How to Read Candlestick Charts (with ZERO experience)

Welcome to today's Deep dive into technical analysis and how to read Candlestick charts. In this class, I'm going to give you a comprehensive breakdown of how to use technical analysis the right way. You probably know that most traders out there lose money, and you may also know that most traders do not understand the right way to read Candlestick charts and to apply technical analysis.

Now, one of the things that's really cool is technical analysis is a universal language of the financial markets. It doesn't matter if you're trading Bitcoin, Ethereum, Forex, futures, or stocks. Any financial instrument, when you pull up the Candlestick chart, will give you the opportunity to perform the same level of technical analysis. So, once you understand the fundamentals of technical analysis and you learn the right way to apply it, you can use it for any financial instrument. I encourage you to take some notes, and at the end of this episode, I'm going to have some recommended reading for those of you that want to keep going on the journey. So, let's go ahead and jump in on the whiteboard now.

Prior to Candlestick charts, we had just simple line charts. The problem with a line chart is that the line is created by connecting two dots or more. These dots are just based on one point of data. That one point of data is typically the closing price, and while it's important to know the closing price, that's only one piece of data. So, let's introduce Candlestick charts. A Candlestick chart gives us four pieces of information for each Candlestick. It tells us the close, but it also tells us the open, the low, and the high.

Now, here's what's really interesting: the shape of the Candlestick is now communicating a message. Because let's just say, for a moment, let's flip this over. Let's just say, for a moment, that you pull up a Candlestick chart and you see a Candlestick that looks like this. What kind of message does that tell you? That tells you clearly that the price opened high, it went straight down, and it closed at the bottom. In contrast to these two candlesticks here, these two candlesticks have a Candlestick body, which is the middle section. That's the body of the Candlestick right there, and they both have an upper candle wick and a lower candle wick. The upper and the lower candle wicks connect the low and the high. When you have a Candlestick that doesn't have any wicks, it just has a body, that shows really strong sentiment in the market. So, a red Candlestick like that, a lot of weakness. The opposite would be true of a big green Candlestick like that.

And so, what we've actually learned is that once you understand the language of the financial markets, it's almost like learning to read, uh, traffic signs. They become so obvious. You don't second-guess them. You see a stop sign, and you stop. So, for instance, when I'm trading and I all of a sudden, I'm watching something, it's going up, the price is going up, and then all of a sudden, at the top of that move, if I see this candle right here, I know that it's about to change directions. Why is that? What is this candle communicating? It opened low, right here. This was the open, this was the close, this was the high. So, it moved up, but the bears pushed it back down, and it closed down here. This candle is called a shooting star. It's a candle that shows a reversal may be coming. That's the message this candle's communicating, and it communicates the same message whether it's red or green. If the price has been moving up and we see a shooting star, that's green, reversal likely. We see one that's red, reversal is already started. The same is true of this candle right here.

Now, this candle is called a hammer. It looks sort of like a mallet. This is the head of the mallet, and this is the handle right here. And this candle, when it occurs after the price has been declining, it's considered to be hammering out the base because what has happened here is the price declined, dropped, and then who was able to push it back up? The buyers. The buyers came in, they pushed the price back up, and so it closed as a small hammer, indicating a possible reversal. So, these candlesticks are communicating messages. The question right now is, do you know how to read the messages?

And there are times where we're going to get false signals from candlesticks. For instance, if we actually saw a chart that looked exactly like this, I wouldn't think much of it because these are all candles of indecision right through here. But isn't it already showing indecisiveness by the fact that it's going sideways? So, the place that I really get interested in the shape of a candle is when the price is reaching really high levels, we're getting really high extension. That's when we're starting to worry about possible reversal indicators. That's where we're worried about that hammer candle or the shooting star candle or what's called a doji, or the gravestone doji, or the hanging man doji. That's when those candles start to be an indicator of a possible reversal still coming back down. And then, of course, the same would be true when it's in, when it's flipped in sort of mirrored, where the price has been declining rapidly, and then you have that hammer at the bottom, or you have the doji at the bottom, or a hanging man doji, or something like that, that indicates a possible reversal for a move back up.

So, there are really two strategies when it comes to trading. There's counter-trend trading, and then there's trend trading. Most beginner traders are trend traders because it's easier to understand something that's already moving and to jump on that existing momentum than to try to predict a reversal. Having said that, it's very important to learn to recognize these candles that indicate a reversal of trend may be approaching.

One of the things that we're going to start talking about here is connecting individual candlesticks to form multi-candlestick patterns. So, while we have individual candlesticks that can communicate market sentiment, when those candlesticks are clustered together and form a pattern, that can create an even stronger signal. So, let me show you, for example. Let's say we have three big candles going up like this, and then we have one candle going, uh, as a pullback, and a second candle as a pullback. What we're seeing here is that the price has moved up quickly. Now it's pulling back a little bit. This is actually a pattern that we recognize very well as being a bull flag. This green, uh, lineup is considered the flagpole. This is considered kind of like, um, the actual flag, the pennant right here, that's the, the shape. And what we look for in this pattern is for the price to break to the upside of this line here, for the first candle to make a new high, and then we look for the price to move back to new highs.

Now, to help you understand the psychology of what's happening here, you have a stock or a commodity or a Forex pair, cryptocurrency, doesn't matter, that's moved up quickly in price. And the trend right here for the short term got exhausted. Buyers were no longer willing to keep buying it higher and higher and higher and higher, and maybe some short sellers came in, or some people who were holding it from down here wanted to take some profit. So, we see the decline in price a little bit. However, these are three small-body red candles. They're not a huge-body red candle. They're not communicating a massive reversal. This is just an orderly pullback. And so, when we get this type of formation, we look at this as a buying opportunity. The price has really two options. It can either break this level and continue lower right here, or it can break to the upside. And so, we, we get to a point where it's sort of a fork in the road, and which way is it going to go? Now, suppose, of course, it could just sort of slow down and go sideways. And in which if it did that, there's no trade there whatsoever. It's not going to be something that we buy. It's not something we would short. It's just going sideways. But generally, when these have made big moves like this due to some type of catalyst, they're going to be forced to break out in a strong way, one or the other.

So, in this instance, the momentary pullback, and then here's the next wave of momentum. Now, what's often common is that then we'll see up here a second pullback, and this brings in another round of buyers as it continues even higher. And so, if we look at my screen share here, what you'll see on the chart is actually, um, the S&P 500. And this isn't, um, anything particularly exciting, really, but you can see how it's trading in these waves of price action where we have this, this strong move up, this pullback, and then it breaks to the upside, then it pulls back again like I was just showing you, it breaks to the upside, it pulls back again, and it breaks to the upside, it pulls back again, it breaks to the upside. And so, each time it pulls back, those become buying opportunities.

So, notice, uh, this candle shape right here. If you recall, that is our hammer candle. If we look at this candle right here, this is a doji, which is the bottom reversal. And then this was a doji here, which was our top reversal. So, we're seeing very clearly these candlesticks that we've already been discussing. There's the doji right there where the open and the close are basically the same. And of course, we have a couple of really nice long-body green candles that are forming the bulk of the move up. So, this is just an example of multi-candlestick patterns.

When it comes to time frames, this, it doesn't matter what time frame this is. This could be a one-minute chart, it could be a five-minute chart, it could be a daily chart. What's important to understand is that each of these candlesticks represents a period of time. And so, if you're an active trader, you're going to be more inclined to use short time frames like the one-minute or the five-minute chart. And if you're an investor or a swing trader and you want to hold things for a few days, you'll probably be looking at hourly charts, 60-minute charts, and daily charts to help you find these type of opportunities. These are the patterns that I absolutely love trading. So, I'll switch back to the whiteboard here, and I'll show you a couple of, uh, couple other patterns that I like.

So, the first pattern that I showed you right here, this is called the bull flag. And usually, on a bull flag pattern, we'll see anywhere from one candle of pullback to three. I don't usually like to see four candles of pullback. I do not like to see the pullback here retrace more than 50% of this initial move. So, that means the most it can pull back is right about here. So, an example of a bull flag that would be a broken pattern would be one that goes like this, and then has a long-body red candle right here. That's no good. That don't like that. It's retraced more than 50% of the move. All right. Alternatively, if we have one, two, three, four, five, six red candles, we're running out of steam. That's not good either. If this was really strong, we should have had just a momentary pullback before the next round of buyers came in and said, "I want a piece of this action for the next leg up." I like to trade the first pullback right here, the first bull flag, and I like to trade the second one right here. I have often found that after the first two, when you get into the third, the fourth, the fifth, they're not as clean because most traders who are aggressive and are successful have already made their money on the first two and are not going to overstay their welcome. It's usually the rookie traders that end up overstaying their welcome. So, it's better to get in, get green, and get out. Okay.

So, this is the bull flag. That's a pattern that I really like. It's a multi-candlestick pattern that requires two, well, it could even be just one huge green candle, but requires a nice big move up with some long-body candles, light volume pullback, not retracing more than 50% before moving higher. There's another technical indicator that I use to help me make sure this doesn't pull back too much. I'll talk about those in just a moment. All right. So, this is the bull flag.

Another pattern here, uh, that I'll show you is called a flat-top breakout pattern. Um, now, this is formed. This would be a little bit of a gap here if that really happened. U, basically, a flat-top breakout pattern occurs when the price is hanging out right underneath the highs, and what ends up happening is it pulls back just a little bit, and then it goes back up. And what we end up sort of seeing is that we have this support line right here, and what ends up happening is it pushes the stock through this level. And when it finally breaks out, we usually get a nice big long-body green candle. This is called a flat-top breakout pattern. We have a flat-top breakout pattern, uh, pretty close flat-top breakout pattern, um, on the S&P, uh, right here. It's pretty close to that right there. This, I would say, is a pretty good example of a classic bull flag. Two nice big green candles, two candles, there's pullback, and then making a new high.

This right here is called an ABCD pattern. An ABCD pattern occurs when the price goes up, hopefully this just kind of mark this separately. Price goes up, we get a little bit of a pullback here, and then we come back up, but it fails. It doesn't go through the high the way it should on a bull flag, and it pulls back again. Now, this is okay because this can create a really powerful breakout, so long as when it pulls back here, it doesn't break below this price here. So, this becomes an ascending support line that has to hold. It's like a flat-top breakout pattern, but a typical flat-top breakout pattern, all of the price action is within like 10, 15 cents. It's like right underneath the high before it squeezes up. It never really pulls back. Whereas an ABCD pattern right here does pull back and then is really a failed bull flag that pulls back a second time, but the second pullback is actually an opportunity for it to accumulate even more buyers. So, when it does break out, usually the breakout is even stronger. So, this pattern is just fine. I really like that one. Uh, I would say these are, these are three patterns that I trade pretty much on a daily basis.

Something that's worth mentioning is that as an active trader, it's more important that you love what you're trading than that you're necessarily trading the perfect pattern. So, if you love trading a certain stock, or you love trading Bitcoin, whatever it is, you want to focus on trading that. And look, if an ABCD pattern forms, the pullback, the move up, and then it goes, you trade the ABCD pattern. If it's a flat-top breakout pattern, you trade the flat-top breakout pattern. If it's a bull flag, you trade the bull flag. You trade the pattern that is presented. The most important thing is that you make sure you're focusing on the right thing to trade. You're looking to trade something that has liquidity, that has volume, that people are interested in, because that's where you're going to see the volatility. As active traders, we thrive, drive on volatility. We need things to be moving. Look, we don't make money if we're trading something that's not moving in price. So, we're looking for things that are moving and moving relatively quickly.

So, now let's talk about those technical indicators. What these do is they help provide more context for the current price. So, this is a stock chart, and we can see obviously the price is going up. But what we have found is that most stocks, most currency pairs, most future commodities, respect certain technical indicators. One of the ones that is very popular is called the volume-weighted average price. I'm going to turn that on first. So, the volume-weighted average price, I have down here in orange. This tells us the average price of the stock over the period of day with volume factored in. And so, this really shows us our exact equilibrium point of the stock or whatever it happens to be that you're trading. This is important because if the price is below the equilibrium, well, that's when you've got the bears. This is going to be a picture of a bear. Okay, he's got like a little smirk. All right, that doesn't look a lot like a bear, but bear with me. So, this is bearish. Now, if you're above the volume-weighted average price, that's when you're bullish. I'm not even going to try to draw a bull. So, that's when we're bullish. So, we're green above, we're red below. So, this is really helpful because when we look at the chart, what we want to see if we're thinking about being bullish on the position is that the price is above the volume-weighted average price level. So, you can see how early in the trading session, this actually dipped below that level and then it got back above it. So, just from that perspective, the moment it was back above it right here, from that point forward, this was in the hands of the bulls. Now, if it had gotten back below and held back below the VWAP, this would have been back in the hands of the bears. So, understand the, the general, uh, who's in control is important when you're considering taking a position because obviously you're going to be choosing long or short. So, volume-weighted average price, super important indicator. It's used for intraday trading.

Now, one other thing I want to mention about VWAP is that it's considered a, uh, very well-respected level of support and resistance. And so, what that means is that if, for instance, the stock has been, um, below the VWAP, and I'll just do black here just to make it easy for me, and then it comes up to it right here, it's very common that the price will fade off of this level, and that this is resistance. Sometimes we'll see a stock will, will try to break and it won't be able to hold over and immediately comes back down. And when it comes back down, that is just reaffirming that the bears are in control because it tried to get above it, but they brought it right back down. Now, this is the same, is of course true if a stock is on, uh, the upside. So, you know, you could have a stock that made a really big move, it pulled back, came back down, and then at VWAP, maybe it dips for a moment, holds that level, and then heads back up. Very common. This would be a dip off of VWAP, which essentially is buying very close to support with profit target back up to high. This is your risk, that's your reward. So, your profit to loss ratio is great. Same with, um, fade off of VWAP, you know, shorting right here with a stop just above VWAP, and then your profit targets way down here. However, something that's also really interesting with support and resistance levels in general, and we're going to talk about this more in just a moment, is the way price behaves when we do break.

So, when we have a stock that's bearish and it's been below VWAP, so maybe it, it came up, it hit VWAP, it did a fade off VWAP, came up again, faded, and then came up again, and it's like this thing, it's holding, and it busts through, gets above this resistance level. So, sometimes dramatic rejection back down. All right, but let's talk about the other situation. Other situation, it breaks, it comes back down, and now the bulls are defending this level and buying off of this level because the price, VWAP, it's above VWAP. So, what you now have is a break of resistance, a retest to see if it's going to hold, and if it does, then prior resistance becomes support, and now people start buying right here with a stop just down here for a move back up. And this is when we have that, uh, that sort of trend change of the stock being in the hands of the bears to being in the hands of the bulls. You know, it's, it's different from the trend changes that we have when we have a stock that's been, you know, trending up nicely, has two candles of pullback, you know, goes higher. You know, in this context, this is kind of like the tide is coming in. This is the wave. And, you know, the, even when the tide's coming in, you have waves. So, you have a wave that comes up, it comes down a little bit, and then the next wave comes up a little further, then it comes down a little bit, then comes a little bit further. When we break over VWAP, that is more like the tide changing from going out to now we're, we're making a much more significant change when we break over that volume-weighted average price.

So, volume-weighted average price is probably the number one most important indicator for day trading. However, more important than indicators ultimately are the candlestick patterns. Candlestick patterns are number one, but these indicators are really helpful to understand context of current price, and they're important to use because pretty much everyone uses them. So, if you're trading without VWAP, that would be like driving around without looking at stop signs. I mean, other people are using them, and if you're not, you're kind of an idiot. So, not to be, I mean, that's a little bit mean, but if, of course, if someone really was driving around not using stop signs, you, you would probably say that. So, uh, again, my job here is to teach you how to use these technical indicators so you can apply it in your trading. This is all about how to read stock charts for active traders.

Okay, so we've got the VWAP. What's next? Next indicator that's really important: the nine exponential moving average. It's a gray line right here, and notice how the price keeps coming back to the nine moving average. The nine moving average represents, during these flag patterns, a good place to take that entry. So, a lot of these will stair-step up. See, I'm kind of drawing these stairs here, and a lot of these edges of the step are going to come down towards that moving average. Now, it kind of flattens out here, and then it starts to break away again. All right. So, finding entries near this moving average is usually a safe place. I find that if the price breaks the nine, the next level that we are looking at is the 20. So, we've got the nine moving average, which is our first level of support, and then we have the 20. So, there are a lot of times where I'll see the price coming down and I'll say, "I could take a starter right here at the nine with my stop loss at the 20." Now, I'm not going to get into strategy as much in this particular class because this is really focused on technical analysis, but just for your understanding, these are very well-respected levels of support. So, you could see, really, this held the nine moving average through this whole stretch of the day. So, as long as it doesn't stay below it, I'm bullish, and I'm happy to keep holding a position or look to add to the position. The next level is the 200 moving average, which is going to be much further down. In this case, it's below volume-weighted average price, so it's not really relevant for, um, the price right here because I wouldn't be a buyer if it was below the two, the volume-weighted average price anyways. Anywhere below that is bearish. All right. So, those are our indicators.

All right, so let's mark this out. We've got VWAP, we've got the 9 EMA, we've got the 20 EMA, we've got the 200 EMA, and let's not forget on all of our charts, we have volume bars. So, so at the bottom of the chart down here, we have the actual volume total, which is telling us the number of shares that were traded during each one of these candlestick periods. And this is important because what we look for is when we have strong upward momentum, like we have right here, we want to see that the volume is picking up. So, we want to see the price is going up, but we also want to see higher green volume bars that are associated with those long-body candles.

So, this is called the volume profile, and the volume profile does communicate market sentiment. So, if we had an instance where we were looking at, let's just say a, um, a bull flag forming, and we initially had this nice move up right here, you know, two big green candles, and then we have a red candle and another red candle. Well, let's just say that the volume on the green candle was like this, and like this, and then the volume on the red candle was like this, and like this. If you have more volume on the red candles, more selling volume, that's a factor in this pattern. So, you have to factor this in as part of your technical analysis. Volume bars are an important indicator. If you have high volume during this pullback, that indicates a lot of people are selling into this pullback, and it may not pull, you may not, it's unlikely that you're going to get a huge move like this on light volume. It's not going to happen on light volume bars. You need high volume to get those kind of moves. So, the pattern that you want to see from a volume profile is high volume green candles, light volume red candles on the pullback, and then volume coming back in for the next leg up. And even just looking at the volume profile, if it was looking like this, let's just say, and then like this, what I could visualize without even seeing the candlesticks is that this is continuing to give pullback, squeeze up, pullback, squeeze up, pullback. This is a volume profile. So, once again, you learn this language, now you're going to be better equipped to capitalize when you see this opportunity and to know the difference between the time when, yep, I want to be a buyer right there, or nope, we've got high volume selling, this is, if anything, a short with a stop at the high, or it's not a trade at all if I'm not interested in going short on this position.

Now, something that's kind of interesting is that what a lot of traders do who are active traders is we look for what's called multi-timeframe alignment. So, what we're looking at here on this particular chart, this is a five-minute chart, all right? It's just a five-minute chart, and these are stock scanners. I'll close these just for right now. So, let's go ahead and we're going to open another chart right here. All right, so I'm going to link this, um, over here to this one. It's going to be the PY, and we're going to make this, um, that's fine, we can make it a one-minute chart, that's not a problem. All right, so I'm going to go back here a little bit further, and what we're going to do is we're going to look at, let's see. So, this is about 12:40. So, 12:40 right here. Okay, so actually, let's look, let's look at this, um, setup right here. So, we're going to look right here. If you see right here, this is where we had the price move up, and then we went into this period that kind of formed a flat top of consolidation before it broke out. So, this is a five-minute pattern. This pattern is occurring on the five-minute chart. However, it's important to take a look at what's happening on the one-minute chart. So, the one-minute chart is showing the faster time frame, and what we're seeing on this chart right here is that the price peaked, pulled back, came up, pulled back, came back up, pulled back for a moment, and then it started the breakout. And so, what you essentially have happening in this area is this right here is a zoomed-in version of what's happening right here. This is, these are five-minute candles, which means this is five, 10, 15, 20, 25 minutes. This is 25 candles. So, it's showing you the same thing, but it's showing it in greater detail.

Now, what if, let's just say, for instance, this candle, which is red, also had extremely high volume? It was like a super high red volume candle. Well, we could interpret that as a warning sign. And so, now we might say, "Well, the five-minute chart looks fine, but when we zoom in here, there's a bit of a caution flag out on the one-minute chart." And as a result, we do not have one-minute time frame alignment. We like to see multi-time frame alignment where I could look at this on a one-minute chart and say, "Yes, I like this trade, and I would take it." And you look at it on a five-minute, say, "Yes, I like this trade, I take it." Or where you say, "I'm going to switch this to a 15-minute chart," and you look at it and say, "Yes, I like it, I would take that trade again." So, that's called multi-timeframe alignment.

Now, on an even higher level, what active traders will do is we'll all go all the way back to our daily chart. And when we look at our daily charts, that's where we're looking at the big picture. That, okay, this just broke above the price, let's see, right around here. So, if we've broken above the high of that candle, and the high from just the other day, well, where's the next level of resistance? So, in order to understand support and resistance when it comes to technical analysis, you have to be able to look at all time frames: one-minute, five-minute, and daily time frames.

So, let me show you, um, on the daily chart, the way I look at these type of chart patterns. So, what I do is I grab my horizontal trend line and I look to the left and up. So, the first thing I would look at here is I would say, "Well, what was the high of this candle right here?" And the high shows 138.47. So, that means when this came up to that level, it was right around, let's see, um, it was right around this price here that it came up to that 138 level, right? 138.47, and there was some high volume as it broke over that level because as it broke that level, it was breaking a critical resistance level on the daily chart, the high of the previous day. Now, once we understand that 38.47 level, how do I find the next level of resistance on the daily chart? Where's this going to have resistance next? What I do is I look to the left, right here, and then I look up, and I see, oh, what's the high of that candle? The high of that candle right there is 44.44. Interesting, memorable number. So, I'll say, "All right, that seems like, well, certainly the top of this candle right here." And I would say that this is a window on the chart. This is a window where we really have no resistance between 138.47 and 144. As a result, it's very possible that we'll see the price continue higher up towards that 144.44 price. If it breaks that 144.44 price, then what do we have? And again, I look to the left and I look up. And this is how I find the areas that I consider possible resistance. There's a high there of that candle, there's a high of this candle right here, there's a high of this candle right here. And I look to the left and up. There's a high of this candle right here. Then I look to the left and up, and you'll notice something interesting here. There's a gap.

So, we're looking at the S&P 500 here. This is not a 24-hour market. So, the gaps are created when the market closes, something happens overnight, and then when the market starts trading at the next session, it opens at a different price. And this happens all the time. In fact, it certainly happens when companies, uh, individual companies have like really, really good news or really, really bad news that happens overnight. So, if you look at the whiteboard, um, I can kind of show you the way this works. Let's say a stock is trading at $20 a share, and the market closes. So, the candle for that day, you know, whatever, closed at $20 a share. Then overnight, they have earnings, and they're bad, they're really bad. So, now people are like, "I want to sell this stock. I want to get out. I, I don't even care about 20. I'll sell it for 19." And, you know, someone else is like, "Screw that, I'll sell it for 18." So, now you have people that are just trying to get out. Someone's selling at 18, and people that were saying, "I want to buy it initially at 20," well, they're like, "I don't want to buy it at 20." Uh, but, you know what? N, maybe I'll buy it at, $17.50. $17.50. That's still, that's a discount. So, maybe I'll buy it at $17.50. So, what ends up happening is you have the people that are saying, "I'll buy." "Oh, I'll buy it at 17." "I'll buy it at 16.50." So, you have the buyers on one side, you got the sellers on the other, and in order for the stock to start trading when the market opens, the buyers and the sellers become matched. So, you have the best highest-priced buyer that meets up with the lowest-priced seller, essentially, or, or sorry, you have the highest-price buyer and, yeah, yeah, the lowest-priced seller, and they meet up right there in the middle, and that creates the opening price. All right.

So, when that happens, uh, the stock opens, let's just say at $17.75, and now it's opening significantly lower. And so, on the daily chart, it closed at 20, and then the next day it opens at 17.75, and maybe it's a red candle, it goes down, you know, maybe it's a green candle, it bounces back up a little bit, whatever. But in any case, what's most important is that we have a gap right here that's formed on the daily chart, and that gap is a window right here, essentially. It's a gap where there's no support or resistance. So, in the future, if the stock comes up to that level and it breaks over that high, now there's no resistance until it gets back up to $20 a share. So, these are levels that we look at, uh, very closely on daily charts.

All right, so what's formed right in this area is a gap, and that was formed because on this day right here, the price closed, but then it opened substantially lower and sold off. And so, what ended up happening on the chart was we formed a gap, and the gap was formed between the low of that day and the high of the previous day. So, both gaps and windows are areas where we don't really have any support or resistance, which means once the price gets over this level of 252, the next stop is 254 or 253.89. All right, so once we get over that level, once again, I'm looking to the left and up. Now, that there is another element of understanding support and resistance on these charts. So, we could go back even further if we need to. We could go all the way over here, and we would say, "All right, we've only got a couple more levels to draw on this before we are at all-time highs ever." So, left and up, right there, there's a small high right there. So, a teeny bit of resistance potentially through that level. We've got this, and then boom, we're at all-time highs. So, that draws all of those resistance levels. However, and I would do it the same if I was looking at something declining in price. However, while we have these resistance levels drawn, there's something else that we haven't factored in. We need to look at the possibility of ascending and descending resistance levels.

So, just, I showed on the intraday time frame when I was showing you how, uh, these flag patterns look. So, right here we have, uh, ascending support. So, the price comes down, holds support, goes a little higher, holds support, goes a little higher. So, this blue line becomes an ascending support level. On the daily chart here, it's the same way, and these levels make a difference when it comes to intraday price action. So, now you see, all right, we've got this level here. We could change this color here. So, we've got this yellow descending a resistance line. This is a resistance line, it's descending. Now, what I'll sometimes do, I like to draw and create channels. So, I would connect the low of two candles back here, for instance, and I would try to see, that feels like that might be a good connection, connecting those two right there. And then what I often will do is I'll copy and paste this trend line so it's at the same exact angle, which forms a channel. And then when I bring it up here, I'll usually line it up like that. And what we find is that it's very common that these will trade, uh, these financial instruments will trade in channels. So, it's true that sometimes we'll have, um, a really strong angle where it's a wedge form. So, when we form a pattern like this, we've got this wedge that's happening right here, um, but it's also common, very common, that we see real perfect channels.

So, I had this drawn just like this, um, from a couple weeks ago, and so when I saw the price coming up right here, I expected that we were going to run into this descending resistance level, and we kind of struggled here for a couple days. We got above it, we came back down, we tested it, we held, and now we're back up. So, something that's really important to to know, and you could see it back here as well, so there's sort of this resistance underneath this level right here, and it broke above it, then it's support. Support was below it for a second, and then got back above it. Let me show you an example, uh, right here. This was a, um, ascending support trend line that I drew by connecting right here and right here. I connected those two lines, those two dots, and it created this long extension. So, I drew that right there at that time. So, when this came back up right here, I already knew that we had potential ascending resistance that it was going to run into, and it did. It ran into it here, it ran into it here. So, at the very beginning of this class, I said most traders don't know how to use technical analysis properly, which means they may not even have drawn this blue line whatsoever, and they're buying right here, and I'd say, "You're buying right into resistance." It should be no surprise if you lose money on that trade.

All right, this is a stock that had a descending resistance line here. It got below it, it struggled to get back above it, it was able to get back above it, and then it ran into its ascending resistance line here. It's very common that levels that at one time were support turn into resistance on the other side. I do like to look to see where we have gaps, where we have windows, and if there's obvious levels of ascending or descending resistance. And I do the same thing on an intraday basis. And what we find, like that screenshot that I just showed you, um, is that it is very common to see these patterns where the price is just, it, it tests this level, it breaks it, and then it retests it coming back down. So, if you're not drawing that, you could get stopped out prematurely right here when this is just a retest of prior resistance. Can that prior resistance become support? And if it can become support, then all of a sudden, it's game time. Here's another example. All right, so this trend line here is support right here. It gets below and is resistance, resistance, but it broke through it. Boom! Big deal. That's a big deal because we broke through resistance, lot of volume came in, and shorts covered. It pulls back, and when it pulls back, where does it pull back to? Right back to that support level. Boom! There and there and there. I mean, this is a support level that is showing validity over the course of multiple trading sessions. You know, in the S&P, we've got trend lines that show they hold validity over the course of even years. So, you have these levels that are very well respected, and if you're not seeing them because you're just not looking at that part of the chart, then you, you really are missing out on something that's very significant. It's almost like you're trading blindfolded. I mean, you're, you're missing that much.

There are times where you'll see, okay, we connected one, two, three. This is a trend line here that's showing in 2023. This connects back to 2020. That's three years ago, right? So, these are very significant technical levels that you have to be aware. Now, some traders will ask how to draw ascending and descending support and resistance levels. And my rule of thumb is that you want to make sure the trend line is touching in the most places possible because the fact is, it, it can be a little bit arbitrary. You know, do you connect the, the highs of candles, or do you connect the low right here? Should I connect this trend line to the top of that candle wick right there, the very top? Because see how if we zoom in on this, there's a candle wick at the very top? Do we connect that to the candle wick, or do we connect it to the candle body? Because obviously, it's going to change. You know, if we connect to the body, it draws it, pulls it down. If we connect to the top, it's up there. So, my rule of thumb is that I'll, I'll sort of connect the line, and then I'll move it around and see which one feels more valid. The more times a ascending or descending resistance support line is tested, the more validity it gains. So, while you might initially have drawn it this way, and then it's not really respected, you realize, "Oh, if I adjust it there, actually, that does seem to be what probably most, the most, people have on their charts." So, that's probably how I should keep it. In other words, it should be fairly obvious.

So, down here, connecting this and this area, you know, that that does kind of look fairly accurate. You've got a dot, a connection there, connection here, approximately through here. It is okay if, um, we do break through some candle wicks because what can happen is the stock on a particular day might have a candle wick that tests this daily level, and it tries to break through it, and then it gets back above it, or tries to get above it, gets back above it, and then it goes back below it. So, if we switch this to, let's say, the 15-minute chart, we're able to actually see that daily trend line. And like, right in this area, for instance, look at how the intraday price action, how much it's driven by this daily level, right? So, it tries to get above it and then slams back down. It tries to get above it, slams back down. It gets above it and then sells off hard. It comes back up to that level, it tries again, and it's not able to hold. So, it's like, you can tell this is a very well-respected level. Breaks below it, tries, gets back above, breaks back below. Right in here, this was where we saw that, um, consolidation around, I think it was, um, on the five-minute chart, we were looking at that consolidation there, that was just above that level. So, you could tell that these are significant, uh, levels where we have support and resistance.

So, now let's step back from the technical analysis for a moment and just talk about strategy. So, when it comes to strategy, high level, how are we using and incorporating this technical analysis into the decision-making process? So, this is the way I do it. What I'm going to share with you right now is based on over 24,000 trades that I've taken. So, I have a lot of metrics that back up the choices I make when it comes to the price of stocks I trade. Why I choose stocks instead of Forex? You can apply technical analysis, generally speaking, to any financial instrument because the candlestick charts and doing this type of analysis is valid as long as you've got the chart, okay? But for me, what I do each day, my number one goal is to try to find an instrument that is moving quickly, and that's going to be the vehicle that I'm going to trade. So, if you're trading cryptocurrencies, you're looking for a currency that's moving.

Quickly, right? So for stocks, I'm looking for a stock that's moving quickly. For futures, you're looking for a commodity that's moving quickly. Typically, that happens because there is some type of underlying catalyst that's driving the move, some type of news. It could be global news, it could be specific to that instrument, but there's some type of news.

And what that effectively does is it brings a lot of volume into that financial instrument. When you have volume, high volume, you've got a lot of retail traders that are participating in the move. We see that high relative volume, that's where we're going to see more volatility. That's when we're going to see those bigger green candles, those bigger red candles. When it's bad news, this is the volatility that, as active traders, we thrive on. This is what we need. We need to see things that are moving.

So my first order of business is not to search the news every single morning. My first order of business is I sit down, I open up my platform here, and I'm pulling up my scanners to try to figure out, you know, what, what's actually moving today? What are our top gainers, uh, this morning? So I'm looking at my top gapper scanner and I'm looking at my top gainer scanner, and this is showing me the, the securities in the stock market that are moving the most today. So 89%, 87%. And then from there, I'm pulling up the charts and I'm doing my due diligence. So for me, it begins with looking at the scanners, and then that's how I find what's moving. Once I found something that's moving, that's when I get into the charts.

And so one of the first things that I look at is, is the daily chart? I want to look big picture. What's the daily chart on this? And, you know, I say daily chart, actually, let me correct that. I would say the first thing, the very first thing I look at when I see a stock that's on my scanners, the first thing I look at is some of the data points. I check the float, how much it's up on the day, how many shares of volume it has, uh, the relative volume, and then I check the news. Then I open up the chart and I look at the chart. And actually, the first chart I look at is our intraday chart because sometimes I look at the intraday chart and you'll see that the price popped up and is already down a lot. The price may be up 25% versus yesterday, but it was up 50% and now it's down a lot from the high. And so I would say, no, that chart's broken.

If I pull up that one minute or the five minute chart and I like what I'm looking at so far, the, we've got some nice long-bodied green candles, we've got some good-looking price action, we're above volume weighted average price, volume profile looks good. That's when I open up the daily chart. Then I check on the daily chart and what am I looking for? I'm looking to see if we have any gaps, if we have any windows. And one thing that I look at on the daily chart, which I'll show you here, I want to see whether or not on the daily chart the price is above or below the 200 moving average. So the 200 moving average is a very well-respected indicator on the daily chart.

Okay, so that purple line is my 200 moving average, and what you'll see on this, uh, stock is that it's well below the 200. It's been below the 200 for a long time now. The S&P, uh, has struggled around the 200 a little bit, uh, in the past couple of years because we've had this, uh, pullback. We've kind of come back up. So there was a little bit of a struggle. We, we were above it for a long, long time and we did pull back below it in 2020 during that big drop. We got back above it and then really any dip off the 200 was, it's almost like the vwap on a daily level. If it's a, above it, it's bullish. If it's below it, it's weak. But with the S&P, it doesn't stay below it for long.

Now, with individual stocks like IMV or this other one, let's see which one was it, um, MAI, these ones are stocks that have been beaten up for a long time. What we know about these types of stocks is that when they come out with news, they can have big days. We could see something like this that goes from 68 cents to $2 a share in one day. We had one, uh, last month that went from about 30 cents a share to $11 in one day on an FDA announcement. So these beaten up, uh, securities can be great for bounces off the low. But the first level that, that I look at as resistance is that 200 moving average. And so that's the first thing I'm looking. I'm saying, okay, we've got this technical level on the daily, it's at $2. So is there room between the current price and this resistance to take a trade? And the answer is yes, and I'm happy to trade it. If it's above it, then I'm also happy to trade it. But if we're right below it, I'm not likely to trade because I know we're going to have resistance at that price. It's just not really worth taking, uh, an entry that close to that critical resistance level.

Now, as it turned out, um, there were a number of, uh, securities that were on the scans on, um, just the last trading day that were lower priced. And a lot of these lower priced names are going to be well below, uh, that 200, uh, moving average. Let's see, this one is a little higher priced. This one, you can see was below that 200 quite a bit as well, quite a bit below it. Got above it and then dropped back below it. So now if it comes back up, resistance, yeah, going to be around $28 a share. Now we can also draw descending resistance lines and things like that. But at this point, a descending resistance line from up there, well, not going to have to worry about that because we have this issue in the way first. And below from this area, we could say there's probably something right here, but that's not really valid. So we don't really have, maybe there was something in that area right there. You can sort of see how these candles connect. So, you know, sometimes I'll connect these and then I'll pull up the intraday chart and I'll just sort of ask myself, does it feel like this is, um, being respected? Does it seem like this is a valid line that other people are noticing as well?

So what we could actually do here is switch this to a five minute time frame and take a look and see how did the price behave around that resistance level, that possible resistance level, support, resistance. So it opened far above it, came back down to it, bounced off, below it, above it, below it, above it. I don't know, it kind of cuts right through there. Um, it seems like it does respect it, maybe right there, but then it gets under it here. So I don't know if that was a super valid line, but, uh, may, maybe maybe one that would have been worth keeping an eye on in the future.

So as I said at the beginning of this class, I have some recommended reading for those of you guys that want to keep learning. There's a lot to cover when it comes to technical analysis. One of the books that I enjoyed when I was getting started and and really trying to better understand technical analysis myself was this book by Steve Nison, which is, um, it's called a Candlestick Course. What I do like about it is, um, just that it gives you a real breakdown of these candlesticks and their formations in more detail. And so you can see, you know, I marked it up when I was going through it, the hanging man, the tweezer top. You know, for us as active traders, we really want to be experts on candlesticks. So, you know, of course, I teach classes that go extensively into this kind of depth as well. But, uh, for those of you guys watching here on YouTube that want to just keep learning as much as you can, I would check out this book. This is a great one.

Let's see. Shameless plug here for my book, "Had a Day Trade the Plain Truth." You could check that out. Um, "The Intelligent Investor," this one, I, I would say this is another good one. "Trade Mindfully." For those of you guys who have gotten yourselves into a pickle at one point or another, getting emotionally impulsive while you're trading, "Trade Mindfully" is a good approach for helping you find coping strategies to stay focused while you're trading and to not allow emotions to overtake your trading. Because one of the things that we know for a lot of traders is that you understand all the concepts, you understand technical analysis, you understand how to find strong stocks to trade, you know how to get in, how to get out mechanically, you know how to do all these things, but in the heat of the moment, you screw it up. And that's a lot of times because emotions are taking over. And when you're trading from fear, from greed, from FOMO, that's, that's not the calm, cool, collected part of your brain. That's not the analytical part of your brain. That's the reptilian part of your brain that just like is craving and alleviating emotion. That's not where our best trading comes out. So learning to recognize that is super important. This is a book that, um, was written quite a while ago, but, um, but is valuable. I think, uh, you would find this interesting. So "Trade Mindfully," this is a good one. "The Candlestick Course" by Steve Nison, this is a good one. Um, and for those of you guys that want to keep learning about my strategy, you're welcome to check this out, um, here as well.

All right, so I hope you guys, uh, really enjoyed this class. And if you want to check out another full-length class that goes into this amount of depth, deep dive, check it out right here. This is one I think you'll enjoy. And this is an episode that YouTube thinks you're going to love. I hope you hit the thumbs up. I hope you're subscribed to the channel, and I'll see you for the next upload real soon.