SIMPLE TRADING

TECHNIQUES,
POWERFUL
RESULTS

BY ALBERT C. HALL

1
If you purchase this book without a cover, or purchase a PDF, jpg, or tiff
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understanding that the author and publisher are not engaged in rendering
legal, financial, or other professional advice. Laws and practices often vary
from state to state and country to country and if legal or other expert
assistance is required, the services of a professional should be sought.
The author and publisher specifically disclaim any liability that is incurred
from the use or application of the contents of this book.
Copyright © 2020 by Albert C. Hall. All rights reserved. Except as
permitted under the U.S. Copyright Act of 1976, no part of this publication
may be reproduced, distributed, or transmitted in any form or by any
means or stored in a database or retrieval system, without the prior
written permission of the publisher.
Published by Albert C. Hall
First Edition: 2020

2
Table of Contents
Prologue 5
About the Author 6
Introduction 8
Understanding the Charts 10
Support and Resistance 18
Trend lines 26
Fibonacci in the Markets 32
Power Patterns 38
Order Types 50
Trading Tips and Strategies 55

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4
PROLOGUE
This book focuses on the powerful, high-performing,
money-making patterns observed constantly in the markets,
while it also introduces concepts and strategies that
beginners can understand and follow. Trading should not be
a complex thing. This book is written so that any person who
has never made a trade in their life can read this material and
start becoming a profitable trader, fast. By leaving out all of
the window dressings, you are left with the bare bones; the
essentials of trading. Setting a strong foundation is the first
step to becoming a profitable trader. This book aims to build
that foundation quickly, laying out a game plan that can be
followed, and if executed correctly, can make a trader very
successful. Get ready to read the last book you will need to
read about trading.
Good luck in all your endeavors, trading and non-trading
related.

5
ABOUT THE AUTHOR
Albert C. Hall was born in Atlanta, GA and raised in the
nearby city of Birmingham, AL. At an early age, Albert started
learning about money from his late grandfather. Throughout
childhood and early adolescence, Albert was exposed to
entrepreneurship at different levels and began his own
journey during his teenage years. Starting side hustles which
would later turn into profitable opportunities, Albert quickly
began understanding business and the art of making money.
After a few years of short lived side hustles, one after the
other, Albert stumbled upon investing and the stock market.
Starting off as an investor, he later started developing skills to
become a trader, using his data scientist skills acquired from
Georgia Tech and The University of Alabama to help in
6
selecting optimal trades by finding profitable patterns that
performed consistently. Albert is currently the Founder and
CEO of Hack the Markets, a company committed to teaching
and coaching traders of all levels how to become profit
magnets.

7
CHAPTER 1
INTRODUCTION

HOW EASY IS TRADING?

B ecause of technology advancing at such a rapid pace,

more opportunities than ever have been opened for
you to become a market participant. The cost of entry to
get into the financial markets are now lower than ever.
Whether you want to trade stock, commodities, forex, options,
etc., you now have access to these markets through a
multitude of brokers, many of which offer $0 commissions on
equities and forex.
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 With all this access at our fingertips, the question now
arises, “how easy is it to trade and make money”? My answer
to that question is if you can be disciplined enough to follow
a set of rules and guidelines to find candidates to trade, and
you aim at capitalizing on all winning trades while cutting all
losing trades early, it is pretty simple to make money trading.
The caveat to this is you must be disciplined. This means you
understand that all trades will not be winners, so you are
proactive in setting limits where you will close the trade out
as a loser to limit the capital loss to a minimum. This also
means that you are disciplined in managing your winners as
well; not closing them prematurely and missing out on a large
move or allowing a winner to turn into a loser because you
did not realize the direction of the market had changed.
This book is designed to introduce fundamentals needed
to become a financial market technical analyst, so anyone
can start making money in the markets, no matter what your
background is. Because there is no need to overcomplicate
the concept of trading, this blueprint will keep all concepts
and strategies simple.

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CHAPTER 2
UNDERSTANDING THE CHARTS

WHAT ARE PRICE CHARTS?

T hefinancial
most important thing when talking about any
security is its price. Whether the price is high
or low is relative to who you ask. Firm believers of the
company (Bulls) will convince you that the company is the
next best thing and that whatever the price is at the moment
is cheap because it is on its way higher. Critics of the
company (Bears) are on the other side of the conversation
10
and feel like the price is too high to sustain and should be
dropping sometime soon.

BULLS - A TERM TO DESCRIBE AN INVESTOR OR

TRADER WHO FEELS LIKE A STOCK'S PRICE WILL
GO UP.
BEARS - A TERM TO DESCRIBE AN INVESTOR OR
TRADER WHO FEELS LIKE A STOCK'S PRICE WILL
GO DOWN.

When looking at a price chart for a specific stock, there

are many ways for the price to be represented. The most
common way to represent the price of a stock is by way of a
candlestick chart. The candlestick is the type of chart that we
will focus on in our analysis, but feel free to explore the other
types of charts that are available with your trading software.
In the images on the next page you will find a breakdown of
what the candlestick actually represents.

11
and feel like the price is too high to sustain and should be
dropping sometime soon.

BULLS - A TERM TO DESCRIBE AN INVESTOR OR

TRADER WHO FEELS LIKE A STOCK'S PRICE WILL
GO UP.
BEARS - A TERM TO DESCRIBE AN INVESTOR OR
TRADER WHO FEELS LIKE A STOCK'S PRICE WILL
GO DOWN.

When looking at a price chart for a specific stock, there

are many ways for the price to be represented. The most
common way to represent the price of a stock is by way of a
candlestick chart. The candlestick is the type of chart that we
will focus on in our analysis, but feel free to explore the other
types of charts that are available with your trading software.
In the images on the next page you will find a breakdown of
what the candlestick actually represents.

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 Bearish Candlestick
Highest point price touched
Opening Price

Closing Price
Lowest point price touched

When the candlestick is

red, it shows that price
opened higher and
closed lower over a
period of time.
Bullish Candlestick
Highest point price touched
Closing Price

Opening Price
Lowest point price touched

When the candlestick is

green, it shows that price
opened lower and closed
higher over a period of
time.
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 Candlesticks are very powerful ways to chart price
because they show you the range the price traded in for the
specified time period. We will explore different timeframes in
the next section of this chapter. Candlesticks themselves
display particular patterns at times that could give clues to
which direction price would like to move. Although
candlestick patterns are not always very accurate, sometimes
implications can be made that can help with confirmation with
direction. Two candlestick patterns that can be useful in
trading are known as the “Hammer” and the “Hanging Man”.
These patterns usually occur when support or resistance
zones are tested as well as trend lines. We will discuss
support and resistance areas more in depth in the next
chapter. When spotted, these two candlestick patterns can
help with confirming the direction of the market.

SUPPORT - AN AREA ON THE CHART WHERE PRICE

USUALLY TENDS TO BOUNCE UPWARD. THINK OF IT
AS A FLOOR.

RESISTANCE - AN AREA ON THE CHART WHERE

PRICE USUALLY TENDS TO BOUNCE DOWNWARD.
THINK OF IT AS A CEILING.

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 Candlesticks are very powerful ways to chart price
because they show you the range the price traded in for the
specified time period. We will explore different timeframes in
the next section of this chapter. Candlesticks themselves
display particular patterns at times that could give clues to
which direction price would like to move. Although
candlestick patterns are not always very accurate, sometimes
implications can be made that can help with confirmation with
direction. Two candlestick patterns that can be useful in
trading are known as the “Hammer” and the “Hanging Man”.
These patterns usually occur when support or resistance
zones are tested as well as trend lines. We will discuss
support and resistance areas more in depth in the next
chapter. When spotted, these two candlestick patterns can
help with confirming the direction of the market.

SUPPORT - AN AREA ON THE CHART WHERE PRICE

USUALLY TENDS TO BOUNCE UPWARD. THINK OF IT
AS A FLOOR.

RESISTANCE - AN AREA ON THE CHART WHERE

PRICE USUALLY TENDS TO BOUNCE DOWNWARD.
THINK OF IT AS A CEILING.

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Hammer Candlestick
Pattern

This pattern usually is

bullish.

Hanging Man
Candlestick Pattern

This pattern usually is

bearish.

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JUMPING TIME WITH TIMEFRAMES

N ow that we have a grasp of what price charts are and

how they can be represented, we need to start
discussing timeframes. Timeframes tell you the period
of time that will pass before one candlestick completes and a
new candlestick starts forming. Depending on the type of
trader you are will depend on the timeframe you will want to
trade. This means that if you are a short-term day trader, you
will want to use shorter timeframes like 5, 15 or 30 minute
timeframes; if you are a long-term investor, you would want to
look at longer timeframes such as Daily, Weekly or Monthly
timeframes. Once you have established what kind of trader or
investor you want to be, you can then begin the process of
selecting a timeframe to start your analysis. The techniques
we will go over in this book will be more focused on swing
trading, which means we will be taking an approach that is
between short-term trading and long-term investing, having
our positions open for 2-3 weeks at a time, sometimes a little
shorter or longer. The time frame suggested for swing trading
purposes is the 4-hour chart. Use higher timeframes to find
trends and lower timeframes to find entry points. If you like to
trade the 1-hour chart, go four levels out to find the overall
trend (in this case the 4 hour chart) and go 4 levels closer to
find entries (in this case the 15 minute chart). The 4 levels rule
applies to whatever timeframe you want to trade, so adjust
accordingly.

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 Daily timeframe chart

Each candlestick represents 1 Day.

4-Hour timeframe chart

Each candlestick represents 4 Hours.

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 30-Minute timeframe chart

Each candlestick represents 30 Minutes.

As you can see from the previous examples, when looking
at the same stock but at different timeframes, the chart
appears to change. Going from a Daily chart to a 30-minute
chart at first looks like a totally different stock, but upon
further analysis, you realize that the 30-minute chart is
showing the exact same information as the Daily, just showing
the move more precisely. Patterns form on all timeframes,
which is a mathematical phenomenon known as fractals. Of
course, patterns that form on short timeframes will be a lot
shorter and quicker than patterns forming on longer
timeframes. If you would like to capture large profits, you will
need to allow more time for these large moves to occur.
Now that we have covered the fundamentals of what price
charts are and how timeframes influence the drawing of
them, we can move on to analyzing price charts so we can
figure out when to enter the markets and when to exit them.

17
CHAPTER 3
SUPPORT AND RESISTANCE

IS THAT A GLASS CEILING?

T here are levels on the charts where price seems to get

stuck or hit a wall. As shown in the above graphic and
as we mentioned earlier, a support zone is an area on a
chart where the price does not want to dip below. The
contrary is true when talking about resistance zones as
shown above. Price will move up to a certain point and start
to act as if a glass ceiling has been hit. These zones are quite
18
powerful because they indicate where the most buying or
selling pressures are.
The reason why support zones show up on the charts is
because Bulls feel like the observed support zone is a steal
of a deal for this financial security. When a market participant
intends to go long in the market, they begin entering buy
orders. When these buy orders congregate in an area, or
sometimes a very large buyer places a lot of buy orders in a
specific area, a support zone will usually form. We do not
have access to brokers’ order books, or else we would be
able to see where all orders have been placed, which is an
enormous advantage to have. Because this access is
restricted from us, we have to make inferences based on how
the prices move on the charts.
When a support zone has been found on the chart, this
becomes the most opportune time to buy the financial
security you have been analyzing. If you can catch the price
when it is trading in this zone, you will be able to enter a
trade with little risk and even more to gain.
The ideal way to handle this trade would be to buy the
security once it reaches the support zone and place a stop
order a little lower to limit your downside risk. An example of
this would be if you found a support level of $25 on company
XYZ, you would purchase the stock once it reached this level.
Just in case the trade did not turn out to be a winner, you
could place a stop order in at $24.50, or any other area you
identify as a point where the trade is going bad. With this
strategy, you effectively know exactly how much money you
will lose if the trade goes wrong, allowing you to control your
losses and keep them minimized. Defining how much you are
willing to lose on a trade is one of the most important aspects
of trading behind building a disciplined trader’s mindset.

19
 The same reason why support zones exist is also why
resistance zones exist: people feel a certain way about the
price of the stock. In this case, when the price hits a
resistance zone, investors are basically saying that the price
of this security is too expensive. Because of a lack of buyers,
the price starts to fall as demand is not there to support the
stock’s price to go higher. Bears now come into the market
and begin selling it further down. This would be the time
where you would want to be short in the market.
When a resistance area is found, this becomes the most
opportune time to sell the security. If you do not own the
security at the time, you can still sell the security as an
opening trade. This idea of short selling the market can be
confusing at first, but it definitely is legal and allowed. You
could compare it to a company selling items on their website
that they ran out of inventory for. Instead of stopping orders
from coming in, they continue to receive payments for the
original price, but the company then turns around and buys
the item their customer wants at a lower price. This gap is the
profit, the transactions just happened in reverse of how we
normally see them. This is how we can sell something we do
not own in the markets.
As with the support example before, if we see that
company ABC is forming a resistance area at $30, we would
short the market by placing a sell order at this level and
placing a stop order above this level at $30.50 or another
level you have identified as a point where the trade is going
bad.

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LONG - TERM FOR WHEN THE OPENING ORDER FOR
A TRADE IS A BUY ORDER; A TRADER OR INVESTOR
FEELS THE MARKET WILL RISE, SO THEY MAKE A
PROFIT BY BUYING A SECURITY FIRST, THEN
SELLING THE SECURITY BACK AT A HIGHER PRICE.
SHORT - TERM FOR WHEN THE OPENING ORDER
FOR A TRADE IS A SELL ORDER; A TRADER OR
INVESTOR FEELS THE MARKET WILL FALL, SO THEY
MAKE A PROFIT BY SELLING THE SECURITY FIRST
(WITHOUT PREVIOUSLY OWNING IT), THEN BUYING
THE SECURITY BACK AT A CHEAPER PRICE.
STOP ORDER - AN ORDER PLACED TO CLOSE OUT
AN OPEN POSITION THAT IS MOVING IN THE
WRONG DIRECTION. PUTS A LIMIT AS TO HOW FAR
PRICE CAN MOVE IN THE OPPOSITE WAY OF YOUR
DESIRED DIRECTION.
As we can see from the picture at the beginning of this
chapter, a phenomena happens once a support zone or a
resistance zone is finally breached. If price finally pushes
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LONG - TERM FOR WHEN THE OPENING ORDER FOR
A TRADE IS A BUY ORDER; A TRADER OR INVESTOR
FEELS THE MARKET WILL RISE, SO THEY MAKE A
PROFIT BY BUYING A SECURITY FIRST, THEN
SELLING THE SECURITY BACK AT A HIGHER PRICE.
SHORT - TERM FOR WHEN THE OPENING ORDER
FOR A TRADE IS A SELL ORDER; A TRADER OR
INVESTOR FEELS THE MARKET WILL FALL, SO THEY
MAKE A PROFIT BY SELLING THE SECURITY FIRST
(WITHOUT PREVIOUSLY OWNING IT), THEN BUYING
THE SECURITY BACK AT A CHEAPER PRICE.
STOP ORDER - AN ORDER PLACED TO CLOSE OUT
AN OPEN POSITION THAT IS MOVING IN THE
WRONG DIRECTION. PUTS A LIMIT AS TO HOW FAR
PRICE CAN MOVE IN THE OPPOSITE WAY OF YOUR
DESIRED DIRECTION.
As we can see from the picture at the beginning of this
chapter, a phenomena happens once a support zone or a
resistance zone is finally breached. If price finally pushes
21
higher through a strong resistance area, the old resistance
area usually turns into a new support area. The same goes for
if price makes a strong move to the downside and breaks
through the support zone we identified. The old support zone
would then turn into the new resistance zone. Imagine being
in a high rise building. If you break through the ceiling, the
ceiling of the bottom room is the floor of the top room.
Likewise, if you break through the floor, the floor of the top
room is the ceiling of the bottom room. We can use this to our
advantage as we try to map out what may happen in the
future, as it gives us levels to look for price to react in a
certain way. Levels based on past performance at certain
prices is known as market structure.
Market structure can help us when the markets stall out
and start going sideways. This is the most probable state that
you will find the markets in as things are usually stuck in a
range. The range is defined by support and resistance levels.
While markets are stuck in a range, one can make money by
simply trading in the range that has formed, making note of
price action at certain levels and marking it on the chart. Any
price between your defined support and resistance levels
should not be traded because they do not give you as good
of a statistical advantage as taking trades on the extremes.
An example would be if you have defined a support level of
$50 for company ABC and a resistance level of $70, it would
not be advantageous to make trades when price is at $61.
You would want to be buying as close as you could be to the
$50 level or selling as close as you could be to the $70 level.
Some patterns to observe that form at support and
resistance zones are the double bottom and double top as
well as the triple bottom and triple top. These patterns are
very common and should be expected when price is starting
to get close to a support or resistance zone. These setups
usually confirm that a support or resistance zone will not get
breached. Triple tops and triple bottoms show even stronger
22
evidence than double tops and double bottoms that a
support or resistance zone will not be breached. The more
bars between the tops or bottoms, the better the pattern.
Also, if price does not go as low as the initial low or as high as
the initial high, this is also a good sign that the zone is going
to hold. Examples are shown on the next page.
23
 Double Top

This shows that there is a lot of selling pressure at the resistance

level.

Double Bottom

This shows that there is a lot of buying pressure at the support

level.

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 Triple Top

This shows that there is a lot of selling pressure and that the
resistance zone will not be breached at the time.

Triple Bottom

This shows that there is a lot of buying pressure and that the
support zone will not be breached at the time.

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CHAPTER 4
TREND LINES

THE TREND IS YOUR FRIEND

E veryone dreams of buying an investment at a low price

and turning it into a huge sum of money. If only things
were that easy in the markets. Even with the most robust
trading plan, no one can tell what the next Facebook, Apple,
Tesla, Google or Amazon will be. Lucky for us, we don’t need
to know what the next big thing is, because as traders, we are
only interested in short-term movements. Sometimes
something will form on the charts that makes even a trader
turn into a long-term holder of a couple of shares, even if they
26
still trade the stock with other capital. What I am speaking of
is a trend. When spotted, a trending market can make you a
lot of money.
When investors become very bullish or bearish on a stock,
a trending market usually follows. A trend is when a financial
security continues to make higher highs and higher lows for a
uptrend or lower lows and lower highs for a downtrend.
Markets usually are trending roughly 30% of the time, but
when they do begin to trend, they turn into a very powerful
yet easy way to make money. All you have to do is remember
that the trend is your friend, so always trade in the direction
of the overall trend. If you are trading in a market that is
trending up, whenever you see a downward pullback, you
should buy the security. Likewise, if you are experiencing a
bear market, anytime you see a upward pullback, you should
sell the security. A pullback is the basis for the trend line, as
price moves back toward the trend line only to bounce off the
line and move higher. Price will not move in one direction and
only that direction, so pullbacks are natural and healthy for
the markets. You can compare it to going to the store and
seeing milk prices constantly rising every week. At some
point, a majority of shoppers will stop purchasing milk, which
will make the price come back down to entice new buyers.
Once price comes down to a level that shoppers deem
reasonable, the price will start to go back up until shoppers
stop buying as much again.

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PULLBACK - WHEN A STOCK MOVES AGAINST THE
OVERALL TREND IN THE SHORT TERM. THIS
USUALLY HAPPENS BECAUSE PRICE HAS
STRETCHED TOO FAR IN ONE DIRECTION AND
EXHAUSTED THE BUYERS OR SELLERS.
When drawing a trend line, you want to draw a straight line
that connects two points. The more points that touch the line,
the stronger the trend line. For uptrends, you want to connect
the bottoms, the higher lows. For downtrends, you want to
connect the tops, the lower highs. You can think of the trend
line in a bull market as a slanted support line and when in a
bear market as a slanted resistance line.
On the next page, you will find examples of both a
trending bear market and a trending bull market with trend
lines drawn in.

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PULLBACK - WHEN A STOCK MOVES AGAINST THE
OVERALL TREND IN THE SHORT TERM. THIS
USUALLY HAPPENS BECAUSE PRICE HAS
STRETCHED TOO FAR IN ONE DIRECTION AND
EXHAUSTED THE BUYERS OR SELLERS.
When drawing a trend line, you want to draw a straight line
that connects two points. The more points that touch the line,
the stronger the trend line. For uptrends, you want to connect
the bottoms, the higher lows. For downtrends, you want to
connect the tops, the lower highs. You can think of the trend
line in a bull market as a slanted support line and when in a
bear market as a slanted resistance line.
On the next page, you will find examples of both a
trending bear market and a trending bull market with trend
lines drawn in.

28
 Bull Market - Apple (AAPL) Price Chart

AAPL is displaying a very strong, upward long-term trend

represented by the green trend line. The red trend line shows a
secondary upward short-term trend that has developed.

Bear Market - Tupperware (TUP) Price Chart

TUP is displaying a very strong downward long-term trend

represented by the red trend line.

29
 As you can see, a trend can be a very powerful money
maker for us. Seeing that trends do not come around often,
we have to capitalize on these opportunities when they are
given to us. The earlier you can spot a trend, the more money
there is to be made. Trends usually occur after big news that
causes people’s view of the price of a security to change,
whether for good or bad.
As with all things good, they must come to an end. In this
case, once the trending market is over, the money making
does not have to stop, but the ease and the amount of profits
will certainly change. A majority of the time, we will see price
become stuck in another range once the repricing move has
concluded. If this is the case, a range bound trading strategy
should be deployed to continue to generate income.
Another powerful trading strategy that is based on trend
lines is a trend line break. Whenever a trend line is breached,
especially a very strong trend line, we usually see a pretty
strong retracement. The retracement is where we will make
money in this situation. Using Fibonacci numbers, as we will
discuss in the next chapter, can help you find out what price
the retracement will reach, allowing you to clearly mark your
exit point and realize your gains. Trend line breaks usually
occur because either the trend has ended and the security is
now settling down into a price range, creating a
consolidation pattern, or investors’ view of the security has
changed, pushing it into the opposite direction of the
prevailing trend. We will discuss patterns in more detail in
chapter 6. When a trend line is broken, the trend line will
usually flip from support to resistance in uptrends and from
resistance to support in downtrends. An example of this
behavior is shown on the next page.

30
 EUR/USD Trendline

The EUR/USD pair traded upward until it hit a resistance point.

The uptrend first acted as support as price bounced off the trend
line two times. Once price breaches the trend line, we see price
try to recover but fail. The trend line then turns into resistance,
still following the guidelines we discussed in the previous
chapter.

CONSOLIDATION - WHEN PRICE BECOMES

COMPRESSED, MOVING BETWEEN A TIGHT RANGE
OF PRICES. THIS USUALLY INDICATES INVESTORS
ARE TAKING A BREAK BEFORE STRONGLY PUSHING
PRICE IN THE INITIAL DIRECTION AGAIN.

31
 EUR/USD Trendline

The EUR/USD pair traded upward until it hit a resistance point.

The uptrend first acted as support as price bounced off the trend
line two times. Once price breaches the trend line, we see price
try to recover but fail. The trend line then turns into resistance,
still following the guidelines we discussed in the previous
chapter.

CONSOLIDATION - WHEN PRICE BECOMES

COMPRESSED, MOVING BETWEEN A TIGHT RANGE
OF PRICES. THIS USUALLY INDICATES INVESTORS
ARE TAKING A BREAK BEFORE STRONGLY PUSHING
PRICE IN THE INITIAL DIRECTION AGAIN.

31
CHAPTER 5
FIBONACCI IN THE MARKETS

A NATURAL RATIO THAT’S GOLDEN

U nless you really liked math, you may have not heard
about a famous mathematical sequence called the
Fibonacci Sequence. This sequence is very powerful,
because it is naturally present in a lot of things around us
everyday. It pretty much describes proportions seen in nature
mathematically. Defined by adding the two previous numbers
together to get the next number ( 0, 1, 1, 2, 3, 5, 8, 13, etc.), this
32
sequence continues infinitely. The power in this sequence for
us is the golden ratio that forms from this pattern, 1.618 and its
inverse .618. Using the inverse golden ratio mostly, and a few
numbers derived from it, we can start unlocking some hidden
features of the market.
When analyzing the markets, we can train our eye to
clearly see the concepts from previous chapters appear on
the charts. When we repeatedly see a set of higher highs and
higher lows, our minds will start drawing an invisible line
linking the bottoms to form an uptrend, or vice versa for
downtrends. When a security’s price starts bouncing off a
particular point, your eyes will start seeing horizontal lines
forming the support and resistance zones. What your eyes
will not show you as clearly are the Fibonacci levels we will
explore in this chapter. Although spotting Fibonacci levels
may not be something we can train our eyes to see, we have
tools that we can utilize once we see certain setups occur in
the markets to find these levels.
Price of securities move in waves; they never move in a
straight line because this type of price action is not
sustainable. You must remember that the markets are
basically an auction. When you place your bid or ask, you
become a market participant adding to the buying or selling
pressure exuded at the current time. From our previous
example of the grocery store shopper observing that milk
prices were steadily rising every week, we know that the
heavy demand for milk helped drive the price up. Once
enough shoppers stopped purchasing milk, the price then
retraced back down. Buyers then stepped back into the
market once price came to a point where they felt good
about purchasing milk again. This wave type movement is
how securities trade. Many investors like to use Elliot Wave
Theory to explain the movement of securities. This theory is
outside the purview of this book, but feel free to explore it
more in your free time.
33
BID - THE CURRENT PRICE A BUYER IS WILLING TO
PAY FOR THE SECURITY
ASK - THE CURRENT PRICE A SELLER IS WILLING TO
SELL A SECURITY
ELLIOT WAVE THEORY - STATES THAT SECURITIES
MOVE IN 5 WAVES IN THE DIRECTION OF THE
MAJOR TREND, THEN MOVE IN 3 WAVES IN A
CORRECTION PHASE
Because we know that securities like to move in waves,
we can utilize Fibonacci levels to take advantage of these
types of moves. In weak trending markets, we will usually see
a retracement all the way back to the 61.8% level. During
strong trends, we will usually see a retracement back to the
38.2% level. Another common retracement level is the 50%
level. To draw these levels in, all you have to do is open a
Fibonacci Retracement tool found inside of most trading
platform software, and create two points. For uptrends, you
will set your first point at the low of the trend and your second
point at the high of the trend. For downtrends, the exact
opposite applies, as you would set your first point at the high
of the trend and your second point at the low of the trend.
Once in place, you should see horizontal lines drawn,
measuring different Fibonacci levels on your chart now. I
have included a few examples of how to properly draw
Fibonacci lines on the following page.
34
BID - THE CURRENT PRICE A BUYER IS WILLING TO
PAY FOR THE SECURITY
ASK - THE CURRENT PRICE A SELLER IS WILLING TO
SELL A SECURITY
ELLIOT WAVE THEORY - STATES THAT SECURITIES
MOVE IN 5 WAVES IN THE DIRECTION OF THE
MAJOR TREND, THEN MOVE IN 3 WAVES IN A
CORRECTION PHASE
Because we know that securities like to move in waves,
we can utilize Fibonacci levels to take advantage of these
types of moves. In weak trending markets, we will usually see
a retracement all the way back to the 61.8% level. During
strong trends, we will usually see a retracement back to the
38.2% level. Another common retracement level is the 50%
level. To draw these levels in, all you have to do is open a
Fibonacci Retracement tool found inside of most trading
platform software, and create two points. For uptrends, you
will set your first point at the low of the trend and your second
point at the high of the trend. For downtrends, the exact
opposite applies, as you would set your first point at the high
of the trend and your second point at the low of the trend.
Once in place, you should see horizontal lines drawn,
measuring different Fibonacci levels on your chart now. I
have included a few examples of how to properly draw
Fibonacci lines on the following page.
34
 Xerox (XRX) Price Chart (4-Hour)

In this example, we can see price move up higher and hit a

resistance point. It then comes back down to the 61.8% level and
starts moving higher afterward.

Apple (AAPL) Price Chart (Daily)

In this example, we can see price start on an uptrend. We draw

our Fibonacci Retracement line based on the low of the initial
uptrend as well as the high. It then starts to retrace until it
touches the 61.8% level. Once this level is touched, the stock then
continues to move higher.
35
 In the previous examples, we can see that price goes all
the way to the 61.8% level and then turns higher. This
behavior is expected as defined by Fibonacci rules. The rules
are pretty straight forward when we are talking about
Fibonacci ABCD patterns. They state that the projected move
after the retracement will be equal to the initial move. In the
case above, you can see that the green dotted lines show
you the initial move up followed by an expected move up;
both lines equal in length. This is how we measure out the
potential move so that we can plan accordingly. As you can
see, price gets right to the point where we predicted it would
go. We would now expect to see price come back down or
stall out; we are not sure what price will actually do, but
seeing that we have already enjoyed a nice move up (or
down in some cases), this trade is finished and should be
closed.
This ABCD pattern formed by Fibonacci retracements can
be found on many different timeframes, so you will be able to
capitalize on these types of moves no matter what timeframe
you like to trade. Once a 61.8% retracement has been found
on a chart, you can mark your predicted price by drawing a
line of the same length as the initial move up and place the
starting point of the line on the 61.8% level as shown. There
are other “advanced” patterns that use Fibonacci
retracements that you can explore such as Gartley, Bat or
Butterfly Patterns, but these patterns are outside the scope of
this book and will not be discussed. Using the ABCD pattern
described earlier will be a profitable trade a majority of the
time, so there is no need to over-complicate trading.
As mentioned previously about strong trends, we will
usually not see a retracement all the way back to the 61.8%
level. We usually see a retracement back to the 38.2% level.
On the next page is an example of this behavior in the
markets. The same measurements to find the expected price
36
target apply here as well, with the expected move being
equal to the initial move.

EUR/USD Price Chart (1-Hour)

In this example, we can see price move up higher and hit a

resistance point. It then comes back down to the 38.2% level and
starts moving higher afterward.

Although this setup is not found everyday in the market,

when it is spotted, this can turn into a golden opportunity.
Whenever price starts moving against the overall trend,
looking for Fibonacci levels is something that could help you
in making decisions as to what price could possibly do. ABCD
patterns are very simple, yet powerful money making tools.

37
CHAPTER 6
POWER PATTERNS

THINGS OFTEN REPEAT THEMSELVES

Itthat
is said that there is nothing new under the sun. This implies
things must repeat themselves. When certain events
happen, the same reactions or consequences usually
ensue. The same can be said about events in the markets.
There are repeatable patterns that happen over and over
again in the markets, all because the markets are driven by
humans and humans are very predictable creatures. These
38
patterns can be exploited continuously because of their
consistent results, giving the trader who has an eye for these
patterns, an opportunity to become very profitable. The
patterns discussed next are ones that will constantly perform
well and make money.

FLAG PATTERN

The flag pattern is a common pattern found on price

charts that resembles a flag on a staff. This pattern usually
sets up after a strong move in either direction. It is defined by
a consolidation period that moves in the opposite direction of
the initial trend. The move in the opposite direction is what
makes this pattern resemble a flag. Examples of this pattern
are shown below.
Bull Flag Pattern

39
 Bear Flag Pattern

As you can see, after price has made a move in a

direction, the consolidation phase moves in the opposite
direction. Once it hits a certain point, sometimes a Fibonacci
level, price begins to move back in the same direction of the
initial move. The next move up can be measured out so that
you can set a target price to close the trade. As shown above,
the expected move up is roughly the same as the initial move
up, similar to how we measured out the Fibonacci trade we
discussed previously. We take a look at the low (or the high
for downtrends) of the initial move and the high of the move,
then we project this from the breakout point to get our target
price. The trade should be closed once the target price has
been reached. Utilizing the flag pattern is a very easy setup
to learn and trade, just as the next few patterns we go over
are.

40
PENNANT PATTERN

The pennant pattern is another common pattern found on

charts that is similar to previously discussed flag pattern.
They appear quite identical on the charts; the only change for
the pennant pattern being that it does not move in the
opposite direction like with the flag pattern. The pennant
pattern forms a a consolidation period that is similar to a
triangle, or a pennant that people hang on walls. Below are
examples of a pennant pattern.
Bull Pennant Pattern

41
 Bear Pennant Pattern

Looking at the pennant pattern on a chart, we can see the

similarities shared with the flag pattern. Both come after a
strong move in a direction, followed by a consolidation
period. This pattern too has an expected move that can be
measured out to produce a target price. The expected move
is measured out in the same fashion as the two previous
patterns discussed, marking the low (or high for downtrends)
of the up move as well as the high. We then project this line
from the breakout point to find our target price. The trade
should be closed once the larger price has been reached.
This is yet another simple but powerful setup to make
consistent profits in the markets.

42
HEAD & SHOULDERS

The next pattern we will discuss is known as the head and

shoulders pattern. It is called this because of the shape of the
pattern, resembling a figure that has a head and two
shoulders. This pattern shows up quite often, and once you
train your eye to see it, you will see that it is not an
uncommon thing to see. The pattern is defined by three
peaks, with the middle peak being the highest (or lowest) as
well as a neckline that is formed by the lows of the peaks.
Examples of this pattern are shown below.

Head and Shoulders

43
 Inverted Head and Shoulders

The head and shoulders pattern can be another money

maker for traders because of the unique visual it shows on
the chart. The head and shoulders pattern itself confirms a
market reversal. Price tries to test new levels and gets
rejected. It then digs a little deeper the next time, but this
attempt too gets rejected. The third time it tries to test these
new levels, whether they are high or low, it does not break
lower than the middle peak. This shows that there is either a
lot of buying pressure if we are looking at an inverted head
and shoulders, or there is a lot of selling pressure if we are
looking at a regular head and shoulders. We will only like to
take this trade when the neckline is declining for a head and
shoulders and ascending for an inverted head and shoulders.
This gives us confirmation that the trend is indeed about to
reverse. If the neckline is not exhibiting one of these
characteristics, this will not be a reliable head and shoulders
pattern and should not be treated as such.
To trade the head and shoulders pattern, we will utilize the
neckline. Once the neckline has been broken, this is the time
you would want to place your trade. The way we calculate
our target price is by measuring from the middle high, or low,
to the neckline. We then use this line and project it from the
44
neckline breakout point. Once the target price has been
reached, the trade should be closed. A lot of times, a retest of
the neckline comes next, which gives you another
opportunity to enter the same trade again. You can see how
the head and shoulders pattern can be very useful when
trying to become a profitable trader.

WEDGES

The wedge pattern is another key reversal pattern that we

will be discussing next. Wedges form on charts when price
starts losing steam after moving in a direction. they look
similar to the next patterns we will discuss, triangles, but they
have a small difference in their aesthetics. A rising wedge is a
bearish sign, signaling that the market wants to start heading
lower. Contrarily, a falling wedge is a bullish sign, signaling
that the market wants to make a move upward. Rising
wedges are defined by a slightly sloping top accompanied by
a sharply rising bottom. The falling wedge is defined as the
opposite setup, a slightly sloped bottom with a sharply falling
top. Examples of a wedge pattern are shown on the next
page.

45
Rising Wedge

Falling Wedge

46
 Wedges are really good tools for spotting possible market
reversals just like the previously discussed head and
shoulders pattern. Wedges confirm that the trend is stalling
and ready to move in the opposite direction. The way that we
trade a wedge is pretty simple, just as the previous patterns.
Once found, we will wait for price to break the sharply sloped
line. Our target price is found by measuring the lowest point
of the wedge pattern to the highest. We then project this line
from the breakout point to find our target price. Once the
price target is reached, the trade should be closed.

TRIANGLES

Triangle patterns are very similar to wedges. In fact, they

could be called cousins, just as the flag pattern and the
pennant pattern could be lumped together in the same family
as well. Triangle patterns will be the last pattern we discuss in
this book, but feel free to explore other patterns that have
been found. This book only focuses on the simple yet
profitable patterns we have discussed up to this point,
because these patterns prove to generate good returns when
found and do not have complicated rules or guidelines to
follow. Trading should be easy, as we have reiterated
throughout this book. Triangle patterns are extremely easy to
spot. Ascending Triangle patterns have a flat top with a rising
trend line; Descending Triangle patterns have the opposite, a
flat bottom with a falling trend line. Ascending Triangles
usually are a bullish signal, giving us the expectation that
price will continue to rise. Descending Triangles contrarily
give us a bearish signal. The last Triangle pattern we will be
looking at is the Symmetrical Triangle Pattern. This pattern is
symmetric on both sides, so this pattern could breakout in
47
either direction, meaning we cannot classify this pattern as a
bullish or bearish pattern. Examples of all three are provided
below.
Ascending Triangle

Descending Triangle

48
 The triangle pattern is yet another powerful setup that can
make any trader profitable if it is traded correctly. This
pattern, like the others we have discussed, has a measured
move associated with it too. We can calculate the expected
target price by simply measuring the lowest, or highest, point
of the triangle formation to the opposite side. We then project
that line from the breakout point to get our price target. Once
the price target has been reached, the trade should be
closed.
These few patterns we just discussed can make a trader a
lot of money consistently, if used appropriately. There are a
few rules and tips I will share with you guys in the last chapter
of this book that can help you with navigating through the
markets. First, I want to refresh for some and introduce to
others, order types and how they can be used.
Symmetrical Triangle

49
CHAPTER 7
ORDER TYPES

CAN I PLACE YOUR ORDER?

T hehasmost important thing to be able to do once analysis

been done and a decision has been made on a
trade is to now open that trade by entering your order.
What would be the reasoning for doing research and finding

50
the perfect trade, only not to take the trade and let the
opportunity pass by? In this chapter, we will talk briefly about
order types and how they are used.

MARKET ORDERS

Market orders are the most basic order that can be placed.
A market order is an order that says you want to buy at the
current ask price or sell at the current bid price. This order is
simple enough, and will get filled almost instantly. A caveat to
a market order is if someone is trying to place a very large
order and not enough shares are available at the current
price. When this happens, the price can change while
execution is taking place on some of your shares, so all
shares may not be purchased at the same price. This order
type is usually used when a trader wants to get out at this
current moment in time, not worrying about a specific price
that needs to be hit. Traders can utilize this type of order
when you are actively watching the markets and would like to
enter or exit a trade right then. Otherwise if a certain price is
more important to you, you can take advantage of other order
types that are more automated, triggering your order to
execute after a certain condition has been met.

LIMIT ORDERS

Limit orders are yet another way traders can interact with
the market to open or close trades. A limit order specifies a
certain price that must be hit before the order will be
51
triggered. It will only trigger when price equals the order price
or is a better price. These types of orders are used when
traders have a desired price they would like to enter into a
trade for a certain security. Buy Limit orders must be below
the current price and Sell Limit orders must be above the
current price for them to work. If you place a Buy Limit order
above the current price, it will trigger instantly because price
is lower (better) than the desired order price. The same is true
for sell orders, where if you place the order below the current
price, this too would trigger your order to execute because
the price is higher (better) than your desired order price.
We can use Limit orders when we find expected price
targets for our trades. If we buy a security and measure out
that the expected move will put the security at $35, instead of
sitting around looking at the charts waiting for price to hit
$35, traders can place a Sell Limit order at $35 and allow the
markets to handle the rest. Once price reaches $35, the trade
is automatically closed by triggering your Sell Limit order. The
same concept holds true for when the markets are heading
down. If the measured move of your security is down to $20,
you can place a Buy Limit order at $20 and allow the markets
to close your trade out once price touches the $20 mark. A
diagram showing a visual of Buy and Sell Limit orders is
provided on the next page.

52
 Limit Orders

Buy Limit orders go below the current price; Sell Limit orders go
above the current price.

STOP ORDERS

Stop orders are the last type of order we will discuss.

These orders can be used to help protect a trader against
accumulating large losses. When used correctly, stop orders
help a trader define the risk taken by creating an exit point
where the trader feels as if the trade is not going to turn out
as expected. Stop orders are the exact opposite of limit
orders. A Sell Stop order must go below the current price,
whereas the Buy Stop order must go above the current price.
A visual is shown below.
We can use Stop orders like previously discussed, to limit
losses in trades we are in. By utilizing a Stop order with your
53
trades, you can set the amount of money you are willing to
lose to see if a trade will go in your favor and make money.
We can even turn trades into zero-risk trades by moving our
Stop order to the entry point of the trade. Stop orders can
even lock in some profits, if price moves substantially in our
favor. Another application of a Stop order is when a trader
wants to enter into a trade, but they are willing to buy at a
higher price or sell at a lower price than the current price, just
to make sure price is indeed trending in a certain direction.
This is a conservative way to approach the markets, entering
trades only when certain levels are broken. Below you will
find a visual diagram of a Stop order.
 Stop Order

Buy Stop orders go above the current price; Sell Stop orders go
below the current price.

54
CHAPTER 8
TRADING TIPS AND STRATEGIES

TRADING PLAN

T here is a very famous quote that says a failure to plan is

a plan to fail. This cannot be truer than when speaking
of trading the markets. There should not be one trade
that you take without a proper plan. There are three W’s that
we need to answer when taking any trade:
55
 What direction is the market going?
When to get out if the trade goes bad?
Where to take profits?
If all three of these questions cannot be answered before
taking a trade, be advised that you should sit on the sidelines
until you can answer them. Our goal is to minimize losses and
maximize winners, so we need a framework in place that
allows us to do this. By answering these questions, you can
start to develop a framework that you can continuously
follow.

RISK MANAGEMENT

Risk management is key to any trader who wants to

survive in the financial markets. Taking on too much risk, or
allowing positions to move in the wrong direction too much
are potential downfalls to a trader. Our purpose of trading is
to make money, not lose it, which is why risk management is
so important. Imagine a trader entering into a trade, with
heavy conviction that the security is going to move upward.
Once the trader buys the security, the price starts to drop.
The trader does not close the trade out because they have
such confidence in their analysis which told them that the
security was going to rise, they continue to keep the position
open. The security takes another leg down and causes the
trader to lose even more money, so they finally close the
trade, losing a lot more than they expected. To make up for
this lose, they choose to get back in the markets and find
another trade that will be able to make all the money they lost
back. They begin to revenge trade, taking aim at the market
because they feel it let them down by going the wrong way. If
the trader is not careful, they will fall back into another bad
56
trade losing more money, all because they are focused on
getting the market back instead of trying to understand what
the market is actually doing.
Strongly opinionated traders can lose a lot of money when
they let their egos get the best of them. All trades will not be
winners, so plan for it. Be prepared to admit when you take a
losing trade and own your decision. It’s best to admit you
were wrong and only lose a few dollars instead of holding on
to a loser and losing more just to see if your flawed analysis
was correct. No more than 5% of your account should be at
risk during a trade. Some professionals only like to risk 2.5%
or lower of their portfolio to see if a trade will pay them. When
trading something you deem risky, only put half of your
ending position amount on in the beginning to open the trade
so that you do not have to risk too much to find out if your
analysis is correct. If indeed you find that the trade is doing
what you expected, you can add more money to the trade to
get to your end size. An example is if you were analyzing a
security and saw that $30 would be a good entry, but you felt
like the trade was a little risky. If you planned on holding 100
shares in this trade, you can open the trade by only buying
50 shares until you felt comfortable enough to add the next
50 shares to complete your order. This cuts down on the
amount of money risked to see if a risky trade is a winner.
Before you open a trade, always ask yourself how much
are you willing to lose. Never plan a trade out without
knowing how much you are willing to lose to find out if the
trade was a good or bad idea. Although we are confident in
our analysis, we must learn to be lenient in our expectations.
We cannot force the market to do anything, we can only
follow along and enjoy the ride, so do not lose all of your
money along the way.

57
GAPS

When looking at a price chart, sometimes you will see

sections on the graph where price jumps or falls to new levels
without connecting to the previous candlestick. This is known
as either a gap up or gap down. Gaps occur when there is a
lot of buying or selling pressure before the market opens
(pre-market trading) or after the market closes(post-market
trading). If a company released an incredibly good earnings
report before the bell, you would expect to see a lot of active
investors and traders in the pre-market hours buying the
security. This influx of buying pressure will of course cause
the price to change, resulting in a gap up when the market
opens officially to everyone.
One thing that can be noted about gaps is that they are
usually filled. The reason why gaps are usually filled is
because when price moves in an abrupt way and jumps over
prices, a lot of market participants may have wanted to jump
in on a price that got skipped. To allow for these orders to get
filled, market makers allow price to come back down and fill
the gap so that all of the prices that were skipped can now
get filled. Market makers are people that make the prices for
different markets, and the way they make money is by
executing orders. The more orders they are able to execute,
the more money they make. This makes sense as to why
market makers would want to drive price to an area where a
lot of orders reside. An example of a price gap is shown on
the next page.

58
 Microsoft (MSFT) Price Gap

Price moves strongly higher, skipping some levels in the process.

Price then moves back lower to fill the gap that had formed.

Gaps do not fill at the same rate; some take a few days to
fill where some take months or even years to fill. Using this
gap fill knowledge, we can structure certain trades based on
it trying to fill a nearby gap that formed on the chart. Although
this is not a common setup to trade, when spotted, gap fill
plays are very reliable trades with a clearly defined price
target (the price before the gap happened). With some
practice, incorporating gap fill trades can help a trader
become even more profitable by adding another trade setup
to their arsenal as well as helping build expectations of what
price may do.

59
VOLUME

Volume is probably one of the most important and

powerful things about the market, but many do not even care
to talk about volume when talking about trading and
investing. Volume shows you how many shares of a security
are traded on a given day. The more activity, the higher the
volume. When we see price moving on low volume, this is a
concerning thing to us because there is not enough
conviction in the market to help sustain the move. Moves
made on high volume show a lot of conviction in the markets
and usually confirm that price indeed wants to continue
moving in the same direction.
When we trade breakout patterns like discussed in the
“Power Patterns” chapter, we like to observe if volume
increases along with the breakout. If this is the case, the
breakout can be viewed as valid and sustainable. Otherwise,
if a breakout occurs on low volume, this move may not be
sustainable and price may revert back to where it was
previously, showing us a false breakout on the chart. Another
phenomena observed during breakout moves is something
called buyers' remorse. Buyers’ remorse occurs when
investors and traders push price strongly in a direction
causing it to breakout, but then stop buying. The reason this
occurs is because during the breakout phase, price gets
pushed a little too far, causing some market participants to
feel as though they may have payed too much. When these
people stop driving the market, a retracement occurs. In this
case, the retracement will usually come back to the
resistance or support zone it broke through. This gives us
another chance to enter the trade if the initial breakout was
missed. This approach can also be used as a more
conservative way to trade, only waiting for breakouts to
60
confirm themselves before taking a trade on them. An
example of this behavior is shown below.

AUD/USD Buyers’ Remorse

As shown above, when price breaks above the resistance zone of

the pattern forming, it trades higher but then turns around. It
comes back to the previous resistance zone and bounces,
trading higher afterward, confirming the breakout is real.

SCREENERS

Screeners are tools that you can use to find securities that
fit a certain criteria, much like a search engine. When a trader
has certain characteristics they are looking for, they can
utilize a screener to find securities that match.
Volume is something that is of interest to us, so filtering by
this metric can be of use. Looking for stocks with volume
61
levels over 1,000,000 lets us know that this security is very
liquid, meaning that we will not be worried about possibly not
getting our order filled because there are not enough
participants in the security. The lowest a trader may go when
looking at volume is 500,000. The results give us good
securities that will have a lot of participants trading them.
Another metric that may be of use to a trader is the Beta
metric. The Beta of a security tells you how volatile a security
is, meaning how much it will move. When Beta is high
(anything over 1) , this means that the security has been
making large moves when compared to the overall market
(usually the S&P 500). When Beta is low (anything under 1),
this tells you that the security is a lot more stable and has not
been making large moves when compared to the overall
market.
Using just these two filters can get you a lot of big moving,
liquid securities to look in. Depending on your trading
software, there are a lot of different options that you can use
to filter securities by. While playing with different parameters
and metrics, you may stumble upon another filter that you
would like to add to your search criteria so that you can
narrow your results down even more. Screeners are a very
useful tool that can simplify your search process, leaving you
with securities of your taste to analyze and make trades on.

INDICATORS

As you have noticed, indicators have not been discussed

in this book up until now. The reason for this is because
although indicators can sometimes help with certain
decisions, they all lag and give either false signals or late
62
signals. Because of this, this book has focused more on price
and how it moves. Price is the most important thing when
discussing securities, as mentioned earlier, so observing its
behavior and developing expectations is more valuable to us
than relying on indicators. Two indicators that deserve some
recognition though are the On Balance Volume indicator and
Moving Averages.
On Balance Volume is an indicator that cumulatively tracks
volume, a very important key to how securities move. The
formula for how this indicator works is very simple. If the
closing price of a security is higher on today than yesterday,
all the volume of today is added to the total. If the closing
price of a security is lower on today than yesterday, all the
volume of today is subtracted from the total. If the today ends
at the exact same price as yesterday, no adjustment is made.
This indicator allows us to track the buying and selling
pressures of securities. Volume is said to lead price, so when
high volume is observed, but little price movement, price
usually follows along, lagging behind for a brief period.
Divergence and convergence is how we use this indicator to
our advantage. If we see price moving higher, but the On
Balance Volume line is not making higher highs, this shows
that there is some weakness in the trend and that price will
start heading lower. The same is true for if we see price going
down and the On Balance Volume line moving up; we would
expect to see price move up later. If price and On Balance
Volume are trending the same way, this is good signal that
price will continue moving in the same direction. This
indicator works best when used on Daily charts. An example
of the indicator is included on the next page.

63
 On Balance Volume Convergence

You can see that the On Balance Volume line and price are both
trending in the same direction. This gives us confirmation for
price to continue to move higher.

On Balance Volume Divergence

You can see that the On Balance Volume line is falling and price
is rising. This gives us confirmation that price may start moving
lower soon, seeing that price follows volume.
64
 Moving averages are a very simple method of tracking
price. The way this indicator works is it takes an average over
a predetermined range (usually called a period) and displays
the results. Seeing that price is always changing, the moving
average will either move up when price is trending up, or
down when price is moving down. The shorter the period, the
more erratic the line appears. The longer the period, the
smoother the output line becomes. A lot of traders like to use
the 20-Day, 50-Day, 100-Day and 200-Day moving averages.
When these lines cross each other, traders will use this as a
signal to open a trade. When the shorter period line crosses
above the longer time period line, this creates a buy signal.
When the shorter period line crosses below the longer time
period, this creates a sell signal. Using moving averages can
help confirm trades, but are best used in trending markets. An
example of moving averages is shown below.

Moving Averages

The 50-Day moving average reacts to price changes a lot more

drastic than the 200-Day moving average. This is because less
candlesticks are used to calculate the value.
65
USEFUL GUIDELINES
Below are some guidelines that you can incorporate into
your trading plan.
1. Scale into all risky trades. Start with 25% of what you
want your final position size to be. If you intend to hold 100
shares of a security, you should start with 25 shares to cut
your risk in the beginning, gradually adding more shares
until you reach 100 once the trade looks like a winner.
2. Size your trade according to your confidence level in
the trade. If you are highly confident with a lot
confirmations showing this trade may work, you can afford
to go a little larger. If you go larger, you must be careful to
watch this trade as it can lose more money also. If you are
not as confident in a trade but still want to see if it turns
out to be a winner, trade a smaller size.
3. After 3 bad trades in a row, go back to only trading 1
share of the security until you get back into the flow of the
market (1,000 for Forex). Sometimes we get out of sync
with what is going on. To safeguard against losing even
more money trying to figure out direction, go back to
trading 1 share, no matter how large of a trader you are
now, until you get back into the flow. Resume normal
trading size once you are back in the swing of things.
4. Do not try to call tops or bottoms of the market. Too
many traders get burned and lose a lot of money trying to
call market tops and bottoms. Use your analysis tools
discussed earlier in this book and any other proprietary
techniques you have developed, and make your trading
decisions based on these. Otherwise, you could find your
self holding on to short positions during uptrends and long
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 positions during downtrends.
5. Do not rush into a trade. Allow the market to show you
what it is trying to do. We cannot force the market to do
anything, so we must be patient and follow along. The fear
of missing out is a real human emotion, but you must fight
the temptation to chase the market.
6. Never become so married to your ideas that you fail to
see when the market reverses and starts going against
you. You must be strict in your rules for entering a trade,
but you must be lenient in your expectations of how the
trade will turn out. We are not trying to hold on to losers
for a long time, so sometimes you will need to admit that
you were wrong and live to trade another day. Ego is the
death of a trader.

To all of the readers of this book, I wish you well on your

trading journey. I hope you will be able to utilize the
techniques and concepts I have shown with much success.
Cheers to profitable trading!

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