THE 4 PILLARS OF INVESTING Technicals: Module 3 TRANSCRIPTION

Transcription

1 THE 4 PILLARS OF INVESTING Technicals: Module 3 TRANSCRIPTION

2 2 The 4 Pillars of Investing A transcription of TECHNICALS MODULE So, as we move forward, I just want to remind you. It s okay to review this over and over again. I think it was Ralph Waldo Emerson who said, That which we persist in doing gets easier. Not that the nature of the task has changed, but our ability to perform the task increases. I think that was close to what he said. So allow the learning to happen, relax and move along. Here we see three pretty identical patterns, and we re going to look at three different things a stock can do. And as a result of what it does, there s three of several possibilities. First of all, let s look at the one on the left here. The first thing is it comes up here and it meets this point, and it s likely that perhaps it achieves a new high. What continues? Well, higher swing highs, higher swing lows. We have an uptrend, right? One, two, three, higher swing lows, higher swing highs. If it achieves a new high, we keep making money. No problem. Of course, it might fail. It might come to this point, and it might fail to achieve a high. And then we have that letter M. I ll tell you that just as it did before, support becomes resistance and resistance can become support. Where they resisted here (remember this) they were saying, Oh, absolutely not. Not going to do it. And then right here, what did they do? They changed their mind. They said, Well, yeah, maybe we will like it. So, no becomes yes all the time. It happens at this point right here. That s your double top that we just studied. Of course, it s absolutely possible that something happens maybe some news, or maybe some change in the bias. Maybe the fundamentals change to where it never even gets up to form the double top. This thing can start trending down at any time. If I draw a line underneath it right here, you ll notice this pattern. This is called a head and shoulders. It looks like someone s head with a couple of shoulders here. That s the name of the pattern. It s a very popular pattern. You ll see these.

3 3 Which one of these is a little bit more bullish? I think the head and shoulders might be, and I ll tell you the reason I think it is. Here they re saying no, and here they didn t even let it get back up to test it again. They re saying no at a lower level. And you ll notice this. If I draw a line here, I said that I usually don t go bearish or short at this point. Why? Well, I have a lower swing low, but I don t yet have a lower swing high. It is a different story here. I will often enter my order in the short right here. Why? Boom. Because now I do have a lower swing low, and I have a lower swing high already. So, it s a little bit different, and that seems like a lot. You might want to review that, but just remember the rule. An uptrend is higher swing highs. A downtrend is higher swing lows. Here, I m sideways. It s going to take a little longer for this to turn. Here, look at this. It s already happening. I ve got a lower swing high and the moment it breaks this simple line right here, no matter where this goes up now, I ve got a lower swing low (and I already have my lower swing high). A head and shoulders is going to take me into a change and into a downtrend a little faster than a double top. Some guys will just short right here and try it, but I always like to come down, come up and get my what? My lower swing low. Here s my high. And when this forms, now I have a lower swing high. With the head and shoulders again, I ve already got it. I ve already got my high here. Lower swing high. Swing low. And the moment it bridges, look at that. Wherever it changes whether it s here or here or here or here it s going to be lower than this one here. The head and shoulders is interesting stuff. Now, there are a lot of basic patterns. Each pattern has an antagonist to it. We have an uptrend, higher swing highs, higher swing lows, downtrend. Lower swing high, right? And lower swing low. We have a double top that s the end of an uptrend. We have a double bottom that s the end of a downtrend. So, if M stands for murder, W must stand for winner, right? And I would treat this the same way. For example, here I would let it come, come back, and then I would put my entry to go long at this point. If it goes down, I was never in the trade. If it goes sideways, it was never in the trade. If it goes up, bam, we re making money. Why? Well, I have a what? I have a higher swing high and I have a higher swing low. And see, there s my uptrend. That works out very nicely. I have the head and shoulders pattern which we just talked about. We need to get a better name for this one. The inverse head and shoulders. It s just simply up and down. We had the kiss goodbye. Do you remember what the kiss goodbye looks like? The kiss goodbye is when I have support where

4 4 they said, Yes, Andy, I like it. Remember that? And then it changes to what? No, Andy, I don t like it. And how many times are you going to see this one? Hundreds? No. You re going to see it thousands of times. Happens all the time. The same is true on the kiss hello up here, right? Here we had a situation where we had resistance, where they obviously didn t like it at this point here, right? They said no and it came down, right? And then this was the point where they changed their mind and it became support and they re saying yes here. So where they said no before, they re saying yes to the stock here. So, very simple. One of my favorite patterns is the ascending triangle. This was gold. And the behavior was gold was at $1,000 an ounce. What happened was they said, Look. We don t want to pay $1,000 for an ounce. And so they said no. And they said no. And they said no. And they said no. And it s a straight line where they re just saying no. They re just digging in. I mean, we ve got them digging in here at the double top, but here they re just digging in, time after time. And so what s interesting is this is not an uptrend or a downtrend. Remember, an uptrend, you have to have what? Higher swing highs. We re not achieving them. Are we getting higher swing lows? Yes, we are. So the beautiful thing about a pattern like this is it can t win forever. Let s picture it this way. Let s say on the top we have a mark that says we won t pay this. But on the bottom there is a little greed here. We keep liking it more and more, don t we? It s not really an uptrend on the bottom. We re higher swing lows, but we re not achieving higher swing highs. Well, this can t go forever. Either it s got to break down below, or it s got to shoot above. One or the other. It can t go forever. What is more likely? With these guys on the top, the market seems to be holding its ground in terms of its resistance. It seems like it s really determined and it s holding ground. But I will tell you that these guys are more than just holding on a price steady. They re actually showing greed, aren t they? So while these guys are holding steady on the top, they re doing better than holding steady on the bottom. They re actually pushing it higher. It s a pressure cooker, isn t it? They like it. The most likely scenario is for this to go. You can picture this like a big block of concrete right here. The reason it s like a big block of concrete is because how many times have they said no? And I certainly wouldn t say that here because why? They re not really increasing anything. The bottom isn t showing any more energy than the top. So, while this is unquestionably two no s, we certainly don t have the upward pressure in a double top. But here we ve got this pressure cooker.

5 5 We ve got this upward pressure. And you ll see this often. When it finally breaks through this, it s got so much energy that they just take off like crazy when seeing those patterns. It s certainly not guaranteed. Again, we don t have to guess. When we get into cash flow, I ll help you more with this in how we put in an entry. For example, I could put in an entry here. And if they say no, I m never in the trade. I could put in an entry to buy here. If they say no, I was never in the trade. I can put in an entry here. If they say no, and it goes down and breaks through, I was never in the trade. But, I put an entry here. If they say yes and it explodes, I catch it right there. Bam. And I like that idea when someone has said no for so long; that if they finally say yes, I m in for the ride and bam, up it goes like crazy. Those are really fun to hit. In fact, a good example of that was gold. They said no at $1,000 an ounce for so long. But when it hit, what are we hitting? We re flirting with $1,800 gold now. And it was really fun. I actually bought some gold around $1,000 an ounce and it s just taken off from there. And why else gold and silver? Because of QE, right? We re printing money. The dollar is losing value. So again, fundamentals tells us what is likely to happen, and technicals tell us Let s go to the real world. This is the U.S. dollar. This is called an exchange-traded fund. What it does is it tracks the value of the U.S. dollar as we pit it against other currencies and other metrics around the world. Let me just get out my pen here, and let s just do some drawing right here. If we were just looking at this point, what do we have in the dollar? We ve got a bit of a what? A bit of an uptrend, don t we? We ve got a bit of an uptrend. And it really soars right here. So we have this huge uptrend. And often you ll see this. When things get up really fast, it s a little bit too fast for their comfort. But I want you to notice this right here. It comes back down. Let s draw this. Here s this peak of this uptrend, right? And then it shoots way up here. And it comes back down here. And now we have a what? A lower high. So we had no double top, did we? They said no at this point, and it didn t get back up here to say no again. It said no at this point, didn t it? Let s draw that again so it s nice and clear for us to see. It comes up, comes down to this point, shoots up, falls down at this point, shoots up, falls down. And here is my line, isn t that right? And what does that look like? Let s just go back. What does that look like here? Oh my word! I ll be darned! Let s draw it again.

6 6 It comes up, comes down, goes way up, comes down, goes way up. And instead of coming up again and saying no at the same point, this one fails to come up and make the double top, so what do we have? We have that head and shoulders pattern, don t we? In fact, this is a classic head and shoulders pattern right here. A classic. They liked it here because it went up. And they really liked it here because it went up. It wasn t a surprise that it held here and it went up because they liked it so much. I have this line of where they see it s a bargain. From this point on, they have seen it s a bargain one, two, three times. My question is, will they continue to see the bargain? Well, since this was a no here and a no here, I m wondering if this has the strength for them to still see it as a bargain here? Once again, as I ve told you, you will see this happen so many times. When they liked it, it s support. As soon as it changes, it becomes resistance. See all these no s right here? It s just a fascinating study how often it happens. It s really fun to see. So they say yes here. Obviously they said yes here to drive it above the line. They say yes here. They say yes here. They change their mind, and now they re saying no to it. It is very interesting stuff to watch. But anyway, that s a head and shoulders. A kiss goodbye right here. There is no question about it. And it flirts with that. You could have put in an order just for fun to short the dollar right here. And once it triggers as it did, you d have put in an order above the line as soon as possible to exit in case it shoots back up here again, because the chart tells the truth. And see how we could just allow it to meander in here for a long time being short? As long as it doesn t hit our exit, we can be short. And what does it form again? Another double top. Here s another M. I ll trace it in. See the double top? And again, what do we see? In fact, I ll draw it here. Let s use the green pen. So they start liking it here. They say yes. Drive it up. They say yes and they drive it up. But the question is will they continue? It falls down and now it becomes a what? No. And so I hate to beat a dead horse or be a broken record, but I m telling you. This will happen so many times. So here s my kiss goodbye, and I could enter a short here. If it goes back up or if it goes sideways, I m never in the trade. But boy, if that goes down, I catch it and this is a beautiful thing, right here. Oh, this is almost a what? A descending triangle, isn t it? It s getting lower and lower and lower, and it s got a little holding it strong here. I wouldn t be surprised to see this take another dive. I m not predicting the future, but you d be surprised to see it. Remember that ascending triangle? Well, we can have the same thing. They re trying to prop up the U.S. dollar here, but the downward

7 7 pressure is pounding on the floor, and when they break, they can really break. That s making a mess. There you go. It s interesting stuff. So, fundamental analysis. We look at sovereign fundamentals. We see a debt. $1.6 trillion. Offbalance sheet for almost $100 trillion. Big time problems. GDP dropping. Fed steps in with what? Quantitative easing. Buy some more of these treasuries. Flood the markets. Got to buy these treasuries to monetize the debt, so to speak. Floods the market with cash trying to jump start this GDP over here. Try to buy off some of this debt and turn it back into cash so we can spend more. But it also dilutes the value of the dollar. So people say, Hm. If that s what is likely to happen (for the dollar to lose value through QE and all these things) then the question is when is it likely to happen? If we look here, we can begin to see when with what? This first sign here where it fails to achieve the same high. And down we go in the pattern that we discussed. I hope you re finding this interesting. I certainly love teaching it. I hope you re having fun with me. It s kind of fun just to do this together. I often speak to large groups. It s fun to just be here on the Internet working with you. It s a lot of fun to be able to learn these great skills. When I look at technical analysis and I teach it to others, I separate technical data into three different categories. To this point we ve been looking at something called price action. We ve been watching these candles go up and down, and we re just determining levels of support, resistance, trends, and patterns. I want you to know that I list about ten patterns there. There s many more. We re going to become comprehensive with this, but I don t want to overload you in a first level class like this. Even if you re a trader that s active, it s great to get to these basics. The second thing is we re going to talk about what s called Western indicators or technical indicators like a MACD and there s hundreds of things like MACDs. We ll talk about what that acronym means. And then there s things like TRIN and VIX and other measurements that we can use that analyze buying pressure. We have the actual price action itself; we have different functions we can use to study that price action (like those in the middle that tell trend and momentum) and then we also have different types of indexes or measurements that can tell us about where money is moving. Again, this is a wonderful study. It s a lot of fun to learn more and more, and I ve learned more every year. The nice thing is to get to a level of proficiency. You don t have to know all 200 technical indicators. Not at all. You can get to that proficiency level with just getting very good and

8 8 comfortable and proficient with just a few. Of course, you always learn more. Every year I ve done this, I ve learned more. It s fun. There s a lot of things to learn. Let s talk a little bit about candles. We notice here (if you can see my arrow) that we re going to open up today at $24.10 on the scale. That would be the open. And the computer is smart enough that it can see that. The open here is at $24.10 in this period. We have a close, we decide, here up at $24.90 or thereabouts, and the computer knows that. So that was upward movement, wasn t it? That was upward movement. We know that was a bullish day. What the computer can do at the end of this time period (we ll call this one day) is it can take the open and take the close and it makes a rectangle where we see the open and we see the close. And because the computer can tell that the closing price was higher than the opening price by quite a bit here (eighty cents, a big day) it s going to color it for us. It colors mine in green. You can set it. You want to color it pink? Color it pink. But the computer will color it whatever you want. I usually choose green or hollow for mine. Some of them have it white. Some of them have it green. Some people just use black and white ones. Hollow means it was light and went up and of course green means go. That s a bullish candle. Now, during the day it s quite possible that the stock moved up and down based on supply and demand. And we see that the lowest point that the stock ever sank to is $24.00, and the highest point it ever achieved during the day was $ In reality, what we could do is draw a stock chart of how this went during the same. It opened here. Maybe it sunk down here. It kind of went up. During the day it had its ups and downs. It s hit a high right here, and then it closed down. We can take this stock chart and say, Here s the open. Here s the close. In fact, let s draw these in a different color. Let s put it in green. We said, Okay, here s the point where the stock opened today and here s the point where the stock closed today. And this is the highest point that it ever achieved and this is the lowest point it ever achieved. Well, sure enough. We have our high, we have our low, we have our open and we have our close right there. And so it tells us these points: high, open, close, low. A candle tells a more complete story about how excited they were, rather than looking at the closing price the next day in the Wall Street Journal. I have a friend who is a great guy and a great teacher. His name is Steve Nison. I think he s the number one candlestick expert in the world. He actually moved to Japan, and that s where the origin of the candles come from. They used to trade rice. And of course, if you re going to make money, you have to be able to see how people

9 9 feel about the price of rice. So they used to chart the price of rice in periods of months or weeks. Where did it open this week? Where did it close this week? What s the highest price rice was sold at? What s the lowest price it was sold at? We can get an idea of how the market feels about these stocks. So, that s a bullish candle. A bearish candle is just the opposite. We have the open here and we have the closed down here, so they colored it red. And of course, we have a high and a low. So it s kind of the same thing, either way. Just those four points. It s very simple to tell the story. Of course, when it s down, they color it often in red or in black. This is kind of a fun candle. This is called the doji. If you look over here, we want to label these and I guess I should do it right if we re going to do it at all. Let s do some words for this here, and I ll give you some names for it. I don t think that would be too bad to do at this stage, so let s go ahead and do it. If I take the distance from here to here of the rectangle let s put a little bracket on it this is called the real body. So we ll put that out. The real body. And so, when you and I are speaking, or in some of these more advanced training sessions with various mentors and things, we ll say, Oh, look at the real body here. And that s what we re talking about. We don t call it the rectangle thingie. We call it the real body. Now this area right here let s do it on this side if this were a candle, I guess we d call this the wick. So let s put a bracket around that. But we don t call it a wick. We call it the shadow. So this is called a shadow. And in this case, I ll bet you can figure it out. This is called the upper shadow and this is called the lower shadow. This up here is the what? The upper shadow. Oh, that s not a very good letter s. I will work on that. I m using a mouse, not a pen. And this is called the lower shadow. You have the real body, the upper shadow and the lower shadow. You could have a candle over here with a real body that looked like this and a short upper shadow. And you could have a long lower shadow, which means the stock opened here, went all the way down here with the low, and we came up, hit a high, and then it closed right down here. You could have a candle over here like this, where it opened up and it hit a low. It shot way up. Oh, that s too expensive. Drop it back down and closed here. So, we can have all different types of shapes and sizes of candles and they all tell a different story, don t they? They all tell a different story. Let s get that back. Well, this candle here doesn t really have much of a real body, does it? This means the opening price and the closing price in whatever period of time this was, was the same. Candles come from

10 10 Japan, and it s my understanding the word doji refers to a state of indecision, where we don t know what to do. Should we sell this? Should we buy this? Should we hang onto it? What do we do? And when people don t know what to do, what do they do? They do nothing. So rather than driving the stock really high or letting it fall really low, it just kind of stayed in this range. It just stayed about the same. Well, dojis are very important because they help tell the story. Think about it this way. Often people don t change their mind from thinking something s good to something s bad right away. Often there s a period in between there where they re not sure how they feel. They re not sure what they want to do. I always like to use this analogy. I was a big Seinfeld fan. I don t watch much TV. I usually watch sporting events or maybe a little news once in a while, but I m not really a big TV guy. I don t like sitcoms. But the one sitcom that I just loved was Seinfeld. I was like everybody else. I jumped on that bandwagon. I wouldn t TiVo it, but I just love those characters. I thought it was well written and funny. And one of the themes you always see is old Jerry s love life. That s always one of the themes. George is always in trouble with his job. Kramer s always got something nutty going on. But Jerry s theme is where he s always having problems with his love life. And what s funny is every episode is about the same. So we re going to do some candles here with Jerry Seinfeld s love life. Here we go, Jerry. Coming at you. He ll have an episode. He ll be somewhere and he ll meet this lady. She ll be attractive. He ll say, Wow. She s very, very cute. And they begin to date and things go well and everything s wonderful in this certain subplot. And sure enough, they find out they have the same hobbies. Jerry loves movies. She loves movies! We both love movies! Sure enough, she s got a sense of humor and Jerry s funny. She s laughing and everything s fine. And then something happens. And it s not that he ever finds her in the arms of another man. If he found her in the arms of another man, well, that would be a gap down. All of a sudden, the next day, we re clear on here. The relationship s over and that s it and there s nothing really to talk about at the coffee shop. There s no dialogue there. Often what happens is there s a moment of indecision when he doesn t know. She has man hands. Do you remember that? And so, he looks and she s beautiful. And she s got hands like a man. And so he goes to the coffee shop, and there s George and Kramer. He says, Kramer!

11 11 Kramer! How do you date a girl with hands like a man? She s got hands like a man! I don t know if I can deal with this! And so he has a moment of indecision. Well, this is the same with the stock. We could certainly cross these out and turn this into a stock. And we could make these prices. We could say, Wow. Apple computers. $100? That s awesome. Oh, $200? Hey, I ll buy that. That s fine. That s great. $300? That s fantastic. $400? Well, they have cool stuff, but $400? I m not so sure. I think they re good. I m not going to short them, but do I really want to buy this at $400? So you can see as prices go higher, people will get less sure. And we can often see when they start to feel unsure with a doji, where they say, They were pushing it. Were pushing it. Were pushing it. Boy, do we want to push it again? This is an alert to me. Instead of a double top, it s the first time that they haven t been very excited. This actually happens, not just in Seinfeld. It happens in real life. Someone s married for a while. They wake up. They don t hate the person. They just say, Am I in love with this person anymore? I don t know. And so, I m not going to short here. Here s another place where people often get trained the wrong way. One of the important things (this is a good lesson) is when you go to get training in something as important as this, I don t know that I d YouTube some guy teaching this out of his basement. I think that you want to have someone that has some endorsements, some people who seem to have been around the block a little bit. Because I see people call this reversal all the time. Oh, doji means reversal. It just means it s going to change direction. No. Maybe Jerry decides he kind of likes the man hands. There s no question this could just take off. We can have a doji in the middle of a trend with no question, and just have it take off with more bullish candles. To me, it s just an alert, right? To me it s just simply an alert to where I m interested to see what s happening with this. We ve gone from something we re very excited about to something we re not, so I m going to watch what happens next. And with Jerry, he meets her mother and that s it. The mother also has man hands. He pictures little Jerrys running around with man hands. He says, That s it. That s confirmation she s this crazy woman. That s it, baby. We have confirmation. The building is on fire. Let s exit. What I really want you to get here, though, is we do this together, the two of us. What I really want you to get here is that it s not so much about candles. Not so much about dojis and MACDs,

12 12 stochastic and TRIN and TRIX and all the different things we can talk about. They have fancy words that make you seem like you re smart. Let s go look at Fibonacci retracement and the Elliott Wave Theory. And people that are technical analysts, they love to throw those words around because it makes them seem like they re smarter than they really are. And I ll tell you, often the more words someone throws around, the more I think they re probably not very good at trading. What I want you to understand right now is a bird s-eye view. We did a class on fundamentals. What does that mean? It s the strength of an entity. What is technicals? We re telling a story. And I just want you to get a conviction, at this point, to where we say, Okay, I see that if I study this, I m going to be able to identify points that are very real that can tell me more about the story of how the market feels. Okay, I understand, Andy. A doji, indecision. Not so much what a doji is, but the fact that we can use candles and technical indicators to get an idea of the strength of a market just as we can use fundamentals to find value and strength in some type of entity. So, it s very common to have moments of indecision before things change. A dollar a gallon gas, great. Two dollars, great. Five dollars? I m not so sure. Yes, you know what? Five is too much. We go back down. So it s certainly possible to have a doji in the middle somewhere here. Certainly possible to have a moment of indecision in the middle of one of these swings. But it s very common to have them at the tops of what? This is called a swing high. This is called a swing low. This is called a swing high. This is called a swing low. If we go back to Jerry, up here, this would comprise what? A swing high. Isn t that right? This is a mountain peak, and it s a high. It s a swing high right here. So, it s very commonplace to see the doji there. And so this helps me with probability. Maybe I have two stocks here that are practically identical, and I m looking for an entry point here. In fact, I should do this better. I don t know why I have these here. We ll just do it live so we don t have to redo everything. That s really what I prefer it to look like. I really don t see the future. And what I m visualizing in my mind s eye (which is a better way to look at it) is I m visualizing that this could go up and maybe hit this target here. I m visualizing that this is probably what s likely in this uptrend.

13 13 However, what does the story of this candle say? Well, they don t like it. Remember how we have a bearish candle? And a bearish candle looks like this. And here s the open and here s the close. So what is the story here? Well, it s still too expensive. They drove the price where? Down today. Where over here, certainly the price is going down, but it got to this point and they re saying, Hm. I can t decide. I might buy this. So the feeling here is negative and the feeling here is, I may want to buy this. I can t decide. Well, if they felt terrible about buying it here, which is more likely to find support at this level? Which is more likely? They bought it here, right? They spotted a bargain here. Will they find a bargain here? They found a bargain here. They found a bargain here. If they already are thinking they might want to buy it, and they changed their mind from this downward movement, I m going to go with this one. I m going to say, If one of these two is going to hit a target like this up here, which one is it going to be? Let s do Monty Hall. Door number A or door number B? I m going to go with door number B because the story is we still think this is expensive today, but here they re saying, I m not so sure. This seemed like a little much, but boy, we re far away from that. I might buy this. I can t decide. So dojis can be a very valuable thing, and there s so many candles. I can rattle off a bunch of names and make myself act like I m smart. Dark Cloud Cover and Harami. You ve got Hammers and Shooting Stars and all types of different combinations. It s just something you learn over time in sessions like this. We go through them one at a time. One of the things I m going to highly recommend if you re having a good time, if you like learning this, if you think this is interesting and you d like to have these skills Later on I have friends that teach trading labs. I have some great affiliations. As you know, I m a Rich Dad Advisor. I have some wonderful affiliations there, as well. I can hook you up with trading labs that can really be powerful where you can watch this in real time. They are usually about two hours, once a week. We can do fundamental analysis and technical analysis together every week. You are kind of an apprentice. You can watch how people who understand these things and have experience in them look at the market. I think that s one of the best ways to learn this. But for now, let s just keep it basic. We re just in the awareness stage, just introducing a few things. This happens even in the market. The market s headed up. We re doing great here. This is And then we have a doji. They say, You know what? That right there is a confirmation. Oh, we don t. We like it, we like it. Notice we only have two red candles here in this whole run. Only two. That tells us the market s really excited about it.

14 14 We have the moment of indecision. Look at all the red candles. Now we only have two or three bullish candles and most of them are red. So the doji can often be the moment where I say, Do I really want to push the Dow higher? Do we really want to buy these thirty companies? A lot of people buy lots of equities at the same time. So the doji often is just to learn. Here they were almost having indecision, as well. It s an alert, and I get prepared to say, Is this the moment where they ve had enough and they don t want to push it as high? I said one of the things we could do is use software. We can actually find all kinds of patterns with software. This is where we can say, Hey, I want a candlestick on a daily. I want to find a doji. And I can click on that and boom, it will find me stocks that have had what today? That have had a doji. An interesting thing here. Here s a doji, as well, on a swing high, and then the thing really falls apart. This is just a coincidence. I ran a search and this one happened to come up). Look at the story that this candle tells of what they re bearish on. Something bad really must have happened here. And then they said, Oh, well, maybe that s really cheap down here. Look at this. This goes from $63.00 to $55.00, an $8.00 swing. That s a huge swing. And so, this tells a story. I ll tell you that it was interesting. This happened with Procter & Gamble, as we said. Remember that? The market makers will take these as low as they want. This is kind of off topic, but when I ran this search while building this particular lesson, I saw this, and it reminded me of something that happened. Right here we see this level down here. My question is why did they start buying here? The market maker takes it down, takes it down, takes it down rapidly, as we can see, in one day. He s taking it down trying to get some what? Buyers, remember? If there s no buyers, everyone wants to sell, we have massive selling and just a little bit of buying. The market makers wants to keep it liquid and conduct those transactions. So, the market maker is just going to take it down and down and down and down and down until what? Until people say, All right, that s cheap enough. I m willing to buy it. I m willing to buy it. Well, that s what happened right here. The market maker took this down and down and down and down and then right here, right at this point, the guy said, Hey. We re willing to take the risk. We re willing to take the risk and buy that. I ll tell you what. When it comes back up here, they ve kind of shown the poker hand, haven t they? And I would not be surprised to see this come down and stop where? And hit a bottom right here. And that will happen often. I see a level of what here? What would this be called? They ve showed me a level of what? Support. Where they said yes.

15 15 So if I see this start in this doji right here, where they re starting to say, Hey, I m not so sure because of the last couple of days, maybe I put in an order right here to short it. I certainly am having lower highs. I m certainly having lower lows. I m certainly in a down trend. If it takes off, I was never in the trade. If it goes sideways, I was never in the trade. But if it does go down, boom, I m in it $60.00 and I can make $5.00 right here. And why would I set my target at $5.00? Because I think that s where people really can t resist buying it. It kind of showed me their hand a little bit. This happened, actually, in the market in the flash crash. One of the benefits of the flash crash is it showed us where people were willing to buy this market. It got down to 10,000 and you know what they were thinking? Am I ever going to have a chance to get in at this market at 10,000 again? And so they shoot it back up with greed and then down it comes, and we revisit those levels. That s called retracement to support. That happens a lot. And what we really watch here for is this. We watch to see if it can be broken. We would expect it to stop here when they sell it. It stops, comes back up and finishes. But I ll tell you. If it breaks this, that s when we get a lower swing low. We re already having lower swing highs. It starts with this doji up here, and off we go. Again. Do I expect you to understand everything? And please. I see this so often, where people expect to go and be Warren Buffett or George Soros or Andy in one day. Guys, this is your first lesson on technical analysis. Relax. I remember when I had my first lesson playing the drums. I was not very good at the end of the lesson. My teacher was fantastic. He is very good. He made it look easy. He was showing me things that inspired me. I said, I d love to be that good someday. That s why I m going to go practice. And so, really. Don t try to learn everything in one day. We re simply introducing concepts. Take it easy. Go at a good pace. You want to get to proficiency. But don t expect to learn everything in one day. That s just not wise. END OF TECHNICALS MODULE 3