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Foundations of Stocks and Options Class 6: Trading the Lanes
Class 6: Trading the Lanes
(In-depth Line Drawing and Charting)
!Today’s Class
• Review of class so far
• Where we are going from here
• More in-depth technical analysis
• Trading with brackets (neutral trading)
!Review of Class So Far
Review
• Stock buying, selling short
• Setting up trades (using support & resistance)
• Virtual trading & tools
• Basic technical analysis
• About options (buying calls & puts)
• Getting a pulse on a markets
• Four basic strategies (buying, selling stock, buying calls, buying puts)
• Two bonus Strategies
➡ “Renting” stock (Covered Calls)
➡ “Insuring” stock (Protective Puts)
!
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Foundations of Stocks and Options Class 6: Trading the Lanes
Review (continued)
• Basic chart Reading & Patterns
➡ Channeling stock & trends
➡ Basic line drawing
• Market Psychology (why the market moves)
• Intro to Dow Theory
!Where We Are Going
The Road Ahead
• Micro Picture
• In-depth Technical Charting & Line Drawing
➡ Support & Resistance
➡ Trend Lines
➡ Trading Lanes
➡ Trading Neutral (with brackets)
➡ Price Targeting
• Moving Averages & Basic Indicators
➡ Moving Average Crosses
➡ Moving Averages as Support & Resistance
➡ Timing Trades with Moving Averages
➡ 3 Basic Indicators
• Trading Neutral & Trading with a plan
➡ Setting up your trades
➡ Contingency orders
➡ Entries/Exits
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Foundations of Stocks and Options Class 6: Trading the Lanes
➡ Setting Stops
➡ Remove the Emotion with a Plan
• Level 2 picks up...
• Chart Patterns (2 classes)
➡ Reversal patterns
➡ Continuation patterns
➡ Consolidation patterns
➡ 15 most common & accurate
➡ How to trade them
• Candlesticks (2 Classes)
➡ Individual Candles (what they mean)
➡ Single - Line Candles
➡ Two - Line Candles
➡ Three - Line Candles
➡ Combining candles with lines, moving averages, and chart patterns
• Start Putting it all together
➡ Training your skills
➡ Trade Simulation
➡ Trading Journal
➡ Make your trading skills automatic
• Final Confirmation
• Technical Indicators
➡ Different types of indicators
➡ 9 Indicators I trade with
➡ How they work and how to use them
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Foundations of Stocks and Options Class 6: Trading the Lanes
➡ Putting lines, averages, patterns, candles, and indicators together into a trading system
• Finishing touches
➡ Strategies
➡ Trading multiple situations
➡ Combining strategies
➡ Trading any type of market
➡ Applying to intra-day trading
➡ Money management
!In-Depth Line Drawing/Charting
Support - The price point where a stock finds more Buying pressure than Selling pressure and pushes the price higher (Bullish)
Resistance - The price point where a stock finds more Selling pressure than Buying pressure and pushes the price lower (Bearish)
!
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Foundations of Stocks and Options Class 6: Trading the Lanes
Support and Resistance - Rules
• Always start with a line chart
• Use Candles to confirm the points
• 2 points make a line
• 3 points make a trend (or pattern)
• The more times a stock “hits” a line, the stronger that point of support or resistance.
What you need to remember:
• Support & Resistance alone are not enough to trade from.
• Use S&R to give us a frame work.
• Combine S&R with other technicals to help us trade.
• S&R are the foundation of all other “line” analysis
!Support and Resistance - Channels
Channel - A stock moving sideways between support and resistance in a predictable repeating pattern.
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Foundations of Stocks and Options Class 6: Trading the Lanes
Upward Channel (Up-trend) - A stock moving sideways between support and resistance in a predictable repeating pattern While Making Higher Highs & Higher Lows
Downward Channel (Down-trend) - A stock moving sideways between support and resistance in a predictable repeating pattern While Making Lower Highs & Lower Lows
!What is a Trendline?
A trendline is simply a support or a resistance that moves at an angle instead of horizontal.
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Foundations of Stocks and Options Class 6: Trading the Lanes
How To Draw Trendlines
Rules:
• Always start with a line chart
• Always start with a change of direction
• Takes 2 points to begin, 3 points to “define”
• Check candlesticks for confirmation
!Defining Trendlines
In a trend, one line is of primary importance.
• In an uptrend = “Support”
• In a downtrend = “Resistance”
• We will refer to this line as the “control” line
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Foundations of Stocks and Options Class 6: Trading the Lanes
“Range Line” helps define the range of the trend
• Parallel
• “Close” (not exact)
• Start off of the first “retracement”
• Trading Lane
OLD Resistance, becomes NEW support
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Foundations of Stocks and Options Class 6: Trading the Lanes
Support & Resistance - Fanlines
• The result of “varying angles” of acceleration and deceleration of a trend
• Old support becomes new resistance (and vice versa)
• Occur much more frequently in Bull markets than Bear markets
!Accelerating Line
• Occurs when a trend is becoming steeper
• Usually seen in extreme market conditions (a bubble or a panic)
• When the line is eventually broken, the next support or resistance is the previous angle of attack
!
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Foundations of Stocks and Options Class 6: Trading the Lanes
Decelerating Line
• Occurs when a trend is weakening
• Evidenced by breaking trend lines without revealing a clear reversal
• Generally after 3 lines are drawn the reversal is confirmed
!Support & Resistance
Purpose: Support & Resistance, Trendlines, & Fanlines combine to help us see:
• Trading behavior
• Price targets
• Pivot points
• Logical analysis
• Trading opportunity
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Foundations of Stocks and Options Class 6: Trading the Lanes
Price Targeting
• Previous price points become future targets (pivot point)
• The more times a price hits that point, the stronger the target
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!Setting Up The Trade
• Draw a “neutral” bracket around the pivot point.
• If the stock bounces, trade bullish
• If it breaks through, trade bearish
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Foundations of Stocks and Options Class 6: Trading the Lanes
Action Steps • Put your line drawing knowledge to work
• Notice how different stocks “behave”
• Determine some “pivot points”
• Try setting up some “bracket trades”
• Place some trades and see how they go (virtual of course!)
• Go to Next Class - Moving Averages/Indicators
!Remember we are here to help you all throughout your journey in the Stock Market. Reach out anytime through email at [email protected] or
Schedule a Call and one of our Student Coaches will contact you.