SECURE THE BAG

FROM BANKRUPTCY TO 7 FIGURE STOCK TRADER

TaySweat
 CONTENTS

Intro to Buying & Selling Stocks and Options • 3

Importance of READING Charts to Buy Low & Sell High • 5
Candles & Signals • 6
Exponential Moving Averages (EMAs) • 10
Indicators • 11
Entry Points, Time frames and Trading plans • 12
when to buy • 13
when to SELL • 13
Drawing Support & Resistance • 14
Drawing Speedlines • 14
RESEARCH METHODS • 15
key terms • 16

SECURE THE BAG • PAGE 2

INTRO TO BUYING & SELLING STOCKS
AND OPTIONS
What is a Broker and Which Ones to Use
How to Buy and Sell Stocks
What are Options

Stocks provide individuals the opportunity to become Other popular brokers include E*Trade, Ameritrade,
a shareholder who owns part of a the company they WeBull, and Fidelity to name a few. These brokers often
are invested in. As a shareholder, often you can vote for have advanced trading tools & services but may require
company policies, receieve dividends, other benefits. monthly service fees or commission fees. Despite their
learning curves, these trading platforms can provide more
There are many ways to acquire stocks like inheriting from a comprehensive tools and data.
relative, being vested in a company, or through a retirement
plan but the most cases people get stock by funding a Ultimately trading on the platform you feel most comfortable
personal brokerage account. with is the first key to your success.

Brokerage Firms are used to buy and sell stocks, bonds, The average person is completely unaware of the many other

currency, and other assets on their clients behalf. Choosing investing opportunities that exist in the stock market that

one that suits you and your budget is ideal because some is NOT buying and selling shares; one of which is Options

brokers require commission fees and minimum deposits. trading.

One of the most popular platforms for starting investors is Option contracts allow an investor to buy or sell a stock at a

Robinhood; its easy-to-use interface and no commissions fixed price even if the market price has changed drastically.

fees make it more attactive for beginners and is highly

recommended.

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Option Contracts

The Stock Market is not solely for trading shares,

many other opportunities exist for making money
and investing.

Selling Option Contracts is like selling a deed

or title, they can be bought and sold to other
investors after appreciating (or depreciating) in
value similar to how the deed to a car or house can
be sold to a potential buyer.

Those potential buyers value option contracts

because they can purchase shares at a lower than
market value to sell them for substantial profit at
market value.

The cost of an option contract is also known as

a Premium. Option contracts allow the owner to
buy or sell a stock at a fixed price, called a Strike
Price. Strike prices simply mean the owner of the
contract can buy 100 shares at that price.

As pictured in the example to the right, if you sold

a Call Option while the share price was around
$100, a contract with an $80 strike price would have
a premium of $2055.

The $80 strike price is 20 dollars in the money and

now worth over $2000. The $90 strike price is 10
dollars in the money and now worth over $1000.

For each $1 the share price increased above the

strike price, the premium increased by $100.

If possible when buying options, purchase with a

strike price close to the current value of the stock, In the event the stock takes a major dip, be aware when trading options it
this is called Near the Money. When the strike price is possible to lose 100% of your money. If your strike price is too far out of
is higher than the current value it is called Out the money after a severe fall, the value of the contract may take a drastic
of the Money. When strike price is lower than the loss, even worse, the contract could become basically worthless.
current share price, its is called In the Money.
Also note that some brokerages will not allow you to sell your contract
One other major thing to consider when on expiration date, while others may attempt to automatically sell your
purchasing options is the expiration date. It is contract if it is profitable.
highly recommended to buy near the money but
sometimes that is not feasible. Having longer In most cases waiting until expiration day will mean that the contract can
expirations will give the contract time to approach either be exercised by you but not sold or will result in a complete loss of
the strike price and increase in value. In some money. As a precaution it is best to sell prior to expiration dates to avoid
cases buying out of the money contracts can be potential losses.
profitable because of volatility but it is much more
risky when dealing with sudden drops in prices.

SECURE THE BAG • PAGE 4

IMPORTANCE OF READING CHARTS TO
BUY LOW & SELL HIGH
Using Indicators to read charts

Bollinger Bands (this will be covered in more detail This is because there are multiple signs and
later) are phenominal indicators that will teach you indicators that suggest the stock may already be
when to buy low and sell high. They are the white approaching a point of reversal.
lines in the image shown above.
The first important sign to avoid buying high is that
Although buying low and selling high seems simple, the stock’s current price is at a resistance level
most beginner and novice traders don’t trade (covered in more detail later) from August 2020.
efficiently. This is often because they lack the general Like the name implies, the stocks resists being
tools and knowledge of when to get in and out of above certain price thresholds.
trades.
Another not so obvious clue to new traders is
The first step to becoming a better trader is charting that Bollinger Bands provide an indicator of a
and using multiple indicators (minimum of 3) to stocks “fair market value”, and touching or going
decide whether a stock is “low” or “high.” above the upper band is a sign the stock may be
considered overpriced and/or overbought.
Looking at the chart above without prior knowledge,
can be intimidating, but knowing what it means is In order to buy low, it’s highly recommended that
the difference between buying low and selling high. you wait until the stock price is near the bottom
Bollinger Band before buying Call Options and the
It is possible an experienced trader looking to enter
same thing applies to buying and selling shares.
a trade, specifically a long call, based on the chart
above would postpone buying a contract to find a
better, safer entry point.

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CANDLES & SIGNALS
Candlesticks illustrate many important things about a stock in- The color of the candle represent movement of the price action
cluding the high & low selling points, the timeframe, and current over time, where green indicates bullish activity and red indi-
price to name a few. cates bearish activity.

The body of the candle represents the price point at the time of Candle wick lengths and body sizes can vary, as a result they
the open and close. So the open is the beginning of interval and can directly indicate the price action, the stock price direction of
the close is the end of it. movement.

The wick, or shadow, represents the highest and lowest points

of the given timeframe (1 minute, 1 Hour, 1 Day).

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Doji Candles

Doji candles are an indication of “indecision” of price

action. Meaning the market hasn’t decided whether
the price should go up or down. Dojis candles are
formed a when the buying and selling point of the
stock remain the same for extended period of time.

5 Percent Candles

Five percent candles are an indication of the buyers

or sellers being in fully in control of the price action.
When buyers are in control the price action is driven
up and when sellers are in control the price action is
driven down.

Hammer Candles

Hammer candles are formed when buyers push

the price action upward. They are a sign of a price
reversal to form or continue an upward trend.

Inverted Hammer Candles

Like Hammer candles, inverted hammer candles

signal upwards price action from the buyers. The
inverted hammer shows the stock may have reached
a level of support before beginning a reversal.

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Shooting Star Candles
Shooting Star candles are an indication that price
action rose at opening, creating a long wick, but fell
below the opening price then closed lower.

They are formed when a potential price top, or

resistance is met, but was rejected.

Hanging Man Candles

Hanging Man candles represent a large sell off
after opening with confirmation on the following
candle are used as a signal to exit long trades to
prevent potential losses.

However the nature of this candle being similar to

the green hammer candle, is indicaton that prices
initially trended downward but returned upward
creating a long wick, forming a hammer shaped
candle.

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Bull Flag
Bull Flags are the result of a series of upward
trends in price action which form a “pole” shape,
which is followed by consolidation resulting in the
“flag” shape.

Bear Flag
Bear Flags are the result of a series of downward
trends in price action which form a “pole” shape,
which is followed by consolidation resulting in an
upside “flag” shape.

Bullish Engulfing
Bullish Engulfing candles appear in downtrends
and outsize the previous candle. Engulfing candles
break the previous trends and indicate reversals of
price action.

Bearish Engulfing

Bearish Engulfing candles appear in uptrends and

outsize the previous candle. Engulfing candles
break the previous trends and indicate reversals of
price action.

SECURE THE BAG • PAGE 9

EXPONENTIAL MOVING AVERAGES
(EMAS)
5, 10, 13, 20, 50, 200, Golden Cross, Death Cross
Exponential Moving Averages show the average price of a stock
over a specific time frame. There are many different times frames
that are commonly used for a variety of purposes.

5 EMA shows the stock’s most recent prices in comparison to its

current price. This is often used to gauge price action, direction of
the trending market prices.

When the 5 EMA is lower than other EMAs, the current stock price
is trending downward, it is bearish.

10 EMA can be used by traders, especially day traders, to see the

price action. When a stock rides at or above the 10 EMA it’s a good 50, 100, 200 EMAs are frequently used for long term trades and
sign of upward movement. Often the 9 EMA is used instead of the investing. As the price actions fall past the 50 EMA, the stock may
10 EMA just to offset the extra time. continue to tank especially during major market crashes.

13 EMA like the 10 EMA is used often for short term trading, in If the price action has been bearish, trending downwards, and trad-
conjuction with the 5 or 9 EMA. The 5 or 9 EMA crossing below 13 ing lower than the 50 & 100 EMAs, many long investors will buy back
is used by many day traders to exit or sell off their positions to into the stock at the 200 EMA.
prevent loss (when using minute charts).

20, 21 EMA Like other lower EMA crossovers, when the 20/21 EMAs
cross above the 50 EMA, its a bullish signal, as well when it cross
under it is a bearish signal.

Golden Cross patterns are when the 50 EMA rises above the 200 Death Cross patterns are when the 50 EMA falls below the 200
EMA. This is a bullish sign which signals that an uptrend may be EMA. This is a bearish sign which signals that an downtrend may
starting. The 200 EMA will become a level of support that the price be starting. The 200 EMA will become a level of resistance that
action will test but is unlikely to drop underneath as the stock the price action will test and may stay underneath as it is in a
continue follow the uptrend. downtrend.

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INDICATORS
Bollinger Bands, MACD, RSI

Bollinger Bands (BB) determine whether a stock’s price is within a

reasonable buying range, which can help you avoid overpaying.

When a stock’s price moves above the upper band it suggests the
stock may be overbought and could be due for a pullback.

But when the price falls below the lower band it suggests the stock
could be oversold, this could be considered as an entry point for
trading.

Relative Strength Index (RSI) is another great indicator to

determine whether a stock is overbought or sold. As the stock
is bought it increases the RSI toward 100, as it sold off the RSI
decreases toward 0.

In general a stock can be considered overbought when when the

RSI is near 70 or higher.

When the RSI is under 30 a stock is starting to become oversold

and can used as a buy a signal.

Moving Average Convergence Divergence (MACD) is an indicator

that shows trends in a stocks momentum. When a stock is being
sold off the MACD and Signal Line start to fall. During the selloff,
green bars shrink and red bars grow under the baseline.

When the MACD crosses over the Signal Line, it is used as a trigger
for buying into a stock with an expected increase price action,
trader see this as a bullish sign.

When the stock is being bought up, the MACD starts to curl upward
while red bars shrink and green bars grow, indicating an increase
in buying.

SECURE THE BAG • PAGE 11

ENTRY POINTS, TIME FRAMES AND
TRADING PLANS
When to Get into a Trade and How Long to Stay

Buying a stock during a down cycle would be costly, so the first step Even when finding a good entry point for the stock, you should also
to find a good entry point is studying price fluctuation patterns. consider how long you will hold it.

In general, Bollinger Bands would be a good indicator for entry In the example above, a downward trend is formed the first 2-4
points. A stock will usually sit at or rebound off the lower band. In weeks and an upward trend is formed the last 3-4 weeks of the
graphic above, week 16 could be considered a good entry point in cycle. Seeing how the uptrend is usually only about a month, you
the belief that the price action will rise in the following weeks. should expect to exit the trade after 3 or 4 weeks.

A stocks price may go up and down regularly within daily, weekly, If the peak of week 14 was your entry point, around $175, you would
or even monthly time frames. You can use that knowledge to make immediately lose money the following weeks. Since the stock
educated guesses for when to buy & sell stocks to maximize profits historically rises and falls over the span 7 or 8 weeks, waiting for the
and minimize loss. stock to fall near the bottom of the cycle would be a better entry
point.
After you have studied how the stock moves, you should get a sense
of when the stock rises and fall, then a develop a trading plan So if you bought in at week 16, and the stock fell instead of rising.
based on that. A longer expiration contract would give you the opportunity to
potentially recover your losses while the stock recovers.
Your trading plan should include time frames to determine how
long you intend to hold the stock. Like in the example, you could However, when working with option contracts its best to buy
plan to be in the trade for a month before selling and waiting contracts that extend well past your estimated time frame in case
several weeks before buying back in. unexpected drops in price action happen.

When looking for long term investments over several months So if you wanted to sell an option contract after 1 month, the
or years, looking at the monthly and yearly charts give a better expiration date should extend past one month. Usually buying 3
indication of how long to hold. month expiration would be cautious, but a 6 month expiration is
recommended.

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WHEN TO BUY
Using Indicators, Entry Points, Candles to Buy

An ideal entry point could be when the MACD

& RSI are both low, with the stock at or near
the lower Bollinger Band. However, it could be
weeks even months, before some stocks reach
the bottom of the Bollinger Bands.

Since stocks don’t always reach the bottom,

other signs of reversal in price action are the
strongest indicators to know when to buy.

Seeing the green hammer candle or bullish

engulfing candle signals upward price action,
this would be a good time to buy; especially if
the RSI and MACD are still low and starting to
curl up.

WHEN TO SELL

An ideal exit point could be considered at

when the stock reach the upper Bollinger
Band, with the RSI and MACD indicators
starting to point downward.

Popular large cap stocks may follow more

closely to the upper Bollinger Band than
small cap stocks, so multiple indicators are
needed to determine if the stock is actually
reversing trends.

A bearing engulfing candle would be another

potential sign to sell and take profits before
if a major drop is occuring.

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DRAWING SUPPORT & RESISTANCE
Support lines are drawn to indicate a price level that a
stock respects and will often stay above that price, even
when the stock drops, it usually will fall back to a support
level and trade at price before possibly rising or falling
further.

Resistance lines are when a stock reaches high points and

won’t rise above the threshold. After stocks break through
resistances; old resistances become new supports.

Knowing support and resistance price levels plays a

fundamental role to know when to buy and sell a stock.
Having a 3 or more candles, wicks included, is ideal when
drawing a trendline. The more candles that respect the
trendline, the “stronger” the trendline is.

DRAWING SPEEDLINES

Speed lines are indicators that show moving support and

resistance levels. Generally speed lines are drawn to show at
least 3 of the most recent highs or low, can be drawn along
points of price action reversal. The can be used to predict
future up or down trends.

Although they are generally done using 1/3 and 2/3, they are
also often done with 1/2 intervals as well.

Creating speed lines is often done in intervals of three or

in thirds. For instance if a price is $500 stock‘s high of the
day was up $30 from the open, about $530, you could draw
speed support lines at the $510, $520 from the high point of
$530.

Implementing speed lines into your trading strategies can

significantly improve your peformance by predicting future
trends. Knowing the stock has the potential to reach a new
high possibly within the limits of your speedlines, means
that you can make the appropriate calls as the stock is rising
and puts as it falls.

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RESEARCH METHODS
Becoming familiar with stock market news and research sites.
Benzinga, Seeking Alpha, Yahoo! Finance, MarketWatch etc

There are many resouces available for traders, both free and
paid services.

One of the best resources is Benzinga for it’s in depth

information on companies & their stocks. Benzinga Pro offers
vital live news updates, balance sheets, alerts, & many more
features.

Other great places for stock & company infomation are

Seeking Alpha, Yahoo! Finance, MarketWatch and FinViz just
to name a few.

Finding a reputable site with frequent news updates can

allow you to capitalize on sudden changes in stock prices.
The sooner you have the information the more informed you
are and quickly you can be in or out of a trade.

However you must “buy the rumor and sell the news.” So
even having timely news can still be too late for trading.
Thoroughly researching a company in advance before it gains
popularity is much more ideal.

For instance, if a company like Apple announced a new

product that isn’t due to be shipped or sold for weeks
or months, it could be beneficial to prepare to trade in
anticipation. However, due diligence is needed before
entering into trades, so you would need to check the
indicators for entry points.

No matter how much research you do or which site you

choose, you will always to need to chart a stock and know
when to get in. TradingView is highly recommended not
only for beginners but for professional traders as well. Most
importantly it is free, but can upgraded for real time data and
more indicators

Charting above all else is most important when trading

stocks. Support, Resistance and Speedlines tell you where
the stock has been and where it may go in the future. The
chart to the right may not mean much now, but being able to
create trendlines, find channels, understand EMA crossovers,
etc. will be a valuable skill. With some trendlines and
channels being created weeks and months prior while still
lining up near perfectly.

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KEY TERMS
Bearish Price Action
A downtrend, declining share prices The price of a stock over time

Bullish Resistance
An uptrend, rising share prices A price level the stock generally will not rise above.

Bollinger Bands RSI (Relative Strength Index)

A technical analysis tool that determines if the An indicator to show if a stock is overbought or
recent average price of a stock is within the oversold based on the trading volume
overbought or oversold range
Strategy
EMA (Exponential Moving Average) A set of defined rules to follow when making
Averages prices of assets in a given time frames; investments, they are guides which are predetermined
Hourly 50 EMA is last 50 hours, Daily 50 EMA is last and measurable goals to avoid risk.
50 days

Strike Price
Exercise The price a which a call or put can be exercised
Paying the strike price for each 100 shares in an
option contract Support
A price level the stock generally will not fall beneath
Indicators
Are tools used to check data or information about Unrealized Gains
a stock The potential profit or loss of a stock before selling

MACD (Moving Average Convergence Divergence) Volume

An osciallating indicator used to determine a The number of shares that are being traded
stocks trading momentum, visually shows buying
and selling pressure

SECURE THE BAG • PAGE 16