What is up guys.
And welcome to the fifth and final part of our technical analysis tutorial series.
Here we're going to discuss some trading strategies we'll be able to take our knowledge that we learned
previously about technical indicators and apply this to some real life scenarios to determine which
trades we would want to make.
So what would we cover.
First of all we're going to take a look at the simple floors and ceiling strategy.
This is not technically using technical indicators.
This is simply taking a look at stock pricing charts and determining when would be a good time to buy
and trade buy and sell rather based on how the stock has been moving so far.
After this we'll take a look at moving averages using again the shorter and the faster lines where they
cross over to determine when to buy and sell stocks.
They will talk about the market or the moving average convergence divergence.
This would be a similar thing to the moving averages again we're just going to take a look at the charts
and determine based on crossover when we would buy and when we would sell finally we're going to talk
about the relative strength index or RSI.
And this is kind of a more measure of how oversold or of overbought a stock is.
But we can kind of apply that philosophy a little bit to making trades as well.
Notice how bollinger bands is missing in this one we did cover Bollinger Bands previously but we're
actually not going to do that here.
But the reason is because Bollinger Bands by itself is not enough to determine when to buy or sell a
stock or Bollinger Bands tells us is when volatility spikes are coming up or when the stock is going
to become a less or less volatile.
They don't necessarily tell us in which direction the stock is going to move and that's kind of what
all of these guys have in common is that we can kind of use them to determine roughly where the stock
is going to go from here so to start off with we have floors and ceilings so here's a basic chart.
This is Vance Micro Devices or MMD.
If you guys have been following this at all I think this is actually just a month's worth of data.
Yeah we can see the month down at the bottom that we can see that the stock price is starting this month
at around twenty seven twenty nine.
It's kind of gone in these short spikes up and down and then it started to decrease a little bit towards
the beginning of May here.
Now there's kind of two sets of trends here.
There's this trend up until about this point and then there's this trend in the more recent week or
a couple of weeks now up until this point we're going to focus on this part first and then we'll take
a look at that part afterwards.
So floors and ceilings are basically identifying the floors or the bottom of the stock price change
and the ceilings which are the top of the price change so essentially a floor is the lowest the price
is going to go given a period of time whereas a ceiling is the highest it's going to go.
Given a period of time these numbers are usually not exact.
For example this is around 27 29.
We're not going to necessarily hit exactly twenty seven twenty nine it might be 27.
It might be twenty seven point five et cetera.
You can see that they're not quite exactly the same but they're pretty close.
So this isn't really a ton of increase.
It's go from about 27 to 28.
I believe that's about 2 to 3 percent but obviously if you've invested enough in it then you could make
some pretty decent gains at least judging based on the consistency.
You can even see in the volumes down at the bottom we're getting pretty consistent volumes pretty consistent
greens and reds there.
So this would be considered a floor and probably around this mark would be considered a ceiling kind
of around 28 maybe a lesson more than 28 because here we've gone from twenty seven point three up to
28 then back down to about twenty seven point three then up to about 28.
And here we have a little bit of a spike but then we're kind of back down to following that trend again.
Here we have another floor.
This one's a little bit lower for ceiling but then we have another floor and then it starts going to
be a bit lower but then it kind of goes back up to the same ceiling.
So that's kind of the first half I guess more like two thirds of the graph so identifying and identifying
these floors and the ceilings as you can see it's following a fairly consistent path and kind of coming
back down to about 27 29 or 27 or so and then bouncing back ups.
That would be considered a floor at about twenty seven twenty nine ish.
On the other hand we have this last part of the graph.
Now this is only really over the last week or so.
So that's going to be very while pretty high intensity training trading rather you're going to be making
probably multiple trades per day or at least trading every single day rather than just kind of once
or twice a week.
Here we're kind of seeing this resistance around about 27 26 30.
And then it's going back up to about 27 and a half and then back down again to about 26 30.
Like they're pretty close here.
And then back up and then back down again.
So these would be considered new floors and probably I'd say around 20 750 is kind of backed is a new
ceiling.
So the belt 27 50 27 30 was the floor and now it's the ceiling so clearly this is showing a general
downward trend.
But if you can identify these floors and these ceilings then you can make a nice little bit of cash.
Basically you buy during the floor when it hits the floor and then you sell once it hits the ceiling
and then you just kind of do that same process over and over again.
Alternatively if you are feeling very confident you can short once it hits the ceiling instead of just
selling now shorting is a lot more risky than just buying and selling because again your downside is
infinite and your upside is at most 100 percent which is kind of the opposite of when you're buying
and selling because you're upside when you're buying is infinite and your downside is just 100 percent.
But that's generally how to use floors and ceilings it's a pretty basic tactic.
It's not really using technical indicators per say is to trying to recognize cyclical patterns within
the pricing of our stocks.
Try and see it several points at which we hit these floors hit the ceilings so that we can use those
to better predict exactly when to buy a one to sell.
Generally speaking you won't see the stock move more than a few percent within those ranges maybe sometimes
it's going to be a bit less.
Sometimes it will be a bit more than that but it's a good kind of reliable trading strategy.
OK.
So that's floors and ceilings.
Next up we have moving averages.
So we should be fairly familiar with this.
I think we talked a little bit about the buying and selling points within this chart.
I do believe this is actually the same one that we used previously.
So we have our moving average and our estimated moving average gain the estimated one is going to be
the one that is considered moving a little faster because there's fewer days there.
And essentially we gets when the EMH moves over and above the moving average that would be a good time
to buy.
That generally indicates that the stock is increasing in value when it dips down below however when
the EMI dips below the M.A. That's usually an indicator of a time to sell.
No really these aren't exactly precise every single time for example if we take a look down here the
EMI is above and then it crosses over.
But by the time it's crossed over.
The price has already started its decline.
Obviously it would be ideal to sell right up here and then so that we don't lose this extra bit here.
But we can see that generally speaking we have that downward trend here.
Okay so these technical indicators often don't happen right away right when we see the change from a
buy to sell call or sell to a Bikel but they help us to identify the rough points in which we can buy
and sell and we get kind of the cross and next cross over here obviously would be ideal to buy down
here but this is a pretty good buying point as well there's not a ton of difference in price I think
that's probably about 40 or 50 cents or so and you'd still make a pretty tidy bit of profit even if
you sold up at the next point I believe it's about a dollar price difference so which actually amounts
to quite a bit.
Things like 12 or 13 percent or something so you can see if we just follow these technical indicators
essentially buying when the EMI moves up and above the M.A. and selling when the EMI moves down and
below the M.A. then we would consistently make pretty decent gains here.
So essentially we would sell here we would buy here and sell here buy down here.
This one's kind of hissing but not necessarily crossing over.
That's kind of your call to make up here.
We would sell again because again the EMI is moving down below that would be probably pretty good time
to sell.
Ideally up here but this is not too different.
And then again just kind of following that trend downward so that's how you use the moving averages
to make a pretty reliable buying and selling strategy.
I would say over the longer term moving averages is probably more reliable than the floors and ceilings
that we saw previously because floors and ceilings might follow the same cycle for a few cycles and
then they might dip down and that's kind of exactly what we saw previously.
If you could identify the floors and ceilings quickly enough then that's a good chance to get in.
Otherwise moving averages gives you a more reliable technical indicator so with the moving averages
done let's move onto the moving average convergence divergence or Mac D we've got pretty much the same
line of thought here.
Once one line crosses above and beyond the next one then we sell it we buy.
And when that line crosses down below then we sell.
So in this case we're no longer just using the estimates of moving average versus the moving average.
We have the Mac D line versus the signal line.
So here we have again just the basic candlestick graph.
And here we have the Mac de graph at the bottom.
You can see that the positive Mac D here where this being 0 these are negatives and these are positive
generally represents an increase in the price overall.
Once we see a flip that's kind of when we start to lose money or I guess the stock price goes down it's
kind of evening out and then down and then back up it kind of does follow these trend lines here.
So just as a quick refresher with the Mac D charts this is going to be our Mac D line in this case the
blue and this one is gonna be the signal line in this case the red.
So you can see that we have the signal line and we have the Mac D line pretty much any time the Mac
D is above the signal line where for the most part is having a pretty positive result here.
So it's pretty positive positive.
It's already up until here where it starts to take that downturn and that's when we start to see our
price decreasing.
Okay.
And once it crosses over here that's definitely where we would want to sell if we bought down here and
sold up here.
Can we do.
We'd be doing pretty well for ourselves.
So again just like before it's crossing over here but going down so again this is another selling point
and this is another buying point so that buying point is just before this massive spike which would
be really good for us right there.
Again it's kind of crossing over right about here.
That would be probably a selling point if you're using the floors and ceilings you might actually see
that as a buying point but hard to tell until you're kind of looking back on the data realistically
you'd want to sell up here.
Again difficult call to make because we don't necessarily know that it's getting cut down unless we're
looking back on the data.
Another thing with the Mac deal is that once you see these big differences between the Mac line and
the signal line that generally corresponds to a pretty big increase or decrease in price.
For example here we have quite a big disparity.
There's been a lot of increase in a short time.
Okay so that's why there's a big separation there.
And again right here we see another really big separation for another huge increase in price.
Right here we go from 26 all the way up to almost 30 here so quite a big jump there.
And the close these loans altogether generally speaking the less the stock is changing in price or at
least it will be changing a lot less slowly.
So here we are generally seeing a general downwards trend here because we are seeing the Mac D cross
down crossover and down the signal line.
So probably a good time to sell right here and it might be a good call because really not much is happening.
You could alternatively hold.
But realistically you might wonder if your day trading.
You'll probably want to withdraw at that point and put that money into something else because essentially
from about mid April to about mid-May is really not moving too much.
Okay.
So that is the Mac deal.
Next up we have the RSI.
Again this is the relative strength index that is an index of essentially how overbought or oversold
a stock is.
Just a quick refresher with these charts down here.
This is the 50 percent line or I guess just 50 points line let's call it.
This is the 70 and this is the 30.
Any time you cross over the 70 it is quite over.
Over.
Sold or rather every time you cross over the 70 is quite overbought.
So this is typically the point at which you'd want to either short or sell.
OK.
On the other hand when it crosses over the 30.
That's kind of annoying please try to ignore that.
Once it crosses over the 30 there that means the stock is oversold.
That means as a lot of panic people are trying to dump the stock.
If you can get in at the right time that is probably the best time to buy the stock because people have
sold way too much for.
The price is way lower than it should be.
And we always get that bounce back.
So that's a benefit of the RSI is that you can really catch people off guard because people are well
people are very emotional when they trade.
And as a day trader you can definitely capitalize on that emotion very well.
So if you see a stock with a very low RSA like here chances are it's being oversold a lot.
There's kind of exactly what's been happening here.
I mean realistically that's not a completely unwarranted oversell.
We went from about 28 all the way down to about 18 as a huge loss.
And so people are really panicking right about here and selling like crazy they want to get rid of the
stock because they recognize it's losing a bunch of money.
So right here would be pretty much the ideal time to buy.
That's the lowest it ever reaches in this chart maybe about here but pretty similar.
I mean if you could buy that then essentially you could almost double your money by the end of the chart.
Realistically you'd probably want to sell about here because this starts to get uncertain and you start
to think that it's probably overbought.
You can see that it's above 70 right here.
So this might be a good time to sell you're almost maximizing your profits which is pretty good.
I'd say it's go from about 60 to 70 million all the way up to about 27 is still pretty good.
So in our particular case they almost mark the high and the low points of our charts overall with the
exception of this but of course this has actually a relatively low RSA.
I think it was again about 30 at the point at this point in time and then it starts to take a pretty
sharp downturn which is why we have a low RSA here.
However if we just follow the RSA and just do the over overbought and oversold parts we actually wouldn't
be doing a whole lot of trading.
I mean this is all the way from November 20 I think 2018 all the way up till May 2019.
So that's really only I mean that's what do we get 17 months or seven months rather.
And realistically We'd only make two trades now those two trades would be huge because if we bought
here and sold here that's a ton of profit that we're making.
So this is a bit more for long term strategy than just day trading but it can definitely be used in
with other technical indicators to see exactly when the stock is being overbought or oversold or alternatively
you don't necessarily have to play the 70 30 margins you could do for example 60 and 40.
If you're willing to be less or more loose.
For example there's lots that go above about 65.
These might be fairly overbought.
This is definitely way overboard.
And on the other hand we have kind of oversold these definitely correspond with depths you can see is
a pretty clear correlation between the two.
Once the stock tips down a lot we get oversold once a stock starts to come back up and reach pretty
high then we get overbought there.
OK.
So you don't necessarily just have to do the under 30 and the over 70 mark but once it gets a kind of
around those marks is probably starting to think that's overbought or oversold and it's time to either
buy or sell accordingly.
OK.
And that is pretty much it.
So all we really want to cover was the floors and ceilings the moving averages the Mac D and the RSA.
And we've covered those four.
Again there are a ton of other technical indicators out there.
So it's important to learn to use as many technical indicators to make the most informed decision as
you can.
Well I would really recommend doing is if you are trying to look for a relatable reliable trading strategy
you do want to put multiple of these strategies together.
For example you might want to use RSA and Mac D and moving averages of floors and ceilings as well as
Bollinger Bands to help you to maximize exactly your knowledge of the situation.
Try to see when the more volatile areas would be when the floors and ceilings are when it's being overbought
and oversold as well as just generally when it's going to take a turn and start increasing or decreasing
in price.
The more knowledge you know before buying a stock or making any kind of trade the better you will be
because then you'll be able to maximize your profits and minimize your loss.
And one final note before we start our summary is these technical indicators are used to help you make
the most informed decisions.
That's not to say that they will ever guarantee that you will make money if you follow them.
It's just that if you do follow these technical indicators you have a lot.
You can make much more informed decisions than if those technical indicators weren't out there.
So technically speaking you would have a higher chance of making money than someone who wasn't using
the technical indicators.
But they can never be relied on 100 percent.
Okay so never 100 percent guaranteed to make you guys money otherwise.
I hope you did enjoy these tutorials these trading strategies I've found have been extremely useful
learning to use these technical indicators has been huge and is a great way to really understand what's
going on behind the scenes especially once you are day trading.
So we're going to do a summary coming right up will cover all of the topics that we've learned.
If you feel comfortable with everything feel free to skip that and move on to the next tutorial series.
Otherwise we'll see you guys there.