THE 4 PILLARS OF INVESTING Technicals: Module 2 TRANSCRIPTION

Transcription

1 THE 4 PILLARS OF INVESTING Technicals: Module 2 TRANSCRIPTION

2 2 The 4 Pillars of Investing A transcription of TECHNICALS MODULE This is about change in trend, and if we want to follow the trend, we certainly need to be aware of when it changes. One of the habits that many people get into (that s not a healthy habit, so you and I will head this off right away) is they start looking at patterns to predict the future. They start looking at patterns in the way the stock moves saying, Well, I think this is going to happen. Certainly, we have to anticipate and have a bias, but I want to introduce you to the idea that you do not have to predict the future perfectly, and all we really want to do is get a likelihood. I ve seen people get in a rut with technical analysis where they say, Well, this pattern means X and this pattern means Y and this is what it s going to do. That s not a healthy approach to take. I think a more healthy approach is to really concentrate on what the market is feeling, and then you ll find that it s not like predicting the future. It s more like making weather forecasts, where the weatherman rarely says, It s going to rain tomorrow, or It s going to be sunny tomorrow. Usually the weatherperson says, There is a 60 percent chance of rain tomorrow. A 10 percent chance of rain today. We talk about what s likely rather than making predictions like a fortune teller saying, You ll go out and meet the person of your dreams tomorrow. We want to make it a likelihood, not something cast in stone. We do know that these are not tea leaves. Some people say, You can look and make up whatever you want to. That s not true. Actually, this yes right here is a solid yes. The only way that this thing is going up right here is if there s more buyers than sellers. That s just how market makers work. The only way this is falling is if there s more sellers than buyers. So we know that supply and demand is solid and that this is an accurate record of how people feel towards the stock. With that said, let s look at this one right here and see some possible points where it would change. We have a point here where they said yes, and we see that after it backed off of its high price here, people seemed to say, Hey, it s getting a little cheaper, and they ve decided not to wait until it got down to this bargain. Now they re seeing this area as a bargain.

3 3 The last time the stock quote was right at this price, the market said no to it. So, the question on our mind is this. Is it going to be able to pass that? Well, certainly they said no, but we also see the fact its support is rising. We do see their bias is increasing. Is there a likelihood it could go past this? I don t know. At this point, I really don t make a decision. What I do is wait for the market to tell me how they feel. Having them tell me how they feel here is going to give me some pretty good insight on the trend of this stock. Here we go. With this one they re saying, It s headed up. Well, no matter where this pulls back, it s going to have to be a high higher than this one; and no matter where this was before, it s shot up here, so this is a higher low than this one. So, I have an uptrend for sure, and they ve proven to me that they re willing to push a little higher. It s really this past (not the future) that I m concerned about. I m saying, Yes, these guys right here like this stock. They re buying it higher and it looks like right now they re willing to push it to new levels. Now, could this end at any time? Absolutely, it could end at any time. They might give us some clues to when it could end. They might not give us some clues to when it could end. But when you see how we set up the cash flow, you re going to find it s really not going to matter as much. Let s look at the same situation here where the market says no. It comes back. They see this is a bargain. It s the same situation we have at this point. Let s mark this with a pen. Sometimes when they say no right here, boy, they re not kidding. It s kind of like this. I m always trying to drop a few pounds. My wife will say, Andy, in our original contract, I just want you to know. There s about thirty pounds on you I m not married to. She will kindly and gently remind me of that once in a while. We might be watching a little ball game or something, and we ll be enjoying it. I ll say, Sweetie, can I have some Ben &Jerry s? And she ll say, No. Then I ll wait for a minute and I ll say, Please? Then she ll change her mind and say, Okay. She ll give me the okay. I ll give in. I ll go a little further. But other times I ll say this and she ll come right back and say, No. Absolutely not. This behavior right here is different, isn t it? Here we saw that they re willing to push a little further. And right here we can see that the market is digging in. They re quite serious about saying, No, we re resisting this for whatever price we re paying here. No. We are not going to pay more than that. The market does not see a value here for whatever reason. I look at it always this way when I see a double top. A lot of people see just the pattern alone. I see a no that s small here, and then I see them coming back and saying, Hey, no. We re really serious here. We are not interested in buying it here.

4 4 Now, could the stock shoot up and have them change their mind? Yes. But I think it s probably less likely, because when I get one no, well, yes, the support is rising. But boy, if I get two in a row, there s no question in my mind that this double top over here is a stronger signal to say, No, this is it for a while, and I think it s less likely to achieve a higher high. Not to say that it s impossible. I m just saying that the chances of them getting past here now have gone down, simply because they re digging in. They re saying, No, absolutely not. We re not interested in this stock. This is one of the first two patterns we can learn. The uptrend is when we re achieving higher highs and the market s pushing it just a little bit. A little bit too far, too fast and they say, Ah, no. Let s back off. Well, actually, it s a pretty good deal. Up we go. But in the double top, they give us a no initially. Too fast, too far. Backs off. They say yes, and then they follow up. No, we re really not kidding. No means no. When no means no, that is when we have the double top. And so that s a pattern I like to teach you early on. Now, notice this. When we have a double top, one of the things we look for is having had a no here and having had a no here. Remember, the context of our conversation is what? Let s just back up a little bit, here. We re trying to find when the trend is going to change, right? When is the trend going to change? We come here and we see our double top is formed. Is it time to go short? Is it time to change our opinion on the market? If the market s going up, we make money going long. If it s going down, we make money going short. A lot of people will make a mistake. They ll say this M stands for murder, and they say, Oh, that s it. That s going to be a reversal. They ve changed. They use this pattern as a guarantee. I think that s unhealthy, because think about it. They were saying yes here. The question is, is they haven t done anything to really change their mind other than making this yes a little higher. So, I m curious to see if they re willing to hold this area right here. What I really look for after double top is this area right here, where they were saying yes before. I then ask myself, Do they still feel this way? And what will really make this change more likely is if they dig in up here with a no, and they come back, Well, maybe it s not so bad. They dig in here with a no. Now I want to see if they still feel it s a good bargain here. If they don t, now maybe I can justify thinking that perhaps the party s over. Maybe this thing s had its peak here, and now people aren t excited about it anymore. I hope what you re getting is the understanding that through looking at levels of support where they say yes, and looking at levels of resistance where they say no, we can start to get a sense of how the market can feel about a certain stock.

5 5 Now, I wanted you to see something here. This will be a tremendous value to you as you trade stock. Often, this level of support will turn to resistance when broken, and vice versa. You will not see this hundreds of times. You will literally see this happen thousands and thousands of times. It s very much about human nature. At this level, I m not going to go into the psychology of why this is true. I think it s good enough now to just set this as something you ll watch for. There is a reason for it, no question. Rather than delve into that, it s like driving a car. Let s work on turning the key and pressing the brake before we take apart the whole fuel injector. I want you to notice that once this yes part of support breaks down here, this will often act as resistance. So, I can see a big change here, can t I? If I were to use the idea here, maybe we d say that this right here is a yes, and at this point right here, what happened? They changed their mind. What made this stock go down right here? They started saying no. We changed our mind. Before we liked it, and now we don t. At this point right here, they were supportive of the price, and now they re saying, Actually, we re resistant to this, as well. So, look at this. We have this initial no. It comes back. We dig in. We say, We re really serious. This is as high as we re letting this go. And this is really where I see things start to change is when this begins to break down here. Once they change their mind here, now I think it might be even more likely that we re having a change of direction. At least we ve got now a what? A lower low, don t we? We don t yet have a lower high. These are equal, but that downtrend was when we were achieving lower prices than we did on our bargain. We re seeing this as a bargain. Lower and lower now. This is interesting stuff. The question now is are they ready to do it again? Now some people will short right here, and when we do cash flow we ll talk about this. Some people will enter an order to short right here, and they re certainly justified because we ve got no. We ve got no. It s certainly justified. And if I miss one of these, I m okay. But I like even a little bit more. I like to see what they re going to do again, when it retests it. Often they ll come back in the market where we ll push it up. They think, Hey, here s a bargain. Often you ll see this. It doesn t rise too fast before they start showing some resistance. It s tough for things to go up really fast without people saying, Hey, hey, hey, hey. Wait, wait. Too much, too fast. Well, it s also the greed that people have. It s very difficult for things to fall off their highs and people say, Boy, I m getting a bargain. People love falling prices over here. Again, even though

6 6 it falls below where they re used to, and it looks like it might be a little trouble, people are thinking again, Wow. Look. It used to be clear up here. This is cheap. This is cheap at this level down here. So, I m always curious to see what it s going to do right here and this is usually where I really start to see confirmation. We call this little kiss. It comes down here. It comes back here to what used to be support. Now they are resisting it. Remember, the reason this is going down (where my arrow is) is because they were saying no. We know for a fact there were more sellers than buyers. Once it comes back up here, it s going to give this line a little kiss here. The question is whether this is a kiss hello where we re back on track, or is this going to be a kiss goodbye? They changed their opinion here. Do they still feel that way? What you re really doing with support and resistance is finding different levels in the stock chart where they like it and where they don t that helps us make decisions. Help and then they give us a no. This is a full-fledged kiss goodbye. Let s back this up. Here s three patterns. We have the uptrend, where it s achieving higher highs and higher lows. They dig in. No means no and we have a little double top. Remember it looks like the letter M. Some people say, M stands for murder. I ve heard that before. Then we come here and we give it a little kiss. If it drops down, boy that s a kiss goodbye. We have the uptrend. We have a double top over here. Any time it comes back and it kisses this and it takes off, this action right here is called a kiss goodbye. And this happens all the time, where support then turns into resistance. Where they were saying yes before, now they re saying no. And I said we re trying to figure out changes in trend. I think this is the most telling of where they changed their mind. They changed it the first time right here, and they said no. And now they re digging in, again, and saying no. They dug in here and said, No, we re not selling it here. Guess what? We re buying it here. We re not buying it here, either. Now I can see this negativity and bias that s absolutely real towards the stock or they wouldn t be saying no. The only way these can go down This is not tea leaves. I ve heard people say, Oh, it s all tea leaves. No, it isn t. The stock cannot fall unless they re resisting that price. It can t fall further unless they re resisting that price. There s news that affects this. There s unknowns that come and affect this and that s what causes them to change. But all things the same, we can gain a lot from watching technical analysis.

7 7 There s our downtrend now. We re in a full-fledged downtrend. We ve had a lower swing low. We ve now had the lower swing high. And so the kiss goodbye gave us our downtrend. Now, I m prepared to change my bias, and I m going to look to the downside. I m going to look to make money on the downside. This can be done with the broad market, it can be done with individual stocks, and hopefully we re doing both in concert with one another. Review this often. I know it seems like a lot. But it s like anything else. You focus on it, you keep a good pace and this will help you move towards proficiency. Now, can patterns predict the future? No. It doesn t happen. Please do not think this is a crystal ball where we say, Aha! This stock will continue to fall. That is not what a double top means. Let s understand what it means. It simply means they said no here and they said no here. This stock could absolutely, very easily, just take right back off and head up to a new high. Some announcement happens or whatever. They can then say, Well, okay and give in. There is no question about it. It can happen. So, let s not get into the habit of these people that say, Oh, double top. Time to short. It s just not necessarily true. Also, I think it s wise to look for some of this confirmation that we have. We certainly had much more evidence at this point that it had changed direction (the bias had changed) than trying to do it a little too early. I like to see some storm clouds before I predict rain. I like to see a couple of drops of rain and say, Hey, it actually looks like it is going to rain. Let s open up the umbrella rather than saying, Hey, it s sunny today but tomorrow See, they have not proven that they don t like this price yet. Do you see that? See why I don t like to call that early? They have simply not proven that they re willing to let this fall at that point. Again, people say double top is bearish. Well, it s certainly more bearish than if it would have broken a new high here, but it s certainly not something I m going to go running around and start shorting stock on. So, they can t predict the future. Maybe it s good discussion to refer to that like predicting the chance for rain. Maybe what we should do is instead of looking at this as a way to predict the future, we look at the double top perhaps as an alarm, something that gets my attention. You push a button that says fire. An alert is something that simply gets my attention. Certainly if I m long in the stock If I m trading along and it seems to be going well, and it comes back here, and I see this second point where they refuse to buy They say no once, they say no twice, they re digging in. That gets my attention.

8 8 An alert is something that is simply designed to grab people s attention. That s what the word alert means. I want to be alerted. I want to pay attention. It does not mean that things are going to fall apart. It could very easily be a false alarm, so to speak. But whether an alarm is false or an alarm is real, it s going to get my attention either way. Let s go back just a little bit. I certainly could ask when I see a double top whether this is a place you would feel more comfortable entering. Let s say someone recommends the stock. Well, if it s in an uptrend when you see it for the first time, you say, Boy. It looks like they like it a little bit more. It looks like it s breaking new levels. I like their attitude. But if someone were to recommend the stock at this point where you see a no here and a no here, is this really a place where I think it s more likely to enter? Where they seem to be digging in on this price right here? Yes, this can be helpful, but maybe not in shorting the stock. Maybe I m less comfortable and I d say, You know what? If they change their mind, then I ll buy it. But if they don t change their mind, I won t buy it. I ll watch and see if it can break through here, and if it does, that s where I ll look to buy it. You can see how helpful this can be in decisions you and I make. So, there s our alert. It gets our attention. I mean, if a building had a fire alarm going off, I would wait until the fire alarm was off before I entered the building. I wouldn t run right in. Even though I might not see a fire, if there s an alert there, I m going to be a little bit more cautious. When there s an alarm, there might be a fire. There were kids in high school (of course, I would never do this) that would sometimes hit the fire alarm to get out of school. We d have what s called a false alarm. Sometimes you might be in a hotel or a building and there s a malfunction, or somebody accidentally trips the alarm. Or maybe it s just a drill. But when there s an alarm, there might be fire. When there s smoke, there s fire. The way we look at this in the market is with two important vocabulary words. We have certain behaviors that get our attention, and other behaviors that we act on. Certain behaviors that get our attention are called alerts. Once we see smoke, that s confirmation. We need to do something. That s alert and confirmation, and a double top is certainly an alert. Let s go through the stages in the trend right here. We see we re achieving higher highs, possibly higher lows here. Definitely higher lows here. This is bullish, so if the fundamentals look good, if the market s in an uptrend, if the stock s in an uptrend, I certainly feel good about having my money in this, especially with risk management and exit strategy we ll speak of later.

9 9 But things are looking good. The market is confirming, Yeah, we like this more and more. We re willing to pay more and more for it because we re seeing more and more value in this company as we go along. When I watch for change in trend, though, is when it fails to achieve that higher high, right? We said no here, and then we really dug in and said no here, on this second one right here. Then often we ll see that this support (and remember, this happens all the time) right here will often become resistance. This will happen thousands of times, and what s this called right here? That s right. This is called a kiss goodbye. So there s three different patterns. Uptrend right here. Double top is the alert, and it actually is the end of an uptrend. What is an uptrend? When it achieves higher highs. This says the uptrend is ending for the moment (and only if it achieves a higher high does the uptrend resume) and right here is this classic pattern that I love to exploit where we can see the support level where they were liking it. The only reason this can go up right here is because they like it. And now they said, No. At this point here we don t, and this yes right here turns to no. You ll see that happen thousands of times. This is one of the ways that we can identify a change in trend. Let s look at some others. Now that we ve drawn some stick figure type charts where I ve just drawn some lines, let s take a look at a real chart. I m going to go back in time a little bit here. This is one of my favorite examples showing a change in trend. Do you remember during the 1990s the Internet was big? Apparently Al Gore claims that he invented it (or whatever he said). We had this big boom and people were asking, Where is this ending? It kept going higher and higher. People kept saying yes, yes, yes, yes, yes. This is the NASDAQ. You can do this also in 2008 with the crash. You can do it in the most recent retracement or correction we ve had after the S&P downgrade, for example. You ll see lots of these double tops in these behaviors. Let s look at some real double tops in a real market. We can treat this as an index. We could treat this as a stock. It really doesn t matter whether its commodity, stock or index. This works the same way. So we might even treat this as a stock and show you how it might be traded. But it s just classic double top. Here we see that the stock comes up here. The peak of the candle. It comes back and sells. They say no. And they really say no right here. It drops back down and that shoots back up. Now notice. These are called candles and we re going to talk about these in this session. Notice there s thirty days between March and April, and there s not quite thirty candles here because on the weekend, of course, we don t trade. There s no movement on the weekend. So, this

10 10 is what would be referred to as a daily chart, where we re simply taking our time. These are usually the charts I use. I don t day trade. And so it takes an entire month to build this. I simply check in once a day and see what is forming. Day traders look at things every single minute. They have a candle that represents every minute. But this is just a daily chart. We ve got thirty days between March and April, which is twenty-odd candles if we re not counting the weekend. A person who is not trained might look at that and say, Well, that s just a bunch of lines. However, if I look closely, I can see something here. I can see that it has a peak here, and this is called a what? A swing high. And it has another peak here, which is called a swing high. So, I can see that they said no. Just as we said, we ll put a big capital M right here. It came back and they said, Hey, let s push these Internet stocks, these technology stocks again. And they said, No, we re serious. This is it. This is as high as we want to push this right here. Now, certainly we could picture this going up and finding a new high. I m just saying that after they ve said no twice, it s less likely than before. This is a double top, and the market fails, at this point, to achieve a higher high. It s got to run out of gas. Remember. What drives stocks higher? People buying it. It takes a tremendous amount of money to push these higher and higher and dump more and more money into equities, which is a big deal. It takes a lot of money to do that. When I see a double top (and this looks like M for murder) I just trace over it so it s easier to see. There s what the index looks like with the candles. Certainly we can see this M pattern, this double top pattern. Does that mean the stock is going to fall? Absolutely not. It simply means what it means. They failed to achieve a higher high. So, I might not be as excited about getting into this index or into these types of stocks right now, and I m certainly curious to see what s going to happen. There s an alarm going off saying, Hey, everyone including Andy, pay attention. They failed to push it higher this time. Maybe they finally find their limit here. I ll draw a little line underneath the bottom of the M. If you remember, this was definitely a yes because it went where? Higher. And it came back down and they said what? Yes again. And it went higher, so they said yes at this line. Since they ve obviously changed their tune to this point here at the top, now my focus is whether they are still going to feel as strongly about it on the yes side. That s something I m going to watch for. Well, certainly they don t. They failed to hold it up here, and it came down so fast that what did people start saying? That s a bargain. We might not see these levels again. It was clear up here.

11 11 If I buy it here, it might be up here again. Very strong downward movement. Then we get this whiplash back up to where the stock reaches this point again. Look how this works here. I ll draw this. This line was called what? Support. And this doesn t happen just dozens of times. This happens all the time where it might become resistance. And I want to see if it will recover. This pattern is called a kiss goodbye. It s kissing it right now. We re going to see if it s a kiss goodbye here. What would a person do? Well, what I m going to do is instead of predicting the future, I m going to visualize in my mind all three. I m going to visualize it breaking through. I m going to visualize it holding the same. I m going to visualize it heading down. I really don t know for sure which one it is. However, I m going to go with what s likely. Based on their behavior, and based on how they ve acted, they said no here. They said no again here. They ve said no here. And so with all this no going on recently, I m going to say the chances are they ll say no here again. So, I m going to put in what s called (we ll learn this later) an order to short the stock. Notice I m not telling the brokerage to do it right now. I ll tell the brokerage, Do it if and only if it hits this level right here. This is what s nice about not having to day trade. This is an order I would put in the night before. It takes less than a minute to do. And of course, if you watch this just one minute everyday you just check in when the market s closed you can look at it quickly and see where it s been. This is not a huge time investment. Then I see this pulled back here and I think It looks like it s hit that point again. Now it s time to put in an order to short. Now three things can happen. It can go up, down or sideways tomorrow. Let s say the stock begins to travel up over the next few days. I ll just visualize that in my mind. Here s a stock going up. That s fine, because I haven t lost any money. It s only going to trigger if it actually starts to head down. If it starts to head down, it s only going to trigger. Notice that I do not yet have a downtrend. It s important to note here. I do not have a lower swing high. I do have a lower swing low, but if this falls, that will form my lower swing high. So I visualize this going up and I think If it goes up, am I happy? Yes, because I m not in the trade. I visualize it going sideways. Am I happy? Yes, because I m not in the trade. This one happened to do what was most likely. And so now boom, I m in the trade. And I ve got to tell you that I feel much more confident in being in this short position right here. Let s say that now, for example, I have no here. I also have no here, I have no at this point, and I also have no at this point.

12 12 Now what do I have? I have a lower swing high and I ve had a lower swing low, and this is looking like a pretty good target right now because it fell here before. It can fall here again. So, certainly the next day I get put in. The next day it s falling a little bit shorter. Now, one of the things we re going to do right away is we re going to assume that things could change because they often do. I m going to give myself a little wiggle room. Since I m short, that means I would lose money if it goes up. Don t worry about why right now. We re going to cover that in our next class called cash flow. Don t worry about it now. We re doing just the technicals. What I m going to do is I m going to put in another order right here called an exit order in order to cover. That way if the stock does change its mind, I ve got an exit and this now becomes my risk in the trade. The distance from here to here becomes my risk. Now, what I like about having an order here is you ll notice that we ve had this phenomenon happening to where this is now what? Resistance. Remember how I said this would happen over and over again? Here they were supportive of it, and this is the point where they changed their mind. It dropped through, and now this is resistance once again. I like the idea of having my exit above here because they d have to change their mind for me to lose money here. They d have to change their mind, actually, two or three times. First, it d have to change direction right now. It would have to go up. Second, it would have to break through this and then third it d have to hit my exit order. So, I ve got lots of wiggle room in here where it can hammer up against it (no, no, no) and fall again. I like where I put my exit order. I like the idea that I think it can achieve this. If I ve entered it in here, that s a lot of reward and that s not very much risk. You re going to learn more and more about this in cash flow. It s very hard to separate the two as a teacher, but right now let s just keep focused on the chart. Now a couple of things can happen. Either it s going to drop and I m going to make money or it s going to head back up and I ll lose a little bit. If I make that trade ten times, we re hoping we ll drop more than the ones that retrace and get us out. And with technical and fundamental analysis, we feel we can have pretty good likelihoods in what we re doing. Think about this. People tend to want guarantees. It s not the way to work, but I certainly like this much more than hoping a 401(k) does something where I have no likelihoods. I have no input. I m not looking at any type of data. I m just hoping the market goes up. Let s keep going. Once this thing falls for a bit, would it be wise for me to just sit here and watch it come back up? I mean, it s getting pretty cheap now, and it d be pretty hard for people to resist.

13 13 At this point what traders often will do is they ll move that exit order (you ll notice the exit order was clear up here. I ll move that exit order right here). And notice, now, the same three things can happen. Perhaps I visualize the stock continuing to go down, and then, of course, I could move the stop-order here and down further here. That s one scenario. I could certainly visualize this going sideways for a bit. But what I m really concerned about is if it takes off and it starts to go back up. Well, if it does, boom. That stop-market order will trigger. I got in right about here. I ll be exiting right about here and I ll collect and lock in this profit as it sinks if I m short. And that ll be fun for you in the next session with you asking, Andy, how are we making money when this goes down? Well, don t you think I m smart? We re going to get you excited about the next class, right? So, that s going to be fun. We re going to get in right here. I want to really make this point here, even though it s a little bit too early, maybe, because this is technicals. I want to make the point here that even when I put in the order to buy right here, I did not do it at this point. I didn t say, Okay, I think it s going down. Buy it. I never do that. I say, I think it may go down. It s likely. So, I m going to wait for what? Confirmation. I m going to make the stock move into where I want it to be. I never buy it and then hope. If I buy it right here and it goes up, I m in trouble. If I buy it right here and it goes sideways, I m in trouble. So I make the market do what I want it to do. If it doesn t, then I was never in the trade. If it does do it, now I am in the trade with this limit order that says I don t want anything to happen here. It s called stop-limit order. I don t want anything to happen here unless the stock does what I say. Well, the same is true in getting out. Here I ve got a market order to cover in case it shoots back up. I don t want to have it go clear to the ceiling and lose money. And so again, notice I don t just say, Oh, I ve got enough profit now. I think it s going up. I ll get out. I don t know for sure where it s going to go. I just know what s likely. Again, I get the scenario where if it goes down, I make more money; but if it goes up, I m now leaving the trade. So, I let the market put me into trades and I let the market take me out of trades, and I never just pick a point and say, Okay, this is what I think is going to happen. Buy it. And so many traders do it that way, don t they? They pick what they re going to do and buy it. I hope you re enjoying this on technical analysis. I get kind of excited watching this stuff because I ll tell you. It s a fun feeling to be making money when things go down. I was very fortunate and got in some very nice positions when the S&P downgrade occurred. The market was just falling to pieces. I remember I was teaching a particular class. I had some positions in. I was watching my

14 14 computer from the corner of my eye and I saw the Dow drop 400 points. I was thinking, I can t wait to see what this did to my account when this is all over. It s just so much fun. So, you re going to have a great time. Up, down, sideways; we can make the money. The technical analysis helps it. Now, this leaps back up. Notice that our stop-market is triggered. And so the order locks in the profit from here to here. And now we get to see the gain. We re going to see if this higher high, here, starts a bit of an uptrend for a while. And we certainly could. We can certainly follow this up for a bit. I want you to notice something here. And this just takes time to recognize. Notice they said no here. It comes back, and they said what? They said no here. So again, we see the market fails to achieve a point higher than this level, don t they? And oh my word, what s that? We have another double top in the market. All the time you can see these right here. So again, it s M for murder here. It s not looking good. And what do I do? I draw a little line. The question is will they continue to see a bargain? Obviously, they liked this price because they drove it up here. Came back. Obviously they liked this price, because they drove it up here. Obviously they did not like this price, because they sold it here, and they did not like this price because it backed off here. So, the question mark really is are they going to hold strong in thinking that this is a good price? Is it going to shoot back up once again? It certainly could. That s why I don t like people seeing double tops and shorting right away. It is absolutely real that it could do that one more time. Absolutely possible. Again, this is simply a what? It s simply an alert. It breaks down, and I ll tell you. You re not going to see this hundreds of times. You re going to see it what? Thousands of times. Where they like it and they support it, it comes down. They support it again. It comes here. And then once this is broken, now I know they ve changed their mind. They re no longer supporting there. They re what? They re resisting it. They re resisting. And so what once was the support now is becoming the resistance and I get my little kiss on this line. Now, I m not going to treat this like a crystal ball where I say I now know it s going down. I don t know that. I can t see the future. I don t know that for sure. So, what I m going to do instead of predict that it s going down is I m going to prepare. That might be a great way to really talk about this. Instead of using P for prediction, let s see how well I can write this with my mouse. Apparently not very well. Instead of predicting, I m going to prepare for this to happen.

15 15 How might I do this? Again, I can put in a stop-limit order and I m just going to visualize all three scenarios. If it goes up, I m never in the trade. If it meanders, I m never in the trade. It s only if the stock goes down, and all it would take is it would go to this point. Once they say no here, and once they say no here; now I am confident about being in this trade. No, no, no, no. I am confident now with all of this activity from technical analysis. Can you see how we re telling the story and how I m much more apt to want to get in after confirmation, after I can see that they ve said no here and they ve said it again. I just feel more confident in making that move. Again, the word is what? It s not really predicting, so much, as we are preparing for a downward move just in case this thing falls apart. Again, I want to reiterate. If the thing blows up and goes through here, I was never in the trade. A stop-limit order means the stock has to hit this price. It has to start heading downward. We have to make sure this is a true point they re resisting before this trade triggers. This is really fun stuff, and of course this one makes us a ton of money. There s all types of things you can see. Now, you ll see more and more of these as you go along. Yes, they like it. No. And all this takes is practice. Does this look complex? Sure. It must the first time you see it. It absolutely must. But when you break it down into pieces like we have, and just follow it little by little, then one at a time you ll see these things develop. Again, this is what? August, September, October, November, December, January This is almost an entire year from March-February here. It isn t like these 365 days here fly by. You get to watch this develop. There s plenty of time. And you ll begin to see things. Certainly, look at this. A kiss goodbye. It has another what? Another double top, doesn t it? Right there. Draw a line. What do we have right here? Another what? Another kiss goodbye. You could have entered right here. Sure enough, if it goes up, you re not in the trade. If it goes sideways It goes down, boom, you re in the trade. Notice again. You will not see this dozens of times, guys. You will see this hundreds of times. Look. Here they were supportive of it. And what happened right here? Here they were what? Let s get the red pen out. They were resisting it again. Again, we can see it right here. Here they were what? They were supportive of this price. There s no question about it. They were very supportive. Change occurred right here, didn t it? And now they are resisting it. See that? No, here. No, here.

16 16 I want you to get used to seeing these levels of support and resistance. See, I can draw them with you right here if we want. They liked it. That s a yes. They liked it again. That s a yes. Oh, it fell through? This now changes to resistance. Came down here. They bought it. That s a yes. Came down here. They bought it. That s a yes. They came down here. They changed their mind, and now they re what? Oh, now they re resisting it. Now they re resisting it. They liked it here. It fell through. Look at all these kiss goodbyes right here. Kiss goodbye. Kiss goodbye. Forms another double top. Comes in. Kiss goodbye right here. Kiss goodbye right here. These are really fun to watch. Notice the levels of support and resistance and how the support changes into resistance. The support changes into resistance. The support changes into resistance. This doesn t happen dozens of times. This happens thousands of times. I hope you re starting to see a little bit how this works. Hey, relax. It s your first lesson for many of you on technical analysis. I didn t learn how to play the drums the first time I sat down to a drum kit. I certainly didn t learn how to drive the stick shift the first time I let the clutch out. I stalled my car. It s normal, okay? What we do is we keep on moving. You and I do it together one little session at a time. And we move from what? We move from ignorance to what? Now you are aware of support and resistance. Then what do we do? We become very competent with it and then sooner or later, you re going to become proficient. So, understand. You re just at this stage. Don t expect yourself to be proficient on your first day. But do know that if you do keep moving forward, you will be proficient some day. There s no question in my mind. I know you can do it. So, fun stuff. Let s continue. END OF TECHNICALS MODULE 2