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How to sucessfully trade the stock market (Having the Right Mindset (Learn…
How to sucessfully trade the stock market
Having the Right Mindset
Learn to survive, then learn to profit
Someone who is scared will not be a successful trader be rational when you think about trades.
The importance of confidence and mental state. Trading in fear won't work
A disciplined trader is a happy trader!!!
Emotionless trading: plan execute. Profit
Hope is for losers, take the loss! Don’t be scared to take a loss you will regret it.*
Bag Holders are Retarded
Holding a stop and hoping for it to come back is stupid
stupid people hold stocks that aren't working out
Defensive Trading.
Balancing risk/ reward
Executing a planned trade is a win. Whether or not you made money
You can raise your profit level if the trend is still working don't lower your stop loss
Figure out what your profit target is.
Determine where you are going to get out of the trade
Goal: Survival and steady gains
Buying Vs Selling a Stock
Fear and greed settle in
It is harder to sell a stock then to buy it.
Avoid: High Risk Gambles and heavy bets
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don’t expect every stock to be a home run
Must cut losses short
you can do damage to your portfolio
You will have losses and accept it
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Holding onto losing positions is counterproductive
you don't have profit or loss until you sell it
Doesn't matter if it's for a profit/loss
Be disciplined enough to hit the sell button and take the loss
Must take your profits
Woulda shoulda couldas! Get used to it
You're not going to make the perfect trade. Don't stress it take what you can get.
the importance of psychological support/resistance and whole#’s
What the goal is for making/loosing money
Reward must be double that of the risk
Profit goal avg +20% gain
Loss goal avg 5 -10% max loss
Loss 50$-100$ per trade
50/50 ratio is good
70% losing strategy breaks even
Portfolio Management
Passive Account
Lowest Risk
Max 10% into any stock
Conservative 5% opening positions sometimes 10% if you buy at breakout point
Consider buying more on dips or breakouts
Recommended new and conservative traders who are comfortable with buying on weakness
Lower risk
Aggressive account
High risk but high profits
Max 10% into any stock
Aggressively start out positions with 10%
Close with full of ½ positions
Recommended for those who are comfortable traders not fond of buying dips
Potential larger loss on losing trades
Larger potential gain on winning trades
Hybrid Account
Max 10% into any stock
Open positions with 5-10%
Gauge position size on your comfort level with the stock as you may not get a chance to buy on a dip
Recommended for experienced traders
Medium Risk
Advanced Hybrid Aggressive Account
Max 15% into any given stock while utilizing leverage aka margin account
Max 2-1
10k with 2-1 leverage = 20K buying power
HIGH RISK: Gains/losses are double
Recommended for consistently profitable and experienced traders
Highest risk but highest profit margins
recommended for new traders to use passive account
1-5 years trading: Aggressive or hybrid
3-5 years trading Aggressive leveraged max 2-1 ratio
Revenge Trading
**DONT make high risk trades if you are already losing for the day. It'll make it harder for you.
Playing the field (diversify) vs. over trading
If you are making a trade that you are just like ehh lets see if this will work then this is over trading
Trade among several different stocks because some trades wont work out so you can cut losses short on the bad ones and bank on the good stocks
10% max capital in each position
Diversification is essential to survival
Trading is fun, addicting, a son of a bitch, and your best friend. Its stressful
The stock market can be a fantasy land
Don't let the fantasy overtake you!
Determining if a stock is a good trade
Fundamental Analysis
The Study of the internal financials and operations of a company with the goal of deriving a valuation for the company.
Not a must have as a technical based swing trader. But a key variable to consider when choosing the right stocks.
Shares Outstanding
Stocks currently held by all investors, including restricted shares owned by the company’s officers and insiders as well as those held by the public
Market Cap
Mega Cap = market Cap of $200B or greater
Large Cap = $10b or greater
Mid cap = $2b to $10b
Small Cap = $300m to $2b
Micro cap = $50m to $300M
Nano cap = under $50m
typically only trades micro to mid cap stocks
Shares outstanding x Current share price
Earnings per share(eps)
How much profit a company makes per share outstanding
EPS = (Net Income - paid dividends) / average outstanding shares
Forward price to earnings
Share price/ forward earnings estimate
The stock is trading at 10$ per share and has an EPS of .75 and next year the analyst say that the stock will have an EPS of 1.25
Trailing P/E or current pe ratio = 10/.75 = 13.3x earnings multiple
Forward P/E = 10/1.25 = 8x earnings multiple
The stock has a lower earnings multiple so it is an attractive buy
Valuation ratio of a company's current share price in comparison to its forecasted earnings per share in the future usually derived from analysts or the company
News
Good News
share buybacks
increase share holders value
Own a bigger % of the company's stocks
Bad News
Dilution
Causes people to sell
More shares are on the market and the company is most likely hurting for money
It decreases a company's EPS
News that could be good or bad
Earnings
They come out every 4 quarters
Earnings are release after hours and the gap could hurt your portfolio
Trade lighter during earnings season due to high volatility and risk
Check your stocks earnings dates so you don't hold thru earnings: Jan, April, July, Oct
Easiest time to lose money
Earnings Call
Unstable
You could win big or loose big just not worth the risk
If stock beats earnings stock will usually rise. If stock misses earnings then the stock will usually fall. If earnings are met less volatile moves. A stock will act differently under all circumstances.
Positive earnings sentiment can lead to 3 phase breakout formations. Or trigger a focus pattern to buy into
Major companies will affect entire sector. Which affects entire market. Ex: Apple, Goldman Sachs, Pfizer
OTC stocks don't have to forewarn you about earnings
Insider transactions
Buying means good for the stock
Price to earnings
p/e ratio
Valuation of a company's current share price to its EPS
One of the most important fundamental comparison tools
Compares on stock ability to report profits in comparison to its competitors
Future Fair Value
Stocks forward estimates x industry average p/e ratio
The best small cap stocks have attractive FFV’s
Attractive FFV’s are 1-5x current share price
Not an actual short term price target
Who cares if estimates are even close to correct. HYPE!
Technical Analysis
Support
Support is the level at which at which the demand for a stock is heavier than its supply
SUpport areas are very fragile. Frantic trading.
Resistance
Resistance is when the sellers are higher than the buyers if a stock goes past this then there are more people who are willing to buy then there are to sell
Uptrend
a stock that keeps hitting higher resistance levels
Downtrend
a stock that keeps hitting lower lows and if it breaks out then it could be a possible buy
Technical indicators
Moving Averages
13 EMA
Short term is more important than long term trends
stocks may trade around 13 ema and either go up or go down
13 ema can determine if it is a bullish or bearish trend
Buying/Selling with 13 EMA
Selling with 13 Ema
If it crosses 13 ema it could be a buy or sell indicator
If no buyers start coming in near the 13 ema and it continues to breakdown it's very possible the trend may be reversing
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Sometimes price will cross below 13 ema
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See if stock is strong on the day
Dipping to the 13 EMA
Any second test of the 13 ema im looking for support to hold or possibly sell if price breaks down the 13 ema
The more times price tests the 13 ema and the higher it gets from the initial breakout. Higher probability 13 ema will break = trend reversal or slow down.
Using the 13 ema as a trailing stop helps simplify the question of when to sell
identify if the stock is trending the 13 ema *if it's not then try to stay away from this stock
It should trend after it crosses the buy indicator
Following a breakout pattern small cap stocks commonly trend along the 13 ema for weeks to months *if it's not holding above the 13 ema it could be a false breakout
Buying with 13 ema
Dipping to the 13 Ema
dip to 13 ema is a very strong support level where new buyers typically come in.
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He only considers buying on the 1st dip to the 13 ema Highest risk/ highest reward or prefers to buy on the first dip if he didnt get in the stock already
Bouncing of the 13 EMA
if price bounces strong off the first test of the 13 ema it is typically a sign of a new trend or at least another spike in price action
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Breaking 13 ema
breakouts indicate possibility of new short term trend
13 ema it is not perfect
13 ema is an exact number at all times. Price may dip and trade very closely above and below the 13 ema in a range before continuing a rally
Small cap stocks tend to follow the 13 ema really well
YOU ONLY USE 13 EMA AFTER A BREAKOUT
A Stock can go as long as its above the 13 EMA
Candlesticks
Dark Cloud Cover
if a stock closes below midpoint of other candle it's known as a bearish cloud cover
Its bearish because the black candle forms below the midpoint of the candle
Shooting Star
It basically says higher prices were rejected by the market
Upper shadow is twice as long as the body
Doji
Indication of a reversal if the stock open below the close of the cross candle
Bearish Engulfing candle
Opening of the candle was above previous day
Closing of the candle was below the closing other the other day
Possible reversal candle
Sell on bearish top reversal candles
Sell all or most gains to lock in profits
Breakouts
Can be the beginning of something big
Breakouts commonly return 20 to 100%
Buying a breakout
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Certain criteria must be met for it to be bought even if it is a breakout
Just because it meets your criteria still doesn't mean it could be a win it still might be a loss
Buying a stock on a strong market day the chance of success will be higher
Chart dow jones with 13 ema to chart the market
When market is riding above 13 ema you can be more aggressive
If it's below you should more conservative
Take profits earlier and take smaller positions
Breakouts 3 phase formation
Phase 1
Large price move accompanied by heavy volume
Sometimes triggered by news released
Unpredictable to buy the stock
Phase 2 Consolidation
chart pattern forms resistance and support areas
Forms highs and lows
Creates a triangle and highs and lows
Buying before a breakout can lead to higher profits but it raises your risk
Actually forms the buy trigger
Phase 3 breakout occurs
breakout occurs accompanied by a surge in volume
Want to see significantly higher volume
This is a conformation
Want to see a strong candle into the close of the day
We should expect a new up trend
The phase where you actually buy the stock
Mainly focus on stocks trading under $5
Charts
Force
Force is his go to pattern
It's very consistent
Highest profits of any charts
Criteria to be considered a force chart
Leading trend is bullish so people are more likely to buy
Forms a resistance line
First rise in price action plus volume
Buy on the pullback
Gold
Largest consistent giver
20 - 100%
Don't get greedy
Extremely volatile can lose 10 - 20% quickly
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You need to be diligent when locking in profits
Fairly common for it to run from 1$ to 2$
Cameron Fouses favorite pattern to trade
Criteria to be met for it to be considered a gold pattern
Occurs after stock has been trading 9 months to 2 years under 1$
Better if stock hits $1 mark several times
Buy after it breaks 1$
Short term forms a triangle into the breakout
Most rare pattern to find
Very exciting to find one of these patterns
Creates a mini force pattern into the breakout above $1
Not always but its better if it does but most of the time it does
Revival
Very potent pattern to play
Could be a sign that the once bearish stock could be a good buy
New buyers come in
Could mean the bottom has been hit
3 phase breakout can create a shortsqueeze
When they do work out they can lead to big returns
Least predictable
Picking the bottom of a bearish trend is hard to do
Current sentiment is negative
If the stock market is bearish then it could mean more shorts could bet against this stock
Trade with smaller positions
Most common pattern to come across
Criteria to be met for it to be considered a Revival Pattern
Trend is bearish into the pattern
Forms a resistance line
Breaking above the resistance line can create a short squeeze
Spike in price action with volume
Increased volume
Can be a gap down to form a revival pattern
Survival
Criteria to be met for it to be considered a survival pattern
Formed after huge rally on a stock
Lead in trend is bullish large profit taken yet another bullish triangle forms
Short term 3 phase triangle forms
Price must hold above the levels where the the first spike started aka survive the bullish move
Survival and revival look similar
It's a mini revival pattern in a upward movement of a stock
If it doesn't stay above the initial breakout point then it didn't survive the move
Ussually formed after another chart like Force Gold or Revival
First profit target is the initial spike point
Intraday Charts
Flags/pennants
Add more on a bull flag if it keeps going above the pennants
Sell if it breaks below these or lock in gains
Selling on breakdowns of short term consolidations. Flags and pennants
When, Where and Why? to buy a breakout
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Where
Catch the stock at the breakout point
Where is the breakout point?
Breakout Line
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Midpoint of the breakout candle
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Dip Buy the 13 Ema
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Dip buy that retests the support level of the breakout
If it's a false breakout its higher risk
If it's 15-20% green on the day bet small positions
When
The higher you buy the higher your risk
When to buy
Buy later in the session above breakout if you missed buying the breakout point. Higher risk consider buying small position
When not to buy
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If the stock is not in one of the windows of opportunity
Unpredictable
Unfavorable risk reward
If you miss the chance to buy then move on
Don't get greedy and buy stocks later in the move
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Why
Selling a breakout
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Selling on weakness
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Sell the stock if it goes against you
Agressive
Midpoint of breakout Candle
if you bought higher in the move
if a stock closes below midpoint of other candle it's known as a bearish cloud cover
*See Candle sticks
may miss out on profits
Passive Agressive
Breakout point
This becomes a strong support area
No one was convinced that this stock should be trading above this breakout level
Passive
Selling at the 13 EMA
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Can sustain a bigger loss
Does Not reccomended setting a stop loss on the 13 ema unless it's above the breakout point
Using candle sticks to predict reversals
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Strength Selling
Selling when things are still hot
at a 20% gain start thinking about some or all profits
sell on large % moves or multi day rallies
Important to take advantage of stocks making big moves
Big moves are followed by huge profit taking
Don't give up money that you could have taken
Humans aren't always satisfied and want to take more money
Sell at a resistance point/area, Whole #'s and descending resistance lines
Don't set unreasonable goals
Areas that are feasible
The lower the number the more significant above 10$ individual whole numbers become less significant
What is the next whole number that it could hit
What is the last resistance number?
$1 is most significant psychological number
5-10$ each number can be easily be ran through
5$ whole markets become more significant so 10$ 15$ 20$ etc
2-5$ each whole number becomes a significant number
Use a combination of Technical and fundamental analysis
Determining when, where, why, and how much to buy of a stock
Stop Losses
Setting a perfect stop loss is VERY DIFFICULT.
Goals for the stock market
Things that I want to study
Books
Steve neison good person to read on candle sticks
Finish Fous 4x2
Fous 4 Youtube videos
Timothy Sykes:
PennyStocking
PennyStocking part Deux
How to make millions
Trader checklist
Tim Gritani Trading Tickers
Time how to use level 2 quotes
Tim Fundamentals
Timfundamentals part deux
Tim raw
Tim tactics
ShortStocking
Watch all of his youtube videos.
Read books
Steps to take before executing a trade
Step : 1 This step involves finding stocks that are moving or could breakout. Then analyzing what news is making the stock move.
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Starts by finding the right chart set up to trade: Force, Survival, Revival, Gold
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Use Finviz, StockFetcher, TDAmeritrade, Yahoo Finance
Should only be minutes long
Whats pushing the stock? Whats the news? Is it significant? If not is it a technical breakout?
If there is news then it can go much higher
no news means its a technical breakout.
People might sell if it's just a technical breakout creating a false breakout
Step 2: This step involves analyzing what recent insider transactions have taken place. You can use insidercow.com to help you out.
Are insiders buying or selling?
Recent insider transactions means the company is more than likely to grow soon
Creates hype around stock
Adds confidence to your trade.
Step 3: Analyzing the stocks financials -- Is the company expected to grow? +30% is strong. But growth is growth
Amount of growth can be used as a gauge for confidence in the trade
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OTCBB’s and small caps often don't have analyst estimates.
What has the past growth looked like leading up to now
Zero Revenue biotechs and resource exploration companies
Company does not have to be growing to make a good trade. Pure technical plays can and do work
Strong technicals + strong fundamentals will likely result in your biggest gainers
Strong news + Technicals can result in huge short term returns despite terrible growth
Step 4: Valuation FFV aka Future Fair Value
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FFV > 100% above current share price + bullish stock chart = High probability trade
Don't need to have strong ffv to make trade just adds confidence to the technical set up
Step 5: Earnings Estimates and Announcements
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Estimates are just Estimates that create hype does not matter if they are right because we are not holding through earnings anyways
Always look to see when the company releases next earnings report
Avoid getting caught on a surprise bad earnings report sell off on missed estimates results
None of the research matters if the chart is not in the play
The trade should derive from a chart setup, then back it up with fundamentals if possible if the chart isn't talking, no need to listen
Step 6: Identify your entry point
Step 7: Identify profit target areas
Step 8: Identify initial stop level or when to sell if the stock goes against you
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