below any level of support
that you're using. This can be, of
course, a clear level of horizontal support. It can be a level of
trend line support. Maybe you're using some kind
of indicator like the VAP, which often acts as a level of support and
resistance as well. Whatever it may be, you want
to give it some kind of wiggle room so that
you're not going to get stopped out in these
exact same situations and you're not going to
miss out on these big runs. In my opinion, you should
allow anywhere 3-5% below a level of support before your stop loss
is actually triggered. The amount of wiggle
room that you actually give it is
really going to be dependent on that
individual stock and that individual setup. So for example, if we take these two charts and
we compare the two, on the left side of the
screen over here we have the stock for GameStop
and on the right side, we have the stock
for Bank of America. If you look closely
at the chart, you can see that GameStop
on any given day really trades at least
within a 10% range. Many days, we see that its
range is actually 20%, 30%, even 50% or more. When we compare that
to Bank of America, Bank of America trades within a very small range
on any given day, usually within about 1% or less. Now, because of that,
it's considered to be much less volatile, so you're going
to need much less wiggle room below a level of support than you would with
a stock like GameStop. Okay, so to kind of summarize, if you're going to be
using a stop loss, make sure to kind of look
at the chart's history and make sure to understand what kind of stock
you're trading. If it happens to be a highly volatile stock like GameStop, you want to probably
give yourself at least 3% to 5% wiggle room, below a level of
support to avoid yourself from getting stopped out in any false breakdowns. If it's a much less volatile
stock like Bank of America, you can set your stop losses a little bit closer
to that level of support without having to worry so much about there
being a false breakdown. Okay, now, with all
of that being said, one thing that you
may be wondering is, if you're going to be
setting your stop loss so much further now below
a level of support, doesn't that just mean
that you're going to be losing more money if the
trade goes against you? And the answer to that,
of course, should be no. What you want to do to
avoid your losses from getting larger is
to simply adjust your position size based on your MAX risk and based on your distance
from your stop loss. So even though you may be
risking a larger percentage, you should not be
risking any more money than you would on
any given trade.
12. Scanning For Trades: Now in this section
of the course, I wanted to reiterate some of the things that
we've already talked about throughout the course when it comes to scanning and
screening for trades, as well as give a few other additional
pointers that I really recommend you follow when it comes to scanning and
screening for trades. Now, believe it or not, scanning in the market is going to be a crucial part of
your swing trading journey because at
the end of the day, finding the right
stocks to swing trade at the right time is going
to be half of the battle. What these scanners
and these screeners are going to do is
help you do just that. So we're going to
talk about some of the criteria that
you want to put into your scanner in order to help you find the best
swing trading setups. Now, first and
foremost, like I've already mentioned a few times, there are countless
different options for scanners or screeners. If you open up a
brokerage account and use that brokerage
trading platform, most of the time
they are going to have some kind of
scanner or some kind of screener that's built into that platform for
completely free. So for example, the Tinker Swim platform with
TDM Meri trade, the E Trade Pro platform, the Trader Workstation platform, which is from
interactive brokers. Interactive brokers, for
those of you who don't know, actually accept traders
from all around the world. So if you're not
based in the US, you may want to check
out interactive brokers. Then there is, of
course, finfis.com, which is a free website
with a free screener. Then there's also paid
options such as trade ideas, equity feed, and so
on and so forth. Now when it comes to actually putting in criteria and scanning the market for stocks meeting
your specific criteria, regardless of which
trading strategy you're using and exactly which type of stock you're looking
for in the market, there's going to be
a few general things that you're going to want
to put into that scanner to make sure that you're really
not wasting any time with that scan and to make
sure that some of those low volume highly
manipulated stocks are not going to pop
up on your scanner. So first and foremost,
with that being said, you're always going to want to see that the average volume when scanning is going to be a bare
minimum of 100,000 shares. The average volume simply takes the average
amount of volume or the average amount
of shares traded on a given day over
the past 30 days. And this is very important because any stocks that
are trading less than 100,000 shares on an average day are going to be considered
pretty illiquid stocks. And when a stock is
iliquid because there does have to be someone on
the other side of your trade, meaning if you're
buying, there has to be someone to sell
you those shares, and if you're selling,
there has to be someone to buy those
shares from you. Stocks trading less than 100,000 shares on a given day
can make that very difficult to do since there
is probably not going to be buyers and sellers
lined up at every penny. In fact, in my opinion,
for the most part, more volume in general is
always going to be better. If you want to be
a little bit more specific and narrow
this down even further, you could change that
from a minimum of 100,000 shares to a minimum of 500,000 shares or even a minimum of 1 million shares
traded on an average day. The second thing that
you're going to want to see is a specific price point. Now, for me, personally,
I like chose swing trade stocks that
are above $10 per share. This is completely
preference, though. If you like to trade smaller priced stocks or if
you want to trade, maybe only stocks over $50 per share, that's
going to be up to you. But personally, the
reason that I choose $10 or higher is because
for the most part, stocks that are under
$10 per share are going to be a little bit
higher risk and they're going to be a
little bit more volatile. The third piece of criteria
is going to be the country. Now, being that I'm personally based in the United States, and I have a brokerage
account with a United States based brokerage, when I do my scanning
and I do my screening, I like to look for
stocks that are just based in the United States. So that way, the scanner
is only going to show me stocks that are
listed in my country, and I don't have to worry
about whether or not my broker is actually going to allow me to
trade that stock, and I'm not going to
have to worry about any additional fees being
added on to that trade. And last but not least, we're
going to look for A Beta. Now, when you're scanning or screening the
market for a trade, what Beta actually means
is how much volatility that stock sees in relation
to the general market. So a Beta of one
means that the stock is moving perfectly in
relation to the market, as far as volatility goes, whereas a Beta of maybe two
means that the stock is going to be about two times as volatile as the general market. So because I personally
like to look for stocks that have a little
bit more volatility and they're going to be just
a little bit higher risk and higher reward than investing
in the general market, I personally like to
put a Beta of 1-1 0.5. Again, this is really
preference as well. If you want to look for
stocks with more volatility, feel free to boost it up to a
Beta of two or even higher. And of course, if
you want to look for even more stable stocks, you can always scan
the market for stocks with a Beta
of less than one. So just to kind of show you
what scanning the market is going to look like
here on finvs.com, I've gone ahead and open up the screener in the
top left corner. Again, this is completely
free to use on FIVs. And you can see
right off the bat, without putting any criteria in, we have 8,215 total stocks. Now, if we go ahead
and first put in the average volume of at
least 100,000 shares, then we're going to
change the price to at least $10 per share, and we're going to
change the country to stocks in the
United States only. And last but not least, we're going to look for stocks that have a Beta of 1-1 0.5. So just by putting in those
four pieces of criteria, we've narrowed the
market down from over 8,000 stocks to just 650. Now, of course, 650
stocks is still quite a few to go through and look for any potential swing trades, but that's where the
other sections of this course are going
to come in handy. We already talked about
briefly in the past sections, how you can find stocks for those specific strategies
that we went over. Now, if you pair that
information with these four pieces of criteria that we've talked
about in this section, it's going to narrow the
market down to probably just a few really good swing trade setups that
are not only going to be meeting the
specific criteria for that swing trading
strategy but they're also going to be meeting your actual personal
trading preferences, being that they're priced
within your given range. They have the amount
of volatility that you prefer and they're
trading enough volume for you to actually get
in and out of that trade without running into any
problems with liquidity.
13. Diversifying Your Portfolio: Alright, now, to kind of
start wrapping up the course, I want to talk a
little bit about diversifying your portfolio. Diversifying is a big part of any type of
successful investing, and that of course, goes
for swing trading, as well. And really, what it does
is spreads out your risk, which is going to hand, minimize your risk
and hopefully help you maximize your returns
in the market, as well. So to kind of visualize what
this is going to look like, if we take the left
side chart down here, if you were to invest
your entire amount of capital into
one single stock, and this was the
chart for that stock. You have to keep in mind
that that also would be the chart for your
overall portfolio, meaning that during these
big pullback periods, that's going to also
be a big pullback in your overall portfolio, and that's going to cause
you to have to hold onto some big drawdowns and some
big losses in the market. Now, on the other
hand, if you were in a diversified portfolio, and let's just say that
this single stock is also a part of this
diversified portfolio, you can see that along the way, there are still
pullbacks right around the same time that that
single stock is pulling back, but those pullbacks
are going to be much smaller because you're
going to have other stocks in that portfolio
that are going to be going up at the same time that
this stock is going down. And at the end of the
day, what they're going to do is kind
of even each other out and minimize those drawdowns that you see in your portfolio. So one big and one very common mistake that a lot of new
traders and investors make when it comes
to diversifying their portfolio is
they think that just because they're
in different stocks means that their portfolio
is going to be diversified. Yes, of course, being
in different stocks is a part of diversification, but you want to make sure
that those stocks in your portfolio are also going to be in different
sectors of the market. This is because sectors
tend to move together, and some very common sectors that you're going
to see when you're trading or investing are going to be the
technology sector. So these are going to be stocks
in companies like Apple, Facebook, Google, Netflix,
and so on and so forth. There's also the energy sector, there's the healthcare sector, there's the financial
and bank sector, and of course,
there's going to be the retail sector as well. So because of this,
you may think that you're being
very diversified in your investing by having
some shares of Apple, having some shares of Facebook, having some shares of Google, having some shares of Microsoft. But if that makes up
your entire portfolio, all four of those
stocks fall within the technology sector
of the market. So because these sectors
tend to move together, if Apple is having
a big pullback, the other three stocks
in your portfolio are most likely going to
be pulling back, as well, and that's kind of going
to take away a lot of the benefits of being in
a diversified portfolio. So just for example, if we
take these four charts here, these all represent stocks in the travel sector
of the market. We have three airlines,
Delta Airlines, United Airlines,
American Airlines, and then we have the
Carnival Cruise Line. You can really see by
looking at these charts how similar the charts are and how they tend to pull back
at the same time, and they tend to spike
up at the same time. Again, this just
goes to show that if you're in a
diversified portfolio, you want to be in
different sectors of the market because
you're not being as diversified as you may
think just by being in multiple different stocks if those stocks happen to be in the same sector of the market.
Travis Rose, Stock Market Day Trader & Investor
