A lot of people over complicate their technical analysis evaluations of stock charts. They teach you the Bollinger bands, MACD Stochastics, RSI and ADX There’s so many indicators out there.
For me, I found that sticking to something simple price and volume really just keeps it easy.
When you’re looking at technical analysis, you’re really looking at it as a guide. It’s just another point of view in the end.
Once you get into a stock or an option trade or any trade, your focus should really be on the trade itself. Managing the position.
I think a lot of people overweight and overemphasize the technical part. They put so much focus on it that it really clouds their judgment. They don’t focus on their position anymore.
So when you look at evaluating a stock chart, I think to keep it really simple. Just evaluate a stock chart in just a quick few seconds.
I want you to start thinking about it in terms of levels. So we’re going to go to the charts here.
How do you evaluate these very quickly?
One of the easiest approach is to look at an apartment building.
Even though there’s so many different ways to look at it in technical analysis concepts. When you look at it from an apartment perspective, this illustrates the example quite easily. So let’s say a stock price is trading somewhere over here at 2nd level.
Eventually, as it trades to this area it may break out and go to the next level.
Now what’s gonna happen is, you might be trading in this next zone.
This is the way I look at it. It just has different price zones. So in order to make this technical analysis work, all you have to do is draw the different lines for your support and resistance.
So just drawing horizontal lines make it easy. Thinking about what is the next zone or level that the stock is going to go into.
Of course you could do technical that are a little more diagonal. You start looking at patterns and so on. That just makes it a little more advanced and more specific.
You could say increases your chance of getting into a little more favorable position. But in the end remember, this is just slightly going to help you. Managing your position is much more critical and important than just evaluating the technical.
Let’s look at AMD.
What I want to show you is just using this concept in a stock chart. We’re going to just draw some some lines.
You want to look at where’s the resistance because you’re interested in maybe going long in the stock. You’re looking to invest.
As you look at this range, you see the highs and the lows and as that stock starts to break out
Now it’s going to the second story. So you get into the next stages.
Eventually it’ll start pulling back, just like an elevator does. So that’s the way you kind of can look at it in terms of these different stories and levels. If you look at it more of a macro view,
This will continue to infinity when you think about it up until the stock pulls back in a big dramatic way. So you’ve got these different zones and levels that the stock just continues to run and ramp up.
This is how you can quickly analyze and evaluate a stock.
Could I start looking at things like this could be a possible pattern? Yes.
How is the volume comparing as we do the breakout?
These are things that are also important because volume tells you how much fuel and gas. If you have more gas, if you have more volume, that’s good thing.
If we have an acceleration of volume as well, this is also a good and healthy thing. These are all just additional things to prove your theory or concept.
In the end, price is the key. If price is moving up, the rest is kind of it’s supplemental. It verifies, confirms and puts more statistics and things in your favor.
So if you look at it just as an elevator concept, think of it like hopping from one stage to the next.
We could look at DKNG.
Here’s our levels.
How do you find these levels? You’re probably wondering. All I do to draw these lines of kind of resistance or support is this — it’s basically looking for where the stock changed direction.
So if we get to a little bit of a high point then that’s where the stock changed direction.
I draw a line from there and I see if it hits another high. Once you get two or three of those, that’s where you get your resistance point. The same thing on the support.
So I’ve got this line at the lows and I see that prices tried to go up. I draw that and you can see we’ve got a few of them that kind of isolate in that area. This applies to just moving the price all the way over.
So you can see that this one we had a point here a point here and
Actually there’s a point right there that also started to hit.
You can say it’s not hitting me perfect but I will always say, well, when you meet your friend for dinner at a restaurant, are you always meeting at exactly six o’clock?
If you say six o’clock, are they coming at exactly six o’clock? No. they might come at 5:58, you might come at 6:01. It’s not always perfect.
The same thing here, it’s a meeting place or it’s confluence. It’s just trying to find its price range.
Let’s see United Airlines.
We can look at a different time frame, here the stock went to highs and started to retrace
You can see we tried to hit support.
Here was another peak where we kind of rejected it.
It continues to do this up until you get a little too high and it starts moving in the downward pattern. That’s kind of what’s going on and eventually maybe hey the elevator just crashes because here’s what happens
You get to the highest level in floor and you can’t go any higher. While the elevator eventually has to come back down or really in this case you’re gonna have to drop.
There’s just too many people on board. Then the process repeats itself. So you go back and look at the support all the way over here.
Here’s where all the other points were draw that line across.
Isn’t that interesting how it comes right back to the floor? That’s how you can really quickly analyze a stock chart.
Now could you also add in a price range and movement like this? Yeah, you could. It’s a break there at some resistance or support levels.
Could you look at volume? Could I add in moving averages? Could I look at Bollinger bands? Could I add in AXD and RSI?
You could.
But do you really need to?
The question is how deep do you want to get into it.
In the end, it still comes down to position management and risk management. Taking risk off the table.
So if you had a hundred shares on a certain stock and all of a sudden, this stock is going up. So let’s say you got into the stock somewhere over here.
As it continues to go higher, it’d be wise probably to take off 20 to 50 shares. That’s just normal basic risk management principles and concepts. Keep that in mind as you continue to trade and look at charts, They are important to some degree but they won’t make or break you.
In the end, it comes down to position management. Managing your position, your cash and your capital.
Do I like to look at charts? Yeah.
Does it make me feel comfortable? Sure.
Some people really just emphasize a lot on charts. They make a big determination and decision based on the charts and not so much based on their position.
So in the end, remember, your management of that money is more important than these charts. Once you’re in a position, the rest goes out the window.
It all then comes down to how’s your position behaving. It doesn’t matter what the charts are doing. Really comes down to your position, once you’re in the trade.
