Transcript for:
Market Stage Analysis Methodology

if you'd like to learn about Stan Weinstein's trading methodology including his stage analysis for when to go long and when to go short this is the video for you one of the things that I love about Stan Weinstein's book secrets for profiting in bull or bear markets is the fact that he engages the reader with quizzes so that's what I've tried to do of this presentation to try and engage you with quizzes with interactions between us instead of me just talking to you there's going to be Parts where I'm going to ask you to play along gonna ask you questions which art is more bullish which chart is more bearish so hopefully you get a lot out of this video you learn a lot from it to Market Smith are the sponsor you're going to see some of their charts throughout this presentation to help illustrate some points if you're interested in a discounted Market Smith trial there is a link in the comments section below and where I would like to start this video is with a quit now we're going to come back to this quiz at the end of the video as well so I've got two different questions to show you here I'm going to leave the answer unanswered and we're going to answer it at the end because that will be the litmus test for if I've really helped you to understand Stan Weinstein's methodology so which jar is more bullish is it the 100 on the left here or is it the one on the right we're going to come back to this later on in the video and there we'll have a really good conversation about it then another question which jar is more bearish is it the one on the left or is it the one on the right again we're going to answer this at the end of the video and hopefully you have a really thorough understanding of Stan Weinstein's methodology so let's start with Stan's philosophy it's really important to understand how did Stan Weinstein think how does he continued to think as well so what I love is the directness in the book as well so Stan goes against conventional thinking early in his book page one sentence one this is the beginning of the book Buy Low sell High that's the shortcut to a fortune right wrong Buy Low sell high is a cliche not a blueprint for Action it blinds in investors to the professionals approach of buying high and selling higher which I'll teach you to do consistently that is what this video is designed to help you with as well learn Stan's methodology for over 25 years I have been consistent in my Approach and discipline discipline is really really really important this is so very important don't be a fundamentalist one week a technician the next week and don't follow indicator a one month and switch to indicator b the next find a good method be disciplined and stick with it be absolutely disciplined and don't ever abandon a successful method because you think this time things are different discipline and consistency you must learn that the market is a discounting mechanism and that stocks sell on future and not current fundamentals I therefore use a technical approach that deciphers the market interpretation of all the current known news as well as future expectations so Stan was very much focused on the charts it was much more of a technician would kind of discard a lot of fundamentals which you're going to see as we progress all technical analysis really consists of is a study of price and volume relationships in the context of stage analysis to gain an insight into future Trends so let's go into what on Earth is stage analysis so what is stage analysis and why the technical approach well the tape tells always stands kind of motto it was at the top of every PTR professional tape reader report that he used to write so the take Tails are all relevant information about a company's earnings new products management and so forth the fundamentals that is currently known and cared about is in already Incorporated in the price of its stock it isn't that I don't care about an important piece of fundamental news rather I learned a long time ago that you and I aren't going to find out about that juicy bit of news before it hits the broad tape and by then it's too late so what is that what is Stan actually saying there especially this kind of Juicy bit of news what he's saying is you're probably going to be one of the last people to hear about it the bigger boys the bigger girls the institutions the larger operators in the market they already know it they already have acted upon it so what he's basically saying is any bit of fundamental information that you could possibly find out it's already been discounted in the prices already been acted upon by those much more informed than you so in short Stan is saying everything you need to know is on the tape I.E the chart both in times of the company fundamentals and from a trade management technical standpoint for creating favorable reward to risk traits only price pays so on the next chart we're going to be going deep down into Stage analysis and the four stages So What on earth is stage analysis well this is the backbone of Stan Weinstein's methodology and he developed it by studying the action of the market studying the action of individual groups of individual stocks this is how we came up with it and what he could see is well these indexes these groups these stocks they move in these Cycles so hence stage one stage two stage 3 and stage four so stage one is the basing stage stage two is the uptrend stage three is the distributional top and stage four is in the downtrend don't worry we're gonna really break this down and by the end of this video this chart here is going to be second nature to you I appreciate at the minute maybe like well what does all this mean what are all these lines what are these trading areas what is support what is resistance don't worry by the end of the video you're going to get it all so the 30 weeks Dan use the 30 week which is indicated by this purple line here moving average he thought that that was the best moving average for long-term investors so as you're going to see as we start progressing through the ideal ideal buy points and sell rules Stan refers to two types of Market players he talks to investors but he also talks to Traders we'll be talking about the different rules for Traders and investors so the 30-week moving average that is the 150-day moving average if you are on the daily chart he then used the 10-week moving average which is the 50-day for more so Traders so we'll talk about deciding whether you're a more so an investor or a Trader as we progress throughout this video let's just do some definitions of trading ranges because you can see well we have a trading range here and we have a trading range here one is going to be a stage three top don't worry that's all going to become clear later in the video and down here this is a stage one base so a trading range price stays within clear upper and lower boundaries what is a downtrend so you see here this is a downtrend which would be stage four a downtrend is when price is making lower highs and lower lows and what is an uptrend which would be stage two well an uptrend is higher highs and higher lows so it all refers back to the action that you are seeing on the charts so let's now really break this down so I've called this section stage analysis Made Easy this is an overview and then I'm going to give you a definition of each stage in Stand Zone words so here you go we have our 30-week moving average so you can see it's kind of sloping down here then it flattens out then it goes into this nice uptrend flattens out rolls over for stage three and then goes into this downtrend for stage four and then starts to flatten for this stage one so stage one stage two stage three stage four stage one stage two stage three stage four you're following along you get it so stage one okay it's going to be down here which we're going to look at on the next chart so one on earth is stage one well stage one after stock XYZ has been declining for several months it eventually will lose downside momentum and start to Trend sideways so you see how it's starting to Trend sideways here price is moving within defined boundaries there's an upper boundary and a lower boundary that's what we're looking for and you'll often see that the moving averages starts to flatten what's actually taking place is that buyers and sellers so supply and demand are starting to move into equilibrium whereas previously the sellers were far stronger in that stage four decline which is why the stock had plummeted so Supply is overcoming demand there's more Supply coming to the market volume will usually lessen dry up as a base forms so from left to right at this stage one base what Stan is saying is actually commonly you'll see the volume sloping down as well but often volume will start to expand late in stage one even though price remains little change this is an indication that dumping at the stock by disgruntled owners is no longer driving down the price the buyers who are moving in to take the stock off their hands are demanding no significant price concession this is a favorable indication so what Stan's saying late in a stage one base you can actually start see an increase coming back in in the in the volume so you want to see volume generally drying up and then potentially starting to increase as well so stage one then moves into stage two you're following along the ideal time to buy is when a stock finally is finally swinging out of its base so stage one base into this more Dynamic stage such as a breakout above the top of the resistance Zone and the 30-week moving average should occur on impressive volume you're going to see as we go throughout this presentation stamp has a great emphasis on the volume at key points on the chart especially the breakouts this is the start of the advancing stage 2 uptrend phase at the breakout point which is the perfect time to buy so the breakout Point here don't worry we've got some really detailed examples this is an overview and we're going to be going down down into the weeds which is the perfect time to buy the reported fundamentals will often be negative interesting so what Stan is saying there is oftentimes as stocks are coming out of phase of stage one bases when they start breaking out and beginning their stage to advance actually the reported fundamentals can be very negative I'll then skip forward and get ahead of myself a little bit so as the stage 2 uptrend is coming in therefore the company may have easy comp so easy year-over-year comparisons so suddenly the earnings then as the stage 2 really starts progressing could be up 100 300 500 you'd have huge earnings coming through and then actually at the top of stage two it's quite common to see that there when it tops at stage two into stage three is that when the reported fundamentals so the earnings that have been coming out are at their Peak quite interesting there about psychology okay large operators tend to be very contrarian in nature as to what retail Traders are doing certainly on the fundamental side in stage two the 30-week moving average usually starts turning up shortly after the breakout the situation this situation because the buyers this situation becomes a barge room that should say as each successive rally Peak is higher than the last in addition the lows on Corrections are also progressively higher higher high highs high lows High highs high lows High highs highlights basically the definition of an uptrend this is important as long as all these wild wild swings and shakeouts take place above the stocks Rising 30-week moving average don't worry everything is proceeding to schedule for a big profit so what Stan is basically saying is as long as the stock is in stage two as long as there's High highs and high lows and the stocks trending above its 30-week moving average which is rising chill out relax let's go into what stage three is so stage three the upward Advance starts to lose momentum and starts to Trend sideways so see how our price here Dynamic stage to uptrend and now prices showing an inability to make those higher highs it's starting to go sideways and move into a trading range so we have clear upper boundaries and lower boundaries what's going on beneath the surface is that buyers and sellers are once again about equal in strength so there's not enough buying power there's not enough buyers there to continue pushing it up and soaking up the supply on the pullbacks to form those high lows and then pushing it up in the higher highs there's an equilibrium starting to form here between supply and demand volume is usually heavy in stage three and the moves are sharp and choppy known as churning the heavy volume on the part of the buyers who are excited by the improving fundamentals remember what I just said improving fundamentals or the story is met with equal measure by aggressive selling by people who bought at considerably lower prices back here in stage one and early stage two the 30-week moving averages loses its upward slope and starts to flatten the stock will now tiptoe below and above the moving average on declines and rally so it's just kind of tiptoeing and Stan would stay here but up and down up and down kind of chopping around the key moving average if you are if you like now what is stage four well stage four so this part here this is after our stage three top after moving back and forth in a neutral trading range a stock eventually breaks below the bottom of its support zone so this would be taking out the lows here we're going to talk about shorting this is a very good time to look for shorting a downside break into stage four doesn't need an increase in volume to be considered valid take the oath that you are never going to buy another stock in stage for now this is a little subtlety we'll talk about later on in the video Stan loved to see and it was a requirement for him that on breakouts from stage one into stage two and then stage two continuation bases he wanted to see volume coming through on the breakout but when the stock was breaking down stocks can fall of their own weight so when he was looking to short he didn't necessarily need that increase in volume he'd look for on the breakouts because stocks can just fall of their own weight and fearful sellers can drive prices down much quicker okay so stocks invariably take the escalator up so a bit slower but the lift down okay just something to uh just something to remember so on the next slide we're going to be going into the ideal time to buy so in Stan's own words what is the ideal time to buy well Stan's book is aimed at two types of Market participants so I know this page here is a little bit heavy on the text but it's actually really important because it will help you decide are you more of an investor are you more of a Trader and we're going to talk about investor and Trader psyche a little bit later on so Stan spoke to the investor and he also spoke to the trader so the investor your investing time frame is up to 12 months buy half of your intended position on the initial breakout so of stage one and we're going to talk about that in a second and the other half if the stock pulls back close to the breakout price and you like the post breakout action don't worry got loads of examples to be going through investors should do eighty percent of their buying from stage one breakouts and twenty percent from stage two continuation breakouts investors should concentrate their buying in those Market areas breaking out of stage one base patterns so that's about the investors and where the investors should be looking to buy now what about the trader well a Trader is someone who wants to catch each significant two or four month move if you are a Trader and want to buy the stock purchase your entire position on the breakout so what Stan's saying for the investor is by half of your intended position on the breakout and then another half on the pullback more so eighty percent of the time from stage one base patterns for Traders he's saying buy your entire position on the breakout and Traders should lean towards continuation moves in already existing stage 2 uptrend and what Stanwood actually say is Traders should basically do the opposite of investors eighty percent of their buys should be from stage two continuation type type plays with 20 from stage one breakout so it's different hopefully this is starting to starting to make you think a little bit are you more of an investor are you more of a Trader much can depend on your psyche as well so the summary the very best situation for an investor is a stock that is in an early stage two breakout in a group with the exact same pattern we're going to talk about the indexes we're going to talk about groups we're going to talk about individual socks for a Trader the ideal is a continuation pattern breakout within a dynamic group exhibiting the very same sort of pattern so Stan would look for very strong stocks but he would like to have the groups confirming that as well so let's go for a couple of examples always remember the bigger the base the greater the upside potential there's an old saying among technicians the bigger the base the bigger the move the cholery being the bigger the top the bigger the drop so this is kind of the law of cause and effect bigger causes so bigger bases tend to lead to bigger effects both in terms of the stage one accumulation but also the stage three top as well if you see a really big stage three top that can mean that the stock could be in for an Almighty drop so this is where we're going to get into a little quiz and I've got some later on as well as I said I want to give you kind of a really good insight into Stan's methodology but I want to try and make it engaging for you so I've got some quizzes some charts like this where I'm asking you which is which is better and we'll get on to some more in a minute so this here is going to be for the investor so this is the 30 week do you see how this is coming out of a stage one base hit and for the trailer this is coming out of a stage two continuation type pattern so if we were saying which is better for the investor well according to Stan it would be the stage one breakout this is where investors should be doing 80 of their buying and from stage two breakouts 20 of their bike Traders on the other hand eighty percent of their buying from stage two breakouts continuation type pattern breakouts and 20 20 from stage one so as we go through some quizzes a little bit later on you'll start to see well is it better for potentially an investor is it potentially better for a Trader let's see now Stan talks about buy stop buy stop limit orders so from now on whenever you want to buy a stock on a breakout use a buy stop order on a GTC which is a good till canceled basis one Earth is a buy stop limit order let me take a minute to explain here so let's say we have a stock it's in stage two this is a strong stock strong group and the market is rock and rolling as well so price Powers up here to a hundred dollars and then it starts building successive high low so we have one contraction to 90 we bounce back up to a hundred dollars then we pull back down this is probably about was that 97 or so we bounce back up to 100 then we pull down here so we call this 1994.95 then we bounce to 100 then we pull back down to ninety seven dollars and then the breakout comes through here but how on Earth do you buy it what do you do well I appreciate most of you are probably working as well so Stan addresses this in his in his book you don't need to be staring at the ticker tape or the screen all day so here this is where buy stop limit orders which are the ones that I invariably use myself as well because I just like them so the buy stop would be here think think of the buy stop as the trigger price so the order is only going to go into the market if a hundred dollars in this instance is taken out but hang on a minute because price could jump ten dollars twenty dollars above 100 so you thought you were going to buy it at 100 now you're filled at 120 because the stock Gap 20 how do we get around that well this is where the buy stop limit so the limit part the limit is limiting how much you are willing to pay for any shares so this is what Stan talks about in his book okay a buy stop order on a good till cancel basis so for this instance here we go well we want to buy it when price goes through a hundred dollars but we don't want to pay any more than a hundred and one dollars a share this is very important for them thinking about the risk as well so this is the limit area as I've set here so let's say you're going to buy a thousand shares of this stock with the buy stop at 100 and the limit at 101 so the maximum you are going to pay for any shares is 101 which is one percent above the pivot that's really useful information because then you can plan out your trade management for how much risk you're going to have on the trade so our buy stop is a hundred our limit is one hundred and one one percent of the pivot one percent above the pivot the Shader green area and then our stop loss is going to be placed at 97 so this is more so for a Trader underneath the most recent swing low the most recent contraction ran about 97 but Stan does mention in the book and I'll come on to it later put it underneath whole dollars whole dollars and half dollars be underneath it but our stop loss if we get filled at a hundred dollars is going to be three percent but if we got got filled at 101 our stop loss is going to be four percent so the buy stop limit order helps you determine how much risk you're going to have on the trade will come on to risk management later it's really really important another thing is when not to buy I want to make sure that you know what not to buy a very common mistake is to buy when a stock breaks out above its base even though it is still below its declining 30-week moving average so for Stan it's still in the definition of a downtrend so he's saying don't buy breakouts in downtrend when the price is below the 30-week moving average this is not a stock you want to purchase since it is not yet ready to start a sustained it's more likely a base forming in the context of a downtrend so the stock is then going to fake out Break Out roll back over in most cases there will be a temporary rally for a few weeks then the stock will falter so you see here the stock is in a downtrend why it's making lower lows lower high lower lows lower high then it starts going into this trading range where there's a clearly defined upper boundary and lower boundary then there's a breakup but what's the problem with it here we're still below the 30-week moving average the 150-day moving average which is still sloping down so what Stan is saying avoid breakouts in downtrend have the market at your back so on the next slide we're going to be going into what to buy what to buy so now we are starting to get into it and there's going to be a couple of slides with some quizzes on where I'm going to ask you some questions what's a better breakout so Stan had his Forest to the trees approach so Stan would actually start with the market he would then look at the groups and then he would look at the stock so he would start higher and work his way down he would want to know what is the trend of the market what are the leading groups What stages are they in and what stages the market in and what are the leading stocks and what stage are they in so Market group stop is now Stan approached it you should work from the large question how was the overall market so what stage is it is in down to the smaller component which stock looks best to buy in between these two extremes is the middle part of the equation which group is acting best technically so the process unfolds in the following manner so now we're getting an insight into Stan's process how we thought about things what's the trend of the market if it's negative you want to do very little if any buying your probabilities of success are quite low when the market trend is going against you which through few few groups look the very best technically the importance of this question can't be over emphasized since my Studies have consistently shown that two equally bullish charts will perform far differently if one is from a bullish sector while the other breakout is from a bearish group a favorable chart in the bullish group will quickly will often quickly Advance 50 to 75 percent while the equally bullish chart in a bearish group May struggle to a five to ten percent gain so what Stan's saying there is a significant component of a Stock's Advance is its group action William O'Neill actually found that 50 of the stocks move is related to its sector and also its group as well so really really important I think O'Neill found that 37 was related to the sector and 12 was related to the group so about 50 about 50 just under once you determine that the market trend is bullish and group a acts the very best technically excuse some of the typos in this by the way the final set in the process the final step in the process is to zero in on the one or two best individual stock chart patterns in that section if you follow this three-step process you will find yourself heavily invested in the best acting stocks when the market is powering ahead that sounds good doesn't it and sitting on large cash reserves when the overall Market Trend turns Barrett that also sounds good doesn't it so here we go which is a better breakout environment to be trending it so we're starting from a bit higher up there again we're thinking about the index don't ever fight the trend of the overall market and grip so let's say you're looking you're looking at the market and you're thinking about potentially buying some breakouts which is going to be a better Market environment for you to be trending in is it going to be the left chart over here or is it going to be the right chart take a look apply the stage analysis as well so the index here well it's getting back above its 30-week moving average it looks to have built this stage one base here it's got a good stage one breakout puts in a high high low tests the pivot area test the moving average as well and then is making another higher high does that look like we're potentially in a better environment relative to the right chart here what are we seeing well it looks like it's been a powerful stage to advance but now and you're going to learn about this pattern a little bit later on what pattern is this any of you know Head and Shoulders type pattern left shoulder head right shoulder and then it's rolling down below the key moving averages making a series of lower highs and lower lows into a stage four breakdown so over here this bar this chart here on the left is a much better at Market environment to be trading in the proverbial wind is in your sales let's have a look at this one which is stronger the market or the group so this is where and we're going to talk a lot about relative strength so technical action reveals leadership we have the index here which similar to the prior chart is coming out of a stage one base but then Stan would say Okay I want to know what stage what does the index look like what stage is it in is it early in in stage one is it just getting started in stage two okay interesting maybe it's in the stage three top maybe it's in a stage four decline but then we want to dial it in and go okay if the market environment is looking conducive to trading breakouts in what are the strongest groups well if you take a look here solar which one is stronger technically well solar here is in a powerful stage to uptrend and just breaking out and the 30-week moving averages moving averages Rising nicely so the group solar is much stronger technically than the index so this is where we want to be then focused and dialed in on now which is stronger the market or the group here which group or which area would you rather be looking in well if we look at the index here it's coming out of a stage one base into stage two and if we look here we've got oil and gas so oil and gas Head and Shoulders top for a stage three and then it's in a stage four break that so you probably in this instance here don't want to be looking at oil and gas stocks that have just gone into a stage four breakdown there's probably going to be much better areas of the market to be looking at say solar for instance if solar was looking like this now let's do another one which group is stronger so it may also depend on whether you're an investor or a Trader which is why I put that section in earlier to for you to be thinking about am I more of an investor am I more of a Trader and which one you're orientated to it's not necessarily this is better than that it's just understanding yourself a little bit a little bit more every year there are a few groups that far outpace or others on both the upside and the downside so what you'll invariably see at any one moment in time there's around three to five groups that tend to be leading so if we look here we've got Airlines on the left and we've got semiconductors on the right which is leading which is stronger well it's semiconductors isn't it why because airlines are coming out of this stage one into stage two very early whereas semiconductors are already in a confirmed uptrend they're about of the 30-week rising nicely it's built a nice base here building higher lows tightening up stage two breakout hit but as we said a Trader wants to do about 80 of their buying from stage two breakouts whereas an investor wants to do about 80 percent of their buying from stage one breakouts so this question is actually dependent on are you an investor or are you a Trader because that probably leads you to the answer over which group may be more favorable for you to be trading at next one which group is stronger so here we have steel and here we have copper and you may be thinking that's just the identical chart what do you want about well here we go if there's a quote from Stan if multiple groups have bullish charts the one with several excellent stock chart patterns will turn out to be the a plus of the batch so sometimes you can have two group charts as we've got here we've got steel and we've got copper and they both look for the purpose of this identical don't they powerful stage two breakouts 30-week moving averages is a 30-week moving average is rising you've got these higher lows building constructive base which one do we go for and this is where Stan is saying look at the individual stocks Within These groups and decipher which has the best individual stock chart patterns the group that has the best individual stock chart patterns will likely be the better group to be involved in so if you look at the steel stocks and let's just say there's five still stocks a new rate you you you actually rate the quality of the setups from 0 to 10 fantastic and you're like ah they probably average like five five out of ten six out of ten but you go across to the Copper stocks and let's say there's five again and you're like whoa hang on a minute there are several that look like nine out of ten setups eight to eight and eight out of ten setups the copper is probably going to be the better the better one to be going in so which group is stronger here which one would you rather be involved in and this is whether you're an investor or a Trader as well so zero in on the one or two groups that contain the most exciting upside potential with minimum downside risk over the next several months it's crucial so there's a cyclical nature to this as well right there's Cycles this is the kind of cycle of the stage analysis stage one stage two stage three stage four so as much as you may see that software has been in a stage two uptrend hit it's not going to stay in a stage short Trend forever it's not going to stay in a stage 3 distributional top with this head and shoulders type pattern that you're going to learn about forever it's not going to stay in a stage 4 breakdown forever so this is why it's about doing the research doing the work doing doing your due diligence and going what looks most attractive right now what are you seeing in the market and again it's gonna it's gonna change not just because it's going into a stage four breakdown here that's not the same two weeks time it's not reverse and suddenly it's in a back in the state structure things change the market is constantly changing so you've got to adapt it but right here as we look at it and this is a Bayesian way of thinking so you update your decision making process when new information becomes available really important be adaptable be flexible update your decision making process how you're interpreting things when new information becomes available so we have solar over here breaking out of a large stage one base and let's imagine it's good volume coming through here it's reclaimed the steady weight moving average but we have software breaking into stage four which stocks for breakouts do you want to be looking at probably solar right why because of the stage analysis which stocks do you want to be looking for shorts software right why it's breaking down into Stage into stage four got a couple of others for you so which is stronger the group or stock and we're going to get on to relative strengthening a little bit and this will all start making sense you may have to watch this video a couple of times for it to really really really sink in and I appreciate there's a lot of information in this one so we've got the semiconductor group over here and let's imagine the semiconductor group is breaking out of stage one it's breaking out of stage one powering out here and then we have semiconductor come company XYZ so we have the group here and then we have the individual stock here so ideally you want to look for stocks that are stronger than the group so here we can see the Semiconductor Company XYZ is in a powerful stage to uptrend builds this continuation base above its 30-week moving average and is breaking out it's showing relative strength versus the group this is good you always want to look for the stocks that are stronger from a stage analysis perspective than the group and then we can also look at which stock is stronger so this is where again May differ if you're an intrader or an investor but which stock is stronger so we've got Semiconductor Company ABC and then we've got Semiconductor Company XYZ which one technically is stronger well we have one here company ABC breaking up this stage one base but we have company XYZ breaking out from the stage two base so which one is stronger now this may somewhat depend on if you are a Trader or an investor but relative strength is very very important the market does not miss the best opportunities so the market at this moment in time is telling you that company XYZ is much stronger why because it's much further and it's stage two breakout so XYZ company XYZ is the leader or his company ABC is the lagard interesting point so let's just give you an example here before we go into relative strength so this is a chart from Market Smith remember there's that discounted trial in the comments below if you are interested in Market Smith so we can see here this is actually apparel shoes and retail manufacturing group chart at the time of filming this uh video in April of 2023. would you notice the bottoming pattern is here and you'll recognize this as we go along and you start to learn about Head and Shoulders tops and bottoms what do you notice left shoulder head right shoulder and it's in a powerful stage two uptrend and take a look at this RS line here really really powerful and then here we've got o-n-o-n now Market Smith actually ranks these stocks by relative strength this is RS and earnings per share as well then if we look over here this is onom so on shoes I have a pair of shoes I have a pair of their shoes my wife has a pair of their shoes we really really like them and when we then look here well this is interesting we've got on so on building this very large stage one base then it breaks out on earnings into stage two look at all the volume coming through it's got really good earnings coming through triple digit earnings it's got high sales coming through it's got really good estimates with guidance up as well so this is now in a powerful stage two where at the time of filming this I'm looking for a continuation type base default so you have a strong group and then you have a strong stock within the group as well if it's a really positive reaction to the earnings so hopefully this there is giving you a really good really good kind of feel for things and on the next section we're going to be going into relative strength what on Earth is relative strength I've been talking about it a couple of times so far so let's get into Stan's definition of relative strength if x y z Rises by 10 while the S P 500 advances by 20 XYZ is lagging badly even though it is moving higher not only isn't it a leader but it obviously is being being pulled reluctantly higher therefore the probabilities are very high that when the overall Market turns down x y z will get bombed conversely if it drops by 10 while the market averages plummet 20 then it is putting on a good show of relative strength and once the market turns higher this stock will likely lead the Hit Parade so the basketball underneath water analogy the market is holding it down if these stocks are building bases but the RS line is turning up side note I have a free relative strength line on trading views search my name and training view indicators and you will find it it's favorable that the RS line is trending higher the probabilities favor an upside breakout from this neutral range so this base when you see an inferior when you see inferior action in the RS line compared to the price performance don't ever by that stock so what Stan is saying is he wants to see stage one bases stage two bases but the relative strength line turning up so the relative strength line preferably making higher highs higher lows higher highs higher lows as the bass is forming because that's telling you that the stock is much stronger than the index so let's do a couple of examples so you start to get an idea so relative strength we have company ABC on the left and it's building a stage two continuation base and here's the breakout and you see how the 30 week is still moving but we have company XYZ building the same base here but see the difference the difference is the relative strength line with company XYZ the relative strength line is turning up with company A by A B C the relative shelf line is turning down so stand set absolutely never buy a stock no matter how good the other factors if the RS line is in poor shape so see how the RS line is in a downtrend here it is underperforming the index even before the breakout relative strength was trending higher which was a positive site so Stan put great emphasis on relative strength and looking for the stocks outperforming the market that tends to be where the institutions the smarter institutions go they go to where the relative at strength is in the market a few more examples so relative strap which group do you want to be involved in you've got group a here and you've got Group B here which group do you want to be involved in so the stocks RS line had better be putting on a decent share of relative strength or forget it you could think of that as both the stock and also the group as well so you want leading groups and leading stocks how do you decipher whether they're leading or not or you can pay attention to the relative strength line and what stage they are in relative to the index so we can see here with group a it's powered up here and look at the relative strength the relative strength was great and this is what I mean it's cyclical as well relative strength in a group or a stop does not say strong forever it eventually goes so this is why kind of your analysis has to be on a daily or weekly basis Bayesian mentality update that decision making process as new information becomes available but then we start to see price losing its 30-week moving average goes into this trading range here and starts rolling back over so at this moment in time here relative to this moment in time for Group B which group do you want to be more involved in group b is powering out this stage to uptrend look at the RS Line This is where the strong stocks are going to be let's do another one here relative strength company a b c and then we've got company x y z so this is my own quote which I quite like actually so relative strength is not that sound a really big header doesn't it relative strength is not my opinion or your opinion it's the opinion of the market so this is what Stan was saying earlier on okay the tape tells or focus on the action of the tape focus on relative strength of the market does not miss the best opportunities and the best opportunities are not what I say is it's not what you say is it's what the market says it is you've probably heard the old saying it's more important to make money than be right okay you don't have to be right you just want to make money which is probably why you're watching videos like this and trying to read Stan Weinstein's book and other books as well okay you don't need to be right you want to make money making money is the objective being right is not the objective so if we look here company ABC what chart pattern is this head and shoulders top left shoulder head right shoulder don't really learn about that a little bit later on so it's losing its 30-week moving average stay H4 breakdown hit look at the deterioration in the relative strength line whereas company x y z is in a stage two uptrend but it's a very constructive base 30-week moving average Rising nicely look at this relative strength line fantastic this is a much better stock to be long of whereas company ABC is a much better stock to be shorter so let's go through a summary of what to buy let's make it really simple and I made it really big and bold so it just stands out strong Market Trend in stage two number two identify leading groups in stage two number three buy leading stocks in stage two from leading groups great quote here by Stan don't try to be a Wiz kid and attempt to find the one winner in a sick group don't try to prove you're a market genius let the so-called Geniuses lose their money while you very simply find an A plus stock in an A plus group then just enjoy the ride and the big profits so hopefully that there was a really good summary of thinking about what to buy and the type of things that you want to be looking for from a stage analysis and comparative analysis as well this group versus this group this stock versus this stock the stock versus the index the group versus the index so on and so forth in the next slide we're going to be going into overhead resistance overhead resistance so the less resistance the better on enough does that mean right well let's start talking about it remember that support once broken later becomes resistance when the stock rallies back to that levels my Studies have shown that the older the resistance the less potent it is whenever a breakout occurs will they stop moving into Virgin Territory so 52-week highs all-time highs kind of thing this is the most bullish situation you can buy because nobody especially if it's all-time high territory no one who owns a stock has a loss no one is down on their position maybe a couple day Traders or scalpers or whatever but the vast majority of holders okay have a profit fantastic so what is overhead resistance well let's go through our stage analysis here so here let's say that there is a stage three top pick okay stage three top here and then we go into a stage four decline then into a stage one bet so if you had a stage one base that had this overhead resistance okay up here between 40 and 50 but you also had another stage one base breakout from the same level of about 25 but the the resistance Zone the overhead Supply was not until say 70 80 then that would be a better one why because the resistance is further away so the stock the share price can go further for longer before it meets the overhead resistance and starts running into the trapped buyers so you want to look for the stage one base breakouts you want to look for where is the resistance the importance of volume so throughout the book stamp put significant emphasis on how important volume is at certain points so let's get into Sanskrit a volume confirmation on a breakout is crucial volume is a gauge of how powerful the buyers are stocks can fall of their own weight but to advance it takes plenty of buying power volume should pick up significantly on the breakout if it doesn't the probabilities are at the very best you've got a mediocre winner on your hands hands that will advance only a few points never trust the breakout that isn't accompanied by a significant increase in volume look for the following either a one week volume Spike that is at least twice the average volume of the past month preferably higher so the higher the volume the better on the breakouts in essence or a build up over the past three to four weeks that is at least twice the average volume of the past several weeks coupled with at least some increase on the breakout week if you are using daily charts instead of weekly graphs look for a volume increase on the breakout day of better than twice the average volume of the prior week so here we've got company ABC we're in a stage two uptrend here's the breakout coming through and what I've tried to indicate here is see how the volume dries up from left to right in the base and then on the breakout and thereafter you get a very big relative increase in volume so there's no point comparing the volume of company ABC to Google or Netflix or Microsoft or Amazon okay it's all relative so here we can see a relative increase in volume that is significant side note as well one of my own experiences of throwing many breakouts and studying tens of thousands of them is you see this volume bar here what I've tried to indicate is oftentimes you will see volume really dry up in the week before all the days before the breakout and you'll get a really tight bar coming through so volume dry up before the breakout then big volume on the breakout is really really good to see so let's do a couple here which is about a breakout so you've got company ABC again and then we've got company XYZ both of them are breaking out from stage two breakouts and I've put this purple line here now let's just imagine that this purple line is showing us the 30-day average volume that's what I use on the daily chart on the weekly chart I use I I use the I use the 30 bar um whatever whatever time frame that I'm that I'm trading on so this here is going to be our average so we can see in the days before let's imagine that this is well let's stay on the weekly chart in the weeks before the breakout we can see a dry up in volume telling us there isn't much selling pressure there isn't much Supply coming to the market that is for company ABC and also company XYZ but XYZ well the volume on the breakout is isn't it it's showing us remember what stands dead volume is a gauge of how powerful the buyers are which chart is showing you more powerful buys is it company XYZ or is it company ABC it's company ABC isn't it look at the volume coming through it's at least double if not maybe two times two and a half times the 30 bar average that we're using for this purple line here this is a much better breakout it's confirming the breakout if you like so on the next slide we're going to be going into some head and shoulders bottoming type patterns so one of Stan's favorite bottoming type patterns if not the favorite bottoming type pattern was The Head and Shoulders bottom pattern so let's start talking about it because we're going to be talking about Head and Shoulders bonding type patterns and head and shoulders tops which are actually Stan's favorite shorts as we get a little bit later on so what on Earth is a head and shoulders bottoming type pattern well you're looking for a stock in a stage four downtrend So Below its 30-week moving average like this and we can see lower low lower high lower low lower high and then we make a lower low here and then we power up then we put in a higher low and then we start breaking out and the moving average starts flattening so this is then looking for the left shoulder okay rally the head which then makes a lower low relative to the left shoulder the head will invariably power up to around about the high of the left shoulder area as I've shown here and then the right shoulder here's the important bit okay the right shoulder makes a higher low so a structural higher low relative to the Head okay you may then get another high low and another high low after the right shoulder but you're looking for a lower low okay then another lower low and then a higher low so lower low low low higher low and the higher low is potentially indicating a change of character that more buyers are stepping up and then you can have the stage one base breakouts and don't worry on the next side they've got some real life examples another subtlety to be looking for imagine if this is a group okay the RS line can actually start turning up so you could see the RS line that's been in a downtrend at the bottom around the head and then start trending up that's a really good sign remember when we spoke about relative strength earlier relative strength turning up into a breakout really really good so let's go through a couple of recent examples so here you go this is smh this is a semiconductor ETF and at the time of filming this is April of 2023 you can see last year and into this year the head and shoulders bottoming type patterns for Semiconductor ETF SMH igv which is the software ETF and then Nvidia as well look at these Head and Shoulders bonding type balance left shoulder and then the head makes a lower low and then you see the right shoulder here makes a higher low and take a look at this RS fine as well these Blue Line focus on the blue light see how it's turning up interesting igv software ETF left shoulder head lower low right shoulder high low look how the RS line is turning up Nvidia left shoulder head lower low right shoulder high low look how the RS line is turning up so what I like doing is certainly in kind of context of a bear Market is we've been in for the last two years now over two years especially for growth stocks is if you start seeing the groups or the sector ETFs such as SMH for semiconductors igv for software if they start building these Head and Shoulders bombing type patterns there's probably some strong individual stocks in there isn't there interesting right so if the index sector and or group charts are building stage one head and shoulders bottoming patterns it's likely individual related stocks are building stage one bottoming bases and leaders could be building stage two continuation bases interesting right so in the next slide we're going to be going into stand dumped Commandments What are Stan Weinstein's don't Commandments let's go into it there's nine of them don't buy when the overall Market trend is bearish don't buy a stock in a negative group don't buy a stock below it's 30-week moving average don't buy a stock that has a declining 30-week moving average even if the stock is above the moving average no matter how bullish a stock is don't buy it too late in advance when it is far above the ideal entry point don't buy a stock that has poor volume characteristics on the breakout if you bought it because you had a buy stop ordering sell it quickly don't buy a stock sharing poor relative strength don't buy a stock that has heavy nearby overhead resistance remember that overhead resistance like don't guess a bottom what looks like a bargain can turn out to be a very expensive stage 4 disaster we've all been there we've all done it haven't we instead Buy on breakouts above resistance how many stocks to own in your portfolio is probably a question you're wondering let's see what Stan says about it what is the right number of stocks that hold in my portfolio the answer there is no single magic number I know that one or two stocks is far too dangerous in allocation and capital I also believe that 40 to 50 stocks are far too many issues to keep track of okay if you've got 40 50 stocks in your portfolio to try and make high quality decisions on 40 to 50 stocks it's very very difficult for a small portfolio that's investing a modest amount 10 to 25k I diversify into no more than five or six stocks but as you move up the ladder into six-figure or higher portfolios 10 to 20 stocks are the most that I'd invest in at any one time also use approximately equal dollar amount when constructing your portfolio don't put all your eggs in one basket but don't go to The Other Extreme of using too many baskets don't do all of your buying from just one group if three or four sectors exhibit great technical action by stay H2 breakouts from all of them rather from only group a so if you read Stan's book you would have read the part on the triple confirmation pattern which sounds very sexy so I'm going to tell you what are the three things so assuming all other criteria is being met stock is in an uptrend above the 30-week moving average number one volume signal the market Champs almost always have substantially larger volume on the breakout than during any point in the stage one base area we want to see volume of even more than twice the average trading at the past four weeks on the breakout this signal indicates a tremendous in interest in the stock so a gauge member volume is a gauge of how powerful the bars are as well as additional future demand impressive volume is the key ingredient to a super winner number two relative shrap is a very important tool to use in distinguishing good from great buys as a stage 2 breakout occurs the RS line should be more decisive should move decisively into positive territory strong uptrend potentially 52e cars on the RS line remember training you can get my free RS line um tool for that big move before the stock breaks out is number three so it sounds like a very big move before the stock breaks out if a stock has wide swings while still in its stage one base pattern then it's far more likely to be a ball of fire once it breaks out just as a high jumper gets into a Crouch before taking off upward a stock that first dips that should say then gets up a good head of steam will be far more powerful once it leaves the Starting Gate as a rule of thumb stocks that have risen some 40 to 50 or more before breaking out do the best in the months ahead so that there is the triple confirmation pattern then we're going to be going into on the next slides when to sell so this section is going to be on when to sell when did you sell your long positions and I actually just want to start on Stan on psyche so this is the difference between investors and Traders that we've been talking about through this presentation whereas most investors are more conservative by nature and like to keep their lives relaxed and calm Traders are more inclined to live on the edge they enjoy the Thriller battle and the competitive tensions that come with making decisions on the firing line give some thought to understanding the kind of person you are and which approach you'd be comfortable with so are you more of an investor are you more of a Trader let's get into it the sell decision is crucial if you are going to really win big in the market unfortunately a few Market players ever Master this important step instead Market players wrongly believe that you can't go broke taking a profit the truth is that in the long run you need to capture these giant advances to offset the losses so Stan was really an intermediate term Trend follower by doing this you'll have big net profits left over the problem is that when an investor or Trader often sells for no other reason then they're feeling that the stock is too high so stands don't for selling don't base your selling decision on tax considerations don't base your selling decision on how much the stock is yielding don't hold on to a stock because their price earnings so the p e ratio is low don't sell a stock simply because the p e ratio is too high don't average down in a negative situation loser as average losers as Jesse Livermore said don't refuse to sell because the overall Market trend is bullish don't wait for the next rally to sell don't hold on to a stock simply because it is of high quality so let's get into it when to sell for investors these are stands don't work never hold any position without a protective sell stock that's true for Traders as well never enter your order to buy until after you've calculated exactly where your protective stop should be so we're going to go into the risk management section A little bit later on but you can see the emphasis Stan is putting on recent management here okay these first two points protective sales stops think about where you're getting out before you are getting it increased volatility is a two-edge sword on the positive side it gives us a chance to make money even faster the downside is that when a reversal occurs your stock can move from stage 2 to stage three far more quickly when you set your initial stock pay less attention to the moving average and more to the prior correction the stop should be placed right below the significant floor of support if the sales stop should be placed right above a round number okay put it just below it that should say set it just underneath the round number apology for some of the type is in this psychology plays a very big part in Market moves and this is another example so let's say you were going to buy a breakout at 105 and you're going to put your stop loss at 100 what Stan is saying is put it at 99.95 don't put it bang on 100 because markets tend to move markets tend to move to round numbers when to sell for investors so let's start here a little bit complicated let's start breaking it down so I'm going to read you these quotes here and then we'll get into it this one's a quote this is this is what I'm saying over here as long as the stock is above it's rising 30-week moving average and the moving average is rising in stage two fashion be sure to give it plenty of room to drop the gyrate this is for for investors remember we'll come on to Traders a little bit later so let's stay here we're gonna we're gonna break this one down okay stay this is probably going to be the most complicated slide within the presentation so stay so stay with me here it'll make sense by the end maybe have to watch it two two or three times it's thinking so let's say you're an investor okay you identify this stage one base here you've got the moving average it's starting to turn up big volume coming through so you buy the stage one breakout here at 51 and what I'm saying here is stop one so you're putting your stop loss here so let's just say you're buying it at 51 and you're putting it underneath the most recent swing low which in this instance here is going to be about 40 remember what Stan said about round numbers so let's say here that you put it at 39.95 or something okay underneath this round number here so the breakout is here you buy it here and then you put your stop loss here what Stan then basically says just to give you a gist before I start explaining it Stan is basically looking for the stage two and the rising 30-week moving average but for price to be putting in higher highs and higher lows higher highs higher low so what Stan is then saying is when price makes a higher high and then a higher low once price then goes above the prior higher high that's when he's moving his stop loss up to the higher low have I confused you let me let me show you however on the first breakout it's slightly different so what you're expecting after a breakout is for the stock to break out and then pull back down and test around the breakout level that happens more times than not and certainly if you've got say the 30 moving average or other significant moving averages it can pull back down test and then you're looking for the reverse so the time to move your stop from number one to number two would be as price starts approaching this point a here so then it's making a higher height so that's when you're moving your stop loss up so it starts powering out you get B which is a higher high relative to a and then you get higher lows high lows and then as price is taking out point B here so see how it's breaking out actually builds in the context of stage two a stage two continuation base as it's then taking out here that's when you address your stop loss from two to three so you're giving it remember plenty of room to gyrate this is a little bit different for investors relative to Traders then price makes a higher high at Point C pulls down and then as it's taking out as price then takes out the higher Point C you're then moving your stop from 0.3 to 0.4 okay see how you bring it up so as the stop makes a higher high high low and then takes out the higher high that's when you're moving your stop loss up below the higher levels of the final contraction hopefully that's making making sense there then at Point d okay price makes a higher high relative to C then it pulls down here as Pro as price is then approaching Point d That's when you can move your stop loss from 0.4 to 0.5 okay because price is doing it but then it starts rolling over and then as it undercuts this level you would be stopped out so stand stop loss strategy is trying to keep you involved during stage two and out before stage four and usually as kind of stationary topping is happening with favorable reward to risk ratio it's very important favorable rewards ratios look out for flattening moving averages a long stage to uptrend as they indicate stage three has begun so what I'm basically saying now that's another typo but as as stage three or as stage two kind of it actually come it actually kind of ends uh kind of maybe you can get a climax run as well but my point here is as stage two starts ending you'll often see that that moving average just starts rolling over like this so flattening moving averages is something to be looking out for and you'll see price stop making higher Heights and then you'll start getting lower highs and lower lows indicating potentially at the end of a trend but in the context of the market cycle as well so that there is one to sell for investors when do we sell for Traders now bear with me here we are then going to go into this slide where I'm going to talk you through it but we need to give you kind of the proverbial meet on the bone so these rules for Traders are a little less rigid than for investors because you've got to be ready to turn on a dime but there is still definitive guidelines consider taking some fast profits if your stock skyrockets in a hurry and becomes over extended very overextended If It Moves far above its 30-week moving average in such a case it may make sense to lock in a huge gain on one third to one half of your position and ride the rest with a trailing investing sell stop Traders must be much more aggressive than investors in their use of this sell stop tool investors ideally want to stay with a position as long as the stock is in stage two Traders on the other hand realize that time is money they not only want to sidestep all significant declines they want to take out of the stock they want to get out of the stock if it is entering a neutral zone for several months this makes sense because they can shift into a new stock that is ready to move into the exciting part of its cycle while the Old Situation simply zigs and zags therefore a Trader shouldn't wait for the 30-week moving average to be violated on a sell-off before selling so what Stan's saying there is the stock could either be entering a stationary top or it could be entering a prolonged stage two stage two basing type pattern so the trader can then get out with some of the rules that we're going to be talking about can get out potentially then get into a different situation then maybe come back to the stock a little bit later on when it's ready to power out again as a Trader you're looking for a faster but smaller upside move so you should be willing to take a smaller initial loss if wrong if the stock is going to be an A plus trade it shouldn't drop significantly below the breakout point so you should set the stop under the closest reaction low or kind of a maximum of five percent as you'll find out a little bit a little bit later on but what Stan saying there as well with this part here as a Trader you're looking for a faster but smaller upside moves so you should be willing to take a smaller initial loss what Stan's saying there is your your stop-loss kind of strategy so where where you're getting out the percentage that you are willing to risk is a function of how much you are expected to gain so therefore if your expected gain is less so for a Trader will be less than an investor who's trying to sit for the really long moves therefore you want to be risking less than saying investors okay so your risk is a function of where you're targeting and achieving your average game those breakouts that are going to be big winners in a hurry almost never pull back more than four to six percent below the breakout point so if you can't find a nearby meaningful cell stop point you can place it four to six percent four to six percent below the breakout level however make sure it's beneath a round number Traders shouldn't pay attention to Corrections of less than seven percent this is in the context of an uptrend only deal with more meaningful moves a Trader should never say stay with a position if it breaks below the 30-week moving average by even a fraction so if it comes down to a 30-week moving average it can get out of it if you're a Traders will start to say when to sell so Traders so here we go there's a stage two breakout which Traders are going to do around about 80 of their buying from stage two breakouts so remember it gets out here then it pulls back down so breakout test reversal breakout test reversal breakout test reversal that's usually how they unvoke then what Stan's saying is what we do is when it comes back to point a hit and starts looking like it's going to make a high high we raise the stop from 0.1 say underneath this little contraction here which may be around about five percent on this chart let's say okay because the breakout's around about 60 so let's say we're placing our stop loss at 57ish something like that in here okay so breakout test reversal then when price is approaching point a here on this rally we move our stop loss from point one to point two and then we get a higher high so A to B higher high pulls down higher low that's good and then as price is approaching point B here so high low then the reversal that's when we move our stop loss from point two to point three then C makes a high high and then it pulls down does make a higher low in here and then here see how it starts approaching Point C so this is where we'd move our stop across from three to four underneath this recent swing low this high low here and then we'd be taken out here as well we're also going to talk about trend lines for selling which we're going to do on the next jar but you may also experience that the stock when it starts pulling back down and then making lower highs and lower lows you've got a deterioration in the relative strap so when to sell use the trend lines so what Stan says here if you want to move to an even higher level of sophistication and score larger gains you should learn to use trend lines and incorporate them into your trading plan a clear-cut trend line is one that connects at least three points so really important here for trend lines it has to connect three points okay any trend line can connect two points because you could just draw from here to here for a trend line to be significant three points so here you can see point one point two point three we've got three points so what we have here is a stage two breakout but what Stan's saying is when price then takes out this trend line here this is when you can sell so in the previous previous example remember we were selling down here this is for the Trader we were selling here on a break below this low but actually here we're actually selling up here okay using the trendline because the trend line is running through here see this so the exit would then be here on a violation a breakdown of the trendline so hopefully that was really useful for one to sell now we're going to go into the how to short section how to sell sure so let's get into it stands don'ts for selling short to begin with don't sell short because the PE is too high don't sell short because the stock has run up too much whatever too much is don't sell short a sucker stock that everyone else agrees must crash or kind of avoid herd mentality don't sell short a stock that trades thinly don't sell short a stage two stop the starting point is to look for a stock that has had a substantial Advance over the past year make sure your short sale candidate is in stage three with a flat moving average or even better a moving average that is starting to decline also look for a stock that has trended sideways for several weeks moving sideways is a sign that a distributional top formation is unfolding finally look for a clear-cut level at or preferably below the moving average that will signal the start of a stage 4 downtrend if violated don't worry got a lot of charts to be explaining this more golden nuggets on shorting from stands but what the market trend is down too the group is week three the stock has had a significant stage to advance four the stock has a weak relative strength line in the weeks before shorting five volume isn't needed on a short sale like a breakout stocks can fall because of its own weight six no Buy nearby support so remember we were talking about overhead resistance and looking at where the overhead resistance is okay when we look for a stock to shore we want to kind of ensure that there is no nearby support that the drop could be really really significant so let's get into it so when to sell Traders should sell sure their entire position on the breakdown okay so that's going to be this point here we're going to talk about this on the breakdown investors who want to keep their risk to a minimum should sell ashore only one half of their proposed position on the initial breakdown here and then short the other half on a pullbacks or a rally back to that price level which would be here so let's start talking about it Stan likes to see a significant stage 2 rally what he's saying is and I've got a couple of examples with a quiz is you want to see a stock that's had a massive massive run not one that's kind of been it's gone up 20 in its stage to advance one that's gone up 200 in its stage to advance okay ten times the other one why because the drop could be much more significant back to that kind of stage one base the stock potentially built out earlier on in its stage cycle so here the stock runs from forty dollars up to a high of a hundred dollars quasi Head and Shoulders type bad in here I should have drawn the head a little bit higher but see I have this kind of left shoulder then this head and then you go and put in this lower high here and then as you break down through the support level and you're below the 30-week moving average which is beginning to roll over like this but what Stan is saying here is a Trader puts on their whole position here where an investor puts on half their position and then half a position on the rally back to that level so remember on the breakouts the trader buys their whole position on the breakout whereas an investor buys half on the breakout half on the ball back stands applying the same logic here on the short side you would also like to see a deterioration in the relative strength so if this stocks made a huge stage two Advance it's then likely that as it starts rolling over in stage three you'll see the RS line deteriorating as well same kind of thinking for the stop loss placement is how Stan describes it so our initial stop would be above the recent swing high up here so Point number one the stock breaks it pulls back in so it then rallies so it rallies back up and then as it starts breaking down here and taking out this now it's making not higher highs where we're either moving our stop loss up below the um below below the higher lows it's reverse now so now when it's making a lower low we're putting our stop loss to the lower high make sense so at this point here when we're taking out this low that's when we're moving our stop loss from 0.1 to 0.2 in here it breaks puts in another lower high as it starts then taking it down and undercutting this low so it's making another lower low that's where we adjust the stop loss so from one to two to three to four like this to then eventually being stopped out down here and then it builds out that you should recognize this now this is a stage one base and then it breaks out over here so then when this tire is taken out that is when you then be taken out of your of your stop loss Now using the 30-week moving average and being short for this long maybe a little bit more challenging in current time so maybe you're using the 10 week moving average as opposed to say the 30-week moving average something to uh something to think about something to think about that when to sell short head and shoulders top so now I'm going to teach you about the head and shoulders top so we looked at the head and shoulders bottoming type pattern here it is Head and Shoulders top which was stands from what I can interpret in the book Stan's favorite pattern to look for a short sale so the stock has had a big stage to advance that's that's the kind of leading lead in here to a Head and Shoulder stop he wants to see Stan wants to see a stock that's had a big advance in stage two so again this stock has gone from 40 up here to a high of 100 where the head is so with a head and shoulders top topping pattern you're looking for a left shoulder ahead and then a right shoulder so the left shoulder will be here it then puts in a low here the head is a higher high so a higher High versus the left shoulder so you've got a higher High versus the left shoulder sometimes you can see the low after the head make a lower low sometimes it makes a high low relative to the low after the left shoulder so you've got left shoulder bounce head higher low that's really important so the head is a higher low relative to the left shoulder pulls down and then the right shoulder is a lower high so important that the head is a higher low sorry a high high a higher High versus a lot of higher highs high lows lower lows lower highs going on here it's confusing me probably confusing you so the head makes a higher High versus the left shoulder pulls down then the right shoulder is a lower high versus the head so the heads are higher high and then the right shoulder is a lower high and then as price undercuts What's called the neckline so here can you see how this is a left shoulder this is a head then this is the right shoulder in the middle here this blue line is the neckline so as price then breaks down through the neckline this is where Stan would say the trader puts on their full position to go short whereas the investor would go half here and then on a rally back to the neckline and it may coincide and be a Confluence with the moving average which has started to roll over here okay before the initial short as it rallies back in that would be where the investor would put on the other the second half of their position so Head and Shoulder top formations especially when they come after a dynamic stage to advance are among the most profitable Short Selling signals don't trust the formation if the heaviest volume appears on the right shoulder so if you suddenly see a really large increase in volume okay over here on the right shoulder potentially okay it could be a sign that actually there's a lot of accumulation going on and could be a short a short trap so Stan would stay over here on the right shoulder you actually want to see less volume going going on so drying up relative to what you've seen prior in the base are below say the 30 bar average well that's the weekly chart or the daily chart and the relative strength may have been really strong and then you'd like to see going into it relative strength deteriorating the group deteriorating as well now for the exit as well we can also look at trend lines so we looked at trend lines for the Avant we can now look at trend lines for the decline as well so when to sell short Trend lights so here we have The Head and Shoulders bottoming Head and Shoulders top pattern so big stage to advance going on here above the 30-week moving average we start rolling over but what Stan's saying here is there's an exit rule you could also be using a break a breakout above a downward sloping trend line so if no valid trend line forms the one that hits at least three points remember trendline one point here pretty much two points three points we actually get nearly four points here get also quasi quasi include this here it's encapsulating the data really well and we have at least three touches then simply use the trading buy stop technique that we looked at on the previous slide when a clear-cut trend line does form it certainly pays to utilize it at least at least a portion of the short position should be covered when such a trend line is is violated so this point down here see our pricing starts moving back through that that trend line there that would then be a point to take off part or potentially all of the uh of the position so now I've got a little a little quiz for you so which chart is a better shot is it chart number one is it chart number two what do you think well chart number one is what pattern it's head and shoulders top in the left shoulder here see the left shoulder hopefully this really stuck out to you now learning something in these YouTube videos see this left shoulder here then you have the head hit then you have the right shoulder here and then it's breaking down through the neckline relative to chart number two which looks to be a stock in a powerful stage to advance so this here is a stage two breakout whereas this would be a stage three topping type action breaking down into stage four so by breakouts in stage two short in stage three into stage four so number one is a much better short candidate now this point here remember that I was talking about right I'll ask you first which chart is a better shot chart number one or chart number two and you may begin well both of them Head and Shoulders Head and Shoulders tops exactly I'm trying to trying to confuse you which one's a better short though think about what we were talking about Stan wanted to see a big stage two Advance which stocks got a big stage chevont which one has further to full chart number one isn't it okay in this here imagine that this stock here has gone from ten dollars to uh a hundred dollars or 120 up here whereas this stock here has gone from ten dollars to fifty dollars which one's got further to full so that's why you want to look for the really big stage two advances because they can have further to fall in their stage four to clients you've only got to go and look at charts of Zoom Peloton um all of those stocks are kind of real real kind of covert stocks the leaders okay the zooms the pelotons of the world you can see how high they went in their stage to advance day Tree Tops and then stage four they've just Fallen a uh an absolute absolute mile many are down kind of 80 90 and uh and greater so this one over here is the better short candidate next slide risk management so Stan in this book emphasizes risk management he really stresses the point so this is a fantastic quote how you deal with this fact of life losing trades will go a long way towards determining how big a winner you become to be saying the better you are at losing the better winner you're going to be in the market interesting after all my years in the market there is absolutely no doubt in my mind that one of the real keys to Winning is learning how to lose to Market professionals it's a fact of life it's a cost of doing business Specialists and other Pros don't lose sleep if a position ends up in the Lost column they concern themselves with two far more important factors one the net result of all their positions as long as it is strongly positive they are happy and two where they will call it quit if a stock moves against them so think about where they're going to get out before they get it some key bullet points here emotions are destructive if you don't deal with them properly the first small loss is the best loss if a stock doesn't come out of the gate strong on the breakout a Trader should immediately lighten up their position while protecting the remainer with a very tight stop set about five percent beneath the breakout stocks that turn into great trades rarely drop back below the original breakout point so interesting the best stocks will usually just break out and go they all just run for it protect all of your positions with stops and don't ever make an exception so Stan really stresses risk management that's what we've been talking about as well with where to where to position initial software to then move stops with some of those examples in the next slide we're going into best long-term indicators so Stan talks about several best long-term indicators to use in the book and my favorite is the advanced decline line so that's what I'm going to teach you here so the advanced decline line is basically the difference between advancing issues and declining issues and it can be tracked like this so what you are looking for though is divergences both positive so bullish divergences and also negative divergences so here we have on the top chart we have the index which is making higher high high low high high high low high high high low lower high lower low lower high lower low and the advanced decline line is matching that now the advanced decline line is a measure of breadth so it's a breath indicator to indicate a little bit more what's going on in the surface so let's go forward so here we have the index okay on the top and then we have the advanced decline line on the bottom what chart pattern do you see as well on here interesting right left shoulder head right shoulder now what's interesting here is the advanced decline line has a bullish Divergence from the index as the index makes a lower low so in here see how from this point here to this point here the index makes a lower low whilst the ad line makes a higher low so this is a positive Divergence this is a bullish Divergence the advanced decline line which is a breadth indicator for underneath the surface how are individual stocks doing which make up the indexes by the way are putting in a high alert so you have the advanced decline line the ad line putting in a higher low whereas the index is putting in a lower that there is a positive Divergence a bullish Divergence telling you breadth underneath the surface is improving you can often see that in Head and Shoulders bottoming type patterns now conversely what chart pattern do you see we're getting somewhere left shoulder head right shoulder but what happens here well the index makes a higher high so this being the left shoulder this being the head makes a higher high what does our ad line do our Advanced decline line do it makes a lower high interesting right so this is actually telling us the market is making a higher high but breadth underneath the surface is deteriorating okay the stocks the individual components I.E the advanced decline line is not confirming the move of the index so this is a negative bearish Divergent it can indicate the breath under the surface is deteriorating so on the price slide we can look for higher lows when the index makes a lower load but the ad line makes a higher low it can indicate breadth underneath the surface is improving but if we see the index making a higher higher high not confirmed by the ad line making a lower height it can indicate that there is deterioration going on underneath the underneath the surface so this here I'll just show you this you can see at the minute this on Market Smith so the ad line is here okay this is the ad line and then this is the S P 500 can you see how it's pretty much moving it's in it's just in Step here isn't it okay the market goes up and the kind of significant highs and significant lows the ad line is just matching it okay the index makes higher highs or lower highs or lower lows and the ad line is just matching it I'm not saying right now A positive or negative Divergence as as such really um so that there is something to be thinking about maybe you could say somewhat the index in here actually makes kind of holds the lows here where the ad line puts in more of a lower low so actually that could signal a little bit of strength going through but this is something I look at around about around about once a week or if the Market's trying to make a higher high or potentially it's coming down to a previous lows I'll pull it I'll pull up the ad line to have it and have a have a look but I do give I do give a significant amount of emphasis on the individual stocks as well how are the acting which groups are uh which groups are leading so this one here this is now we are now going back to remember what we did at the start the presentation where I said which jar is more bullish and which star is more bearish which chart is more bullish and now hopefully you have a really good understanding of which chart is more bullish and you've actually probably just gone it depends if if that was your first thinking it depends this video has done its job it depends why does it depend are you an investor or are you a Trader because if you're an investor well it's probably going to be chart number one why because the stock is coming out of a stage one base if you're a Trader it's probably going to be chart number two why because the stock is coming out of what looks to be here a stage two uptrend so it's interesting it's relative to whether you're a Trader or an investor so remember Stan said investors do 80 of their buying from stage one base breakouts 20 from stage two and Traders it's the other way around 80 from stage two breakouts 20 from stage one breakouts let's do another one which chart is more bearish isn't an interesting one isn't it maybe I'm trying to trick you a little bit so what chart pattern do you see over here Head and Shoulders top right you've got your left shoulder here higher high for the head and then your lower high for the right shoulder here and it's taking out these lows then over here number two you've basically got a stock that just cannot rally okay just can't get back above and it's breaking down through the support both of these are actually very very bearish and this is where again I wanted to kind of trick you somewhere it then depends on well where is the next logical support level has chart number one just come from ten dollars to 150 and now there's significant downside downside to the next support level or chart number two is there potentially if this is breaking through say thirty dollars but there's significant support at twenty dollars well actually chart number one is going to be much better so it's relative so this is why it's thinking about things pulling up the chart thinking about it and going well what what stage is it in here we're saying stage stage number two and then so stage number two for chart sorry stage four for chart two and then over here on chart one we're saying this is a stage three top going into stage four but it then also depends on what is the trend of the market what's the trend of the group as well what are the other brother sister stocks in the group doing as well that may all all kind of feed into which stock is the best short is the best short candidate it can also depends as we were just discussing where is the next significant support level how far could the stock fall where is the key moving average is in this instance here does it have the 30-week just kind of reclaiming here so it may only just come down to the 30 week or in this instance here is the 30 week up here somewhere and the stock is topping out like this so it really really depends there is no real clear answer answer here which is why I wanted to kind of leave that leave that with you so now I just want to summarize summary of stand method here we go know the stage of the market know what the leading and lagging groups are and what stage they are in know the stages of leading and lagging stocks from the leaving and lagging groups or leading lag in there isn't that this helps with trade identification for the a plus Longs and also the shorts Longs in stage one and two shorts and stage 3 for always always always control risk and have clear exit rules create favorable reward to risk trades ride Trends remember Stan Hart was an intermediate term Trend follower check weekly the ad lines for divergences and when the index make new highs and and or lows have a plan and trade your plan I hope you have really enjoyed that video please subscribe to the channel for more videos like this turn on that little bell so you'll be notified when I release videos like this it really really helps me out if you press the like button so please press the like button any any questions that you have any comments please do leave them down below and I will get to you as soon as I can as I said thank you very much for watching and I will see you in a future video