The Only Trading Book You Need

First and foremost, the first step is to choose a brokerage for you to trade
on.
Choosing a Platform / Brokerage
TD AMERITRADE
TD Ameritrade is excellent for active traders and beginner investors and it
provides a great trading platform, $0 commissions on online stock,on
options and ETF trades and a great selection of mutual funds. There is a
$0.65 fee per contract.
Pros
Commission-free
Free research
High-quality platform
No account minimum
Great customer service
Cons
Very slow fill - time on some days.
TD AMERITRADE has a trading platform called thinkorswim (which is
what I use) that's aimed for stock, ETF, options, futures and forex. It
litetally has all the features active traders need, including advanced
trading capabilities, a huge lineup of tools, screeners and charting,
backtesting, real-time news, quotes, etc.
TASTYWORKS
Tastyworks was created for active traders. According to research, The
company says that more than 90% of the trades placed by its customers
are derivatives, so there are going to be a lot of tools for options and
futures traders.
Pros

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 Customizable platform with real-time quotes
Options-focused charting that helps you understand the probabilities of
Options
Cons
Newcomers to trading and investing may be very overwhelmed by
tastyworks at first. All trading platforms have a learning curve, but
tastyworks' is steeper because it is designed for active traders. Other
platforms start with basic functions for their retail crowd and hide the more
advanced tool set in the expanded trade tickets.
Robinhood
Robinhood provides free stock, options, ETF and cryptocurrency trades,
and its account minimum is $0
Pros
No account minimum.
Simple interface.
Cryptocurrency trading.
Cons
No mutual funds or bonds.
Limited customer support.
E*Trade
E*TRADE actually offers a lot of value to both beginner investors and
frequent traders with a lot of resources, a great trading platform, and tools
to help you create a well rounded portfolio.
Pros
Easy-to-use tools.
Large investment selection.
Excellent customer support.
Access to extensive research.
Advanced mobile app.
Commission-free stock, options and ETF trades.
Cons
Website can be hard to navigate.

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 If you want to use more advanced brokerages, you can use Interactive
Brokers.
Chapter I
What are stocks?
There 2 different types of Stock.
Common & Preferred
Common Stock: an investment security which represents ownership in a
company. If someone you know says they own “Stock” it usually means
common stock, “AAPL,FB,etc” . They are referring to common stock. If
your friend or relative owns a few shares of that company, they are
therefore an owner of the company.
Preferred Stock: Preferred stock typically is a debt instrument of a
company. When purchasing preferred stock, think as though you are
loaning the company money. When loaning money to a friend, you expect
to be paid back with interest.

Stocks are essentially shares of a company. It also means you have a

claim on a company's assets and
earnings. Put it this way, imagine the company as a big giant pie. By
buying a share, you own a tiny piece of the pie. The more shares you buy,
the bigger pieces of that pie you own.
Example: FACEBOOK stocks are worth $200. You decide to buy
one share. The stock then increases from $200 to $310. You just made
$10. If you had bought 2 shares($400 in total), you would’ve made $20.
Simple, right? The same Principle applies to a stock that’s worth .50 cents
or $10.
Stocks are also known as “Equity” or “Equities”. Stocks are given to or
bought by you (shareholders) in order to raise money for the business/
company to grow or for them to take on new projects.
What are Dividends?
DIVIDENDS are payments made by the business/company to its
shareholders(AKA you!). These payouts can be given to you in cash
(Cash Dividends), or in additional shares (Stock Dividends).
Basic Equity Research

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 What does the company do?

To get a basic understanding of the business.

What do they manufacture (in case it is a manufacturing company)?

To know their products better, helps us get a sense of the product’s

demand supply dynamics.

How many centers / factories do they have and where are they
located?

To get a sense of their geographic presence. Also at times their factories

could be located in a nice, prime location, and the value of such location
could go off balance sheet, making the company highly undervalued

Are they running in full capacity?

Gives us an idea on their operational abilities, demand for their products,

and their positioning for future demand

What kind of raw material is required?

Helps us understand the dependency of the company. For example the

raw material could be regulated by the government (like Coal) or the raw
material needs to be imported.

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 Who are the company’s clients or end users?

By knowing the client base we can get a sense of the sales cycle and
efforts required to sell the company’s products.

For example, Apple, will have no problem crushing their competition

because the majority of the modern world has iPhones.

Who are their competitors?

To give you an idea of who they are competing with and who is dominating
that industry.

Sectors
The economy and stock market are basically organized into two tiers. The
highest tier, a sector, is a broad grouping of companies that have similar
economic characteristics. There are currently 11 major sectors that most
investors use when breaking down the corporations and other issuers of
securities such as stocks and bonds.
Sectors are broken down into sub-categories known as industries. This
allows a closer grouping of similar businesses. For example, Dollar Tree,
the discount retail chain, and Tiffanys, the luxury jeweler, are included in
the consumer discretionary sector. However, they are sorted into different
industries.

Financials
The financial sector consists of banks, investment funds, insurance
companies and real estate firms, among others. In general, the majority of
the revenue generated by the sector comes from mortgages and loans that
gain value as interest rates rise.
$AIG // $GS (Goldman Sachs) // $JPM (JPMorgan)
Utilities

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 The utilities sector consists of electric, gas and water companies as well
as integrated providers. In general, the sector generates consistent
recurring income by charging consumers and businesses that provide
higher-than-average dividend yields.
$NEE // $ENB // $DUK

Consumer Discretionary
The consumer discretionary sector consists of retailers, media
companies, consumer service providers, apparel companies and
consumer durables. In general, these companies benefit from an improving
economy when consumer spending accelerates.
$AMZN // $HD // $NKE // $SBUX
Consumer Staples
The consumer staples sector consists of food and beverage companies
as well as companies that create products consumers are unwilling to cut
from their budgets. In general, these companies are defensive plays
capable of withstanding an economic downturn.
$COST // $MKC // $CHD

Energy
The energy sector consists of oil and gas exploration and production
companies, as well as integrated power firms, refineries and other
operations. In general, these companies generate revenue that’s tied to
the price of crude oil, natural gas and other commodities.
$WMB $DVN $HES

Healthcare
The healthcare sector consists of biotechnology companies, hospital
management firms, medical device manufacturers and many others. In
general, the sector is considered to be both a growth opportunity and
defensive play since people will always require medical aid. $BMY $UNH
$CVS
Industrials

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 The industrial sector consists of aerospace, defense, machinery,
construction, fabrication and manufacturing companies. In general, the
Book
industry’s growth is driven by demand for building construction and
manufactured products like agricultural equipment. $LMT $HON $CAT
Telecom
The telecom sector consists of wireless providers, cable companies,
internet service providers and satellite companies, among others. In
general, these companies generate recurring revenue from consumers, but
some subsets of the industry are facing rapid change. $TMUS $VZ
Materials
The materials sector consists of mining, refining, chemical, forestry and
related companies that are focused on discovering and developing raw
materials. Since these companies are at the beginning of the supply chain,
they are vulnerable to changes in the business cycle. $VALE $BHP

Real Estate
The real estate sector consists of companies invested in residential,
industrial, and retail real estate. The main source of revenue for these
companies comes from rent income and real estate capital appreciation.
As a result, this sector is sensitive to interest rate changes. $OLD $MFA
Why Do Companies Pay Dividends?
Well companies sell stock shares to the public to raise their money, which
is then used to fund their operations and expand their business, like I
mentioned above. So basically, a dividend is a “reward” given to
shareholders(YOU) for owning shares in the corporation.
Not all companies give out dividends. If you want to receive them, you
have to find the companies that pays them out to you, and buy their
shares. Lots of investors like these kinds of stocks because they can
produce a valid flow of income, and they have potential for compound
return down the road, or “rate of return”.
Example: XX (XX) is a company that pays dividends and let’s say it trades
Edit with the Docs app
at $44 per share. The company pays a dividend of $1.50 PER SHARE
annually,Make tweaks, leave comments and share with
broken up into quarterly installments of $0.30. If you own XX
others to edit at the same time.

NO, THANKS GET THE APP

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 NO,
stock(1 share), you THANKS
can expect toGET THE APP
receive a cash payment of $0.30 every 3
months, for each share that you own.
If you own 100 shares , you get $30 from dividends every 3 months.
What are Quarters?
3 month periods on a company’s financial calendar that behaves as a
foundation for the reporting of earnings and the paying of dividends. A
Quarter refers to one-fourth of a year.
What is a Quarterly Earnings Report?
“Quarterly Earnings Report” is a quarterly filling made by companies to
report their performance. This can include their net income, earnings per
share, earnings from different operations, and net sales.
By ANALYZING these quarterly reports, investors(YOU) can begin to
understand and estimate the financial health of the company and
determine whether it deserves your investment.
Every quarter, analysts and investors wait for the announcement of
company earnings. The announcement itself can actually move the
market, and the price of that stock can fluctuate wildly on the days of the
actual earnings release!! If the company fails to fulfill or go above the
estimates announced before the release, you can expect the stock to sell
off, causing a huge decline in price.
Stock Trading VS. Investing
Stock TRADING is basically buying and selling stocks for SHORT-
TERM profit.
Investing is when you are buying stocks for long-term
gains(Months,Years)
Traders jump in and out of stocks within minutes, days, even weeks.
Traders mainly focus on a stock’s technical factors(by performing
Technical Analysis) rather than a company’s long-term prospects. To
Traders, it’s all about where the price will be in a minute, hour, week,
or maybe a few weeks and how they can profit from that price
increase, or decrease.
Investors have a long term outlook. They buy their shares and think
in terms of years. Since they are long term, they’ll hold their shares

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 the market ups and downs because they know that it will go up
regardless over the months and years.
Example: If you bought $1000 worth of Amazon shares in May
15,1997, when it initially sold at $20 per share, you would now have
about $150,000.
Because Amazon is now approximately $3000 per share.
1000 divided by 20 = 50 shares
50 x 3000 = 150,000
Institutional Traders
Institutional Traders trade using accounts that their institution manages for
people.
Endowment funds, commercial banks, hedge funds, pension funds,
insurance companies.
These are the big fish on Wall Street.
They are usually what drives supply and demand.
They usually engage in block trading.
Institutional traders have a very high advantage over us retail traders due
to the simple fact that they work for institutions, thus giving them better
tools, etc.
Institutional traders have very good risk management, and use different
strategies to hedge different positions.
Traders who work at hedge funds use investors money, and a lot of the
times, they get a percentage of the profits.

High Frequency Trading

High frequency trading is the use of software and algorithms for the
purpose of faster execution in order to essentiall you pace everybody else.
Basically, HFT involves trading in very high speed, and I mean split
seconds.
HFT is used by a lot of firms and institutions.
Types of Retail Traders
Scalpers: Scalpers make several, dozens, maybe even more trades per
day. Scalers are trying to “scalp” a small percentage(profit) from each
trade. Basically taking profits on small price or percentage changes, soon
after the trade has been entered and has become profitable. In order to
Scalp, you have to have a well defined, and strict exit strategy. Scalping

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 has to do with jumping in and out as the market flows. You also should use
a large amount of capital to be able to capture decent profits.
Day Traders: Day Traders are traders who get into trades in hopes of
selling it the same day. Whether it takes them 10 minutes to a few hours,
the purpose of being a day trader is to sell your position the same day.
Momentum: Momentum trading has to do with waiting for a big market
move and jumping in, riding its momentum which this requires a lot of you
to be patient. Momentum trading works well if you understand the stock.
The reason why momentum trading depends so heavily on your
knowledge of the market or stock is because if you have a clear idea as to
why the stock is heading Up or Down, then you can choose where to exit
wisely.
Swing Traders: Swing traders are somewhat fundamental traders,
because time value allows them to have more time for the trade to play
out. These are people who hold their positions longer than a day.
According to research, most fundamentalists are actually swing traders
since changes in a company’s fundamentals usually require several days
or even weeks to produce a price movement that is adequate enough for a
profit.

Technical VS. Fundamental Trading

Technical: Technical traders are consumed by charts and graphs.
Watching different lines/signals on stock for signs of confluence/
divergence that might indicate buy or sell signals.
Fundamental Trading: Fundamentalists trade based on fundamental
analysis. Examining things like corporate events like actual or anticipated
earnings reports, stock splits, reorganizations or acquisitions.
Technical Analysis
Technical Analysis is based on few key assumptions. One needs to be
aware of these assumptions to ensure the best results.
1) Markets discount everything – This tells us that, all known and
unknown information in the public is reflected in the latest stock price. For
example there could be INSIDERS in the company buying the company’s
stock in large quantity in anticipation of a good quarterly earnings
announcement. While THEY does this IN SECRET, the price reacts to

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 THEIR actions thus REVEALINGto the technical analyst that this could be
a good buy.
2) The ‘how’ is more important than ‘why’ – This is an extension to the
previous statement. Going with the same example as discussed above –
the technical analyst would not be interested in questioning why the
insider bought the stock as long he knows how the price reacted to the
insider’s action.
3) Price moves in trends – All major moves in the market is an outcome
of a trend. The concept of trend is the foundation of technical analysis.

4) History tends to repeat itself – In the technical analysis context, the

price trend tends to repeat itself. This happens because the market
participants consistently react to price movements in a remarkably similar
way, each and every time the price moves in a certain direction. For
example in up trending markets, market participants get greedy and want
to buy irrespective of the high price. Likewise in a down trend, market
participants want to sell irrespective of the low and unattractive prices. This
human reaction ensures that the price history repeats itself. This is also
why SUPPORT / RESISTANCES always repeat themselves. You can
create Support and Resistance a year ago, and it would work today.
The open – When the markets open for trading, the first price at which a
trade executes is called the opening Price.
The high – This represents the highest price at which the market
participants were willing to transact for the given day.
The Low – This represents the lowest level at which the market
participants were willing to transact for the given day.
The close – The Close price is the most important price because it is the
final price at which the market closed for a particular period of time. The
close serves as an indicator for the intraday strength. If the close is higher
than the open, then it is considered a positive day else negative. Of course
we will deal with this in a greater detail as we progress through the
module.
The closing price also shows the market sentiment and serves as a
reference point for the next day’s trading. For these reasons, closing price
is more important than the Open, High or Low prices.
The open, high, low, close prices are the main data points from the

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 technical analysis perspective. Each of these prices have to be plotted on
the chart and analyzed.

How to choose stocks

There are different ways to find stocks. You can familiarize yourself
with certain industries by finding a Niche through Sectors
(Biotech,Pharmaceuticals, Energy, Healthcare, Technology, etc). You
can use Screeners. Screeners allow you to see real time percentage
increase on different stocks during the market. You can research an
individual company you are interested in, and look at their track
record, look for future releases, look at their past earnings, or see if
they might have a good earnings report coming up. This is choosing
stocks from a Fundamental perspective.
We trade Options (which I will explain shortly) so our main goal is to
simply find stocks with the most liquidity and volume. Which usually
will be the Top 10-30 stocks.
Liquidity
A measure of how many buyers and sellers are present, and whether
transactions can take place easily. High levels of liquidity arise when
there is a significant level of trading activity and when there is both
high supply and demand for an asset, as it is easier to find a buyer or
seller. If there are only a few market participants, trading infrequently,
it is said to be an illiquid market or to have low liquidity.
Volatility
Amount of price change a stock experiences over a given period of time. If
the price stays relatively STABLE and does not fluctuate much if not at all,
the stock has low volatility. If a stock has a high volatility, it hits new highs
and lows, moves erratically, and experiences rapid increases and dramatic
falls. Highly volatile stocks can provide huge money moves opportunities
for patient investors. Patient meaning waiting for the right entry and exit.
But it can also take a toll on your portfolio if it’s not traded correctly.
Investing is essentially about risk, but risks work both ways. Each trade
carries with it the risk both of failure and of success. High Volatile stocks
are what Day Traders usually look for. They can get in at one price, and
once it moves up a couple cents or even dollars, they’re out. As the prices

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 back and forth, short-term(day traders, possibly swing) traders can use
chart patterns and other indicators to help time the highs and lows.
Chapter II
Options Trading
Options are derivative securities. Securities with values that are reliant
upon or derived from underlying assets, or group of assets. They are
considered derivatives because the price is essentially linked to the price
of something else.
Options trading is considered a “low capital, high risk, high reward” method
of trading stocks.
An Option is a contract! It allows (the right, but not the obligation) you (the
investor) to buy or sell an underlying stock at a certain price within a
certain amount of time. You do not own these shares of stocks. An
ownership is when you buy the actual shares and hold it in hopes that it
will eventually go up in price where you will then see profit. An option
contract allows you the right to buy stock, but you aren’t required to.
The main goal here is to buy a contract and wait for it to go up in value, so
you can sell it.
A stock option is a contract between two parties in which the stock option
buyer (holder) purchases the right (but not the obligation) to buy/sell 100
shares of an underlying stock at a predetermined price from/to the option
seller (writer) within a fixed period of time.
Every contract you buy is equivalent to 100 shares.
The two types of stock options are puts and calls. CALL OPTIONS means
the buyer has the right to buy the stock while PUT OPTIONS give them the
rights to sell them.
Call Options mean you want the stock to go up, and vice versa for Put
Options.
A strike price is the price in which we choose to become long or short
stock using an option. Unlike stock where we are forced to trade the
current price, we can choose from different strikes that are above or below
the actual stock price, that have different values and probabilities of profit.
When you are choosing these strikes, there are a few concepts to
consider: The probability of the option expiring completely worthless(where

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 lose all premium), and whether the option is in the money (ITM), at the
money (ATM) or out of the money (OTM).
All Option strikes are made up of Intrinsic and Extrinsic value. Extrinsic is
TIME and VOLATILITY. AKA External Factors.
The Intrinsic Value of an option represents the CURRENT value of the
option, or in other words how much in the money it is.
For options that are out of the money or at the money, the intrinsic value
is always zero. This is because a buyer would never exercise an option
that would result in a loss.
Options are a decaying asset. Decay accelerates as the expiration date
approaches. If the move you predicted doesn’t happen within the time
frame that is expected, get out of that trade and move on to the next trade.
A lot of people have this issue and problem of holding on to their losing
positions.
Be realistic with your expectations.
Stock trading and Options trading are different. I can explain stocks to a 5
year old, but i can’t explain Options to a 5 year old.
Options have a lot of aspects to it. Option pricing, Option strategies,
Expiration, Time decay, Greeks, etc.
Options trading isn’t considered “investing”. Investing is something that is
long term. Businesses, Real Estate, Companies, that’s investing. You’re
essentially a speculator when you trade options. You don’t give a ****
about how the company will do in 5,10 years, or what products they are
currently making. You just want to make sure that the stocks move enough
in the direction you want it to, before the expiration date. Simple as that. I
don’t care if Tesla is creating a spaceship, as long as my calls or puts are
good, then we’re good, because i will be in profit.
In options trading, the difference between "in the money" (ITM) and "out of
the money" (OTM) is a matter of the strike price's position relative to the
market value of the underlying stock, called its moneyness.
An ITM option is one with a strike price that has already been surpassed
by the current stock price. An OTM option is one that has a strike price that
the underlying security has yet to reach, meaning the option has no
intrinsic value.
An OTM call option will have a strike price that is higher than the market
price of the underlying asset. Alternatively, an OTM put option has a strike
price that is lower than the market price of the underlying asset.

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 Being out of the money doesn't mean a trader can't make a profit on that
option. Each option has a cost, called the PREMIUM. A trader could have
bought a far out of the money option, but now that option is moving closer
to being IN THE MONEY(ITM). That option could end up being worth more
than the trader paid for the option, even though it is currently out of the
money. At expiration, though, an option is worthless if it is OTM. Therefore,
if an option is OTM, the trader will need to sell it prior to expiration in order
to recoup any extrinsic value that is possibly remaining.

A trader wants to buy a call option on TCX stock. They choose a call option
with a $20 strike price. The option expires in five months and costs $0.50.
This gives them the right to buy 100 shares of the stock before the option
expires. The total cost of the option is $50 (100 shares times $0.50), The
stock is currently trading at $18.50.
Upon buying the option, there is no reason to exercise it because by
exercising the option, the trader has to pay $20 for the stock when they
can currently buy it at a market price of $18.50. While this option is OTM, it
isn't worthless yet, as there's still potential to make a profit by SELLING
THE OPtiON RATHER THAN EXERCISING.
For example, the trader just paid $0.50 for the potential that the stock will
appreciate above $20 within the next five months. Prior to expiration, that
option will still have some extrinsic value, which is reflected in the premium
or cost of the option. The price of the underlying may never reach $20, but
the premium of the option may increase to $0.75 or $1 if it gets close.
Therefore, the trader could still reap a profit on the OTM option itself by
selling it at a higher premium than they paid for it.
Time Value1111111111111`qqqqq`
The time value of an option is an additional amount an investor is willing to
pay over the current intrinsic value. Investors are willing to pay this
because an option could increase in value before its expiration date. This
means that if an option is months away from its expiration date, we can
expect a higher time value on it because there is more opportunity for the
option to increase or decrease in value over the next few months. If an
option is expiring today, we can expect its time value to be very little or
nothing because there is little or no opportunity for the option to increase or
decrease in value

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 Time Value = Options Premium - Intrinsic Value Option Premium = Intrinsic
Value + Time Value
Why Extrinsic, Intrinsic, and Time Value matters
Helps investors understand what they’re paying for Intrinsic represents
what the Option would be worth
The Time value represents the possibility of the option increasing
Extrinsic helps you figure out what can affect the Option
Open Interest
Open Interest is a number that shows the amount of currently open
positions of options contracts. The higher the open interest of a contract,
the more open positions there are for it. Quite simply, it represents the
number of options contracts in existence.
The liquidity of options contracts is very important to traders. Liquidity
gives you an idea of how easily specific options can be bought and sold at
the market price. Highly liquid ones are generally easy to buy and sell, and
orders will be filled quickly. Ones with low liquidity, on the other hand,
aren't necessarily that easy to trade. Ideally, you want to be trading ones
with a high liquidity to ensure that you can enter and exit positions with
relative ease.
Options contracts that have a high open interest tend to also have high
liquidity, but as mentioned above, there are other factors to consider too.
Those other factors are the trading volume of an option and its bid ask
spread. High trading volume of an option generally indicates high liquidity.
Only by looking at all the relevant criteria is it possible to get a reasonably
accurate idea of how to determine how liquid an options contract is.
Delta, Theta, Vega, Gamma
The Delta value of an option is usually expressed as a number between -1
and 1, although it can also be between -100 and 100. This number
basically tells how much the price of the option will move for every $1 the
price of the underlying asset moves by.
For example, a delta value of .60. It would mean that the option price
would theoretically increase $60 for every $1 the price of the underlying
security increases by, and fall $60 for every $1 the price of the underlying
security falls by.

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 Delta value isn't fixed, and it changes based on market conditions. It will
increase as an option gets deeper into the money and decrease as it gets
further out of the money.
The extrinsic value of an options contract will diminish over time as the
expiration date of that contract approaches, due to the effects of time
decay, and Theta is basically an estimated measurement of the rate at
which this happens.
The theta value of an option essentially shows the dollar amount at which
the price of an option will fall each day, assuming all other factors remain
equal.
An option with a theta value of -.01, for example, would lose $.01 from its
price each day due to time decay.
The vega value of an option shows how much, in theory, the price will
change for every percentage point the implied volatility of the underlying
security increases by.
The gamma value of an option indicates how much the delta value of that
option will increase for every $1 price increase in the underlying security or
for every $1 price decrease in the underlying security.
For example, imagine you have a call with a delta of .60. If the price of the
underlying security rises by $1, then the price of the call would therefore
rise by $.60. If the gamma value was .10, then the delta would increase to
.70.

The primary use of DELTA is to give you an idea of how much money you
will make if the underlying stock moves as you expect it to (or how much
you will lose if the underlying stock moves in the opposite direction). This
can then help you determine which options give you the best value for
money in terms of taking advantage of what you expect to happen.
Ideally, if you are speculating on small movements you want to be trading
options that have low theta values so that the effect of time decay doesn't
wipe out any profits that you make from those small movements. This is
why an understanding of this value and what it means is so important.
Given that vega can be very useful in forecasting how the price of an
option is likely to move, it really is worth putting in some time to
understanding just what volatility and implied volatility is all about. Once
you have a clear idea of how the price of options is affected by implied
volatility, and changes in implied volatility, you will be much better
positioned to gauge the risks involved in any possible trades you identify,

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 and may even find opportunities based on the volatility of particular
underlying securities.
Generally speaking, high gamma means high theta. A high gamma
means that you can make potentially higher exponential profits if the
underlying security moves significantly in the right direction.
Historical Volatility VS. Implied Volatility
Historical volatility is also commonly known as statistical volatility and
often referred to simply as SV. It measures the price changes of the
underlying security of options, so it is based on real and actual data.
The IV of an option is determined by taking a number of factors into
account: the strike price, the price of the underlying security, the SV, the
length of time until expiration, and the current interest rate.
The term volatility crush is used to describe an occurrence where a high
IV drops dramatically and quickly. It typically happens to stocks following a
significant event that was expected such as the release of earnings reports
or important news (like in the above example). A volatility crush can have a
huge impact on the extrinsic value of options and it means a sharp decline
in price.

What is a Bid-Ask Spread?

A bid-ask spread is the amount by which the ask price exceeds the bid
price for an asset in the market. The bid-ask spread is essentially the
difference between the highest price that a buyer is willing to pay for an
asset and the lowest price that a seller is willing to accept.
The option chain shows you all of the available options contracts/premiym
(both Calls and Puts) for the stock.
This chain shows you all of the strike prices and expiration dates for the
stock option. The option chain gives you alot of different information
pertaining to what ties in to the option (Greeks) and how the value of the
contract can change under different market conditions.

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 Call Options: A Call Option is a contract between a buyer and a seller. It
gives the buyer the right (or option) to buy the stock at the price (strike
price) within a creation period of time (expiration date).
Ex: Say you’re bullish AAPL or expect its price to increase over the coming
days, weeks, etc. You could buy a Call Option to profit from upward
movement in Apple’s stock price.
Put Options: A Put Option is a contract between a buyer and a seller. It
gives the buyer the right (or option) to sell the stock at the (strike price)
within a certain period of time (expiration date).

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 The option chain is broken down into two columns. You’ll see there are
different metrics in the column, providing information about the option.
Calls are on the left, and Puts are on the right.
What Are Expiration Dates?
For new Options traders, expiration dates are the dates when the contract
expires.
When you’re deciding to buy or sell an option contract, a key note is how
much time you want to give yourself for the trade to ‘play out’. Which is its
time value.
You choose depending on how much you want to pay, and how long you
want to hold for. If you sell options, time decay is on your side. You do not
really want to hold your contract until expiration because of time decay.
When people hold their contracts, it’s usually because they’re already in a
loss or they do not understand options.
White and Yellow contracts
White : Monthly
Yellow: Weekly
Monthly Contracts
The white contracts are referred to as ‘Monthly Expiration’, which occur on
the third Friday of every month. Monthly contracts have a lot more
contracts traded when you compare it to weekly contracts making those
options more liquid and easier to get in and out of.

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 Weekly Contracts
The contracts in yellow are ‘Weekly’ Expiration contracts.

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 The strike price is the price that the underlying asset can be purchased at
if the option contract is exercised before [Link] choose the strike
price of the option at the time of purchase.
The strike price you choose and the price of the stock at the time of
purchase will determine if your strike is considered In-The-Money, At-The-
Money or Out-Of-The-Money.
A mistake of new traders is confusing price and value when buying
options. Although the OTM option is much cheaper, there is no intrinsic
value. Where with an ITM option, you’re paying more upfront but the

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 options already have intrinsic value and gain more value with a
movement in price in the direction you wanted it to.
Implied volatility is always expressed as a percentage. Vega is always
expressed as a dollar amount. A 1% increase in volatility will raise the
option's price by the Vega.
Let's develop this into an example. You have a long call on XXX (sym:
XXX) with a premium of $5.50, Vega of 0.20, and implied volatility of 18%.
If the implied volatility increases to 21% your long call is now worth $6.10.
5.50 (original price) + 0.20 (Vega) x 3 (increase in volatility) = $6.10
When volatility begins to drop, it also drops our option premium. If our
implied volatility goes from 21% down to 16%, our option will be worth
$5.10.
6.10 (original price) – 0.20 (Vega) x 5 (drop in volatility) = $5.10
Volatility is always expressed as a positive number for both puts and calls.
A put's option price will increase as volatility increases in the same manner
as a call’s price.
As volatility goes up, option price goes up, as volatility goes down, option
price goes down.
Chapter III
Technical analysis is a tool, or method, used to predict the probable future
price movement of a security– such as a stock or currency pair – based on
market data.
According to research, the theory behind technical analysis is the notion
that actions of buying and selling – from all market participants reflect all
information pertaining to that, and therefore, continually assign a
fair market value to that stock.
Technical Analysis allows us to believe that current or past price action in
the market is the most reliable indicator of future price action.
Technical analysis is not only used by technical traders. Many fundamental
traders use fundamental analysis to actually determine whether to buy into
a market, but having made that decision, then use technical analysis to
find good, low-risk price levels.

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 Supply and demand is driven by many factors including: fear, greed,
financial incentive, herd instincts, crowd behavior.
These factors create repeatable patterns which we can recognise and
profit from.
Technical analysis covers a wide range of charting techniques used to try
and predict the move of a certain market.
Technical analysis includes the use of:
Time Cycles
Trendlines
Candlesticks Formations
Moving Averages
Chart patterns
Other Indicators
The time frame a trader selects to study is typically determined by that
individual trader’s personal trading style.
Intra-day traders, traders who open and close trading positions within a
single trading day, favor analyzing price movement on shorter time frame
charts, such as the 5-minute or 15-minute charts.
Long-term traders who hold market positions overnight and for long
periods of time are more inclined to analyze markets using hourly, 4-hour,
daily, or even weekly charts.
Moving Averages
MA is a very popular indicator. It is used as a trend-following indicator and
sometimes as a counter-trend trading indicator.
Moving averages represent the average of the last #-period closing prices.
(9EMA)(21EMA)(50SMA) for example. With every new closing price, a
moving average drops the last closing price in its series and adds the
newest one. Moving averages are usually plotted on the price chart itself.
Moving averages can be grouped into simple moving averages (SMAs)
and exponential moving averages (EMAs).
SMAs are the simplest form of moving averages, as they take the
arithmetic average of the last #-period closing prices.
This means that each closing price has an equal weight in the calculation
of an SMA.

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 SMA’s generally also move slower than the EMA, because the EMA reacts
to the price faster. Since moving averages are lagging indicators, i would
rather have the EMA than the SMA.

EMA’s, on the other hand, use the exponential average of the last n-period
closing prices, which makes them quicker react to new closing prices than
their SMA peers. If you don’t know which type of moving averages to use, I
would recommend you to start with EMAs and see how they align with your
trading strategy.
Moving averages are also often used as dynamic support and resistance
lines. Traders often use longer-term MAs, such as the 200-day or 100-day
MA, to find areas where the price could retrace and continue in the
direction of the underlying trend.
I personally use the 9 EMA / and the 21 EMA.
If the moving averages cross over one another, it could signal that the
trend is about to change soon, thereby
giving you the chance to get a better entry.
One thing to take note of with a crossover system is that while they work
beautifully in a volatile and/or trending environment, they don’t work so well
when price is ranging because they tend to bounce off of the support /
resistance.
You will get hit with tons of crossover signals and you could find yourself
getting
stopped out multiple times before you catch a trend again.
This is why you must use different indicators to help you have better
conviction.
For every trading strategy, you must find the right stocks to trade, along
with the right entry/exit points and risk management rules. Bad risk
management can make a potentially profitable strategy unprofitable.
When trading Options, we usually stick to the most liquid / most volume
stocks, and these names are usually the biggest names in the market.
Why do we choose these?
Because they’re very easy to get in and out of.
Intro to Spreads for small Accounts

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 Debit Spreads
Call Debit Spread:
Buying 1 In the Money Call Selling 1 Out of the Money Call
Ex:
XXX is trading at $40 a share.
Buy $43 call for $0.60
Sell $45 call for $0.30
This trade creates a net debit of $0.30($30), thats why its called “debit:”
Max profit is limited, Maximum loss is defined. Risk level is: Low.
Debit spreads are best if you are moderately anticipating a significant up or
down move in a stock.
There are 2 Legs in this Contract. Thus, 2 different strikes.
You are hoping to profit from the lower strike price. The call with the higher
strike price helps you mitigate losses. Another difference between single
options positions and debit/credit spreads are the changes in volatility.
Call/Put debit spreads have the same number of short contracts as it does
long contracts, therefore changes in volatility is nearly unimportant. Where
as, a regular call/put position, if the volatility crushes that normal call/put
position without any price movement, the option itself would lose value.
Call and Put Debit spreads are Bullish/Bearish with a defined risk. Time
decay works against this strategy. Money is made if the stock appreciates.
Call and Put debit spreads are generally a Hedged version of buying calls
and puts.
Put Debit Spread:
Buy 1 In the Money Put
Sell 1 Out of the Money Put
You are hoping to profit from the higher strike price. The put with the lower
strike price helps you mitigate losses.
Technical Analysis
Dow Theory has been called the grandfather of stock picking theories.
With over a hundred years behind it, it is the oldest major idea for selecting
winning stocks. This also makes it the most enduring and long lasting idea
in the modern financial markets.

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 According to research, There are 6 basic
ideas to the DOW THEORY:
The Market Takes Everything Into Account
This first critical idea states that all relevant current, past, and also future
information on the markets is already known by them and demonstrated in
the indexes and individual stock prices.
This covers all influencing factors from interest rates and inflation,
investors’ emotions, and even imminent to be released earnings
announcements. It tells you that only information which cannot be known is
not covered by the prices, yet even event risks are factored into the prices.
Changing events, information, and risks cause adjustments in the market
prices.

The Market is Made Up of 3 Trends

Markets usually move in an overall direction but usually never in a one way
line. These trends are comprised
of three different types, primary, secondary, and finally minor. Primary
trends are the biggest and typically endure over a year. Secondary trends
are counter to the primary ones and usually run for from three weeks on to
three months. Minor trends are commonly shorter than three weeks in
length.
Primary Trends Undergo 3 Phases –
The first Accumulation Phase begins the upward price movement. At this
time the knowledgeable and
smart money investors move into the markets.

Mass Participation Phase is where the negative sentiment that

surrounded the markets in the accumulation phase has been

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 overcome with improving business conditions. The longer the better news
comes out, the more investors pile back into markets causing prices to go
higher. This is the phase which lasts the longest and provides the biggest
movements in price.

The final period is appropriately known as The Excess Phase. By this time,
markets have notched significant gains as more and more people have
entered the markets and the price move begins to get tired. Most all of the
investors are in, but the smart money investors are already beginning to
sell out to those just coming into the markets. “Alan Greenspan” has called
this the EXTREME ENTHUSIASM / EUPHORIA phase of the stock market.
Market Indexes Have to Confirm One Another
Major changes from bull markets to bear markets or the other way around
only signal when the two main
ORIGINAL indexes the Dow Industrial and Dow Transports agree with
each other. While one is in a downward trend and the other is beginning a
primary uptrend, you should be careful in believing new overall trends have
started.

The DOW JONES INDUSTRIAL AVERAGE is the second oldest U.S.

market index after the DOW JONES TRANSPORTATION AVERAGE,
which contains 20 transport stocks such as railroad and trucking
companies.
There are 6 basic ideas to the DOW THEORY:
The Market Takes Everything Into Account
This first critical idea states that all relevant current, past, and also future
information on the markets is already known by them and demonstrated in
the indexes and individual stock prices. This covers all influencing factors
from interest rates and inflation, investors’ emotions, and even imminent to
be released earnings announcements. It tells you that only information
which cannot be known is not covered by the prices, yet even event risks
are factored into the prices. Changing events, information, and risks cause
adjustments in the market prices.

The Market is Made Up of 3 Trends –

Markets usually move in an overall direction but seldom in a one way line.
These trends are comprised

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 of three different types, primary, secondary, and finally minor. Primary
trends are the biggest and typically endure over a year. Secondary trends
are counter to the primary ones and usually run for from three weeks on to
three months. Minor trends are commonly shorter than three weeks in
length.
Primary Trends Undergo 3 Phases –
The first Accumulation Phase begins the upward price movement. At this
time the knowledgeable and
smart money investors move into the markets.

Dow Theory

Dow Theory
Mass Participation Phase is the point where the negative sentiment that
surrounded the markets in the accumulation phase has been overcome
with improving business conditions. The longer the better news comes out,
the more investors pile back into markets causing prices to go higher. This
is the phase which lasts the longest and provides the biggest movements
in price.

Dow Theory

Dow Theory
The final period is appropriately known as The Excess Phase. By this time,
markets have notched significant gains as more and more people have
entered the markets and the price move begins to get tired. Most all of the
investors are in, but the smart money investors are already beginning to
sell out to those just coming into the markets. “Alan Greenspan” has called
this the EXTREME ENTHUSIASM / EUPHORIA phase of the stock market.
● Market Indexes Have to Confirm One Another
Major changes from bull markets to bear markets or the other way around
only signal when the two main
ORIGINAL indexes the Dow Industrial and Dow Transports agree with
each other. While one is in a downward trend and the other is beginning a
primary uptrend, you should be careful in believing new overall trends have
started.

Dow Theory
“The DOW JONES INDUSTRIAL AVERAGE is the second oldest U.S.
market index after the DOW JONES TRANSPORTATION AVERAGE,

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 which contains 20 transport stocks such as railroad and trucking
companies. The Dow Jones Industrial Average was designed to serve as a
proxy for the broader U.S. economy.”
Dow Industrial Average ETF = (DIA)
Dow Transportation Average ETF = (IYT)
An exchange-traded fund (ETF) is a type of security that involves a
collection of securities—such as stocks—that often tracks an underlying
index, although they can invest in any number of industry sectors or use
various strategies. ETFs are in many ways similar to mutual funds;
however, they are listed on exchanges and ETF shares trade throughout
the day just like ordinary stock.
Some well-known example is the SPDR S&P 500 ETF (SPY), which tracks
the S&P 500 index.
Volume is Required to Confirm Trend
The volume is the amount of shares that have traded. This is the
secondary measure that confirms a
new trend is beginning as demonstrated by the movements in price.
This simply means that if price movement is going in the trend’s direction,
volume will be greater. Conversely if price is moving against the trend,
volume should drop.
Trend is Ongoing Until A Clear Reversal Emerge
A trend continues until and unless an overwhelming amount of evidence
indicates that is has reversed.
You should only buy into the idea that the trend has changed if the
evidence is clear enough to make a safe assumption. Otherwise you end
up trading contrary to the trend, which is generally a terrible idea.
The trend IS your friend.

Trends help you to have a clear definition in your mind so you can easily
interpret when a trend is occurring.

Uptrend
An uptrend can be described as a sequence of higher lows in
conjunction with higher highs. When plotted on a chart, it will look like the

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 candles are going up.

Downtrend
A downtrend can be described as a sequence of lower highs in conjunction
with lower lows. When plotted on a chart, it will look like the candles are
going down.

The easiest way to identify a trend is if you can draw a trendline.

Trendlines are far more reliable and simple to use than moving averages.

With an uptrend, the easiest way to trade is if you wait for the trendline to
be hit and the price bar to bounce upwards off it, continuing the trend.

With a downtrend, the easiest way to trade is if you wait for the trendline to
be hit and the price bar to bounce downwards off it, continuing the trend.

A break of the trendline, particularly with rising volume, may signify the end
of that trend.

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 If we draw a parallel line at the same angle of the uptrend or
downtrend, we will have created a channel.
To create an up (ascending) channel, simply draw a parallel line at
the same angle as an uptrend line and then move that line to position
where it touches the most recent peak. This should be done at the
same time you create the trend line.

To create a down (descending) channel, simply draw a parallel line

at the same angle as the downtrend line and then move that line to a
position where it touches the most recent valley. This should be done
at the same time you create the trend line.
When prices hit the LOWER trend line, this may be used as a
buying area.

When prices hit the UPPER trend line, this may be used as a
selling area.

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 Flags and Pennants are short-term continuation patterns that mark a small
consolidation before the previous move resumes. These patterns are usually
preceded by a sharp advance or decline with heavy volume, and mark a
midpoint of the move.

Fierce Move: To be considered a continuation pattern, there should be

evidence of a prior trend. Flags and pennants require evidence of a
sharp/fierce advance or decline on heavy volume. These moves usually occur
on heavy volume and can contain gaps. This move usually represents the first
leg of a significant advance or decline and the flag/pennant is merely a pause.

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 Flagpole: The flagpole is the distance from the first resistance and or /
support break to the high or low of the flag/pennant.

The sharp advance (or decline) that forms the flagpole should break a trend
line or resistance/support level. A line extending up from this break to the
high of the flag/pennant forms the flagpole.

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 Flag: A flag is a small rectangle pattern that slopes itself against the previous
trend. If the previous move was up, then the flag would slope down. If the
move was down, then the flag would slope up. The price action just needs to
be contained within two parallel trend lines.

Point A is at the level of the top of the flag. As such it is the most
conservative entry point, because it is where the stock is making new
highs. You must make sure that volume is increasing as the new high is
made. Increasing volume means there is conviction behind the move,
which makes it more likely to be sustainable.

Point B is where the stock breaks out of the flag itself. This is more
aggressive than Point A, and again requires increasing trading volume to
demonstrate conviction in the move.

If the entry is activated then we need a stop loss. Point C is the level

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 where, if we're already in the trade, we'd exit with a small loss.

This is your basic trading plan for a Bull Flag, within the context of an
upward trend.

Point A is at the level of the bottom of the flag. This is a conservative entry
point because it is where the stock is making new lows. Make sure that
volume is increasing as the new low is made. Increasing volume means
there is a lot of conviction behind the move, basically a lot of people
participating which makes it more likely to hold.

Point B is where the stock breaks out of the flag itself. This is definitely
more aggressive than Point A, and again requires an increase in volume to
show decent conviction in the move.

If the entry is hit then we need a stop loss. Point C is the level where, if
we're already in the trade, we'd exit with a small loss.

This is your basic trading plan for a Bear Flag, within the context of a
downward trend.

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 WEDGES are very common. They usually represent to channels with a
up/down bias. Wedges are the same as trend channels except the lines
are not parallel. They are slightly slanted which means fake outs occur.
Rising wedges give rise to bullish breakouts most of the time.
Wedges can be bearish or bullish so always wait for confirmation.
BEARISH RISING WEDGE

As you can see, the price came from a downtrend before consolidating and

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 REACHING higher highs and even higher lows.

Just like the rising wedge, the falling wedge can either be a reversal or
continuation signal.

As a reversal signal, it is formed at a bottom of a downtrend, indicating that

an uptrend would come next.

As a continuation signal, it is formed during an uptrend, implying that the

upward price action would resume. Unlike the rising wedge, the falling
wedge is a bullish chart pattern.

In this example, the falling wedge serves as a reversal signal. After a

downtrend, the price made lower highs and lower lows.

Notice how the falling trend line connecting the highs is steeper than
the trend line connecting the lows.

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 A symmetrical triangle is a chart formation where the slope of the
price’s highs and the slope of the price’s lows come together to a
point where it looks like a triangle. Easy right?

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 Reading Candlestick Patterns

Hammer

Small Real Body

-Occur after a decline in price
-Sellers driving price lower
-Followed by strong buying pressure to end the day. The close can be
above or below the open, but the close should be near the open for the
body to be small.
-The next day should be able to confirm the bullish reversal.
Hanging Man

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 -The stock has been in an
Uptrend
-The candle has a small
Body and a long lower shadow.
-Since the Hanging Man hints at a price drop, the signal should be
confirmed by a price drop the next day.
Doji

Doji candlesticks form when a stocks opening price and closing price are
basically equal. The DOJI tells us that during the market, the price moved
higher and lower and neither the bulls or the bears were esteemed. Stock
went up, sellers stepped in, and the buyers stepped back in. Indecision.
When this candle is combined with other trends and candles, its a very
important reversal candle.
Shooting Star

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 The shooting star iis a bearish candle and it usually forms after an
uptrend. The price has basically advanced for multiple candles, days, and
it tries to continue this uptrend. The price action of this candle is as follows:
Opens, trades higher, gets rejected by the sellers, who then take over,
pushing the price back down (creating the long upper wick) then closes the
price below or near the opening price. This is a warning sign for a reversal.
Spinning Top

A normal spinning top conveys indecision as both bulls and bears were not
able to influence the markets. However when you see the spinning top with
respect to the trend in the chart it gives out a really powerful message
based on which you can position your stance in the markets.
Bearish and Bullish Harami

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 The bearish harami is a candlestick pattern at the top of the uptrend. Its
shown by a large candlestick which forms on a negative day and it signals
a change may be coming. It is then followed by a smaller candlestick with
its body in the vertical range of the larger candlestick. This pattern means
that SELLERS have stepped in. This usually means that a top has been
placed, and a reversal is soon to happen.

The bullish harami forms at the bottom after a downtrend. The large
candlestick is then followed by a smaller candlestick with the body in the
large’s candle vertical range. This pattern is a sign of a reversal to the
upside.
Bullish Engulfing

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 The bullish engulfing pattern is a pattern that forms when a
GREEN CANDLESTICK fully engulfes a red candlestick signaling
BUYERS overcoming the sellers.
This is a signal to go LONG.
Bearish Engulfing

The bearish engulfing pattern is the OPPOSITE of the

BULLISH ENGULFING pattern. This pattern forms after an advance in
trend and signals a reversal. The RED CANDLE must fully engulf the
smaller green candle in order for this to be a bearish engulfing pattern.
This is a signal to go SHORT.

The rising three method is a BULLISH pattern used to predict

continuation of an uptrend.
Price has been advancing but there are 3 red days in a row. These RED
days never trade lower than the GREEN CANDLE to the left. This
indicates that the uptrend will most likely continue.

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 The OPPOSITE goes for the FALLING THREE METHOD. Bearish pattern
used to predict the continuation of a downtrend. The 3 GREEN days never
go above the RED CANDLE on the left.
Here are cheat sheets you can find on the internet.

Bulls - People who want the stock to go up

Bears - People who want the stock to go down
An observation of how spinning tops work during a trend is the fact that
there is an uptrend in the market, which means the bulls have been in
control over the last few trading sessions / candles. However with the
spinning top the situation is a bit tricky:
1. Thebulls are no longer in control, if they were, spinning tops would
not be form on the charts

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 2. With the formation of spinning tops, the bears have made an entry
to the markets. Though not successful, but the emphasis is on the
fact that the bulls gave a leeway to bears, therefore leading to a
more bearish attempt at the price.
The color of the spinning top does not matter. What matters is the fact that
the open and close prices are very close to each other.
Resistance & Support

Resistance is something which stops the price from rising further. The
resistance level is a price point on the chart where traders expect
maximum supply (in terms of selling) for the stock/index. The resistance
level is always above the current market price.
The likely hood of the price rising up to the resistance level, consolidating,
absorbing all the supply, and then declining is high.
The resistance is one of the critical technical analysis tool which market
participants look at in a rising market. The resistance often acts as a
trigger to sell. Or a trigger to buy once price is above.
Having learned about resistance, understanding the support level should
be quite simple and intuitive. As the name suggests, the support is
something that prevents the price from falling further. The support level is a
price point on the chart where the trader expects maximum demand (in
terms of buying) coming into the stock/index. Whenever the price falls to
the support line, it is likely to bounce back. The support level is always
below the current market price.
There is a maximum likely hood that the price could fall till the support,
consolidate, absorb all the demand, and then start to move upwards. The
support is one of the critical technical level market participants look for in a

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 falling market. The support often acts as a trigger to buy. Or a further tank,
if price breaks support.
Long term S&R – is useful for swing trading
Short term S&R – is useful intraday and scalps
S&R are price points on the chart
Support is a price point below the current market price that indicate buying
interest.
Resistance is a price point above the current market price that indicate
selling interest.
To identify S&R, place a horizontal line in such a way that it connects at
least 3 price action zones, well spaced in time. The more number of price
action zones (well spaced in time) the horizontal line connects, the
stronger is S&R.
S&R can be used to identify targets for the trade. For a long trade, look for
the immediate resistance level as target. For a short trade, look for the
immediate support level as target.

Volume

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 Volume are the bars you see below the candlesticks.

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 Volume plays a very integral role in technical analysis as it helps us to
confirm trends and patterns. Consider volumes as means to gain insights
into how other participants perceive the market. Volumes indicate how
many shares are bought and sold over a given period of time. The more
active the share, higher would be its volume.
Volumes are used to confirm a trend.
The end of day volumes indicates the cumulative volume across trades
executed throughout the day.
High volumes indicates the presence of smart money.
Low volumes indicate retail participation
When you initiate a trade to either go long or short always make sure if
volumes confirm.
Avoid trading on low volume days.
Technical Analysis: Continued
“A type of past price analysis which uses mathematical models and
calculations to predict future price movements”

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 Supply and demand is driven by many factors including: fear, greed,
financial incentive, herd instincts. These factors create repeatable
patterns which we can recognise and profit from.

Technical analysis encompasses a wide range of charting techniques

used to try and predict the move of a certain market. Technical
analysis includes the use of:

Time Cycles
Trendlines
Candlesticks Formations
Moving Averages
Chart patterns
Other Indicators

The time frame a trader selects to study is determined by their personal

trading style. Intra-day traders, traders who open and close trading
positions within a single trading day, usually like analyzing price movement
on smaller time frames, such as the 5-minute or 15-minute charts. Long-
term traders who hold market positions overnight and for long periods of
time are more inclined to analyze markets using hourly, 4-hour, daily, or
even weekly charts.

Movement that occurs within a 15-minute time time frame be very

significant for intra-day traders who are looking for opportunities to profit
from daily price fluctuations.
However, that same price action that you see on the 4h, daily or weekly
chart may not be particularly significant for long-term trading purposes.
With all of this being said, make sure to look at the correct time frames
when you are planning to Day trade, Swing or Scalp.
Use Multi Frame analysis to help you with your conviction on trades.
Apply the 15 minute chart, while looking
at the hourly, while also looking at the Daily.

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 This gives you an idea of what’s happening on each time frame.

Day Trade Time Frames: 1min, 5min, 15min, 30min, 1h.

Swing Trade Time Frames: 30min, 1h, 4h, Daily, Weekly

Trading Range

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 According to research, The concept of range is a “natural extension to the
double and triple formation”. In a range, the stock will go up to the
resistance level and the support level multiple times for a certainperiod of
time. When this happens, it can create what’s called a sideways market.
So, when both the buyers and sellers are not confident or when one isn’t
stronger than the other, the price would typically move in a range. This is
why it can even be annoying to trade in these market conditions.
However , by identifying the range , it can help you find multiple
opportunities to trade the breakouts or the bounce. There is a lot of
opportunities for reversal trades as well as breakout trades.
The Range Breakout
Stocks break out of the range after being in the range for a long time.
Before we explore this, it is important to understand WHY stocks trade in
the range in the first place.

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 Stocks can trade in the range for two reasons:
When there are no fundamental triggers that can move the stock –
Accoridng tonresearch, These triggers are usually “quarterly/ annual result
announcement, new products launches, change in ownership, buyouts,
mergers, acquisitions etc. This can be the leading catalyst for a potential
breakout.

The range under these circumstances could happen for a while unless
something triggers a breakout.
Sometimes the stocks can move violently due to anticipation of an event.
You have to be mindful of when these companies may come out with news
pertaining to the growth of their company.
Stocks will almost always breakout of the range after consolidating,
whether it be to the upside or downside.
The breakout can indicate the start of a brand new [Link] amount it
goes up or down depends on the severity of the catalyst. Regardless,
ranges give you tons of trading opportunities if you look at it the right way.
A trader will take a long position when the stock price breaks the
RESISTANCE and will go short after the stock price breaks the SUPPORT
level.
Think of the range as a compressed bottle where the pressure builds up
on each passing day. By poking a small hole, the pressure eases out with
a great force. This is how the breakout happens. However, the trader
needs to be aware of the concept of a ‘false breakout’.
A false breakout happens when the trigger is NOT STRONG enough to
pull the stock in a particular [Link] to research, a false
breakout can happen when a ‘not so trigger friendly event’ occurs and
impatient retail traders react to it. Watch out for low volume during
breakouts, because low volume usually means there is no smart money.
After false breakouts, the stock will usually fall back into its range.
A true breakout has two distinct characteristics:
HIGH VOLUME

FAST MOVEMENT

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 Day Trading & Strategies

When you are Day Trading, you are essentially buying and selling the
same day.
A single Day trade can take about 5 minutes - several hours.
As long as you sell it the same day, it’s a DAY trade.
ALWAYS RISK what you’re WILLING to essentially LOSE. Of course
you don’t want to lose it, but make sure ego always have that in your
conscience.
Always come in to the market without a [Link], don’t come
into the market expecting a stock to go a certain way.
Always be OPEN to directions.
Whenever I come into the market, I never have a bias of where a
stock may [Link] a stock that I’m looking at, meets my requirements for
an entry, I will enter it in the direction that the stock price is potentially
pushing / breaking.
For example,
Let’s say the Market just opened.
You are looking at stock XXX because there was great news the
previous day.
You should never have a bullish BIAS, just because of the news.
The price will always usually react to sentiment, not news. Although
news can create sentiment, it may not be the case for some
occasions.
Back to the stock, let’s say stock XXX falls at market open, and
continues to go down, and passing the support line.
In this case, if it meets your requirements for a potential PUT entry,
that’s what you execute.
Just because it had great news the previous night, does not
determine its “bullishness” the next morning.
With that being said, NEVER have a BIAS.

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 Make sure to have SUPPORT & RESISTANCE
lines drawn on your chart.
To have an established SUPPORT & RESISTANCE, you must use
the 2-3 touch rule.
Here is an example of an ESTABLISHED Support & Resistance.

Notice how SUPPORT & RESISTANCE also creates ZONES.

Since the prices can’t be PERFECT all the time, this creates “zones”.
If the past resistance is .50 cents away from the new resistance, that
.50 cent difference turns into a zone.

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 Notice the top “RESISTANCE ZONE” and the bottom “SUPPORT
ZONE”.
This zone acts as a support area.
This means that whenever the price retraces to this ZONE, the stock
may bounce.
Which essentially means…….
The BUYERS control this support zone.
The SELLERS control the resistance zone above it.
The next time you create SUPPORT & RESISTANCE,
Always use the concept
“BUYERS” & “SELLERS”.

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 Here is an example of how your SUPPORT & RESISTANCE should
look like.
You can see that the SUPPORT & RESISTANCE from the left, retests
itself on the right.
What does this mean?
This means that once buyers & sellers establish their levels, these
levels will continue to serve as areas where the buyers/ sellers will
then buy or sell back at that same level.
This is why you’ll have resistance & support levels from the past
retest again in the future.
The buyers and sellers continue to hold the area.
This is why it’s important to identify these levels because once you’re
able to find the most established levels, you can GAUGE buying &
selling strength just from the amount of times these levels retest over
the time frame.

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 Going back to the example….
Look where there was a
“HARD INDECISION AFTER GAP UP”
You see how far apart the “Hard Resistance” & “Hard Support” is from
each other?
That is your potential move for a trade.
Let’s use the first strategy we’re going to talk about.
We’re going to be using the “TTM SQUEEZE” as our first indicator.
The TTM SQUEEZE captures the moments where a market is in a
period of consolidation right before a big move.
Now.. you can see that it made a HUGE move to the upside but failed
to continue and instead started to consolidate HEAVILY, thus
triggering the squeeze indicator to indicate a consolidation.
When you see this consolidation, especially after a big move, the first
thing you want to look for are the candles.
Just by judging the candles, which seem more likely?
In this case, after the big move the sellers stepped in and pushed the
price down to the “HARD RESISTANCE” which turns into support.

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 When a resistance turns into support it is usually a good sign for a
continuation to the upside.
But in this case we had an EMA crossover to the DOWNSIDE as the
price was squeezing.
The exponential moving average is a line on the price chart that uses
a mathematical formula to smooth out the price action.
An exponential moving average tries to reduce confusion and noise of
everyday price action. Second, the moving average smooths the price
and reveals the trend. It even sometimes reveals patterns that you
can’t see. The average is also more reliable and accurate in
forecasting future changes in the market price.
Now, when you have a SQUEEZE + a CROSSOVER,
This is usually a good signal. In this case, this is a signal for PUTS
because the 9EMA crossed below the 21EMA.
What about the profit target?
Since you entered at the “HARD RESISTANCE”, your profit target is
the nearest support, which in this case is the “HARD SUPPORT”.
ONLY MAKE CRITICAL / HARD LEVELS YOUR PROFIT TARGET /
ENTRY.
The reason why you make the critics levels your profit target / entry is
because these are ESTABLISHED areas.
You have to find the levels where the buyers and sellers are known to
test the most.
The more times it becomes tested, the stronger the level.
How far back can I look?
You can go as far back as you want when looking at levels.
There’s been times where a level has tested years prior, and it
continues to test in the present.
Be very vigilant and thorough when making these levels.
MAKE SURE WHEN YOUR PROFIT TARGET HITS TO TAKE YOUR
PROFITS.

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 ALWAYS FOLLOW YOUR RULES & PLAN!

This strategy is called the “CROSS - SQUEEZE”

This is very similar to the last strategy, it’s just that in the case, you
don’t need an established support / resistance as an entry.
In this example we have a small consolidation range,
And our entry in this example would be the breakout of the range.
But before that, you want to have a Squeeze followed by an
INCREASE in VOLUME with the crossover.
You enter as the candle breaks out!
Your profit target can be the next support.

Here is an example of what an actual “BUYING ZONE”

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 looks like.
“BUYING ZONES” are essentially just areas where the stock was
previously trading at, but is now trading higher than, because of an
INCREASE in DEMAND.
When you get an increase in DEMAND, it pushes the price higher.
When the DEMAND increases right at a Resistance line (as you can
see on top), the resistance then TURNS into a SUPPORT level.
In this example, you can treat this bottom area as “BUYING ZONES”
because the support has held for a few days.
This means that in those few days, the buyers have been strong
enough to sustain the price ABOVE the support.

Once you have the “BUYING ZONES” established, you should color
the box GREEN.
This way everything is color coded and you can spot these areas
better, at least that’s what I do.
The green area let’s me know that these are “BUYING ZONES” so
that I won’t easily sell my position just because it’s going against me.
I can use the BOTTOM of the “BUYING ZONE” as my stop loss.

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 This is a RECURRING sequence that forms so very often.
The BEST way to use the AHPMB (After Hour / Pre Market Breakout)
strategy is by FIRST looking at the previous days HIGH / and or
previous days CLOSE.
Then what you want to happen is you want the previous days HIGH
or previous days CLOSE to be a resistance level throughout after
hours / pre market.
This means that this high or close has been established as a HARD
resistance.
Because what usually happens is.. after hours / pre market you can
see very big moves because this is when Institutions will step in to
buy.
In this strategy.. you want to trade the OPEN, or CLOSE to the open,
and what you want to do is wait for the VOLUME to SPIKE, and the
EMA to cross.
You want to set your STOP LOSS a little BELOW the RESISTANCE
and you want to be patient because sometimes it’ll RETEST the
resistance turning it into a SUPPORT, and then finally launching up.

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 Here is another example of establishing HARD SUPPORT and HARD
RESISTANCE.
If you have it simply like this, you can’t really tell if there is more
BUYING STRENGTH or if there is more SELLING STRENGTH.

What about when I color code the zones?

See how much easier it is to understand SUPPLY & DEMAND when
you have this zone on?
Treat the NON colored zone as a NEUTRAL zone.
The NEUTRAL zone can have either buyers/ sellers within the zone,
but as it gets closer to its RESISTANCE or SUPPORT, depending on
which color it comes close to, expect the buyers / sellers to come in
according to its respective color.
Let’s take a look at a 1 HOUR RANGE strategy.

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 In this example we have a 1 hour RANGE that lasted about 6 days.
In this example you want to first wait for a CROSSOVER to happen.
Once the crossover happens you want to look for RESISTANCE
ZONES to break and HOLD before entering the breakout.

Look at the first ORANGE arrow.

You can see it broke above the first RESISTANCE zone and sold off.
Look at the GREEN arrow.
You can see the price broke above the zone again, and this time you
have it HOLDING.

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 Look at the EMA’s on both occasions.
You can see one started to point down and eventually cross,
And the other stayed pointing UP.
You can also GAUGE the VOLUME bars on the bottom.
On the left example the VOLUME kept repeating red and the right,
BUYING volume came in every hour.
You want to either enter at the PRE MARKET high level or the level
where it actually breaks out of its range.

Let’s look at this GAP on HD.

We are currently looking at a 1 hour time frame.
We are looking at a span of 19-20 days.
You can see the GAP on Day 1.
You can also see that on DAY 6 it FILLED its GAP but then SOLD off.
What does this mean?
This means that there are LOTS off sellers sitting at that GAP level.
You can see on DAY 10, it sold off again after retracing back.
When you see a level that has such strong sellers, you ALWAYS want
to establish this on your chart.
Yes you guessed it.
Color code!

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 This selling zone let’s me know NOT to TRADE CALLS whenever we
get back to this ZONE.
There’s no point because it’s already rejected 2 times in the past.
The only way I would trade CALLS on this is if it BREAKS OUT of the
zone and is ABOVE the ZONE.

Let’s move on to the 5 MINUTE chart.

In this example, you want to make sure to use the PRE MARKET /
OPEN RESISTANCE LEVEL.
You want to wait until the RESISTANCE level has been tested
multiple times… especially on the first 5-20 minutes.

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 We’re going to do some price action analysis here.
Look at the HAMMER formed on the 2nd 5 minute candle.
This lets us know that there are ALOT of buying interest.
The only times that CANDLE formations are considered
SIGNIFICANT is when these candles formed RIGHT AT the
RESISTANCE or SUPPORT.
Always remember that!

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 Let’s look at the example here.
We are going to be looking for
AFTER HOUR / PRE MARKET RANGE.
You want to make sure the RANGE starts at the CLOSE / AFTER
HOURS.
This is a PERFECT setup.
We’re going to use the RESISTANCE LEVEL as the ENTRY for
CALLS.
In this example there are 2 WAYS to trade this.
You can use this SIMPLE BREAKOUT as a factor in why you should
enter, or if you look CLOSELY, you can actually see a Triangle
formed.

You can actually combine these two,

Which gives you a HIGHER CONVICTION.
By using the triangle + the range + the resistance as a reason for
entry, you are taking advantage of FACTOR COMBINATION.

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 In this next example we are going to utilize Pattern Recognition on the
hourly frame.
This strategy is simple.
You want to spot a pattern,
And trade the breakout.
Since you are looking at an HOURLY CHART,
The breakout will be significant so essentially you can even SWING
the breakout.

Let’s look at another Pattern Recognition example.

Here we have an Ascending Triangle on the 1 hour frame.

Look at the bottom Trendline as moving up.
This is showing you that the Buying interest is increasing.
This is why you see the support sloping up.
When it slopes up, it means the buyers are holding this down.

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 Another Pattern Recognition strategy, this time using the 15 min chart.
You want to find the next RESISTANCES ABOVE THE BREAKOUT,
and USE THOSE levels as a profit target from the breakout of the
pattern.
In this case, this stock does not move much in a day, but that’s
besides the point.
Having levels that are ESTABLISHED, is KEY in finding a
CONSISTENT strategy.
You see how AFTER the breakout, the price retested to the
PREVIOUS RESISTANCE, and it STRUGGLED to break it for the first
2 hours.

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 Pattern Recognition on smaller time frames.
This time on the 5 minute chart.
Here we have an ascending triangle that formed beginning in pre
market throughout the first half of the market when it finally broke out.
So, here’s the thing.
When you find a PRE MARKET RESISTANCE, and when price
OPENS, it can’t break that resistance, EXPECT THE PRICE TO BE
SIDEWAYS AND FORM A PATTERN, especially if it can’t break its
support either.
In this case, you want to WAIT UNTIL a PATTERN FORMS and trade
the VOLUME breakout.
Why the VOLUME BREAKOUT?
Because if the stock can’t break RESISTANCE OR SUPPORT near
the open,
Then it never HAD VOLUME to begin with.

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 This is why the VOLUME BREAKOUT is CRUCIAL.

Here is another PATTERN RECOGNITION strategy, mainly used for

swings because it’s most beneficial, but this applies to daytrades
depending on when the breakout happens.
In this case you FIRST want to have the RED stochastics line cross,
THEN the EMA CROSSOVER.
You want all of this to HAPPEN RIGHT BEFORE the Breakout.
Execute on the BREAKOUT.

When using STOCHASTICS SLOW INDICATOR,

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 When the red line goes above the BLUE line, this means that the
BUYING momentum is strong.
Same goes for the red line going below the BLUE LINE.

ALWAYS, ALWAYS make THESE RESISTANCE LINES.

For 4 consecutive days, trading the RESISTANCE BREAKOUT by
itself worked on TSLA.
To help trade breakouts like these, you can utilize the EMA CROSS /
STOCHASTIC CROSS / VOLUME.

Here is an example of EMA CROSSOVER + STOCHASTIC

CROSSOVER at OPEN can help you trade the OPENING
VOLATILITY.

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 You want to execute AT THE BREAK of RESISTANCE,
AFTER the Crossover but MAKE SURE the STOCHASTIC comes
first.
Why does the Stochastics have to come first?
It doesn’t HAVE to, but it’s better when it does.
Why?
Because when the stochastics cross.. it signifies a SHIFT in
Momentum.
When the momentum has been bearish and it crosses up, you get a
SHIFT in momentum.
Momentum shifts indicate a potentially strong BUYING pressure
coming in.
In this case, the LONG BOTTOM WICK that formed on the green
candle at the resistance also indicates buying pressure coming in.

Here is another example of how you can utilize the Stochastic Cross
+ the EMA Crossover.

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 In this example,
You want to MAKE SURE you have an ESTABLISHED resistance that
has happened on the SAME TIME FRAME.
HARD SUPPORT #1 becomes your ENTRY.
HARD RESISTANCE #1 becomes your PROFIT TARGET #1
HARD RESISTANCE #3(typo) becomes your PROFIT TARGET #2.
Notice how on ALL OF THE EXAMPLES I’m showing you,

Spotting False Breakouts.

ONCE a BREAKOUT happens, you have a 2-10 minute window for a
false breakout signal.

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 In this case we are going to use the STOCHASTIC cross DOWN as
one of the signals for a false signal.
The first signal of a false breakout are the PRICE action of the
candles itself.
You can see as the price breaks out, the first BREAKOUT candle
shows a lot of selling pressure shown by the 2 LONG wicks it’s
formed on the top.
This is NOT A GOOD SIGN after a breakout.
The stochastic slow indicates a SHIFT in momentum so this should
LET YOU KNOW that there MAY be a potential SHIFT.

Look at the 2 resistance LEVELS.

These RESISTANCE levels are very close together.

When you have resistance levels that are this close together it
becomes a ZONE.

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 Just like the very first example here.

Here we’re going to focus on the Squeeze.

The After Hour / Pre Market Squeeze.
You want to focus on the SQUEEZE only when it’s happening ALONG
THE RESISTANCE LINE.

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 You want to then use the STOCHASTICS to guide you on the shift in
momentum.
You want to make sure this shift in momentum happens RIGHT
BEFORE the market opens.
In this case, you can see that as the TTM is SQUEEZING
(Red dots on the bottom)
The Momentum SHIFTS upwards as the squeeze is released.
As the momentum shifts, the price is already at its breakout point..
therefore the breakout ended up being HUGE.
This Guide was made to guide you on your journey as a trader.
It’s not for you to necessarily copy the strategies I have listed for you,
But for you to develop your own.

In this example, we are going to utilize the EMA lines as a means of

Resistance / Support.
In this example you can see that the previous day was bearish.
After hours / Pre market formed a Support and turned into resistance
all before market open.
The first candle we’re going to look at is the first 30min candle after
previous days close.

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 This green candle with a long top wick was a full green candle until
sellers came in and pushed the price down causing the long wick.
This indicates selling pressure.
Now, during pre market, as the candle (red candle with arrow)
retested the resistance (which was support)
Sellers came back in and rejected the price.
Now why is this important?
Because this is all happening right before the open,
Where the most volume usually comes in.
You can see that the sentiment because BEARISH.
The rejection of the EMA + the RESISTANCE line indicates a
potential sell off at open.
When do I enter in this occasion?
You want to enter at the opening rejection of either of the EMAS
(9/21) or the break of the NEXT support line.
At the end of the day, what matters is your execution without
hesitation.

In this example we’re going to look at the Price action on AAL in 2

days.

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 First, we can spot the PRE MARKET resistance.
The price then formed a pre market high the next day
This pre market high will be used as an entry, and the previous day
high will be used as your PROFIT TARGET.
In this trade, you want to make sure the STOCHASTICS cross up
RIGHT AT THE RESISTANCE level.

In this last example we’re going to be looking at the previous days

support.
The previous day’s support is used as an entry level.
In this example, if you got in at the breakout, the price would have
retraced back up SLIGHTLY, but notice how the SUPPORT held and
the sellers MAINTAINED control at the support level.
In this case, the BEAR FLAG that formed was a perfect indication of a
continued sell off because it could not break the resistance line AT
ALL!
ALWAYS USE SUPPLY & DEMAND to your ADVANTAGE.
Scalping
Everything that we look at will mostly be with the 1 minute chart.

I personally, only refer to the 5 minute chart once 10-30 minutes of the
market has passed.

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 I use the 5 minute chart to figure out when i can possibly get into a quick
scalp after the initial market open run.

If you didn’t know this, the market usually runs in one direction until 7AM
(10AM EST) where it can potentially reverse / pull back.

Of course its not a fact because everything in the market is unpredictable.

Market movements are always changing due to many reasons.

Trump can say one word and make or break the market.

Any reports that has to do with a Trade deal, Jobs reports, Fed talks,
Unemployment rates, Trade deficits, CPIS, retail sales, etc can be
detrimental or beneficial to the market.

ALWAYS BE AWARE.

TESLA SCALP // (Duration: 1-4 minutes) (Day Trade potential:15-30

minutes)

These are only based on what happened that day. But keep in mind, these
types of movements happen often. There is a lot of scalping opportunities
in the market every day.

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 You can see here TESLA opened up the first candle, only to be rejected,
thus creating a range for the first 11 minutes.
The 7th candle you see here can be considered a *fake out* because it
looked as if buyers were starting to control that resistance level and push
price up.

This is why its almost always important to wait for a clear confirmation.

Now… PRICE formed a support level on $332.40. You can base this
support off of the first 2 candles that has formed, that tested this twice.

You can see the 13th candle actually closed below the support. Since
TSLA does not have another support until 330, this can be a pretty huge
scalp ($2 move) to support.

Now in this case, you want to enter at the highlighted OVAL.

After this, its going to be up to YOU when you want to take profits.

Me personally, i still have trouble taking profits sometimes but thats the

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 rule.

When you scalp, you’re going in somewhat heavy, and getting out after a
minimal price movement.

Do not be angry if you take profits after 1-3 minutes just because you see
that it kept going your direction.

You decided to be a scalper, so follow the rules.

What if you had held, and it reversed? And the fact that you went heavy,
the more you will lose.
Please spend the next 3-5 minutes to fully ANALYZE the above price
action and figure out why i made these marks on the chart.

This example could have been used for a DAY TRADE because there was
some what of a CLEAR downtrend after the first break of SUPPORT.

Day trades are best formulated when you look at the 5 minute charts and
not worry too much about 1 minute charts. That’s why its 2 different styles.
One is more laying back and watching it here and there, where as scalping
you would need to be a HAWK.
Moving on to the next one….

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 These types of setups happen too often.
Half-hour power sell offs.
You can see that,during pre market, Amazon attempted to take a little stroll
to the suburbs when Papa Bear brought him back to woods.
The 3rd candle is a momentum candle breaking through the support.
The top wick of that candle and the previous candle should already tell you
that the bears are in control.
With Amazon, expect a nice little run when it chooses a direction. It is such
a volatile & expensive stock that it has a huge daily range.
Your target should always be limited to only a few candles when scalping,
but when the stock is showing a CLEAR bearish direction, it does not hurt
to hold longer than usual as long as it doesn’t affect your scalping
mentality for your next trades.

The point of scalping is to get the most out of the minimal time you have
and to get out.
When you scalp and get too greedy, sometimes it will pull back for an X
amount of minutes to where your scalp is no longer a scalp but a normal
day trade.
Try not to turn scalps into normal day trades, or worse, swings.
The general rule of thumb in scalping is looking at VOLUME & Price Action
// combined with Time and Sales / Level 2 / stochastics, it may be an even
better “edge”.
But remember..
The #1 edge you can have in your arsenal is self control.

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 Here is an example of how to use the 1 minute wicks to your advantage,
especially if you are trying to get into a scalp with the most profit potential.
Now when you move into the 5 minute chart..

Once you switch over to the 5 minute chart after a certain time has
elapsed, it becomes easier to see the bigger picture, if let’s say.. you
wanted to find a potential pattern forming, by using the 5 minute frame, the
picture becomes clear.

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 Watch how the buying pressure increased through the wicks + volume
spiked.
Definitely a good entry here to catch the next leg up.

Especially when the HAMMER candle formed.

The top shows a very good reversal candle showing you an EXHAUSTION
candle.
HAMMER candle formed.
The top shows a very good reversal candle showing you an EXHAUSTION
candle.

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 This is where scalping will get very hard unless you become a HAWK and
is able to EXECUTE.

This breakout candle is crucial for entry and riding momentum.

Getting into this candle move means that you are riding the momentum.

$2 move on one candle.

At this point you could almost take profits, or trim….
When the consolidation starts to prolong itself, you must create a range in
which its trading.
Once the consolidation period (usually a couple of minutes on a 1 minute
chart) you wait for a breakout out of that range.

As it breaks out, you ride the momentum for 1-2-3 candles.

Wait for the next EXHAUSTION candle for profit taking.

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 This is easier to trade..
Sometimes Setups are very clear and it gives you more confidence to
enter because of CONFIRMATION.

When you scalp, you always want to take profits. You’re not here to ride a
$5-10 move.
You’re in here with SIZE. and you’re looking to maximize momentum, and
get out.

Most of the time, people who attempt to scalp get too greedy and turn their
scalps into a day trade, and once the trend reverses they get shook out
because they have so much size that they don’t want to risk losing it.

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 GOOGL had this MINI consolidation.
This is a 50 cent consolidation, GOOGL has been known to have crazy
breakouts and become a real runner.

When you see this very tight consolidation, you want to get your Sniper
ready.
All you need for this scalp is a $1-2 move.

Do NOT HESITATE.

NEVER HESITATE.

EXECUTE.

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 Here, it shows a decent scalpable trade in the first 5-6 minutes, but the
way down shows you an even better setup.

Watch for the EXHAUSTION candles and the break of SUPPORT.

Watch out for the wicks.

This is nasty price action. ALOT of indecision at open.

Alot of people were shaken out, etc.
When you get shaken out of a trade, ALWAYS cut your loss immediately
and wait for the next PROBABLE opportunity.

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 Be patient.

Sometimes the market will be so sideways, there won’t be an opportunity.

ITS OKAY.
A lot of people have the misconception of having to trade every single day.
Thats not right.
You don’t HAVE to.
Watch how the support became resistance.
Look at the fake out at 7:20-7:25

These things WILL HAPPEN.

Nothing is 100%
What matters is whether you are able to quickly cut your losses, and move
on to the next one.

Notice the first FALSE Breakout here.

You have to cut your loss here. Wait for the next opportunity.

The next opportunity came about 20 minutes later.

This is when you attempt AGAIN.

No hesitation.

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 This is a VERY nice breakout.
You want to take profits after the momentum, or trim down.

You can see that a Symmetrical Triangle formed after..

This is when you say, Okay, there may be another opportunity here.
As soon as that breaks out you want to add more, or re enter.

When the price is currently on the way up to resistance, and its close
enough to it to where you can still scalp a move, then why not do it?

You want to take profits for this last entry at the rejection of resistance.

Check out this price action on Google.

Had strong selling volume but the buyers were able to hold that
SUPPORT.

You don’t want to immediately enter calls.

You want to PREPARE to enter.

For the next minute or two, pick the contracts you want, and are

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 comfortable buying.
Watch the price action.

Watch the candle on top of the red line and the 1 below the red line. These
candles are momentum candles.

Here is an example of a DAY TRADE SETUP with a CLEAR BREAK of

RESISTANCE, ASWELL as a BREAK of the TRIANGLE.

But first obviously, you want to enter at this break of resistance, you may
sell at the top of the triangle, or trim down, but once this triangle has
formed, it is showing a very high probility trade, regardless the direction.

So what you want to do is, as its getting closer to the breakout point of the
triangle, you want to switch over to the 1 minute chart and wait for the 1
minute candle to close above the triangle line.

This allows you to catch the upwards momentum, if it goes your way.

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 ALWAYS WATCH AFTER HOURS/ PRE MARKET GAPS
They FILL alot!
And sometimes the price goes up just enough to FILL, only to reverse and
bounce.
This Gap Fill is a good scalp at the first minutes of open, if you can catch it.

The Previous day close should always be the level where you look for a
breakout, or a reversal.

Notice the doji / Bear exhaustion candle in the middle indicating a potential
run up.

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 A couple of minutes later, you see a huge green candle, indicating that the
bulls have taken over and is pushing this price above resistance, which will
then turn to support.
As soon as it turned into support, the bears were no longer able push the
price down.

The first 2 minutes formed a NICE support where buyers are controlling
the area.
The 3rd minute candle shows a strong momentum candle.
Check out the volume on the 3rd candle.

This is a good indication of a potential, high probility trade.

The next 2 candles shows just that.

2 strong buying wicks.

These wicks

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 Here.. you might see “NICE price action”

BUT, the 2nd, 4th, 5th, 6th, 7th, shows a lot rejection. This may fool a lot of
people who are attempting to scalp.
The best entry here would be the 3rd minute candle where the buying
pressure massively increased at the support after a selloff attempt.

This CONSOLIDATION period is perfect for an entry.

You can see that it has formed a CLEAR support.

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 When you’re watching this as it goes you will see this support being
formed, every minute.

So you can see that this area of value, is where BULLS are holding the
fort.

You can see also, the bears have been controlling the resistance area, and
the bears are doing
everything they can to prevent the price from breaking above.

As the minutes go by, It makes sense for one side to become exhausted,
or for one side to increase in volume and push the price in their direction.

In this case, the Bulls won this battle and presented a clear breakout.
You can see that there is a resistance level about $2 away from the
breakout.

Now, here is where it gets important.

Sometimes, you have to understand the stock itself that you are trading.

Find out its daily range.

Find out how much it can go in a day, by looking at how it has been doing
the past week, month, etc.

You’re going to get an idea of the range that this can trade.
So if BOEING has a range of $6-10 a day, you immediately start to look at
things differently.
If the stock is barely up $2-3, you immediately know that it can RUN more
than what its currently doing.
So do NOT hesitate and think that its already at its peak, if you dont know
its RANGE.

Alot of people are always like, “oh its already up $2, its too late”... next
thing you know.. It moves up another $7.
This is one of the many common issues that beginner traders have.

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 Key Note: UNDERSTAND AND FIGURE OUT THE RANGE

So you see a choppy market, but still want to scalp?

There are potential setups for that.

You just have to be patient.
Here you see some SERIOUS consolidation on the left.
Only until a FULL red candle has closed did the buyers step off and let the
BEARS take over.

The candles after that first red bar shows you how weak the buyers
became after the selloff.
The price then immediately tanked.

If you did not decide to get in puts before this full tank, you would need to
wait for another confirmation of a possible leg down.

This is why it consolidated again.

The 2nd consolidation shows a STRONG reversal attempt here.

This reversal ATTEMPT was CONSTANTLY being rejected for 8 straight

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 until ANOTHER red full candle showed up. Just like the first consolidation.
Guess what happened next?

It broke the consolidation support and tanked.

So by SEEING this 2nd FULL CANDLE that showed up in the 1st

consolidation, this should tell you that there is a high probability of a leg
down.

This is when its best to enter puts.

As soon as the momentum increases, you can actually size up and ride the
way down.

But remember, if you are scalping, the main goal is to take profits. You’re
not looking for a big move here.

5 min candle setup.

Here you see a nice run up… as soon as it reaches its 4th resistance level,
it got rejected, but not fully, because you see the long wicks under the
candles.

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 Bulls are attempting to hold the price up and potentially push the price
back up the resistance.
Eventually it did.
After it broke the resistance, the resistance became support and is now
consolidating on TOP of support.

This is actually a pretty bullish consolidation because the price thats being
held is above the crucial support, so buyers are technically in control at this
point.
You can see the big bullish candle that created the momentum for AAPL to
go up for the next HOUR.
PATIENCE is key.
Especially if you want to find SOLID setups on the 5 minute for you day
traders.

Check out the rejection of resistance which caused a selloff at the next leg.
Selling pressure increases (look at the wicks)
Tesla then traded in a range and the wait for confirmation was the
resistance that was once support.
This break of resistance caused a momentum that caused a huge rally.
After the rally, it formed a triangle which had the potential of breaking to the
upside, but due to the over extension, my guess is people were selling off

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 for a pullback (also on top of that TSLA is the most shorted stock on the
market) so you really have to be cautious when trading this.
The bounce led to a range, which presented another opportunity for a
breakout.
Swings
1. Find the Stock you want to Trade
In this first example, we’re going to look at BYND.
Now, BYND, our team have swung this up and down this past year.
So this is an example of the trades we actually took.

2. Go to its WEEKLY time frame

Start off by creating Support / Resistance Levels on the Weekly Time
Frame.
In order to create GOOD S/R levels, you must use the 2-3 touch rule,
UNLESS it is the TOP/HIGH or the LOW/BOTTOM.

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 Look how i started the S/R levels from the TOP and BOTTOM. Then what
you want to do is work your way down the middle of the chart.

3. Start off by identifying the Top / Bottom and work your way down the
middle to create S/R levels.

Work your way down the middle, and create the levels.
[Link], you want to go to the 1YEAR 1DAY chart, and do the same thing.
Work your way from the top/bottom, down to the middle.

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 Here is what your BYND chart should look like after creating these S/R
levels.
After this, move on to the 4h frame, and do the same.

5. Here is the 4h frame, after you do this on the 4h, you want to go back to
the Daily and spot patterns.

Now you have your swing levels.

6. Go back to the Daily Chart and spot the Patterns

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 These are the ACTUAL patterns we traded for our swings ON BYND.
I will go over these patterns shortly, but you can already see the RANGES,
and BULL FLAGS.
Now move back to the 4h frame.

7. Go back to the 4H chart and see if you missed any patterns.

The BLUE highlights are patterns we missed on the Daily, that we are able
to spot on the 4H.
Now move to the 1H.

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 8. Now on the hourly chart, you can see how CLEAR everything looks.
You can easily spot what MAY happen. You can trade using better
conviction, using
Anticipation and analysis.

9. Ranges:
Watch for a Breakout on Ranges. Whether it be to the DOWN side or the
UP side.
Ranges are very important because it shows you that the price is trading
within a
Range and it struggles to break either above or below. Once it gets
enough volume and
Push, range breakouts is one of the best setup to trade. Especially if you
can find where
The next critical S/R level would be.

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 Previous Support became Profit Target on this Range that broke to the
downside.
Check the price on the left. The breakdown of the 2nd RANGE was a
potential $55 MOVE.
10. Other than ranges, PATTERNS are very important aswell. If you can
spot these patterns,
You can use these patterns with the indicators you use to help you have
better conviction
On your trades. Especially Swings. Look at this example. Look at these
Bullish Pennants
& flags. Once they broke out, you can use previous S/R to have as
Profit Target.

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 You can see that these LEVELS tend to re test. We caught the DOWN
move, and the UP move on BYND.

11. In this next example, we’re going to look at how the Stochastics
Oscillator can help you
Determine where the stock may go. The Stochastic Oscillator
determines MOMENTUM.
Once you see that the RED line has crossed the PURPLE, it means that
the
Momentum has shifted, in this case to bullish.

12. Let’s look at the same stock, but a different pattern, and see if the
Stochastics is the same

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 As the previous example.

Here’s another pattern on the same time frame, and it actually happened
before the PREVIOUS example. You can see in this example. The
stochastics crossed as the
Breakout happened…. Indicating a shift in momentum, in this case the
breakout of this
Pennant.

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 In this example, we have a trendline on the 4h chart.
When you are looking at the 4h chart, you want to try to find a trendline
that has been tested more than 2 times.
When a trendline re tests itself more than 2 times on the weekly, daily, 4h, ,
it establishes itself as a crucial support line.

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 In this example, we can see a range BREAKDOWN on MMM.
We can use this 21 EMA as a reference point.
Once you see a pattern breakout, and if the breakout leads the price to go
below the 21 EMA,
On the 4 HOUR frame, you can assume that the price will be bearish for at
least 1-2 candles.
It’s not 100%, but it works VERY often.

You can see the triangle pattern after the range, and it shows the price
going above the 21 EMA, indicating a potential uptrend after the breakout.

You can also see at the top there is another triangle breakout, and this time
it broke to the downside, but also broke below the 21 EMA, anc continued
to create a downtrend for at least 1-2+ candles. Since we are looking at the
4 HOUR chart, each candle represents 4 hours.

The next pattern that we were able to spot is the bear flag.
You can see the bear flag caused a prince rejection on the 21 EMA.
This is an indication of a potential downtrend continuation.

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 You can see the first range.
You can see that there was an established hammer and the price broke out
to the upside and continued the uptrend once it stabilized above the 21
EMA.
Also the stochastics on the bottom, for the first range, crossed and that
cross alone, since it happened ON SUPPORT should give you a heads up
on a SHIFT of momentum.
Since the Stochastic Oscillator determined momentum, this cross indicates
a potential shift from BEARISH momentum to BULLISH momentum.
In the second range you can see that there was a hammer and the price
has established itself on the support.
On top of that, the price stayed above the 21 EMA and the stochastics (red
line) did not point down, so it did not indicate a shift in momentum.

The third range, there was another hammer, now why is this example
different?
It should have broke up?
Look at the stochastics.
The (red line) pointed straight down, indicating a SHIFT in momentum,
from
BEARISH to BULLISH.

Here is a Weekly Example.

This is BABA.

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 You can see a nice 20 WEEK range.
You can see that at the breakout level, the price held above the 21 EMA.
The STOCHASTICS also crossed (red line crosses purple) above the
BLUE line indicating a STRONG bullish momentum.
Thus the price moved from 185 to 220.
WEEKLY RANGES are one of the best patterns to trade.
You NEED TO LEARN how to RECOGNIZE PATTERNS!

In this example, we are looking at another Weekly chart.

Now in here, you can see that there is a range.
The price broke down the range, through the support, and it could not
break the RESISTANCE, OR THE 21 EMA.
You can see that the Stochastics crossed on the bottom as soon as the
price broke down the support.
Like i said earlier, a cross down in stochastics indicate a SHIFT in
momentum.

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 In this example we’re going to add the 9 EMA on.
The Blue line is the 9 EMA.
We are going to be looking at Confluence for swings.
In this example, we have the 9/21 EMA Cross + Bull Flag as Confluence.

The stochastics (red line) above the BLUE line indicating a STRONG
momentum.
When you have the stochastics cross and go above the top BLUE, it is an
indication of a very strong momentum!

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 Look at this EMA cross + Bull FLAG + Stochatics Cross,
This is what i like to call a “PREMIUM” setup.
You have 4 different Confluences.
9/21 EMA cross
Bull Flag
Stochastic Cross
Volume
AND the price is at a support level which has established itself as an area
of value.

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 Look at the confluences here.
You have the 9/21 CROSS + Stochastics cross + a bullish candlestick at
the cross of EMA.
ALWAYS LOOK FOR THESE CONFLUENCES especially when you are
SWINGING!

Look at this 4h chart on GOOGL.

ANALYZE: Left to Right

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 You have a nice run up, into a bull flag / pennant, and the 9 EMA bounces
off the 21 while the stochastics cross up, indicating a breakout, then you
fall into a range and the stochastic crosses back up above the blue line
indicating a potential continuation in bullish momentum.
Look how much $$ you could have taken advantage of during this run.
You see in the middle, the stochastics starts to point down and cross down
indicating a shift in momentum to the downside.
So in GOOGL, alone, you could have capitalized on BOTH the UPSIDE
move, and the DOWNSIDE move.

So, just in case you forgot what to look for,

21 EMA (price above / below)
9/21 EMA crossover
Stochastic Cross
Patterns

Using the 1hour Time Frame to your advantage.

Watch out for Continuation patterns like:
Pennants and Bull Flags
Especially when the EMA is looking to cross or if the price is treating the
EMA as support.

You can use the stochastics to help you determine whether the price will
bounce or break, because the stochastics help determine momentum.

If you see that the stochastics is about to cross up or down,

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 Or if its below the blue line or above the blue line and its about to point up/
down,
That will indicate a potential shift in momentum, so if the price is currently
at a HIGH and you see the (red) stochastic line point down after flowing
above the blue line you should already anticipate a potential reversal
because the fact that the line is pointing down indicates a potential shift in
momentum. Now if it CROSSES AND POINTS DOWN, thats an even
better indication of a reversal.

Look at this price action on TSLA.

These patterns, are patterns that i traded, and these are patterns that i
used to signal trades on TSLA in our group.
These patterns work!
Especially when you combine these patterns with stochastics + EMA.
Patterns are essential in PRICE ACTION trading.

When you combine patterns with GOOD INDICATORS, you will have
GREAT strategies in your arsenal.

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 Patterns ALWAYS FORM!
This is an example of using Pattern Recognition to your advantage.
THESE ARE THE SAME patterns used in our TRADES!

Watch for potential STAIR CASE SETUPS

STAIR CASE SETUPS are only GOLD when you have a nice consolidation
period in the middle that FALLS INTO A RANGE.

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 KEEP AN EYE ON THESE PATTERNS

Do you see how VERY OFTEN you can trade these types of Patterns?

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 You can find these setups on low volatility stocks like LOW, EA,
Aswell as high volatility stocks like AMZN, NFLX.

Being able to spot these patterns is the #1 key in finding potential swings.

Whichever time frame you’re looking at, for example. If you’re looking at a
4h frame, and you’re expecting a 2-3 candle breakout, understand that
since you are looking at 4hr candles, it may take 1-3 days for a breakout.
Thus swinging it is a GOOD play.

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 When you are swinging, you want to find out what the ATR of the stock is.
What is its average daily range?
Amazon can have a daily range of $40-80 and it goes even higher on
some days.
On the other hand, AMD has a daily range of maybe about $3-6.
Once you find and understand the concept of ATR’s and incorporate the
use of indicators, 4hour frame, or even 1 hr frames in that same equation,
you can develop a good swing strategy.
Remember that when you swing, you have TIME on your side.
Psychology
I will keep the psychology short.
You have to understand you are playing a game of risk.
Playing a game of risk means that you cannot be afraid to risk your money.
If you are afraid to risk your money then trading is not for you.
Greed and Fear are the two biggest psychological factors that traders
struggle with.
In order to eliminate both you must have a definitive plan of action.
You must determine the areas in which you will be entering and the areas
in which you will exit.
This doesn’t mean that you don’t sell until your target hits. The whole idea
of this is to have a plan.
A lot of traders completely disregard their plan due to fomo.
The fear of missing out can cause you to act irrationally.
In addition, suffering from losses can also cause you to act irrationally.
I’ve suffered from heavy losses, and it has caused me to act irrationally.
I’ve chased my losses plenty of times, and sometimes it’s hard to practice
what you preach because you get so in the moment while you’re trading.
At the end of the day, the market does not give a s** about you or your
money. It will take, take and take, if you are not cautious about your
behavior.
Your personality type also has a lot to do with your trading style.
So make sure, if you’re a person who is very impatient, you stick to
scalping instead of day trading or swinging.
Because these emotional triggers can also cause irrational behavior.

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 Take a Surgeon or Lawyer for example.
Some of these occupations require people to become Perfectionists and
that can affect your trading.
Good trading doesn’t require you to be perfect.
Good trading requires you to have solid risk management.
Losses is a part of the game.
People will take one single trading loss and automatically think their
system is sham.
That’s not the case.
The market won’t always go your way.
As long as you know your strategy works, you just have to focus on your
execution and following a well defined plan.
Profits also compound.
Instead of focusing on making big returns every single trade, take your
eyes off of your P/L and focus on the chart.
Your P/L will add up.
Your P/L will compound so long as you’re consistent.
At the end of the day, again, you are playing a game of risk.
Have a well defined plan,
And stick to it while maintaining composure, and developing solid risk
management.
Hope you enjoyed this mini book, and I hope you can utilize this as a
reference for your trading.

-Favian
Barraza

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