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Technical Education

Archive of Educational Materials

Once in a while, I try to put together important posts dealing with technical education, psychology, reviews, and other things. I do this so new people can find what they are looking for.


1) 4 Stages of learning

2) The Death Spiral

3) The Trader’s Mindset

4) Plan & Rules

5) We Are All Farmers

6) Fear

7) Attitude

8 ) Decision-Making

9) “As If” Principle

10) Concentration

11) Tape Reading I

12) Tape Reading II



1) AIG Trade

2) Common Breakouts

3) Doji Strategies

4) Volume Patterns

5) Intuitive I: Left vs Right Brain

6) Intuitive II: Cognitive & Emotional Biases

7) Intuitive III: Rhythm



1) Common Breakout Patterns

2) The Blank Box

3) Short-selling

4) Sequential Breakout Trading

5) Technical Analysis for Dummies

6) Channel Breakouts

7) Is TA for Idiots?



1) 03/27/10 (ABIO) – http://bit.ly/a109ku

2) 03/19/10 (SOMX) – http://bit.ly/cJRvVc

3) 03/10/10 (AIG) – http://bit.ly/a5RJma

4) 02/26/10 (NUVA) – http://bit.ly/9cbDLg

5) 02/05/10 (COH, APD, USO) – http://bit.ly/9K4eoz

6) 02/04/10 (LXK, APKT, BGP, PEIX, JCI) – http://bit.ly/aTNkUo

7) 01/08/10 (GENZ, CYCC, VVUS) – http://bit.ly/8LfDAr

8 ) 01/06/10 (STEC) – http://bit.ly/7Gjmhg

9) 12/23/09 (ATHX) – http://bit.ly/5Lbxro

10) 12/01/09 (SOMX, TGB) – http://bit.ly/4TL4BI

11) 11/22/09 (KIRK) – http://bit.ly/6o0GEB

12) 11/06/09 (FSYS) – http://bit.ly/15ypBc

13) 06/03/09 (ADLS) – http://bit.ly/aPvFUi


Good luck trading today!

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For exact trade entries and exits, you can refer to the blog comments or on my twitter (@WeeklyTA). It’s documented in real-time and I have about 60 traders who saw me trade it in real-time in 2 different live chat rooms.

I had my 2nd best trading day of 2010 thanks to ABIO. At 8:30AM Friday, ABIO announced that “a patent was issued to them for treating heart failure patients with Bucindolol based on genetic testing” (http://bit.ly/c08SLF). Like other plays, I do not care what the news is. I only care about the reaction to the news. This is the principle of momentum short-term traders. That’s lesson #1 – don’t get too absorb into the news, instead, trade the reaction to the news. We see this rule all the time, but do you really put it into practice or do you let your personal biases get in the way?

Lesson #2 is actually watching and “stalking” a stock prior to a breakout. It may take forever, and yes it is many times boring, but you gotta pay attention to the setups during the day. Use a 1-minute time frame for momentum stocks so that you’re able to capture the first breakout out of a base. That’s what I did…I caught ABIO’s first breakout at $4.57/58 (after the opening gap). Do not miss the first breakout, or else it’ll get more difficult to maintain your emotional stability. Don’t let thoughts like “it’s already up too much” get into your head. If the setup is great, then take it.

Immediately after a huge power spike, I immediately look back to the multi-month daily charts to find key support and resistance areas. This helps me identify where I need to buy and sell intra-day.

We can see a high of $4.50 in November 2009. We can see a high of $4.88 back in July 2009. The next level would be the breakaway gap back in June 2008 with a high of $5.29. After that, the gap started to fill and the target was the filling of the gap between $8-9. Technically, ABIO breached every level, every high, on the way up. I keep these levels in mind because when the stock does break..it’s gonna BTFO. I’ve demonstrated this nearly every single week. Lesson #3 is to pay attention to past major price levels. Don’t sit there intra-day wondering where the stock should be because the chart will tell you.

Intra-day, you have to have focus and discipline when executing the trades. Of course, in hindsight someone could say “why didn’t you hold the stock till $9 and just get 100% in one trade?”. Well, problem is that when the first breakout happens, no one knows where it’ll end up by 4PM. Heck, I don’t know, which is why I trade each intra-day 1-minute setup as if it were the last. It’s a way to protect yourself from sudden reversals. Why? Stocks that explode to the moon will fall the hardest and many times, without warning. The important thing is to trade comfortably, take profits at appropriate levels, and play the stock till the wheels fall off. This is lesson #4.

The star that burns the brightest  burns out faster than the star that emits a cooler, darker light. Don’t forget this.

Lesson #5 – pay attention to volume. Volume is absolutely mandatory with momentum stocks. No volume = no trade. Notice how each intra-day breakout displayed some sort of sustained multi-bar volume spike? Combine that with a price spike and you got yourself a trade.

Key characteristics that make this spike “legit” vs. the other spikes in ABIO:

1) The gap was above all 4 MA’s (20,50,100,200) immediately. Not true for the spike in November and July 2009.

2) Volume was exceptionally greater than any other day in the morning. This signified to me that there was going to be a massive move. This alone does not confirm direction however. It just tells me that it’s going to be “one of those days”.

3) The stock was able to breach previous highs with very little problem. Resistance is supposed to knock a stock down, but it didn’t. ABIO would flag at, under, or above resistance (pausing) to launch itself again.

4) Once the gap was filling, the stock could not be stopped. A breakaway gap that fills in only one day is extremely, extremely, extremely RARE. This was an exceptional case.

Let it all sink in. If you have questions, then let me know.

Thanks to the folks who @replied me on ABIO. Hope you folks made some cash.


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Trade Review: SOMX

Yesterday was my best trading day for 2010…all thanks to SOMX. I caught the first spike for a good +$5K and the secondary breakout for another +$13K. SOMX could have been played by anyone that was alert and had the intra-day 1-min chart up. The first spike may have been elusive to 99% of people, but the secondary breakout is no excuse because you had every opportunity to buy the stock on the first spike out of it’s base, then it’s reach to the spike’s high, and beyond.

SOMX got halted prior to 12PM for reasons of news pending. It was also announced that the stock would re-open at 12:05PM. Normally, one does not have the luxury of being able to be ready for the spike. Like NUVA and my various AIG trades, the first 1-min spike bar held up and sustained itself. This first spike automatically broke above 4.80 (Nov 2009) and 4.88 (March 2010), alerting of a full-scale technical breakout. The secondary breakout was marked by a break from the neutral range as well as another breakout above $8.

This is another example of a trade where you either caught it or you didn’t. There is no in-between. If you were fast and on the right side, congrats. If you were slow and/or on the wrong side, there are lessons to be learned from the SOMX trade. Whenever the first spike holds up and immediately breaks through the nearest major resistance, it is a long trade. If it fails to penetrate major resistance, it will fade, for a short entry. Upon breaking out, it is a signal of further momentum, giving opportunities to scale-out of the position.

Looking back this year, I noticed that I had at least one intra-day spike play once every 1-2 weeks. I do miss some of them, but you only need one of these plays to make your day, week, or month. After a huge win, it is my standard protocol to take it easy the next day (t0day) and play with only 1/2 size positions and cut down on frequency. People say that you shouldn’t trade with emotions, but since we’re human, emotions are inevitable. After huge wins and losses, always remember to take a break, refresh, and then get back into the game.

Some charts with levels marked below. As each target is reached, you have to pull back to a longer time frame to find the next target. It is 4AM and I need some rest. Have a good one folks.


Earlie screenshots from the day and stuf f;:



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Epic Trade of 2010 (so far) = NUVA


Order: 13:25:57 (2 sec fill)

Entry 13:25:59 $31.2699

Scale Outs:

1/2: $36.92

1/4: $41.89

1/4: $41.18

Suffice to say, I am done for the day. This is a news driven power spike that I was fortunate to catch. I don’t regret getting “only” 1,000 shares because I stick to my rules on position sizing specifically for intra-day spikes.


1st Target: $31.68 (high of day prior to spike)

2nd Target: $33.63 (100-day MA, kept spiking higher)

3rd Target: $37.08 (200-day MA, I always cut here)

4th Target: $40.54 (November highs – sell everything at this point)

Charts are for “Idiots”? Think again.

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Is Technical Analysis for “Idiots”?

I wanted to bring up the ongoing conflict among two schools of thought – fundamental analysis and technical analysis.

A common question that needs to be answered is “Does technical analysis work“? As a discretionary technical trader with 8 years under my belt, I feel that it is my responsibility and obligation to defend technical analysis as a legitimate and effective approach to profitable trading. I use technical analysis every day, demonstrate it’s effectiveness, have the returns to prove it, and I will champion this form of analysis till the day I die. As “The Chart Addict” nothing less should be expected.

This article is for all of the non-believers, bashers, those holding myths about TA, those that don’t truly understand TA, and for the unfortunate ones – those that lost money and blamed it on TA. The truth is, I could really care less what you think about TA because it works for ME. Perhaps it doesn’t work for you, and that’s perfectly fine. We all trade the markets in different ways, and it’s important to use what works for you. If something simply does not “fit” with you, then you should explore other options. This goes for both TA and FA (fundamental analysis).

Technically Speaking

Technical analysis, in it’s most simplest form, analyzes supply and demand through price and volume action. TA is designed to help you identify the most probable future action based on price history. Note that I did not say that TA is used for predictions the way most people would think. There are jokes that using TA is “voodoo”, “similar to using a crystal ball”, “black magic”, “hogwash”, “hocus pocus”, and whatever else you may have heard. The people that think like this truly do not understand what TA is and how it is properly used. I encourage you to open your mind and explore this realm. For those that have been following me for 1-2 years, you know that I champion TA as my most favored trading analysis.

We are NOT trying to find out the value of a company, and in most cases, we don’t care. We don’t sit here reading 50 page reports day and night. Most technical traders have short-term horizons (day/swing) and technical analysis, in my opinion, has the upper hand for these shorter time frames. Furthermore, there are enough technical analysts that have consistently demonstrated the value of this art.

Proven Success with Technical Analysis

Since I made my Covestor account on March 17, 2009, I still command a return north of +300%. Am I lucky? You have to be really dumb if you think that. In fact, returns for my last 4 years all exceed +100%. How is that luck?

The Stocktwits community is full of tens of thousands of traders, but there are quite a few that I will personally recommend to you. Time and again, these folks have demonstrated exceptional and consistent skill from the proper use of TA: Brian Shannon, Anne-Marie, TheEquilibrium, DowntownTrader, ZMoose12, Steven Place, Kunal, ldrogen, Stewie, John Welsh, Trader Florida, Tickerville, SMB Capital, Zortrades, Misstrade, Gtotoy, and many, many others. The list is too long, but the point I’m trying to make is “how can technical analysis be rubbish if there are SO MANY successful technical traders”?

Still have something to say? Before you say anything, first prove your returns and then we’ll talk or GTFO.

So, you still don’t believe that TA works. Maybe it’s because you subscribe to only one school of thought. Or, maybe you buy an academic’s theory of efficient market hypothesis. For those that don’t know, efficient market theory states that the current price is right and past information is already reflected in the price of a stock, therefore analysis is useless.

There are three sub-arguments with this theory. There is the weak, semi-strong, and the strong forms of efficiencies. The weak form states that any analysis into the history of price movement is useless. The semi-strong form states that fundamental analysis is also nearly useless. The strong form states that all information is already reflected into a stock and neither schools of analysis will help you.

Here’s another “argument”: “Charts are just full of stupid squiggly lines that have no meaning”. Seriously? Each price bar is important. They show you the open, close, high, and low. Put these bars on a chart, and you have a pictorial representation of all market participants. As a technical trader, I am more concerned about how other market participants are behaving and their reactions. A good example of this is with earnings releases. A company could report stellar earnings, but the stock could gap down. Also, a stock could report a huge loss, but gap up. In some cases, a stock barely moves. The chart shows me what other traders are thinking, and that has huge value in itself.

How about “throwing darts on a dartboard”? This is false. Expert technicians sort through hundreds of charts to assemble only a few that are worth playing. Only charts with the best setups make the cut. How is this throwing darts? Are we lucky? Sometimes, but we don’t rely on luck. We rely on concrete data presented on the charts (price, volume, MAs, support, resistance, channels, gaps, etc). Remember? Charts are created by the collective participation in the market or stock. There is significant value in analyzing the psychology behind their behaviors.

There are many arguments, and if you have one to PROVE that technical analysis doesn’t work, then leave a comment and explain your thoughts. Key word is PROVE.

Reading the Charts

A problem with technical analysis comes in the way people interpret charts. Two people can look at a chart but have different opinions. How is this possible? We are human, we have biases, and we all have different opinions. The key is to look at a chart for what it is. I’ve seen people draw phantom trend lines that don’t exist, probably because they have a position in the stock. Manipulating a chart so that it favors you is the wrong approach to analyzing charts (and you are also lying to yourself).

Charts do not lie. They show what has happened already, and it’s all real. How many analysts do you know of are guilty of sticking their personal opinions in their reports? Countless. Funny thing is, many stocks with multiple firm coverage often have conflicting opinions amongst each other. What and who are you supposed to believe? The answer is to believe in only yourself. Use technical analysis as a way to make your decisions without emotions.

Charts don’t move the markets, but people do. People can say anything, but what is reflected in each price bar represents what people do. People’s actions form the chart. Your trades, big or small, help create the chart. So then, does it make sense to bash charts when your trades are reflected in them?

Entries and Exits

If you still have doubts about TA, please tell me how you enter and exit your trades. How accurate and consistent are you? Do you sometimes have to “wait for things to work out”? Technical analysis, among the two schools of thought, has the advantage of lower-risk timing. Keep in mind that technical analysis is highly favored by short-term traders, thus accurate entries and exits are more important to us. Generally, the longer the time frame, the more important the fundamentals. It all comes down to the individual and his/her methodology and style.

If you are a pure fundamental analyst and you are attacking technical analysis = “apples to oranges”.

Follow the Big Money

Most institutions either do not use TA or do not make it a priority. Does this mean that TA is insignificant? No! Expert technicians can follow the footsteps that are created by institutions. A good example is playing momentum breakouts on high volume – prior to the breakout.


Many traders favor a hybrid approach of implementing both fundamental and technical analysis. I believe that this is a very powerful method of trading and it is highly recommended.

In conclusion

There is no wrong method, as long as it works for you. For me, technical analysis is my foundation and it has worked for me all these years. I would not be writing this article if I believed TA and charts were worthless.

Use what gives YOU the best advantage.

-John Lee aka “The Chart Addict”

Twitter @WeeklyTA
Chart.ly: http://chart.ly/user/WeeklyTA
StocktwitsTV: “Charts Gone Wild” Tuesdays /10PM EST

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