Fibonacci and Breakouts

Yggrasil shares how he spent 10-15 hours a day trying to learn stock trading. I have the same story. I am learning from the sidelines. Learning from the free stuff and then I got hold of the Blueprint. It has enlightened me greatly of the ways of stock trading.

ZF shares on the interpretation of Fibonacci retracements

• as long as FIBO is 38.% and above, bull territory (more money)
• between 38-50 is bullish bias
• between 61-50 is bearish territory: dumping or accumulating time
• 61.8-76.4% is last chance area; possible bounce play
• below 76.4% is death zone

Rayner Teo shares how to trade on breakout

• breakout with buildup: buildup he means a period of sideways trend
• higher lows into resistance or ascending triangle on trendlines (price going up)
• lower highs into support of descending triangles on trendlines (price going down)
• re-test where he illustrates when the previous support because the new resistance

Trading 212 shares on how to trade on breakout

• breakout means price moves and closes ABOVE resistance levels ad BELOW support levels
• trade range: support + resistance levels
• enter on actual breakout
• pre-set level before the breakout at previous high
• enter when candle closes above the trade range
• false breakout: when price breaks support and resistance and return back to trading range

Here is tutorial on trading retracements by Trading 212

Alignments, Strikes and Parallel Universe

There are important conditions to remember and they also have creative terms

• Zeus strike (ZS)
•  price pierces or is above 100 MA; 
• signals trend reveral
• also known as death cross?
•  Inverse Zeus Strike (iZS)
• price is below the 100 MA
• signals downtrend
• Alignment of the star (AOTS)
• where price is above 20/50/10 MA and
• 20MA > 50MA > 100MA
• signals uptrend; but not completely a buy signal as it also needs other trigger points
• Reverse Alignment or inverted AOTS
• 100 MA > 50 MA > 20 MA
• signal downtrend
• Parallel Universe Alignment (PUA)
• ZS should happen or should have happened in the daily + ZS on weekly chart; 
• signals the beginning of a major trend shift from down to up,
   or up to down

Mixing Trading and Traveling

The sun has dawned today. As I continue with self-studying the system of a successful trader, I finally came across an outline of the trading lessons.

Anyway, a question hit me if you need to be on the watch every time the market opens to watch your stock?

ZF shares how you can several vacations or hold a day job and still do well on the stock market

1. Create a trading plan
• are you for the small swings or big waves?
• what are your entry price, cut loss and trailing stops?
• do you have time stops when the stock you are watching isn't moving?
2. Plan ahead
• requirements of line trading is a phone/laptop and Internet connection (as most have an online broker) and so if you go to places with no Internet access then do not trade
3. Set triggers and alerts
• install a mobile app that sends you an SMS once your trigger and cut loss points are hit. Then at the time you have access to the Internet/ laptop can you post an Off-Hours (OH) order for the next trading day
• ZF used PSE Watch for this. There is also the Investagram InvestaWatcher. It's a subscription which alerts you via SMS for triggers and FB messenger for Dividend reports. It comes with a monthly subscription rate of P167 to P267 per month but paid yearly on subscribing.

Warrior Trading shares how he sets up his traveling trading station (plus vlogging gadgets?)

• 2 Lenovo gaming laptop: fast hardware; 1 laptop for all trading; 1 laptop for streaming/ chatrooms/ Youtube
• 2 Asus USB monitor
• HDMI mini monitor
• Capture card for his online streaming (HDMI port)
• Logitech Headset
• Logitech webcam 1080

Madaz Trader also shares his travel trading station

• Asus gaming laptop
• 2 Asus USB monitor; monitor stands to hold
• Logitech USB mouse
• USB Expansion hub
• Travel adapter
• prefers ethernet cable
• Logitech mechanical keyboard
• Blue Yeti microphone (if traveling locally)

You can have a minimalist traveling trading setup:

• laptop
• 1 extra USB monitor
• Internet connection

Bounce Balls and Stock Trading

Bounce play or buy a bounce is buying/ selling stocks to profit from temporary price reversal during price corrections. These are short term trades. Bounce play does not affect the direction of the larger trend.

David Jones of Trading 212 tells about Fibonacci retracements

Lifted from Investopedia

• Traders who "buy a bounce" attempt to profit from a short-term correction or "bounce" off of the identified support.

Steps shared by MoneyGrowers

• find a beaten up stock
• plot the Fibonacci
• let the market do its work
• choose your tools: there are other tools used for bounce plays

Metatrader 4.0 shares how to correctly draw the Fibonacci Retracement

• the top of a downtrend or the bottom of an uptrend is the starting point

Trading 212 shares show to trade Fibonacci Retracement

When to enter in upward trend? After price goes down then price increases and reaches 50% and this goes on in the next 2 days, buy on 3rd day

When to enter in downward trend? When price  goes up to 50%, buy.

Exit strategy

• Stop loss
• upward trend: place stop loss just below support
• downward trend: place stop loss just above resistance
• Target profit: using Fibonacci extension

Notes from ZF

• 3rd day rule:  take profit on the 3rd day of a stock's ascent or buy a stock on its 3rd day decline
• 61.8% and 76.4% Retracements would be the ideal crash-point for pickup
• As long as 38% Fibo holds, expect your money to make MORE money.
• The best candles to watch for when playing the bounce are
•  the abandoned baby:  Doji on the second day whose shadows gap above the previous day’s upper shadow
•  the hammer: lower shadow of this candlestick is at least twice as long as the body
• and some variations of dojis

Shapes of Boxes and Darvas

Continuing with my self-study of stock trading, I came across Darvas Box Theory

Lifted from Investopedia

• Darvas' trading technique involves buying into stocks that are trading at new highs 
• The strategy traces its origins to 1956, when Nicolas Darvas turned a $10,000 investment into $2 million over an 18-month period using this theory.  
• type of momentum strategy
• to determine when to enter and exit the market 
• If the price breaks out of the Darvas box, the investor takes this as a sign of a breakout

MoneyGrowers advise to use Dravas Box in  stocks with a.) 52 week high and b.) high volume.
How to plot: 1. highest point, check next forward 3 candles if this point is not superseded; this will be the top border; then 2. mark the lowest point in the next 3 candles.  The ends of the candles measured may be body to body or wick to wick.

Notes:

• Once the price pierces the upper border by 1-2% then it is a buy signal
• Stop loss price is the lower border
• Once the lower border is pierced, the lower border is plotted first before the top border
• After a series of making boxes, you have a price range

ZF wrote

• successful breakouts are usually in a form of solid long green candles with high volume
• break from the border sends the price flying or falling into the border's direction
• if the price touches the border but does not break it, the border is said to be tried and tested

Trading is a Jungle and Trading Setup Up

This must be the third time I will say I got all the more puzzled about stock trading; I was self studying the system of a successful stock trader. Again, the flaw of not having a mentor.

On reading the blog posts, I realized that reading it from the earlier post to the latest is NOT the way to go. One post may have a more detailed explanation later on in another blog post or that there is a difficult concept might be introduced early and the explanation is on a later post. I decided to approach it in another way through labels or tags.

ZF said there are two types of play

• Momentum
• Sell on Target And Trailing Stop
• Bounce
• Sell on Resistance

Technical Analysis versus Fundamental Analysis

Lifted from Investopedia

• technical analysis
• looks at the price movement of a security and uses this data to predict future price movements
• begin their analysis with charts 
• short term approach 

• Fundamental analysis
• instead looks at economic and financial factors that influence a business
• start with a company’s financial statements 
•  long-term approach to investing 

In a Twitter twit, ZF posted the classic trend following starter setup

• 20/50/100 SMA
• MACD
• RSI 

Skipping Lessons and Moving Averages

 

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I am self-studying a system to succeed at stock trading. I have zero knowledge in finance, banking or business. But I have seen a lot of people in various walks of life doing well at stock market so I decided to try it for myself. As I was reading to through the blog posts, some concepts are still hard to grasps for me. At first, I thought I would tackle them head on like MACD but it just made me more confused and I can't seem to move forward. This takes me back to the post of Yggdrasil where he quickly transitioned to a master chartist in a week. It begins with a gratitude to a mentor with a portfolio screenshot  of gains. Then 7 days later, he presented a complex stock chart analysis. I want to learn and be like him, but getting it all in in 7 days, I am not sure. So for now, let's start with moving averages. Lifted from Investopedia

simple technical analysis tool that smooths out price data by creating a constantly updated average price. The average is taken over a specific period of time, like 10 days, 20 minutes, 30 weeks or any time period the trader chooses. Moving average crossovers are a popular strategy for both entries and exits. Common moving average lengths are 10, 20, 50, 100 and 200. When the shorter-term MA crosses above the longer-term MA, it's a buy signal, as it indicates that the trend is shifting up. This is known as a "golden cross." when the shorter-term MA crosses below the longer-term MA, it's a sell signal, as it indicates that the trend is shifting down. This is known as a "dead/death cross."

ZeeFreaks (ZF) would describe moving averages as linemen. He has other terms for the golden cross and dead cross. And I quote ZF

When your "linemen" are above the candles, the trend is down.

When your "linemen" are below the candles, the trend is up.

In Patintero, once a lineman catches you, you're out! Period.

In stocks, I can choose which lineman tells me when I'm out.

Here is a video from Trading 212 to illustrate about moving averages

And here is part two of moving averages which illustrates that when a shorter-term MA crosses above the longer-term MA, it's a buy signal and when the shorter-term MA crosses below the longer-term MA, it's a sell signal

Questions and Answers from ZF

•  When can you use moving averages in stock trading?
  • Moving averages can be used with Blue Chips, some 2nd Liners, but rarely on 3rd Liners [more about blue chips, 2nd liners and 3rd liner below]
• What SMA numbers do you use?
  • The simple moving averages I use  20/50/100 MAs; But sometimes I use 30/60/90 For Blue Chips.
• Which linemen or SMA tells you sell/quit that stock?
  • For blue chips, I use 90MA. But usually, I'm already out once 50 MA snaps
• What are Blue chips, 2nd liners etc?
  • Index stocks = Blue Chips 2nd Liners = Good fundamentals But Lacks Liquidity 3rd Liners = Good/Bad Fundamentals. Very Low Liquidity
  • Yue Kai commented to checl PSE EDGE, if the market capital is below 10 billion and below consider that company as 3rd liner
  • Liquidity means you can buy and sell shares easily, no need to wait for a long time for your buy or sell to match
• Is it better use DAILY or WEEKLY movements?
  • Daily is better

Original post: Moving Averages and Patintero

Oversold, Overbought, RSI

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Sirius Lee in his early days was searching about stocks trading and this led him to Zeefreak’s blog where he initially got disappointed because of not being able to see a single stock recommendation. I also stumbled upon the same blog and was not able to appreciate the valuable lessons in the post until I re-read it and studied some more. It was in the blogs earlier that I stumbling upon MACD which was discussed previously, I also came across RSI. RSI stands for relative strength index and among the popular trading indicator. It is presented as a value from 0-100. It measures speed and change of price movements. Skipping the formula for RSI, lifted from Fidelity

In an uptrend or bull market, the RSI tends to remain in the 40 to 90 range with the 40-50 zone acting as support. In a downtrend or bear market the RSI tends to stay between the 10 to 60 range with the 50-60 zone acting as resistance.

Lifted from Investopedia

RSI is that values of 70 or above indicate that a security is becoming overbought or overvalued and may be primed for a trend reversal or corrective pullback in price. An RSI reading of 30 or below indicates an oversold or undervalued condition.

David of Trading 212 mentioned about RSI being used since 1970's and supporting it's a well established indicator; the textbook value for RSI is 14-day period but he sets it at 10 day period. There is a still a lot more to RSI which will be discussed in another post: Divergences Again, Ricardo Alvaro teaches us how to setup RSI on Investegram chart. MACD and RSI are both indicators that measure momentum in a market. However, Investopedia warns

because they measure different factors, they sometimes give contrary indications

MACD or MacDonalds

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I first got introduced to MACD and RSI while following the blog of a prominent trader. He mentioned about MACD along with buy signal and RSI in acceptable levels on the chart screenshot of a $BHI and $NI. I was puzzled; it was something I need to learn. Lifted from Investopedia:

MACD shows the relationship between two moving averages MACD is The MACD is calculated by subtracting the 26-period Exponential Moving Average (EMA) from the 12-period EMA. The result of that calculation is the MACD line. A nine-day EMA of the MACD, called the "signal line," is then plotted on top of the MACD line, which can function as a trigger for buy and sell signals MACD is often displayed with a histogram which graphs the distance between the MACD and its signal line. when the MACD falls below the signal line, it is a bearish signal which indicates that it may be time to sell... when the MACD rises above the signal line, the indicator gives a bullish signal, which suggests that the price of the asset is likely to experience upward momentum

Another explanation from David of Trading 212 at 3: 38 of video

If lines are about Zero line, it is upward trend (bullish) and if the line is below the Zero line, it is a downward trend (bear).

Comment from CallousDnb

Generally if the averages cross AND the RSI is over 70 sell, if they cross low AND the RSI is near or below 30, buy.

Here is a video by Ricardo Alvaro on adding MACD on your Investagram chart. But instead of the usual 12- ,26- and 9-period EMA, he uses 15- and 30- period. He had not provided reason for changing the default. But other opinions are that, it may be adjusted to 24, 52, 9  which makes the MACD slower and it removes most of the noise. RSI deserves another post.

Stock Price, Volume and Nebula

 

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Northstar began his blog with reference to nebula, a place of cold cloud of gas and dust in the outer space where stars are born, to document his journey into stock trading. StockGambit has dedicated a page to his journey into stock trading where he talked about being a wanderer at the beginning.

In the early writings of ZeeFreaks, talked about volume and he said

Volume Precedes Price Action

Volume refers to how many times a stock is bought and sold over a particular time. A rising market should see an increase in volume. Lifted from Investopedia:

Increasing price and decreasing volume show lack of interest, and this is a warning of a potential reversal. Little change in volume or declining volume on a breakout indicates lack of interest and a higher probability for a false breakout

Exercise and Starting at the Beginning

 

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ZeeFreaks has provided valuable free information on stock trading that even after a month of getting serious with stock trading, I am re-reading his blogs; on study mode.

 I would like to comment that the although the first blog post was dated September 20, 2011, the post inserted links pointed to posts dated at a later date in September and in the year 2013. Reoga Holinagi even asked which was the very first entry. I have the same question.

 Anyway, the earliest post on September 2011 was a student exercise. This post on student exercises linked back to lessons on moving averages and to osmosis; he called moving averages as linemen while he used osmosis to illustrate liquidity.

 In an attempt to copy his success thru self study, I would also look into the blogs of this followers. I first got the idea of self-studying his system thru Northstar's blog, where he aims to "reverse engine" ZeeFreaks successful trades. But Northstar did not update his blog beyond April 2018.

 Reading ZeeFreaks' blog was how it begun with MoneyGrowers PH, recalling back his earlier post in October 2015 and beginning it with gratitude.

 So let the games begin.

Full Time Stock Trading Needs Dedication

 

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 Profiting from stock trading is just like any profession, it takes time and lots of effort. Sirius Lee here shared that technical analysis can be learned by anyone with zero knowledge and dedication. He has shared his success too on how he purged stocks to make way for new learning. He cut losses and had almost all gains. His post inspired me to take on trading, that I can learn it despite not having a degree in finance or business. Initially his blog was in Tagalog then succeeding posts were in English. I feel it would be better in English for SEO purposes. Sirius Lee mentioned he started reading about ZeeFreaks January 2015 and when full time trading October 2015 after finishing ZF + Kidlat formal course. His initial reason to shift to full time trading was

ticket to free myself from corporate slavery

Stock Gamit here shares that life felt like

works on weekdays like zombies and laugh like clowns on weekends

And he ventured into several other ways to make money like freelancing, pay-per-click, multilevel marketing (MLM) before coming across stock trading. Self education on stock trading felt like

portfolio grew not with my gains rather by adding funds into my account... and kept throwing my cards blindly hoping for a lucky strike...

Stock gambit had a realization, stock trading

is NOT to buy cheap and let my money sleep BUT rather wait sufficiently, trade efficiently...Failure is an outcome of a poor execution

ZeeFreaks advised full time stock trading when,

1. Disciple
   • can you cut your losses?
   • can you take a loss without being too emotional?
   • do you have a trading journal?
   • do you have a routine in checking charts and doing analysis?
2. Capital
   • do you have 300-500K in your portfolio?
   • can you achieve 10% gain per month in your portfolio?
3. Specialty and Identify
   • do you have a bread and butter set up?
   • do you know what kind of trader are you, swing trader or trend following?

Identifying Trader Personality and Portfolio

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 There are 2 types of investor,
1. Swing trader: big gain, heavy risks
2. Trend following: most followed strategy

 A robot from Alpha Cantauri shares information regarding his ideas on each trader techniques

For melee: unplanned attacks and are the result of one stock rising above the rest, forcing you to drop laggard stocks to focus on it in full force

For sleeper cells: dormant stock that may earn big time at the right time. Waiting game.

On portfolios, ZF shares

he has 3 portfolio and every 3 or 6 months profits are withdrawn and the port gets reset to 2.0 million. If within the 6 months no profits have been made, no additional funds will be added into the trading port

ZF talks about portfolio allocation like an RPG game based on the level of risk and rewards attained. Based on this story of portfolio, it seems ZF has 4 portfolios

Main portfolio which he calls Knight
Capital Preservation
75% divided into 3 stocks equally
25% cash
Yields the highest rewards with the least stress
But extreme discipline

Second Portfolio which he call Elven Archer

100% of portfolio is in cash or tsupita

strong mental capacity is required

Third portfolio which  he calls Swordman: balanced
Trend following 50%
Sleeper 25%
Cash 25%
This is the class of most traders

Fourth portfolio which he calls Mage
Time is money
All stocks are sleeper
Specialty is dividends

With this game-like ecology, Yggdrasil makes a creative DOTA-like character to personalities in stock trader along with creative RPG skills. It ends with a funny note

How much capital does it take to live off from earning from stock trading?
It depends on your lifestyle. ZF shares the cost of living from stock trading

Identifying Chart Trends

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Trends tell about the direction of the stock, it will signal traders when to buy and when to sell.

 There are 3 trends
1. Uptrend
2. Sideways
3. Downtrend

 And to to identify these trend it may be done using
1. Channel line
2. Moving Averages: same say this is the easiest to learn
3. Price action: some say this is the best indicator

 A trader Ninuni Nunu wrote about it wonderfully.