Candlestick Charts DIDN’T WORK Until I Learned This Easy ONE (1) STEP TRICK

Summary

The speaker shares a crucial step in mastering candlestick charts, emphasizing the importance of stock selection over technical analysis. They discuss the challenges of trading large cap stocks like the S&P 500 and Apple due to institutional ownership and recommend focusing on stocks with high volume, news catalysts, and price movements for better trading success.

Takeaways

• 📈 Learning to read Candlestick charts is akin to learning a new language, with each pattern representing a different message that can vary in meaning based on its context within the market.
• 🔍 The speaker emphasizes the importance of stock selection in trading success, noting that focusing on the right stocks can reduce risk and increase profitability.
• 📊 Technical analysis is crucial, but it should be applied to stocks that are likely to move significantly, rather than to those with high institutional ownership that may not show substantial price movement.
• 📉 Even with the best patterns and analysis, there's an inherent risk in trading, and patterns may not always work as expected, which is why risk management is essential.
• 💡 A key realization for the speaker was that focusing on technical analysis alone without considering stock type led to losses, whereas concentrating on volatile stocks improved trading outcomes.
• 💼 Institutional ownership can lead to a lot of noise in the market, making it difficult to discern organic trading patterns from institutional portfolio adjustments.
• 📌 The speaker suggests avoiding trading large-cap stocks like Apple or the S&P 500 for day traders due to their high institutional ownership and less volatility.
• 📈 For volatility traders, focusing on stocks with a float under 20 million shares and a price between $2 and $20 can be particularly profitable.
• 📊 The speaker's trading data reveals that most profits are made from stocks with at least 5 times relative volume and a news catalyst, especially when they gap up by at least 2%.
• 📝 A PDF with the speaker's stock selection criteria is offered to help traders identify the right stocks to focus on, emphasizing the importance of demand and supply dynamics.
• 🚫 The absence of a clear news catalyst can be a red flag when trading, as it may indicate a lack of organic buying pressure behind a stock's movement.

Q & A

What was the speaker's initial difficulty with learning to read Candlestick charts?

The speaker found learning to read Candlestick charts extremely hard initially, until they learned a specific step that made understanding the charts and recognizing patterns much easier.

What does the speaker compare learning to read Candlestick charts to?

The speaker compares learning to read Candlestick charts to learning a different language, highlighting that it is a visual language with different shapes communicating various messages.

Why did the speaker initially focus on trading the S&P 500 and Apple?

The speaker, as a beginner, believed that by focusing on well-known entities like the S&P 500 and Apple, they could get to know how they traded and essentially how they moved, which would help in understanding their trading patterns.

What is the importance of stock selection in trading according to the speaker?

Stock selection is crucial in trading as it helps to reduce risk by focusing on stocks that are more likely to yield profitable trades, especially those with high volatility and the right catalysts.

What is the speaker's approach to risk management in trading?

The speaker emphasizes never risking more than what one stands to gain in a trade. They advocate for a one-to-one profit-to-loss ratio and a minimum of 50% accuracy to break even, which helps in managing risk effectively.

What are the key criteria for the speaker's stock selection?

The key criteria for the speaker's stock selection include price between $2 and $20, at least five times relative volume, a news catalyst, and a float under 20 million shares.

How does the speaker describe the impact of institutional trading on stock movements?

The speaker describes institutional trading as having a significant impact on stock movements, often causing large price swings due to portfolio adjustments and position management, which can overshadow organic retail trading activities.

What is the significance of a stock's 'float' in the speaker's trading strategy?

The 'float' refers to the number of shares available to trade, and a lower float signifies a smaller supply. The speaker looks for stocks with a float under 20 million shares, as these can lead to significant price movements when demand surges.

How does the speaker explain the concept of 'gap up' in the context of trading?

A 'gap up' refers to a stock moving higher than it closed the previous day, ideally by at least 2%. The speaker considers this a positive sign, indicating strong demand and potential for further upward movement.

What is the speaker's advice for traders who are struggling with technical analysis?

The speaker advises traders to focus on the right type of stocks to trade, those with high volatility and clear catalysts for movement, rather than trying to trade stocks that are range-bound or have low volatility.

What did the speaker learn about the limitations of technical analysis when applied to certain types of stocks?

The speaker learned that applying technical analysis to stocks with high institutional ownership, like the S&P 500 or large-cap tech stocks, can be challenging due to the influence of institutional trading and lack of organic retail trading activity.

How does the speaker describe the role of news catalysts in stock trading?

The speaker describes news catalysts as essential for creating demand and driving stock prices up. News can trigger high-frequency trading algorithms to execute buy orders, leading to increased volume and potential price surges.

What is the speaker's view on the importance of trading volatile stocks?

The speaker views trading volatile stocks as key to finding success in the market. They argue that focusing on stocks with significant price movements allows traders to capture parts of large moves, even if it's just a small percentage of the overall volatility.