I want to talk to you about something that many of you know, all right, and some of you who are relatively new may not know, and it is this wedge kind of pattern that forms between the 20-period moving average and an overhead flat, more or less flat, 200-period moving average. So here's our 200-period moving average, all right? And this is normally flattish. It's never going to be perfectly flat, but for the most part, that's flat. What you have underneath it is that you have this rising 20 period moving average coming from a wide nature or wider, and this moving average is narrowing the width between the 20 and the 200. All right.
So that's that wedge. like pattern there. Alright, let me just do this in a different color.
You get like this scenario. Here's your 200 and this would be your rising 20 period moving average. Now, when you have a stock that gets trapped between the two and it seems to just be almost like a ping pong ball, it might dip below a little bit but snaps right back.
the 20 period moving average, all right, this is actually not the picture of power, believe it or not. Matt is saying the picture of power. No, that's wrong. Not the picture of power.
But what normally happens in this scenario is that the 20 period moving average wins. So you've got the 200 as resistance. So the 200 is attempting to bat the stock back down it's that last line of resistance right but and the 200 will often be resistance but if if the if the 200 can't make the stock break the 20. you understand that's right sarah it's pentaflex if the 200 can't knock the stock back down hard enough to break the 20, then it's telling you that the 20 is winning. And why is the 20 winning against the 200?
Because it's rising. So that every single time the 200 bats the stock back down, the 20 has gained ground coming going from here to there. And every time that the 200 waxed, the stock back down, it whacks it back down to a stronger, higher 20. And so the 20 keeps checking the drops, but from a higher position, from a stronger state. And it's telling you that because the 200 is stationary, but the 20 is not, the 20 is likely to...
overcome the 200. Now, what I found is that the closer the stock breaks to the apex, the more powerful the move. So for instance, let's look at Tesla here. If this move went, it would not statistically be as strong as this move, which wound up giving you this, this would not be as strong because the breakout is still happening from a space. So the narrower that space, you guys know the concept of narrow and wide, the narrower the more explosive statistically the move comes out of that.
And guys, while this is not an everyday scenario, because I do try to, I try to focus mostly on what happens every hour of your life, right? If not multiple times an hour. But there are certain things that are so powerful, even though they don't happen with that level of frequency, that you really need to know. Any clearing event coming from this time. tight apex of the wedge, any clearing event.
is an absolute take. So if we were to take, if you were to fill this bar in from the top to the bottom, that's your bar. That's your clearing elephant bar. Now, what you should know is that an elephant bar is powerful, but a clearing elephant bar is more powerful, meaning that it is clearing out data to the left. clearing it out okay this is not a clearing bar because it's not clearing it's not really a clearing bar because it's not truthfully clearing a lot this is not a clearing bar this is a clearing bar because when you look to the left there is nothing right when you look to the left here there is something when you look to the left from this bar there is nothing it is clean There is nothing impeding the breakout to the left.
Almost as if it is the tallest skyscraper in a city by far. These are all the buildings and this one just stands much taller than all the other buildings. That's your one right there. Boom. Clearing.
So Elephant Bar is powerful. clearing elephant bar is actually like double the power a clearing elephant bar so guys look at this elephant bar is powerful powerful okay let's go down a list now an elephant bar plus meaning that it's a little bit more than an elephant That's more powerful. Then when you have an elephant bar plus clearing, we're starting to look like we're Einsteins here, right, with our own formula, right? Elephant bar plus clearing, that's double the power of anything above it.
But wait a minute. Elephant bar plus clearing off the 200. Are you kidding me? An elephant bar plus clearing that is originating somewhere near the 200. This like triples the power. It's crazy. That's what you have here.
But wait a minute, in this case we have the elephant bar plus clearing 200 wedge. Wow. So we have that extra here where it's also the pinch play or the the wedge play.
and this is guys this is that i want you all to be able to do a weight of the evidence approach to your trades that's what i'm going to call it the weight the weight weight of the evidence so like the weight of the evidence here is the highest like you have a list of things that are powerful you know you have in this scenario you've got an elephant bar plus but in this scenario it's an elephant bar plus clearing and that's how through this weight of the evidence which which one is heavier with evidence which one is weightier and this is how you also assign size to your plays you see a lot of traders do do something wrong They actually wing size. They keep size as just something that they just decide on a whim in the midst of the action. I think on this one I'm going to do three laps. I think I'll do it. I'm a little nervous.
I'm going to do one lap on this one. There's no rhyme or reason to it. It's just a feeling. And as you know, like, my whole goal is to get you away from thinking and feeling and to systematize everything.
And so when you have these different scenarios, you should be assigning in advance size to each scenario. Like this one needs the highest size just because it's the weightier. You understand?
And so you'll get a bunch of plays where it's just the quintessential trade, which is two lots plus one and maybe sometimes plus another. So this is your quintessential trade. You initiate a trade with two lots. You add once or twice with one lot.
That's the quintessential trade. But then there's the one lotter. What falls into this category? Which ones are these?
Uh-oh, did that wrong. Did you? One plus one plus one.
All right? that's yours that's that that's small right yeah so maybe if you've got some conflict maybe if you're if the size is too if the stop is too far away right you understand yeah so but you listen guys you need to assign scenarios to that category so that you're not thinking about it in the middle of the trade you should know okay this is a play that's in the one lot category. This is a play is in the two lot category.
What's in the three lot and the and four lot and maybe maybe something's in the five lot where you just there's no adding. I've only got five lots. This is a I call this the kamikaze play. I'm a kamikaze this. Now I'll give you a scenario.
That's right Kristen. I'll give you a scenario. Kristen's already done it. where you can kamikaze something.
Let's say you've got this small, let's say, look at this, let's say this is your buy point. Your stop is here. Your maximum loss is a hundred dollars, let's say.
I'm just not saying that this is going to fit here. I'm just giving you an example. A hundred dollars, all right.
The risk is 15 cents just because the bar is little. So the risk is 15 cents. all right so you can do five lots with a 15 cent risk it's still less than my maximum loss per trade do you follow what i'm saying guys does it make sense yeah so you can kamikaze that you know there's nothing and this is going all in intelligently. There's nothing wrong with going all in.
That's not gambling if you're doing it intelligently like this. Sometimes we get these acorn plays where the first bar of the morning is really tiny. I call it an acorn, but it's in a good location. If it breaks down, it's a short from that little tiny bar. because the bar is so little you can kamikaze that and if it works your profits explode but if it doesn't it's just a normal loss no big deal right so my point is is that you should be assigning all the different things that fall into this category fall into these categories What's a three lotter?
What's a two lotter? What's a one lotter? What's a five lotter?
I just gave you basically the only thing I think a five lotter should be. All right, let's do it. Newman's saying he has an amazing tree. He's going to blow our socks off with this.
Walk us through. Elephant bar clearing 1028. Boom. That is beautiful.
Guys, this is exactly what I was pointing to, right? Almost. That wedge-like scenario. Wait a minute.
Wait a minute. You got to tell me, did you buy in the bar? Did you buy above the bar? What did you do? Let's go.
Let's take it step by step. You're only on step one. You've identified an elephant bar clearing.
All right. How did you enter this above the bar? So you did a confirmation entry above two lots.
Where, if this went wrong, where was your stop? Mental, where's your mental stop? You took profits on the big bar. Where did you take profits on that big bar?
all right so you took profits near the top now was that based on a profit rule or was it like oh my god i'm profitable let me take some off okay i'll we'll talk about that i gotta talk about that but let's get through the trade so did you take one off or you took all of them off all of your lives one okay so we got one out what's your next act remember stop adjustment is an act two okay um big bar stop adjustment so you moved your stop under, right to under this big bar. Alright. So big bar. Then you went, is this the color one you went to here?
This one? Boom. Color stop. That's a color stop. Okay.
Then you went to big bar. Whoa, this is starting to look really, really nice, Lumen. Walk that thing up there. Milk that thing.
Moo! I don't know if that sounded like a cow, but it was meant to sound like a cow. Milk that thing.
After that, you went bar by bar. Well, damn. Bar by...
Bar, uh, don't tell me you got out there. Don't even tell me. Is that where you got out? One bar lower. Ah, okay, you got nicked out by the red one.
All right. Man, almost perfect. Almost perfect, right? Yan.
congratulations coaches man you guys are doing an amazing job working with my babies lumen yeah but what made you not i mean not guys this is an amazing trade so lumen was right he did not disappoint here it's not perfect and we're going to go in we're going to we're going to go into that a little bit but it's an it's amazing still nonetheless so What made you stop out here instead of stop out there, by the way? What was the reason for that? Because you did say bar by bar. But, okay, so you're saying only if the next bar went above this high would you move it there.
Is that what you're saying? Like that? Okay. That's not a bar by bar stop, by the way.
But because a bar by bar stop is literally once. Once the bar is finished, you put the stop under that bar. So that if the next bar breaks the low, you're out. That's a true bar by bar stop. You're doing sort of a, it's not a color stop, but it's a variation of it in a way.
It's because it involves two bars. But the true bar by bar gets you out here. Now. I guess you have to determine which one works best for you. But let me say something about this.
I don't know in this case what the difference is, but I want you to be aware of this, traders, all of you. So at the low of this bar, we've got 47. And let's say you sold at 18 or 17. all right so that's 30 cent difference right 30 cent difference that might not seem like a big deal right but if you were tri if you had a thousand shares left which is one lot in the real world one lot is a thousand shares right so how much did you get back on that 30 cents 300 you took 300 you opened up the window and you threw it out Very generous, very generous, but now do that over a lifetime of trades. Do you understand? So what you have to do, I mean, pennies start to really count, guys, when you start to go to size.
That's just with one lot. What if my one lot is 5,000 shares? So now take 300 times 5. You understand? So.
I'm just saying that these little differences start really making, start really being substantial. when you start thinking from the from the perspective that one lot is a thousand shares and i'm constantly reminding you that's how i want you thinking that you're you're you're in the baby training stage where one lot is 100 but we're gonna move to one lot being a thousand shares we're gonna take the training wheels off one day and so the same actions with 100 you do with 1 000 the actions aren't different it's just another zero but the button presses the hot keys are the same right so but i want you thinking from the pers from the prospect that i had 1 000 shares left is this giving back too much based on 1 000 shares probably now it's not technically wrong as long as you've done your plan but I want you to consider that. The other thing is I think that a huge opportunity here was missed by not adding on that breakout. It's been a long time since I've seen a pure clearing elephant bar like that. That's just crazy.
Like it's I couldn't even I don't think I can draw one better really. Doesn't it look perfect guys? the sideways movement staying in the upper staying in the upper that's not true staying in the upper third of the power and then clearing boom that is like i could do that as the first trade like you were really amazing by getting this one but even if this was the first trade that's beautiful now um lumen is saying well it would have violated his maximum loss per trade how how how does that you're in here no to add here now remember guys you can when you do an ad you have a choice of putting the stop give having the ad be almost like it's own separate trade with his own stop you're already profitable it's no way that this is going to violate your maximum loss per trade no way with you already being profitable all right guys remember let's do this math a little bit let's do this math a little bit