Ultimate Step-by-Step Guide to Technical Analysis (with ZERO experience) transcript

In today's episode, I'm going to teach a master class on how to use technical analysis to become a better trader. I'm going to share with you the indicators that I use every single day. I'm going to teach you how to read candlestick charts. And I'm going to show you the candlestick chart patterns that I think have the highest probability of success. Remember, everything I share with you comes from my own experiences trading the markets.

My name's Ross Cameron. I'm a full-time trader and I'm probably best known for turning an account with less than $600 into more than $10 million of verified and audited trading profits. Although those results are not typical, my experience puts me in a unique position to be able to share with you what is actually working in the markets today. At the end of this episode, I'm going to give you some recommended readings so you can continue your education.

I'm also going to share with you a PDF of my own small account strategy that you can download, print out, and use as a resource as you are improving your own strategy. The goal of this class is not to teach you everything that I know about trading, cuz there's no way I could do that in less than an hour. The goal here today instead is to teach you the most fundamental concepts that you need to master in order to find success and to give you some skills and some techniques that you can implement in your own trading today.

If you find this helpful, I hope you hit the thumbs up. I hope you subscribe to the channel to get regular weekly uploads just like this to help you become a better trader. Now, one of the first things I want you to understand is that we use technical analysis and chart patterns in an attempt to predict what the price is going to do next. The traders who predict it accurately will make a lot of money. Those who don't will lose.

So, naturally, we have high stakes in making an accurate prediction. And that's why traders are so obsessed with finding the best technical indicators and learning the best chart patterns that have the highest degree of success because we don't want to lose. We all want to have high accuracy. Now, I can tell you that every single day on chart patterns for pretty much any financial instrument you could look at, there are buy and sell signals because this is a universal language of the financial market and it is well respected by millions and millions of traders all around the world.

If you do not yet see those buy and sell signals, it is just because you haven't learned to read the language yet. But that's okay. That's what this class is for. Now, in the older days, we didn't have traditional chart patterns like we have today. What people actually did was from the Wall Street Journal, they would take the price of stocks, which would be the the closing price, and they would just put it on basically graph paper to create their own rudimentary chart patterns.

But they did this because it felt necessary to understand the context of the current price because that's what these charts do. They give us context. If I say, "Hey, here's a great looking stock at $5," that doesn't tell you a lot. $5 relative to what was its all-time high, what was its all-time low, what has it been doing recently, right? We need all of that to better understand the context. Now, traders who get really good at technical analysis and really good at reading chart patterns are able to do something pretty incredible.

We can visualize half of a pattern. we can we see half a pattern. We can visualize the pattern resolving the way we would expect it to. So, it's almost like we're we're completing the picture. When we look at the chart on on our actual computer monitor, we're seeing only half the pattern in real time. It's only as it resolves that the full pattern becomes complete. So the the better you get at being able to recognize these patterns when they're in their earliest phases ultimately the more money you'll make.

Now right now far and away the most popular type of chart pattern or the most popular type of chart is a candlestick chart. The reason candlestick charts are popular is because in contrast to a line chart and those sort of old rudimentary charts that traders made in the old days, a line chart only gives you basically one piece of information. It's the closing price of the stock. Closing price, closing price, closing price, closing price.

But that doesn't tell you anything about what happened during this period of time. This is the closing price of this day. But what what what if the the stock happened to go up, I don't know, like 100% and then came all the way back down in that one day. You wouldn't know any of that from just this one dot on a chart. So line charts are completely inadequate for really communicating context around price. They're useless.

We don't use them today. What traders today use, including myself, are candlestick charts. Candlestick charts get their name um from centuries ago. They were used in Japan for rice futures and they gained popularity because they're really incredible charts. The reason that candlestick charts are so special is because each individual candlestick communicates four pieces of information and they create this visual representation.

The shape of the candlestick is created by where the stock opened and closed and its high and its low during this period. But that visual shape communicates a message. So it really is it's almost like each of these candlesticks are letters of the alphabet and when the letters are combined they are either spelling one of two things by or sell. All right. So, let's break down the anatomy of an individual candlestick. And I'll actually do it on the whiteboard because it's a little bit easier.

So, a candlestick communicates four pieces of information. The open, the close, the high, and the low. All right. So, what does that mean? So, when a candlestick opens, that means that trading has begun. So, let's say the market opens at 9:30 a.m. Eastern Standard Time. That's when the opening bell rings on Wall Street. So at that moment, a candlestick opens. A a stock opens at let's just say $4. That's the open. All right.

So now we have our first piece of information. Let's say initially the price goes down to 390. Goes down to 390. Then and in this moment right here, the shape of the candle would look like a T right here. Now, this is actually somewhat ominous candlestick shape because it shows that the price is declining. All right? And then let's say the stock squeezed up to $450, which would be a really nice move. And then let's say at the end of the candlestick period, it closed at $4.40 right here.

So, these are our four pieces of information. We have the low, we have the open, the low, the high, and the close. And we always connect the body around the open and the close. So the top here becomes an upper candle wick. The bottom becomes a lower candle wick. And the body of the candle is typically filled in. Now some people on their charts will have hollow body candles. And that's fine if that's what you prefer. It's sort of a visual preference whether you want to have the candles have solid bodies or hollow bodies.

Some people who have color blindness will actually have all the red candles have whole bodies filled and the green candles will have hollow bodies. So, it's easier to differentiate red and green. But for those that uh don't have that issue, we usually just leave the candles uh fully colored because it's easier to to to see that. It's very clearly green when it's filled in. So, this is one candle. Now, if we were looking at a stock chart that was a five-minute chart, then every 5 minutes a new candle begins.

So, this would be 9:30 to 9:35, 9:35 to 940, 940 to 9:45, 945 to 950, and so on and so forth until we have a stock chart that is completely filled with hundreds of candles to complete the day. Now, in terms of time frames, the most popular time frame for active trading is one minute and five minute charts. One minute and five minute charts are the most popular because most of the financial instruments that we're trading move relatively quickly.

Some can move as much as 10 or 15% in a matter of minutes. And you might think, Ross, that's crazy. The average mutual fund doesn't return 10% in an entire year. And while you're right about that, what's also true about your average mutual fund is that they're invested in hundreds of different stocks in order to diversify their risk. But out of those hundreds of stocks on any given day, there's probably one of them that's bucking the trend of the overall market and is doing something exciting, perhaps going up 50 or even 100% on the day because they have great news.

Now, the average of the entire mutual fund may not be affected by the one stock that's moving up, but as active traders, that one stock, that's the one that we're going to be watching. That's the one that's volatile. And in volatility is opportunity. Certainly, for those of us who want to be day trading. Okay. So, when we look at a candlestick chart pattern, the first thing that I want you to understand is that the shape of these candles is communicating some real sentiment.

So, let's start with some green candles here. If we see a candle that looks like this, what would you think? Let's say this is $4 and this is 480. Wow, the stock just went up 20%. It opened at the very bottom. It never went down. If it had gone down, it would have a lower candle wick, but it doesn't even have a lower candle wick. It just went straight up. And it closed at the very top. This is as good as it gets. This is the strongest candle you could possibly see.

Now, whether this is $4 to $480 or $4 to $12, you know, the size of how tall it is certainly can make a big difference, but this is called a long body candle. So, we say long candle. All right, it's a long body candle. It's a stock that's basically gone straight up. This is very bullish. Now, long body candles communicate very strong sentiment. Essentially, no matter where they occur, they're showing that there are either a lot of buyers or a lot of sellers.

There's really no context where a long body candle is not communicating some serious market sentiment. However, when we're talking about variations of these candles, it's important to understand whether they're occurring when the stock is going sideways or whether the stock is trending up. So, one of the things that's important to understand is that as an active trader, we're trading and wanting to trade trending markets.

We don't make money if we buy a stock at 12 and sell an hour later at 12. We want to buy a stock at 12 and sell it at 15. We want to trade stocks that are moving and preferably moving quickly. So, I am not going to be interested in trading rangebound sideways stocks. But something that's important for you to understand is that when a stock is going sideways, you may initially have long body candles as it's moving up and then you might have a red candle, a couple red candles and then when you get into this area where it's just sort of going sideways, you know, more or less obviously these would be red and green.

The candles in this area do not communicate as much information. And the reason is because the very fact that the stock is going sideways is already communicating that there's sort of indifference. You know, there's just sort of a balance between buyers and sellers. There's not really strong sentiment. So although there are some very specific candlestick patterns and candlestick shapes that I'm going to show you, these are most significant when they occur in the context of a trending stock.

So I am only trading things that are trending. Trending means moving higher. Okay? So in the context of something that is moving higher, if for instance we have two really big long body candles, these are long body candles. You already know that these communicate very strong market sentiment. Now let's say the next candle does something different. We'll give you a I'll give you a couple choices. There's a couple different things that this candle could do.

So the first thing that it could do is it the price could open. It squeezes up, but it is unable to hold that level. And although it closes green, it ends up pulling back a little bit before it closes. Now, I filled in the body of that candle, but that was just uh you could fill in these ones, too. This is a very specific candle, and it's called a shooting star. A shooting star. Well, shooting stars come back to Earth, right?

They they come they come flying down like that. And when you see a shooting star, it's named a shooting star to communicate. So you understand this shape means something very likely is going to happen which is a decline. The price is going to decline. This shape combined with the name is a communication of market sentiment. We see that the price has moved higher but got pushed back down. Now this candle could also be red.

And if it is red, it's only a stronger communication that a reversal is coming. The reversal in fact has already begun if the candle closes red. If the candle closes green, it's an indicator that we are probably going to get a reversal, but it's it's not a guarantee until a candle actually goes red and shows that weakness. So a shooting star in the context of a trending stock is an indicator of a potential reversal. So if you were in a trade for instance, you got in down here, you know, you saw the stock, you got in at a great price and it goes higher and higher and higher and higher and then you start seeing this candle forming, your brain should be telling you, wait a second, I need to be cautious.

This is a shooting star. Shooting stars often uh come just before a reversal. And what's often true is that when we see back down here like this, this is the opposite of a shooting star. This also indicates a reversal. So a shooting star is when a stock is moving up up up and then you have the long upper body, sorry, the long upper candle wick. This right here is called a hammer. If you want, you could call it an inverted shooting star.

Uh, and some people do, but I don't think that that's a good name for it. The name hammer communicates a message. Just like shooting star communicates the price is going to decline. Hammer is communicating that we're hammering out the base. We're hammering out support. The stock is holding at the low of the pullback. All right. So this level down here, the low of this pullback is becoming support. The price declined, but it bounced up off of it.

This is an indicator again of a possible reversal. So this is true when the price has been declining. And it's true whether the price has been declining for, you know, 15 candles, has just been going lower and lower and lower. Just imagine those are all full long body candles. And then you have a hammer right down here. when you have a hammer right down here, the inverted shooting star, this is this is an indicator of a possible reversal and we get a really nice move back up.

So, if you were in this to the short side or you were looking for that reversal, the bounce off the low, this is the candle you'd be waiting to see. When I see this candle, especially after a string of consecutive red candles, I am almost always a buyer. Okay. Now, in this context, this was a little bit different because we're really in a stock that is in a position where the stock is definitely trending higher. This is just a shortterm correction.

But one of the things that I think it's important to understand is that price rarely goes straight up. Price goes in waves. It goes up and then it pulls back a little and it goes up and it pulls back a little. It goes up because buyers are eager. They like the stock. and maybe there are some short sellers who have a negative position and they need to cover it for a loss. That short squeeze effect is what happened during the GameStop saga in 2021.

So, as the stock is making its first leg up, it's moving higher and then it starts to roll over and pull back. Why does that happen? Well, if we look just on the chart here, the reason this can happen is because up at these prices up here, it no longer makes sense really to be a buyer. Because when we buy stocks, we want to buy knowing where our max loss is. And we figure out our max loss using technical analysis and using candlestick chart patterns.

And I usually set my max loss at the low of the previous wave. So, if we're looking at a chart and it's just a bunch of really big green candles, then we know that our max loss is somewhere way down there. We might not even be able to see it. So, that means it no longer really makes sense to buy it right up here. That's not a safe entry when your max loss is down here. Okay? We want to be able to better position risk and reward so that I'm risking $1 to make $2.

That's a good risk-to-reward ratio. $1 for $2. All right, two to one. All right, so when we get this pull back here, what's happening is buyers no longer felt confident getting in here and short sellers began to think, hm, this is extended. I'm going to sell it and hope it declines in value so I can buy back those shares at a lower price. And you get a momentary decline. But what ends up happening is if the stock has a news catalyst, if it's truly strong, that first pullback will get bought up and we will see the next wave higher because traders who missed the first move are looking at it and they're like, "Wow, this is a strong stock.

I can still get in it very early and now I can manage my risk based on the low of this pullback here, which means this becomes the new stop-loss." And that's where this becomes your entry. The first candle, I call it candle over candle. So a candle over candle happens right here. When you have one candle and then the next one crosses over the high of that previous candle, it's called a candle over candle pattern. And so you may often hear me say, I'm going to buy the first candle to make a new high.

These candles made lows. New low, new low, new low relative to the previous candle. New low, new low, new low. So the first candle that makes a new high, boom, right there. I buy on this candle. This pattern is telling me to buy right here. As soon as the price crosses the high of the previous candle, I'm in. All right. So, I'm in right there. And I want to see that candle squeeze back up. My stop loss is the low of the pullback.

My profit target is a retest to the high a day. And of course, I'd like to see it go higher. Now, it goes higher on the second wave up. And then same thing happens again. People no longer feel they can buy it up here because the risk outweighs what they may feel is the reward potential. So, we get another short-term correction. A little pullback, a little pullback, couple candles, and then we'll look for that first candle to make a new high.

Now, sometimes the first candle that makes a new high is not going to be following a picture perfect hammer like this. There are other candles, however, that can communicate that same degree of possible change in sentiment. So, let me start drawing out some of these candles. We already know about longbody candles, green and red, right? Those are long body candles. We know about shooting stars. They have a longer upper candle wick.

And we know about uh hammers down at the bottom. Again, these can be red or green, doesn't matter. So, this is the hammer. Oops. So, this is the hammer candle right here. And this one down here is the shooting star. Shooting star. And then, uh there's another candle that I'm going to show you, which is called the dogee. A dogee opens and closes at basically the same price. That's also communicating indecision. It means the stock went up and down but basically closed at the same price.

Now a a typical dogee will open and close at the same price but has a little upper candle wick and a little lower candle wick. So it's it looks like a cross just like this. And this once again is a very high likelihood showing that indecision that this is going to become the base. There are a couple of different variations of the dogee. We have this dogee right here. We also have a dogee like this, which is called a hanging man.

And we have a dogee like this, which is called a gravestone dogee. Those are the three most common dogeis that we see. And they're all fairly ominous. Well, in name, certainly the hanging man and the gravestone dogee because when they occur at the top or bottom of a trend, they're indicating something is likely to happen. So, here's the thing about the price action being indecisive. When a stock is going sideways, it's already indecisive.

That doesn't mean anything if we see a dogee. But when the price is trending up really strongly and then suddenly we see that candle of indecision, that dogee or that shooting star, that's a problem. Because when something is trending higher, we want to just see lots of strong sentiment. We don't want to see any degree of indecision. When something is really extended and you see indecision, people get nervous and they they hit the exit.

All right. So in this case here, we might see a dogee and this is indicating the possible change in trend. Now we could see um we could see a hanging man here. That would be fine too. A hanging man candle. A gravestone dogee would be a little bit less ideal because the problem with the gravestone dogee is that it closes at the bottom. Closing at the bottom is weak. We'd rather see a degree of basing off of a level and then closing higher.

So, I wouldn't be as big of a fan of a gravestone dogee in this location. I would prefer to see either a standard dogee, a hanging man, or a hammer. Those would be preferable candles. All right. So, if we jump back over here, these are these are probably the most common individual candlesticks that you're going to see. These are candlestick patterns, individual candlestick patterns to memorize, to print out. Print it on a little card just like this, and save it next to your desk.

That way when you start seeing those candlesticks in real time, you're recognizing, oh, here we go. We're at the top of a run. We're seeing a shooting star. We're at the bottom of a pullback. We're seeing a hammer or we're seeing a dogee shooting star. A dogee um hanging man or a gravestone dogee. All right. So, we'll put this one back right here. The way I like to teach is I like to build progressively on everything that I'm already showing you.

So, I like to start basic and then just layer on a little bit more detail and a little bit more detail. So now if we look back at this chart that I've drawn here, I want to talk about the concept of support and resistance. So as we're seeing these waves moving higher, there will naturally be areas of support and resistance. One of the things that I like to do when I'm uh trading is I draw trend lines. And this is going to be called an ascending support trend line right here. this trend line we would connect just like this.

And we see very often during active trading that stocks will respect these types of trend lines. And so what that means is that once you have an established trend line like this, when you start getting into a longer time frame, this let's say goes up, you know, up here and then it starts to pull back right here. It would be therefore predictable because this has ascending support right here. We would predict that it's going to bounce off this price.

This is called a trend line and it's an ascending trend line. So right now we would call this ascending support. It's support. We connect the low of the first pullback and the low of the second pullback. And then that can help us project and predict where the next pullback will find support. So this is an ascending support trend line. What I will often do as well is I'll draw one on the top side and this is going to be an ascending resistance trend line.

So as the price comes back up, we connected this line and this line. So it was therefore predictable that the price would hit resistance right around here. Which means because we saw this, we knew this was a place other people would be selling and we would sell there as well. We would sell into this level. We would not expect that the price was just going to go higher and higher and higher because we knew we had this resistance level.

Now look, it's definitely possible and it happens that the price will pierce through a resistance level and if it can hold above that resistance level, that resistance level becomes a new level of support. This is a very important concept to understand. Let's jump back onto the whiteboard. So I'm going to show you I'm going to erase this and I'm going to show you an example uh where this is going to be a little bit more clear.

Okay, so we have a stock here that has just started squeezing up. It's moving higher and it's going to hit a level of resistance right here. What is the level of resistance? The level of resistance here is $1. $1 for a lowpric penny stock is a very critical level of psychological resistance. It is very hard for lowpric stocks to break and hold over $1. So many people put their sell orders at a dollar when they're in a stock at 25 or 30 cents that when the stock comes up to a dollar, it's just like there's a wall holding it back.

It's resistance. $1 in this case is considered psychological resistance. It doesn't have to be based on a chart pattern. It's based on just the psychological effect of traders putting orders at whole dollars. This is true with half dollars as well. So really, it's definitely true with a dollar, but it's true all the way up when you're trading stocks that are lower priced. $1,150, two, 253, 354, 455, so on so forth up until maybe about 10.

And then at $10, it operates more in the whole dollar range, but we do still notice um around half dollars. Okay, so the price comes up here, and this is resistance. So we would call this a um a horizontal resistance level. So, we could actually go ahead and draw a line right here if we wanted to. It's not perfectly horizontal, but that's okay. All right. So, first, this is resistance. So, the price comes up to this level of resistance, and it pulls back off that level.

It can't quite break it. It comes back up again. Ah, shoot. It cannot quite break it. It pulls back another time. One more time, and then it comes back up one more time, and it pierces through it right here. This is a chart pattern. Now, we'll talk about this chart pattern in a moment, but this chart pattern and many chart patterns occur around areas of resistance. What will often happen is the resistance has broken and now the price is going to come down right here and it's going to test it.

And as long as the price stays above $1, $1 now becomes support. It was resistance, now it's support. And now the price increases from here. All right. So, let's say it goes all the way up to a $1.50. So, now we're at the whole dollar or the half dollar of a $150. So, once again, we're at a $150. And what are we expecting? We're going to see some degree of resistance because it's a psychological area. The price pulls back a little bit and then the next candle it busts through.

Sometimes it won't pull back. It just goes right through and we're like, "Wow, it held that level so well." It definitely means that 150 is now psychological support. It goes all the way up to the next level which could be $2. So now this stock is up 100% on the day. It's moving very quickly. This is great. We got a pullback here, pullback here, and on this candle it comes up, breaks through, it then retests, proves it can hold that level and then it moves higher.

Okay, so this is a very common trend in a stock. The stock is trending higher, but it's hitting levels of resistance. Each time it breaks over that level of resistance, if it can hold over it, that now becomes support. And of course, we have our ascending and descending trend lines. So, if we connect this approximately, this isn't a perfect drawing, but approximately like this. And then we have on the top side here something approximately like this.

What you'll notice is that many stocks will trade in what's called a channel. This is a channel. And something that is so incredible to watch is when a stock breaks out of a channel. So previously, let's say this was um this was support of ascend the ascending support trend line and then right here for whatever reason um the stock breaks down. There's a sell order. It breaks down and then when it comes back up where does it have resistance.

Now it's underneath this level. We see this both when it when the price declines and now it's underneath this level. We also see it when the price breaks above and then comes back down and holds support above this level. So a really important concept for you to understand is that support becomes resistance. We see support in the form of ascending trend lines. We can see resistance in the form of an ascending uh trend line as well.

We can also see descending support and resistance lines and we can see horizontal support and resistance lines which typically correspond to half dollars and whole dollars but can also just correspond to areas where for whatever reason you know it could be like right here at 210 or whatever the price just sort of stalled out and it tapped that level several times and it just wasn't able to get above it. So when I'm talking about candlestick charts right now, I I'm wanting to start sort of high level by helping you understand the anatomy of the individual candlesticks and to talk about the general concepts of support and resistance.

The better you can get at drawing support and resistance lines, you're going to find they help you in your trading. I can't tell you the number of times I've been able to draw a trend line early in the morning. So, I'll draw a trend line connecting this low and this low right here. This pen instead. So, I'll draw the trend line just connecting these two. And then from there, the trend line extends out. So, you can have the trend line extend to the left or right.

You just connect it in two spots and then it extends. And then all of a sudden, hours later, I'm seeing the price dropping and bouncing off this level or coming into the resistance of this level. And it's like, wow, this was such an obvious level. So many people have it drawn. This is a very powerful level of resistance. So if you draw it and then you suddenly see the stock is declining or coming up and you see this trend line right there, all of a sudden that's equipping you with more information so you can make a better decision in your trade.

Maybe you're taking a bounce off of support because we know the closer we can buy to support, the less risk we're taking on a trade. If a stock has a lot of support at $1 and we're buying it at a $12, we're only risking two cents a share. That is fantastic. We only need to make 4 cents to have a 2:1 profit to loss ratio. There are times where I've taken trades just like that where I've only risked maybe 100, 200, $300 and I've ended up making thousands of dollars because my risk was so low.

At that point, it was like it's a no-brainer to take this trade. But I wouldn't have been able to understand how small my risk was if I didn't understand how to visualize support on the chart. The best entries are going to be the entries near support. Okay. So now let's talk a little bit more about multicandlestick patterns. So if an individual candlestick, we have our individual candlestick shapes of the long body candles, uh shooting stars, hammers, and then dogeis.

So these are 1 2 3 4 five six six seven different candles right here. And these are probably the most these are like vowels in language. These are the most essential in every single almost every single pattern. You will see these. Okay. So what we're going to do now is I'm going to show you the most basic word so to speak in the language of the financial markets. Okay. We have a stock. Let's just say that all of a sudden there's a news event.

News comes out right here and it's 7 a.m. All right. It's 7 a.m. news has come out and the price is squeezing up. Awesome. Okay. Well, the thing is for those of you that have been trading for a while, you might already know this, but for those that are new, as soon as news comes out, whether it's earnings or FDA approvals or clinical trial results, whatever it is, the second news comes out, a stock will start moving.

And you might think, how can I get in before the news? You can't. The only people really the only people that get in before the news are insiders and they're not supposed to do that. Although we know that it happens sometimes, but the only people that are getting in the second the news comes out are high frequency trading algorithms. And those are designed by like Harvard, MIT graduates, incredibly sophisticated engineers, really, really smart people working for hedge funds with millions, millions, billions of dollars.

Okay? So, we're not going to be able to get in typically for that first spike. That's all right. That's just fine. We want to wait for a pullback anyways. So, I let the price pull back. And typically, these are my rules of thumb. Number one, it should never retrace more than 50%. So, if it goes from doesn't matter 50%, that's that's how much it is. Doesn't matter the size of the candle. If this is from $1 to $2 or this from a dollar10 to a$120, we don't want to see it retrace more than 50% of this initial move.

So this is approximately the 50% line. Okay. So if it retraces, you know, 20%, 30%, that's fine. A little retracement, a little pullback is okay. We want to see a light pullback. And then what I look for are two things. Number one, I would always love to see a candle that has a bottoming tail. Whether it's a hanging man, it's a dogee, or it's a small hammer. I would like to see that bottoming tail because what that bottoming tail communicates is that the price dropped but it came back up.

Right? So it just shows as the bottoming tail, but we know we had a decline and a rally back up. And what I want to do is I want to buy the next candle if it does a candle over candle formation and makes a new high. That's the moment I'm in. And my max loss is the low of this candle right here. So, let's just say for the sake of argument, this stock is priced at about $4 a share. The low of this candle is 410. Let's say the high up here is 430.

All right. So, if the high is 430, I know that my profit target is that this stock goes back to the high a day. That means in this case, my profit target is 20 cents a share. If I'm going to have a profit potential of 20 cents a share, my risk needs to be half of that, which is 10 cents, right? So 10 cents means my stop would be at about $4. That would be that would be my max my max loss if I was in at 410. If I'm getting in if actually my entry is right here at 415 or whatever, then maybe it needs to go up to 435 or 445.

In any case, 2:1 profit loss ratio is what I'm going to aim for. And this pattern that you're seeing right here is called a bull flag. So this is called a bull flag pattern. And the reason it's called that is because when the stock makes its first move up, this is considered the flag pole. And this little area of sideways consolidation forms a little penant, a little flag here. If you drew a resistance line from the top of the candles to this, and you sort of connected it like this.

So that's an expression. It's a bull flag. It looks like that. And it's very This is very amateur. It it it looks it doesn't really look like that, but that's where the name comes from. And it's bull because it's a bullish pattern, which means the expectation is that this resolves and the price goes up. So, this truly is a universal pattern. We see it in the markets all the time. And when I see that big green candle surge up, I am looking for the pullback, maybe two small red candles, and then I'm looking for the first candle to make a new high.

So, my number one pattern, number one, is the bull flag. And I also call this trading the first pullback. So I let the stock squeeze up and then I'm buying that first pullback. Sometimes I will do variations of this trade where I'm buying even as it's still selling because I'm so confident that it's going to curl back up. That confidence would come either from looking at the price and seeing that it's pulling back, but it's near an area of psychological support such as a whole dollar or a half dollar.

That degree of confidence could come from already being familiar with the stock, really liking the news catalyst, thinking it's a very strong news catalyst, or because we're in a market that is incredibly strong. I I also want to take a moment to say that what I'm going to share with you in this class are some of the patterns that have the highest probability of success. They are not the only patterns you can trade. But as a beginner or even an intermediate to moderately experienced trader who is not at the level of profitability they want to be at, it makes sense to focus on the patterns that have the highest degree of success of res resolving in the right direction.

So when you start getting into somewhat more experimental patterns that are a little more obscure, I might trade those on my own in my own trading. But for beginners, it's better to stick with sort of tried and trueue basic setups. Okay. So, the bull flag is pattern number one. The second is a variation of the bull flag and it's called an ABCD pattern. So, an ABCD pattern, this one's the one that's dead. Where'd my orange one go?

I don't know. It's fine. So, ABCD pattern, it's a variation of the bull flag number two. And what happens is the price comes up, but this level at the high of resistance can't break. It doesn't break. And so it actually pulls back a second time for usually two more candles. And then on the third attempt, it pushes through. Or maybe it's the second attempt. Um, so you got the first push, the second push, and then the third push.

Or first pullback, and then we've got second pullback, and then it goes through. What I really like about this pattern is that we have a very clear level down here of ascending support. And this ascending support line essentially what it does is it almost forces the stock to experience an apex. It has to come to this apex point right here where it's either going to break to the upside or it's going to break to the downside.

Something is going to happen. Now, if it breaks to the downside, then the pattern's over. If it breaks to the upside, that's great. So, this is something that although on the one hand it's not ideal that it failed on the first attempt, the fact that it failed, but it is still holding up gives more traders the opportunity to see the pattern and therefore take the trade and potentially buy it. So, ABCD patterns can be very strong.

This is a pattern that I really like a lot. And now, the third pattern that I'm going to share with you is called the micro pullback. Number three, micro pullback. All right, so this is also a really interesting pattern. Um, the ABCD pattern is a variation of the bull flag that takes more time to resolve. The micro pullback is a variation of the bull flag that's like supercharged. It's even faster. All right, so let's go on to this side of the whiteboard and I'll erase this section.

Hopefully, you already grabbed this in your notes. Okay, so on a micro pullback, we have the news event typically. So we have news right here. The price immediately starts squeezing up surging higher and the stock pulls back only for a moment. It pulls back here and then it immediately blasts higher. This can be hard for beginner traders because they're like Ross, you know, this is a tiny bull flag. It's so small. It barely pulled back.

But it is what I would call a micro pullback. It did pull back even if only for one candle. It pulled back. And what this pattern ultimately communicates is that the stock is so strong, the second it pulled back, buyers came in and bought up that dip immediately and it goes to the next level up. So, in fact, my biggest winners hands down are on micro pullbacks because my biggest winners are on stocks that are so strong they hardly want to pull back at all.

But the problem for me is if it didn't pull back at all, right? If it just went straight straight up like this, well, where am I going to trade that? You know, I can't buy it up here up here up here because my risk, remember, is based on the low of the previous wave. And so something that I'm going to share with you as just a little bit of um wisdom word word to the wise and and this is something that um you can if you read this book uh this book is called thinking in bets.

It's by Annie Duke. It's a great book um h you can get it on audiobook too but she talks about making smart decisions and when you don't have all the facts. Now, when it comes to trading, we have a degree of certainty, but ultimately we're making a decision and we're trying to predict what's going to happen next. Traders can fall into a really dangerous habit of quantifying our decisions as being good or bad based purely on the outcome of the decision.

So, no doubt if you took a trade, you bought this stock at $10 at the very top of the move, I would look at that and you lost, I would look at that and I would say, okay, you know, what was your decision? What was your risk? This was a bad trade. But if you bought that and it went higher and you made money, does that mean it was a good trade? It would be easy for a trader to say it was a good trade because I made money.

And if you had said no, I'm not going to buy it there and it went higher, you would say that was a bad decision because the stock went higher without me. So rather than qualifying decisions as being good or bad based purely on the outcome, what I try to do is I try to put the decision in a little bit of a bubble where I say at the moment that I made the decision, what did I know? So, for instance, I actually had a day just yesterday where I traded in the morning and I made some money and then a stock made a huge move later in the day.

And some people were like, "Ross, I can't believe you didn't trade that." And that can lead initially to the feeling of FOMO and frustration, disappointment. I could have, would have, should have. And I said, "No, no, wait a second. I walked away when I did yesterday because it was at a time of day where I should have already made a lot more progress than I had. I had not yet hit my daily goal. I had made some profit and I gave some back.

I felt like the market was choppy. I didn't feel like I had a good read on it. And I said, you know what? It's better to walk away right now with some profit in my pocket, real money in my pocket rather than give it back because I know statistically if I keep trading when I don't have a cushion, I'm going to make a mistake and I'm going to go red. So, it's always better to have a small green day than to go red. So, my decision in that moment was the right decision.

Now, as it turns out, had I kept trading, is it possible that I could have made a lot of money trading that stock that goes up? It's possible, but hindsight is always going to be biased to favor that you would have done well. And the reality is sometimes you would have actually kept trading and lost money. Anyways, um quantify or qualify trades as being good or bad based on um the the decision that you made at the time, not the outcome of the trade.

Okay. So, with those micro pullbacks, I can do extremely well. And sometimes this first candle opens and the next candle sometimes it's like it's it's almost like this. It opens just a teeny bit lower and then pushes higher. But I'm okay with taking this micro pullback especially when this is around a whole dollar or a half dollar level of resistance because I know that these are levels where once the stock breaks over it, I can use that level to base my u my support.

Okay, so we've spent a fair amount of time talking about candlestick patterns, which is good. I want you to have a really good understanding of this because ultimately, while technical indicators are valuable, they cannot be a substitute for candlestick chart patterns. Candlestick patterns are where all the information comes from that gets populated into the technical indicators. All right, but technical indicators are worth mentioning.

So, let's get on the board, the whiteboard here, and let's talk about some of my favorite technical indicators. Okay. So, when we're looking at a chart pattern, what I've shown you so far is the pattern of the as the price moves up. So, long body candlestick, light light pullback, maybe here we get a dogee, and then we get another move back up. But there's something that I have left out that is extremely important in helping me predict whether the price is going to continue higher or it's going to decline.

And that is an indicator that we're going to put right down here underneath the price. And it is volume. So we usually have a volume bar down here at the bottom. And what I like to see is increasing volume as the price is moving up, lighter volume on the pullback, even higher volume as the price goes higher, lighter volume on the pullback, and higher volume as it continues higher. I don't actually draw trend lines on the volume, but I'd like to see the volume is generally increasing.

This tells me more and more traders are interested in buying the stock. Now, the next indicator uses volume and price together to create the volume weighted average price. It's the volume weighted average price. It is actually factoring in the price of the stock and the amount of shares that traded to give you an average price. This is a really important gut check. The the stock should always be priced well above VWAP when it's trending higher.

It's very common that when we see a pullback, we see a sharp pullback, we'll see the price bounce off the VWAP. VWAP is almost always a significant area of support when the price is above it. So, we'll see a bounce and sometimes we'll end up seeing a move all the way back up. But if the price goes below and breaks below VWAP, it usually will have a hard time getting back up above it because this is now resistance. Okay.

Now, the next indicator that I'm going to draw here, I'll draw it in this uh this line, this color here, brown. This is called a moving average. So, the moving averages, um, the thing with these indicators is that they're telling us the average price of the stock over a set period of time. So, I use the nine and I use the 20. That's confusing to draw it that way. Uh, it makes it look like it's divided. I use the nine exponential moving average and I also use the 20 exponential moving average.

The nine will always be faster than the 20 because the average price of the last nine candlesticks 1 2 3 4 5 6 7 8 nine is going to be a higher average price than the average price of the last 20 candlesticks. It's going to be a lower price. However, the reason I use this is because when we have a trending stock that's moving higher, these moving averages, they help kind of show they help us understand how extended the stock is. when it starts to get really really extended, the risk is higher because those moving averages are a moving level of support.

And this again comes back to the fact that we know when we buy closer to support, we've got a better entry that allows us to manage risk and that can mean we're more profitable. So, I use moving averages as levels of support. I look for the stock to return around the nine moving average. And when we're looking at um when we're looking at these patterns, one of the things that you'll notice is you'll you'll watch these stocks and it's like, you know, they just sort of they move up all day long and the stock goes up and then down, up and then down, up and then down, up and then down, up and then down.

And the whole time it's like just bouncing off the nine exponential moving average. And when it finally pulls back a little bit more, it's coming down to the 20 EMA. So these are two very wellrespected moving averages. Traders know that when a stock is strong and it pulls back to the 9 EMA, that's usually a buying opportunity. That's a buy signal. So and then if it breaks the 90 EMA, then that's a sell signal. So this is an indicator that is an oscillating indicator.

Oscillating means it goes up and down on sort of a spectrum. So the way this indicator works is we have like this and then it goes like this. And what it's doing this is called MACD. MACD it's a moving average convergence divergence indicator. So when the moving averages are moving when the stock is moving up quickly the moving averages are diverging. They're moving apart. So when they're moving apart, the signal line on the MACD will start moving up like this.

And then when the indicators when when the moving averages start converging, which they started doing in this area here, in this area they're converging in this area, they're pulling apart. So the the more accurate depiction of this MACD would be um it's moving apart and then coming back here. So it's a little bit of a a little bit more like that. It's not this isn't a perfect representation in the drawing form. Uh but one of the things that can be helpful with having MACD is I have found by far that I make the most money when the MACD is above the signal line.

So when the average is above the signal line, which means that the moving averages are pulling apart. They're pulling apart. they're diverging because the price is moving up. So once we get the converging up here at the top, the moving averages of the nine and the 20 start moving closer together, then the price is rolling over. And once they do cross over here, then at that point for me, I don't want to trade past that point.

At that point, I'm done. I'm done with the trade. So, this is another indicator that is a bit of a gut check that helps put current price action in context. When I see the MACD is positive and is in favor of the trade, then I'm thinking, okay, this is a setup that I can feel comfortable with. When I see the MACD has crossed over, then I'm thinking, nope, I don't want to take any more trades from this point forward. Are there some people who will trade and initiate positions based simply on a MACD crossover?

There there probably are, but I think that's a very primitive way of trading. Ultimately, the best way to trade is to go direct to the actual candlesticks. This is what's telling you what's actually happening right now in real time. In fact, this is what's telling you what just happened. So, by looking at these candlesticks, this is where we're getting the real buy and sell signals. Our indicators here of volume. When we have volume, all it's doing is either confirming what we thought looks good.

It's like, "Yep, this confirms everything we like. No issue." Or it's giving the chance to say, "Wait a second. We got a red flag here. This is a problem. We've got two big red candles, three big red candles. This is no good." And then it's like, "Well, I everything looked good, but I checked one of my indicators and this said no go on the trade." Or, I saw this pattern, but it's below VWAP. Now, the only way that pattern could exist below the volume weighted average price is if the stock had previously sold off a ton.

The VWAP is like way up here and then the price started climbing back up, right? But there are some beginner traders who would look at this and not realize, wait a second, hello, we've got VWAP right here. This is not a place to be buying. You cannot buy this right here. So if you were really zoomed in, you might lose fact. You might sort of lose the context that you're below VWAP or that you just had this big sell-off because this is occurring within a context.

So we want to see that we're above VWAP. We want to see the volume is not giving us a red flag and we want to see when it comes to the MACD that the moving averages are pulling apart. If the moving averages are converging, then what that tells us again is that at some point previously the stock already made a big move and now the moving averages are coming back together. Which means ultimately if we're trading it here, we're trading it kind of on the back side of the move.

And something that I talk about quite a bit in trading is that I want to be trading aggressively at the beginning of the move. I want to buy that first pullback. I want to trade that micro pullback. I want to trade the second pullback. But beyond that, I don't want to overstay my welcome. Now, if I didn't make as much on the stock as I feel I could have, would have, should have, that's neither here nor there. The the market doesn't care about my feelings, right?

I have to focus on the chart pattern. And the patterns resolve the best earlier in the move. When it gets a little bit later, often the people still sort of fighting it out are the people who either don't have discipline or who didn't make money earlier. The people who make money early, they walk away. They learn to do that because that's what makes you consistently profitable. Making a little bit of money and walking away just like I did yesterday and I did the same thing today and I'll do the same thing tomorrow.

It's about being consistent. Success in trading is not about hitting home runs. It's about being consistent and hitting base hits and implementing a strategy that you know works because you have historical data. That's what I have. I have years of historical data. So, my $583 to $10 million small account challenge, that's seven years of audited broker statements. So, right down in the descript of the description and pinned in the comments is a link to download my small account strategy PDF that's going to pair nicely with everything you're learning right now in technical analysis because my small account strategy PDF actually walks you through the setups that I trade when I'm in a small account, where I'm getting in, where I'm getting out, the rules that I'm following.

Now, I can give you the rules. I can share with you everything about my strategy, but it'll be up to you to have the discipline to follow the rules. So, I hope that you'll be able to do it because, as you know, trading, this is pretty exciting stuff. There's an incredible amount of potential to being a trader, but it will only come from those who are dedicated, disciplined, driven, and are extremely patient. You have to wait for these aquality setups to come to you.

If you found this episode interesting, make sure you hit the thumbs up. Make sure you subscribe to the channel. And if you want to learn about how to find the strongest stocks to trade each day, you can check out this episode right here. And make sure you don't forget to download my small account strategy PDF. I'll see you for the next episode real