Part 1: Setting Up the Charts Breakout Setup

Introduction

• Setting up the charts breakout setup
• Indicators needed, time frames to look at
• Importance of avoiding biotech stocks

Avoiding Biotech Stocks

• Biotech stocks gap down frequently, making them unreliable for trading
• They are usually small caps and have unpredictable behavior
• Example: Biotech stocks often show gaps and inconsistencies
• Conclusion: Do not trade biotech stocks

Indicators Needed

• Main indicators for daily chart: 10, 20, 50, 200 Simple Moving Average (SMA)
• Volume indicator
• Hourly chart additional indicators: 9, 20, 65 Exponential Moving Average (EMA)
• Focus on daily chart for setups

Time Frames and Charts

• Primary time frame: Daily chart
• Avoid using weekly, monthly, hourly, 5-minute, and 1-minute charts for setups
• Daily chart provides the best setups
• Example for setup analysis: Carvana

Using Moving Averages

• Stocks above the 200 SMA are considered strong
• Stocks below the 200 SMA are considered weak
• 200 SMA helps determine the overall trend
• Importance of volume in identifying setups

Example Setups

• Carvana example: Holds the 200 SMA, indicating strength
• Importance of higher lows and decreasing volume during consolidation
• Avoid thin stocks with low volume and gaps in the one-minute chart

Key Steps for Identifying a Good Setup

• Ensure the stock has enough volume
• Decent price (not too low)
• Average Daily Range (ADR) should be above 5%
• Identifying consolidation patterns: Higher lows and narrowing price range
• Importance of a tight price range and declining volume during consolidation

Example Analysis

• Example stock: Nvidia
• Big move up, sideways consolidation, followed by a breakout
• Higher lows observed during consolidation
• Volume pattern: Higher volume on breakout day

Practical Examples of Setups

• Nvidia: Strong move followed by consolidation and breakout
• Zoom: Consolidation above moving averages and breakout
• Additional examples: Tesla, Carvana, etc.

Importance of Context in Setups

• Strong stocks in leading sectors are preferable
• Leading sectors and market conditions matter
• Importance of understanding sector rotation

Conclusion and Next Steps

• Checklist for identifying setups:
  • Stock has enough volume
  • Big move up followed by sideways consolidation
  • Pullback to moving averages (SMA)
  • Higher lows during consolidation
  • Tight price range with declining volume
• Next videos will cover the following topics:
  • How to trade these setups
  • Using options for trades
  • Finding setups with scanners
  • Understanding market conditions and sector rotations