Lecture Notes

Key Concepts

Sophistication in Scenario Analysis

• Understanding the likely outcomes of stock movements
• Maximum likelihood of stock falling back two levels is very sophisticated
• Outliers and exceptions exist but are rare
• Focus on common occurrences (7-8 out of 10 times)

General Zone and Positions

• General Zone: Not always snug under Fab 4 but within a general area
• Positions: Position 1, Position 2, Position 3
• Example: If a stock moves up in the General Zone and green disappears, enter trade

Stock Movements and Patterns

• Tail Analysis: Look at where the drop started for accurate measurement
• Divide movements into thirds to analyze bounces
• Example: In a Gap scenario, you enter based on the elimination of green
• Stop-profits and Pivot points guide profit-taking

Specific Stock Examples

• Starbucks: Position Analysis: Successfully moved through positions 1, 2, and 3
• General advice: enjoy your time after trading, relax
• Nvidia: Gap Scenario: Opens by gapping through position 1

Scalp vs Trade Analysis

• Scalping: Short-term trades, higher odds against bigger moves, good for small gains
  • Example: Red bar drops into 200, take long off the 200 for a scalp
• Trades: Longer-term positions, aiming for significant movements (whales)
  • Example: Morning bar grows from 200 MA, hold for whale

Bounce and Support Levels

• Fat bars and their support levels
  • Top third of green bars = strongest support
  • Bottom third of red bars = strongest resistance
  • Example: Drops to top third of a green bar usually bounce
• Multiple bar moves analyzed similarly
  • Anticipation: two-level bounces within large moves

Two-Level (TW) Concept

• Breakdown of moves into three lines (top third, 50%, bottom third)
• Anticipate two levels of rebound within the move
• Use these lines to predict next steps (new highs or lows)

Practical Example of Two-Level Concept

• Bullish Moves: Split the run-up into thirds, anticipate bounce and new highs
• Bearish Moves: Split the drop into thirds, anticipate new lows unless past halfway

Probabilistic Trading

• Avoid asking stocks to perform highly improbable tasks
• Understand likelihoods of movements based on levels and patterns