diff --git a/Beginner-Information/Technical-Analysis-101-for-Beginners.md b/Beginner-Information/Technical-Analysis-101-for-Beginners.md new file mode 100644 index 0000000..862a40f --- /dev/null +++ b/Beginner-Information/Technical-Analysis-101-for-Beginners.md @@ -0,0 +1,126 @@ +You're buying based on gut feeling, selling on gut feeling. Why do you hate money? Technicals 101 for beginners. +================================================================================================================ + +**Author: [u/DaySwingTrade](https://www.reddit.com/user/DaySwingTrade/)** + +[Technical Analysis](https://www.reddit.com/r/wallstreetbets/search?q=flair_name%3A%22Technical%20Analysis%22&restrict_sr=1) + +Not a trading advise. + +Hey there folks and congratulations if you haven't blown up your account last week. Thanks to TA, mine barely survived. It is messy out there, making it very difficult to trade. Honestly, if you're down, that's understandable because these are not normal conditions. We just had a 12 month flash course on market behavior. What we've witnessed in this short time happens in the span of 3+ years, not months. + +Bright side is, we learned a lot. Through pain and punishment. Turns out those lessons are the most kept. It's like we are little puppies. + +So, what do we do? + +We do what seasoned traders have been doing for decades. We understand the basics of charts and practice technical analysis. It's gonna be a long Sunday read but I promise, it'll be an eye-opening one for most of you. Don't worry. Basics are super simple and I won't confuse you with pattern terminology. + +If you're not using these methods already, this post is going to improve the way you trade exponentially while minimizing losses if your trade begins going south. You'll be able to apply these methods on short and long term positions. + +I received a PM from a fellow Redditor yesterday, saying his puts lost half the value. I'm sure those losses would not have been this big if TA was involved. We will get it back my dude. Read on. + +Resistance and support. Two simple, magical words we're going to cover today. + +You're gonna love the story behind this trade. Perfect example of how powerful technical analysis can be. Below is a $7K buy-in, 0tde SPY 390 call I traded on Friday. One hundred percent based on a known pattern. + +I'd like for you to pay attention to time of entrance (at support) and exit (at resistance) then match those with order execution times which you will find on top. + +[![r/wallstreetbets - You're buying based on gut feeling, selling on gut feeling. Why do you hate money? Technicals 101 for beginners.](https://preview.redd.it/d2nrriswrgo61.jpg?width=1920&format=pjpg&auto=webp&s=78703c09cfc24458b1d63ddde0c022038dd1f72f)](https://preview.redd.it/d2nrriswrgo61.jpg?width=1920&format=pjpg&auto=webp&s=78703c09cfc24458b1d63ddde0c022038dd1f72f) + +Back story. Folks, I can't make this shit up if I want to. I'm two inches away from my screen, glued. Watching green candles pile up over support, printing...On the way to 390 resistance. I know if it breaks, we're going 391 easy..Last I saw was 389...Goddam power flickered, caused a reset on my modem. Panic sunk in. + +About 45 seconds later, connection came back. I remember I kept saying please be above 390...please be above 390....I knew as a fact, when it hits that major resistance at 390, there's a fat chance of rejection, sending my greens to red in matter of fifteen seconds. + +I saw 390.12 on screen. Smashed sell. Could've been a good trade gone wrong. My original plan was to sell half at resistance and sell the other half after a possible break out. Slightly above 391, those contracts were going for $1.50 per. + +[![r/wallstreetbets - You're buying based on gut feeling, selling on gut feeling. Why do you hate money? Technicals 101 for beginners.](https://preview.redd.it/d0f493b8sgo61.jpg?width=519&format=pjpg&auto=webp&s=61db8ae9c9f115ae33f5aacfbfd8f24e7cc3ddda)](https://preview.redd.it/d0f493b8sgo61.jpg?width=519&format=pjpg&auto=webp&s=61db8ae9c9f115ae33f5aacfbfd8f24e7cc3ddda) + +Let's step away from day trading, apply support and resistance basics on longer term charts. After all, you need to be mentally unstable in some way to even consider day trading. + +We're gonna take General Electric as example. Starting with it's 6 month chart, then zoom into weekly. + +On October 10th 2018, GE closed at what seems to be a random, insignificant price. $13.28. + +On February 12th 2020, it hit $13.26. Failing to close above $13.30 once again. Think about it. After millions of trading volume and after 16 months, it touched the same number and traded down the following days. Crazy accuracy, couple cents. + +[![r/wallstreetbets - You're buying based on gut feeling, selling on gut feeling. Why do you hate money? Technicals 101 for beginners.](https://preview.redd.it/3tumqvxssgo61.jpg?width=1532&format=pjpg&auto=webp&s=06512087a5ea457dabb354960c24c5d548f495e2)](https://preview.redd.it/3tumqvxssgo61.jpg?width=1532&format=pjpg&auto=webp&s=06512087a5ea457dabb354960c24c5d548f495e2) + +Clearly, what seemed to be chaotic, random price action is not chaotic and random. It follows rules and order of it's own. Just like everything else around us. + +Stay with me. + +Drawing bearish and bullish channels + +Here's the GE weekly chart. Each candle represents one hour. + +[![r/wallstreetbets - You're buying based on gut feeling, selling on gut feeling. Why do you hate money? Technicals 101 for beginners.](https://preview.redd.it/pwxrsx91ugo61.jpg?width=1532&format=pjpg&auto=webp&s=d0b6361605df5fe66cfdac3d6c6cbe2c15b1a44b)](https://preview.redd.it/pwxrsx91ugo61.jpg?width=1532&format=pjpg&auto=webp&s=d0b6361605df5fe66cfdac3d6c6cbe2c15b1a44b) + +Super simplified. You take the bottom of the lowest candle (A) and draw a line until it touches the bottom part of another candle that's trending up (B). + +Now, we repeat that on top portion. This time, starting a line at the top of candle (C) and ending at another candle that is trending up (D). Bullish channel is complete. + +Using same principals, you can also draw a bearish channel. In that case, instead of pointing up, channel will be pointing down. + +Next, we're going to add to our chart what's proven to be the resistance at $13.2x. Purple horizontal line. + +Guess what price GE closed on Friday. 🤯 + +[![r/wallstreetbets - You're buying based on gut feeling, selling on gut feeling. Why do you hate money? Technicals 101 for beginners.](https://preview.redd.it/ssi2kllbvgo61.jpg?width=1529&format=pjpg&auto=webp&s=6e6ac7bbb85f40bd35a4232c794b39f8f4d54cfc)](https://preview.redd.it/ssi2kllbvgo61.jpg?width=1529&format=pjpg&auto=webp&s=6e6ac7bbb85f40bd35a4232c794b39f8f4d54cfc) + +So, buying short expiry puts Monday on GE is free money? It failed to break resistance again and again. + +No. Analyze the chart below. Area I highlighted shows it actually did break the resistance intraday and held all the way to closing bell. There's a big possibility that resistance is now a potential support. What we're seeing on the highlighted portion could be the back test of said support, closing at $13.2x and not below it. + +[![r/wallstreetbets - You're buying based on gut feeling, selling on gut feeling. Why do you hate money? Technicals 101 for beginners.](https://preview.redd.it/kma6obvoxgo61.jpg?width=1529&format=pjpg&auto=webp&s=6a7be213dc070bc178a35316600bfa84a8f77ea4)](https://preview.redd.it/kma6obvoxgo61.jpg?width=1529&format=pjpg&auto=webp&s=6a7be213dc070bc178a35316600bfa84a8f77ea4) + +As a case study, what do we look for Monday eod? + +We look for confirmation. If we see a strong green candle close above $13.50, in my book that's a long buy (calls). Likely 13.2x resistance becoming support. + +If we see a strong red candle finish below 13, breaking down our bullish channel, that signals resistance held once again and it will most likely continue to go down, once again. Puts galore. + +Here's the part that matters for you the most. + +Do not buy calls near major resistance. Period. Buy the confirmed support. Sell the confirmed resistance. + +We see paper handing comments all the time. "If I were to hold two more days, I could've doubled my money". + +Why would you sell when you see green candles making higher highs inside a bullish channel? Sell when it's close to resistance. + +What about red candles inside the channel? + +It's okay. Take a look back at the 0tde SPY 390c chart. If I were to see red candles getting close to support, I would've sold and worst case scenario lose 10-15%. + +Buy at support, sell at resistance. Buy at support, sell at resistance and don't look back. + +Apply these principals to your weeks, months out expiry contracts. Pull charts that each candle represents 4 hours minimum, one day candles ideally. TA is much easier and accurate when it's based on longer time frames. I'm telling ya, damn thing closed at 13.2x two years ago! + +Minimizing losses when trade goes south. + +This is the hardest part to execute. Denial, hope, what ifs... I lost $24K two weeks ago by not practicing what I'm about to preach. + +I added red candles on our GE Chart to simulate a support break. Each candle represents four hours. Take a look. + +[![r/wallstreetbets - You're buying based on gut feeling, selling on gut feeling. Why do you hate money? Technicals 101 for beginners.](https://preview.redd.it/hzjczrif3ho61.jpg?width=1529&format=pjpg&auto=webp&s=8d1495016c42c920d0cf0754011f7d8a142cb5e6)](https://preview.redd.it/hzjczrif3ho61.jpg?width=1529&format=pjpg&auto=webp&s=8d1495016c42c920d0cf0754011f7d8a142cb5e6) + +At this point, it's pretty much gg. Even though we see a green candle at the end, due to time decay, calls are destroyed. Basically, it needs 3 perfect green candles just to get back inside and 3 more candles to start trending up in the channel. 4 hour candles, by the time that happens, 30-50% poofed. In this scenario, I bet bears would buy puts at first sight of support break which I wouldn't blame and definitely participate. + +I'd like to point this out again. Some charts I showed you guys as examples are short time-framed. You're better off applying these basics on charts that each candle represents one day, assuming your position is not expiring in 48 hours. Remember this as beginners, longer expiration, more data, better TA. More gains, less losses. + +I'm anxious to see how next week is going to play out. We're stuck, yo-yoing between support and resistance on pretty much all indexes and big caps. It's simply not possible for me as an apprentice trader to speculate. + +What I know is this. I'm not touching TSLA. I'm not touching AAPL or SPY or QQQ or any ticker that has been chopping up and down between support and resistance. Bunch of noise. Time decay. Not good for option contracts. + +I want to see resistance break and hold for calls. + +I want to see support fail for puts. + +Don't know about you but I like my money. Not going to close my eyes, open a position and hope for the best. Buying based on gut feeling, selling on gut feeling. That's gambling not trading. + +I get the biggest kick when I see my people after Friday close saying, "Shit...What am I gonna do now for 48 hours?" + +Well sir...You pull out crayons, draw some lines, look for opportunities. Add more layers to charts. Moving averages, bullish cross overs, RSI...It's a treasure hunt. + +This is the way. + +Cheers.