Trends - The Basics | Optuma CMT Level 1 Chapter 5

[Music] hey welcome back right now we want to talk about Trends and uh we're also going to talk about Trend tools and support and resistance uh based on chapter 4 in the uh in the book but uh you know we'll just get through I've got a number of slides here that uh we want to get through the key point is that we want to talk about okay what is a trend um and then some ways of being able to capture that some tools uh that are being used to try and capture changes in Trend uh

and then support and resistance uh because so much of what we do uh is centered you know we've said it already that the primary job of a technical analyst is to identify the trend so that we can trade with it um but there's so much of what we do is all around about finding out when these uh these Trends change so let's jump in and uh what is a trend so prices basically move in Trends they rise and fall in Trends so you can see here we've got um uptrends where there are let me just

move across get my pointer working uh so we've got higher Peaks uh is the big identifier that we are in an uptrend when we're in a downtrend we're going to get uh lower troughs and lower Peaks uh and that is the key that we're in a downtrend and then the third state that we can be is a sideways Trend and that's where you're going to see almost similar um horizontal Peaks and almost similar horizontal troughs um as per this example it doesn't necessarily mean that every trough is going to be at the same level uh

but we wouldn't expect a new lower trough or a new higher Peak um to be going in as long as they're constrained in a Range like this we would um determine that to be a sideways Trend all right try and get my cursor back over here um here we go so what is a trend now a great way of identifying this from a mathematical or algorithmic way is using linear regression it's a statistical way of looking at all the data points and saying okay what's the line of best fit what line best describes all of

this um data that I'm looking at and so uh here's a couple examples on this chart looking at um linear regression it's really important when we talk about Trend that we really are talking about in the context of time so similar here you know you can see the green line which is about a year in duration uh it's telling us that okay well the trend over over the last year is up uh because that that's what the uh the line of best Feit is telling us but then there's these two samples there in the middle

um around July and around um October where in July we had a sideways Market um on a on a monthly basis and then around October we had a downtrend on a uh a monthly basis as well so the context of time is really really important when we're talking about Trend you know we can't just say Market's up you know well in what time frame is are we talking daily are we talking weekly is it monthly so trend is always in that context of time um and every analyst you know you've got to make your own

decision about what time Horizon suits you best you know I had a interesting discussion with an analyst who was working with um a lot of fundamental analysts their decisions to invest were based on a fundamental basis but um then the timing of exactly where they got in and how long they stayed in for were more technical decisions um but typically their whole time was only the Horizon of you know weeks you know once a decision was made the the technical analyst only had a week or so to make his decision well it's no point doing

technical analysis on monthly basis and projecting out where you think the price is going to be in in months in advance um when you're having to make those short-term decisions so it's picking the time Horizon that that best suits um the analysis that you're doing all right so what is a trend um trend is a direction not a straight line you know as you can see on this chart it always oscillates up and down price always oscillates around the trend there's always these Corrections going on as we move up uh boy our job would be

easy if it was just a straight line um straight line up straight line down you know it make trading so much simpler but um that again is why we're employed to uh to be technical analysts and and work these things out um but do please remember that it's not a line uh because we use trend lines and we're going to show those in a moment uh a lot of people can get a bit confused confused about that the other thing that we do as technical analysts is classify Trends um into primary secondary shortterm and sometimes

intraday uh this was a method coined first of all by Charles Dale in the 1890s uh when he first started drawing charts uh back then typically the primary is what we see in years sometimes months but it's the long-term Market what is the primary trend of Microsoft is it going up is it going down uh and then we look at that and then we can talk about the secondary Trend and usually that's in weeks sometimes up to months but typically weeks you know there can be some um shortterm uh downtrend that we're in at any

any point of time um and then when we get down into the daily basis we can talk about the short-term Trend and so you know what's that measured in now for doing the exam you need to know know this whole concept of primary secondary um shortterm um and intraday and really know the rough times uh of how long these are measured by um you need to be able to you know in the exam you're not probably not going to get a a chart and say well is the primary Trend up or down but really do

have a very good understanding of these terms and and what each of them mean all right Trend classification uh continuing on there so what I had to do with this chart was stop in July uh as I said you know trend is in the context of how far I'm looking back all all the time frame so in this chart again my yearly time frame going back a year uh the trend is up uh but then when I look at the uh the Blue Line there which is um the secondary Trend uh in in this case

uh I would say that it's sideways starting to to look like it's going down but then when I look at the shortterm trend which is that last little red line um only you know a week of data there you would say it's sharply down so again it's that context of the uh the different Trends the question often is you know we get asked is does the slope of the trend line matter and the answer is well not really but yes within the context of other slopes so for instance if we have a market and the

primary memory Trends normally go up consistently and down and uh everything's you know pretty standard but then we get a sharp move and and the slope of the line is much much sharper than we've ever seen before well then yes that's very significant um and we'd be paying a lot of attention to that move because uh it's something which is abnormal a lot of what we do as technical analysts is to look at charts in the context of their history to sort of say is this expected behavior is this something that I've seen before is

there an outcome that has happened six or seven times out of 10 before that I can extrapolate forward and and help me in my analysis of where I think this trend is going um so yeah you know the slope does matter but we don't put a a definitive value behind it the thing about Trend analysis and and particularly trend line is that we're very subjective about this analysis it's not a quantitative objective process um not at this stage you know we are working on ways that we can do that um it really is the art

part you know we've said that technical analysis is part art and part science um a lot of these kind of concepts are the art part of technical analysis uh and so it's really important to keep that in mind you know technical analysts can make really um profound statements statements of fact um but you know so for instance even a a RSI based um signal and if you don't know what RSI is we will talk about those in the coming weeks but an RSI based signal may work perfectly absolutely fantastically um for a season author can

write a book about it um go and do presentations and speak and but then over time what I've seen and what many others will attest to as well is that these sorts of um strategies they work really well and then suddenly they roll off and they don't work quite so well anymore um and that's where you know whenever you read things whenever people are talking about signals even the signals that we talk about in this course um you've really got to take that in the context of well okay that was at that time let me

now test and verify does this strategy still work um for me now um and so yeah it's important to understand um all of that um as we get more quantitative actually you know part of our goal at uh Optima is to really quantitatively test and keep retesting so many of these techniques um we'll be able to work out whether some of these um uh leld beliefs will uh continue to hold true or not the key for profits again very important for the exam that you understand understand this slide um every technical analysis signal is centered

on capturing the trend mentioned that now plenty of times our goal as a technical analyst is to determine with a minimum risk of error when a trend has begun um at the earliest time in price the quicker we know or we can uh make an educated guess that the trend is changing or has changed the quicker we can get in and participate in those gains um uh and so that is the key to profit is identifying the change in Trend we need to select and enter a position in that Trend uh that's appropriate to the

trend you know so uh if we were looking if we were trading secondary Trends uh something that Dow wouldn't recommend but if we were and we saw that those Trends typically lasted you know one month we wouldn't be taking a massive position and expecting to hold it you know particularly if it was a position that took us a couple of days to roll into um so you know the positions that we take need to be appropriate to where we think we are you know if it's a continuation of a primary Trend but the primary trend

has been going for a long time uh we may be a little bit dubious about uh putting everything in um so those are things to uh watch uh we need to close those positions when the trend is ending so just as we find we use analysis to find the beginning of of a trend we need to be looking for the signs of the trend is ending or the beginning of a new trend uh the more objective and rules-based we can be the better we need to be able to take a motion out you know there's

many many many traders that uh I've seen and worked with that had fantastic rules but as they allowed their emotions to uh get involved the rules went out the window and so very important that we be very objective and very methodical um about our trading the best traders that I've met over the last 20 years have always been those that are very highly disciplined um so you know very very important as well sounds all simple but it really is the basis of technical analysis you know when we distill everything down this is what we're all

trying to do is to capture those Trends and get those capital gains all right determining Trends as we said linear regression is a great way it's not really the standard way that we would do it uh typically when we talk about Trends and trend lines it's by observing the Peaks and troughs on the chart uh on this one we've just put on a little tool that um identifies Peaks and troughs and so just so we can mark them uh as we said you know price is going to do oscillations around the larger Trend uh and

and looking at that one um so what we've got is a a trend line here that we're drawing in um and so what we're looking for with trend lines now whenever the trend is up we draw our trend lines underneath the uh the troughs we're looking for higher troughs and we're looking for a break for a low or a trough that is going to break through that line and so that's why we have our trend line coming up underneath the uh rising market if the Market was falling then we do the opposite and we put

the trend line on top because we're looking for Peaks that start breaking through that Trend uh and giving us an idea of a a change in Trend there uh if it was sideways we'd actually connect both the Peaks and the troughs because we're looking for a breakout um from that range and we talk a lot about that in the section on chart patterns trendline analysis is not an exact science uh it's really a little bit of fudge you know I almost think give it as a Zone rather than a hard barrier um and so you

know we really want to put those lines there um I actually like candles actually I think that's on this next slide um I like using candles because if the Shadow and the whisker um goes through the trend line we don't really care too much about that it's when the body breaks it that we uh we really want to pay attention uh particularly if it's closed beyond the uh the trend line there uh in this case here this one's actually a really interesting one because remember for um upward Trends we looking for successive troughs to join

our trend line too in this case we actually had a break of our trend line but there was no successive Peak you know you can see here that we've got our first break this is still a higher Peak and then we get our break through here but there's no lower Peak that we could possibly draw a downward trend line through so in this case we actually didn't get what I would call a a a break in the trend a confirmed break so the the candle's going through it broke our trend line it's almost like hey

early warning we've got a change of trend um possible here what we really would have needed to see was a successive lower Peak that we could now start to put a downward trend line on and that would then really confirm yes we are in a downtrend and let's um uh put our line there and look then for a break so in this case no confirmed break of the trend we would still call the trend up until we had that confirmed lower Peak all right so we have um an example of a downtrend there with um

the line sitting on the uh the Peaks and also an example of the uh trading range uh there again I think we talked about this last week it doesn't necessarily mean that um the troughs will go all the way down it's just saying that we're constrained we're constrained within this range uh and we're looking for it incidentally you know a lot of the early chartists when they were doing this type of work by hand they would look at how long um the the market was being constrained in a range and the longer it took their

rule of thumb was always the greater the reaction out of of the um uh out of the uh the range so when we had a breakout we would get a Target which was related to how long we were in the range um point and figure we still do something similar we'll talk about that we don't really talk about Much Anymore um in technical analysis but still a handy one to keep in mind when you see a market that's just continually constrained once you get that breakout well the size of the reaction uh can be proportional

to how long it stayed stuck in that range for another concept that you will come across you'll need to know internal trend lines it's simply a trend line that goes through the middle of the price action uh instead of being underneath I mean it's a great way again like linear regression of just saying hey we're in an uptrend look here's the the line of best fit it's really a manual way of trying to do um a linear aggression line I'd prefer to use linear aggression but uh you do need to understand and know what an

internal trend line is all right couple of rules about trend lines these are rules of thumb uh that goes that we all adhere to um the more times that a trend line is hit obviously the more significant it is and so if I've got a line that you know I just drew between two points and then nothing ever touched it again uh you know a break of that line doesn't really mean much but if I've got a line and it's been hit by five seven 10 troughs as the Market's been going up well when that

line gets broken boy is that significant you know that's really important for me to uh pay attention to um the steeper the line the sooner uh it will be broken is another rule that we have with uh trend lines so you know let's take the extreme example if something was just going straight up well you don't expect that to be sustained you know those sorts of markets don't happen for very long uh even in the Mania of 2007 or the go way back into the 1600s the tulip bulb Mania in the Netherlands um those things

don't last uh and so you get these Bubbles and and bang you know rolls over but the same thing happens you know again we talked about the steepness of trend and the steepness of the trend lines if I've got a market that normally goes up at a slow steady um Pace but suddenly we've got this really sharp rise in the market and the trend lines of the there I wouldn't expect that to last as long as the the uh slow Rises so you know we keep an eye on that as well um we should never

consider a trend line as exact you know I can't keep reiterating this enough you know it's very important uh that we don't treat this um as as absolutes um accelerating or logarithmic trend lines so one of the concepts we do you we talked about arithmetic charts and logarithmic charts um we can apply the same type of principles here with um trend lines and the idea is that as price gets higher and higher well I I need to make my lines steeper to accommodate for that and so a way that we can do that is with

uh logarithmic trend lines now you'll see the green line here is curved um both lines are using the same start and end point uh let me bring my cursor across uh so we've got our start Point here obviously for both both of them we're drawn to this low here but the green line is logarithmic and what that does is as price is rising it's staying closer and closer now the advantage is you can see that in in this chart here the Blue Line hasn't even been broken yet um but the green line was broken months

ago so it's given us early warning of a change in Trend by keeping it it much closer uh now if we were looking at a logarithmic chart well then the green line would be a straight line line and the blue line would have curved down because it was a a linear calculation um but again just a a a way of doing accelerating you've got to understand what logarithmic will do to a trend line um and how you adjust for that as well all right so let's go look at a couple of tools on um trend

lines we're going to look at a couple of different ways that we use uh technical analysis and tools um to help us identify uh trend line breaks um and know while we're still maintaining uh the current Trend so the first one is channels now like we said they you know trend lines uh don't move in a straight line or Trends don't move in a straight line I should say um and so they they appear to travel in these channels so channels are a nice way of being able to do this put a a a lower

boundary in an upper boundary and you can look for breakouts you know because sometimes the trend may be up but you actually get a Breakout to the upside um which is signifying you know some changing conditions and it may be that this even though we're uh long way into the trend there may still be more buying opportunities going on so again look at that uh and watch for that the other thing to watch with a channel and and this can be early warning and I don't know if this example is necessarily giving it um I

I guess if I had done a let me bring my cursor over here again where's my cursor if we had drawn the top of our trend line through this point or our channel the thing that would have been really noticeable is the fact that this peak didn't reach the uh the top of the channel and so this is a use of channels you know when I've got that top boundary if I've got Peaks that aren't making it to the top but they're still bouncing off the bottom it's giving me really early warning that hang on

there's a little a little bit of weakness here the the Bears or the buy sorry the Bulls or the buyers aren't able to push that price up into new highs and it could be really early warning that there's a change of trend to be expected so I'd be watching for a break of the bottom trend line under those conditions uh and you can see it here you know in this one uh where we have basically it's what we would call a double top two tops or two peaks at the same price um and that's really

starting to tell us uh you know the Bulls couldn't push it higher let's watch out for any sort of move on the downside there the let me just make sure I've covered all of that um yeah the other thing is to watch for volume now often we put a volume chart underneath our bar chart so what we can see here is how much volume how many shares trade at hands this day how many cont contracts changed on a Futures Contract and we look at how um all of this relates again it's on a relative basis

you know we don't look at this and say oh wow Microsoft had 10 times more volume than Facebook so it's significant no that doesn't really matter what we want to know is compared to the history for this security is volume up or is it down because there's so much information that we can gain out of that so one of the rules we use with trans analysis is that high volume confirms the trend or confirms the reversal so when you look at this chart here uh again let me bring my cursor across um we've got these

blue zones now I've drawn these blue zones wherever we had a peak in volume and the thing about these blue zones is that they were all lows so every Peak was in a low or mostly a trough or at least a downward bar you know the the price was going down and the volume peaked under those conditions that's telling us that there's more Sellers and the sellers are pushing the market down um and so um it's confirming the downward Trend so again as we said the the volume confirms the trend but then we get to

this situation of the Red Bar you know the the price is continuing down here um we get this small run up but if you look at the volume the volume didn't confirm the volume was was sinking under this this move up so again we would say h still not good we get a couple of down bars and the volume spikes again again it's confirming to us um the downtrend but then suddenly this bar after my this Red Zone we see some bars here where the price is going up and volume's increasing this is key warning

key key warning to us that the trend is changing um and that you know we need to look for a confirmation um of that of that uh change in Trend again you know I've got the question mark there is it a change in Trend you know the aggressive Trader the the aggressive analyst would say change in Trend volumes confirmed it let's go um the more conservative would wait wait for confirmation or use some other signals to uh to confirm that um but as I said volume very important uh can be used to uh confirm those

changes in Trend so when we have a trend up or a trend down as in this case here there are all these um moves the secondary Trends so we have the primary Trend up well the secondary Trends in that situation would be called retracements and so when we look at this uh chart here you know we've got let's say the start here we've got a trend running down um and so we can see our Peak we go to our trough here and then we have what we call our retracement now this can happen in um

Bull and bare markets so in a upward Trend the retracements would be down in a downward Trend the retracements are up uh in this case we can see that our retracement uh the tools telling us is almost 70% um and so we can look at that now again a couple of things about trends when we start to see retracements getting um bigger and bigger then again we're looking at this saying oh gee I'm not so sure so even in this chart here actually um if I look at this we got a 70% retracement if we

think of our next move down to here and then our retracement back up I mean this retracement is almost a full 100% I would be very concerned about this you know I I if I started seeing you know greater retracements again I'd be looking for an end to that downtrend and the beginning of uptrend uh coming along here uh so as I said we always measure the retracements in terms of the impulse beforehand um and again impulse is probably more an Elliot term which we'll cover a little bit later on as well all right where

is my cursor Fibonacci retracements uh another way of measuring these now Fibonacci mathematician in the 1400s I think maybe even earlier um he had this whole mathematical cycle so you know he had this number sequence of 1 2 3 5 8 13 Etc where the previous two elements were added together to get the next element now when you did that and especially when you get out to the bigger numbers the ratio between those numbers from let's say um 8 to 13 is actually 1.618 so you multiply 8 by 1.618 and you get almost 13 as

you get to bigger numbers it gets more exact but when you look at all the different ratios and and the relationships forward and relationships back you get then this 382 and and all of these sorts of numbers uh that uh work out in that sequence well what we've found is that in nature Fibonacci happens in lots of things you know we can go from um uh you know one hand to five fingers and you know we start to see those same sort of proportions in in facial structure we we see all of that as well

it just seems to happen in nature over and over and over again nautilus shell another great example of that when it comes to markets uh there seems to be the same sort of expansion and contraction relationship um using the same sort of Fibonacci number sequence uh it's always you know amazing uh when you look at um prices and you look at Thousand or millions of people making trading decisions how a lot of that can reflect out and be um uh represented using this same sort of um expansion and contraction idea so when it comes to

these charts and when it comes to Trends and looking for reversal points and significant points Fibonacci is an important way that we do that so looking at this chart here you can see that we've got this um move down um so we're coming from the top is where we started this we measured down uh and then we uh draw in these lines we got a 38% retracement a 50% retracement and a 61.8% retracement now sometimes some people flip those around and they'll actually say well this is the 68% Mark and the reason they do that

is that they're they're working on this um model of well if this was the move down then when it comes back up uh that was back up to the 68% Mark of the previous move um so you know that's why you can sometimes see them flipped so just having a good understanding of this but again it is this whole thing of you know this this Market here the gold index uh at this time uh actually I don't know what it's done since I've said this uh chart but um what I'd be looking at there is

for that to continue down a couple of real key things we got a a established downtrend there uh it's come up only as far as the 38% Mark and then just falling away rapidly again uh so we be looking for that market to uh continue down and to follow the downward Trend there's nothing there to tell us that uh it's broken now if I started seeing subsequent moves down having retracements get to 50 and then to 618 and then break that as well then we'd be looking saying oh hang on uh that downward move is

starting to run out of steam um all right so now let's jump into let's find my cursor again okay so we have um speed lines so these were developed by Edson gold uh basically when you look at the uh the Fibonacci tool there we still start our um uh we take the starting point where we started our Fibonacci calculation from but then we also draw a trend line through the ends you know wherever our ending point was in time uh basically that would be where our Fibonacci lines are and we just draw lines um through

them and you can see how these ones uh work you know they become these really interesting points of support and resistance uh in the market as time goes on so just a a nice little tool there that you can use another variant of that uh is Gan fans developed by WD Gan what he was doing obviously using graph paper at the turn of the 20th century um he would just measure out and say well if I've got my grid I'll go out one one box and then one up and that's my one by one line

or two boxes out and one up and that's my one by two line or two up and one across and two by one and so he would do that and he would again see these patterns forming in the market and just find that these lines created support and resistance zones and and and areas where the market seem to reflect often with this type of analysis what you're looking for is a market that has resp ed lines in the past and then you would say okay well I've got a certain amount of conviction that if the

markets respected these lines previously it's going to continue to do so um in the future nothing's a certainty nothing about technical analysis is is absolutes you know we are looking for probabilities we are looking for different techniques that give us a probabilistic that's a mouthful um idea of where we think Trends going to go and and identif ining braks in Trend uh and so that's with all of these um these ways but the Gan fan is actually a good way of identifying Trend speed you know it's it's a way of quantifying that uh as well

uh just a a quick note there they're not geometric angles uh they are actual calculations um very interesting concept the way that we work with time and price there um if you ever use these the intersection points are the most interesting when you have two um uh Gan fans uh and you can see a couple of intersection points there on that chart um from two previous fans yet the intersection points in the future um were all very interesting um and I didn't even uh highlight all of them there another one uh worth noting is Andrews

Pitchfork so the way that um pitchforks are drawn is that we start at the bottom we're looking for our first impulse move out of the market out of the uh change of trend uh and our first secondary move um and so we start at the beginning of the primary Trend we go to the beginning of the uh secondary Trend and then to the end of the secondary Trend and then these channels are drawn and again you'll see how they become these really interesting areas where the market seems to respect them uh as it continues on

uh we can add extra lines into that as well um and again we we've got these zones of uh support and resistance there as well you know the reality is that even these extra lines you know Andrews himself didn't add these in but what I would often say is that we stand on the shoulders of these um technical analysis greates that that went um forward and forg these new ideas and we can build on them and we can start looking at this and start working in a more quantitative way uh to uh put all that

together so already today I've talked a number of times about support and resistance so let's dig in a little more uh about that in this purest sense um support and resistance is really um looking at places where buyers and sellers continually agree on price um you know again economic theory tells us that um every price in the market is just where buyers and sellers agree uh that that a security should be valued and so you know that's what we're looking for we're looking for that balance um aggression is a factor as well sometimes you know

there can be a lot of aggression on the buying side or the selling side and that can push markets uh quite rapidly um as well so resistance is where is a basically a peak in the market where the number or the aggression if you like of sellers has grown to balance the out the number number or aggression of buyers so if I've got um a lot of buyers or they're really big buyers and they're pushing the market up and there's not many sellers well then the price is going to uh go up but as the

price continues to go up well then there's more and more people who are holding the the um the equity the security they're going to say hang on this is a nice tidy little profit and yeah I may have some capital gains issues here but you know I want to lock in some profits so suddenly the sellers start to increase and the buyers well the price has gone up and suddenly you know based on even if it's on dividend my uh earnings per share value you know it just doesn't make uh sorry my my price to

earnings ratio just doesn't seem to make as much sense anymore so maybe I want to uh not buy anymore so you get this equilibrium that happens now if that keeps happening at a certain price where buyers push up then the sellers come in and and lock it off well then we say that there's resistance at that price there's resistance which is stopping the price from going any higher and so that's what we Define as a uh a resistance um Zone similarly support is the opposite sellers may be pushing the uh the price down there's not

many buyers there but as it gets cheaper and cheaper well then buyers are coming in saying hang on I want to um buy this um share as well sellers May looking at the price and say not worth selling I may as well um hold on to that and hope that the price comes back and I can sell it further down uh down the road so again as price keeps coming down and keeps hitting that that level uh we would call that a support Zone uh as well now typically when we think of it in the

simplistic sense we're talking about um prices that are resistance zones and support zones but as we talked about even in channels and some of our other tools as well uh we talk about them being um support and resistance as well you know we can have an angled support where the price is going up but it keeps hitting it and really that's like um the the sellers who maybe last month was saying I'm going to sell this down because you know this is getting too high but then as time goes on oh well you know what

the price has gone up uh let's um we're going to let that go go higher before we start selling uh because I want get more profit out of this um trade as well so support resistance isn't just fixed prices it can be um on angles as well so here again um you know a good chart with a range here previous Peaks and troughs have a habit of stopping the market uh in the future uh they become zones where there's a high probability and I think that's the important thing when you see a price or previous

Peaks and troughs continually um forming around the same levels it's a high probability that when the market approaches that in the future that you're going to have that same um issue there or that same um uh turning points happening there the reasons so there's a number of reasons uh you need to know these um re reasons as well uh recency bias you know a lot of us uh looking that we saw the trend change at a price uh and so we're watching to see it happen again you know as as the market comes down to

that level again a lot of people seeing sitting on the sideline saying oh what's going to happen this is part of the reason why volume seems to fade off um on some of these you know especially in a Range like this as the range gets longer and longer volume um pet is off and then once we get a breakout then everybody's back in again um so important to watch volume as well even if we didn't get a reversal at one of these support zones you usually we'll definitely get a pause so as we come back

to previous turning points there'd be a pause in the market uh while people are waiting and seeing and then if it continues down then great everyone's back in again and and continues on uh one of the other reasons for the uh this is um exiting uh let's say um price was falling bought um or let's say at a peak so price was going up um I bought and then price fell down uh when price comes back up I'm just like oh wow I dodged a bullet I'm getting out of the market and obviously there's a

lot of that you know whenever you've got people making right decisions you got people making wrong decisions and so there's a lot of people exiting it's again one of the reasons why we have support and resistance uh in the market there second chance you know I missed the last opportunity to go short let me go short this time uh when we get a peak uh is another reason and then large institutions you know there may be a mandate let's just say a a huge um uh trillion dollar company that is buying um into a position

you know normally when um a large company buys um equities uh for their funds they're not buying them and then throwing them out the next day you know these companies are taking days and weeks sometimes to scale into positions and then they're going to hold that position for months and months at a time so when the price comes down in security the analysts are looking at that and they're saying wow that's um that's really good value based on the dividends based on where I think that company is going to go I actually think that this

is a really good company to invest in uh we're a buyer at $5 and so whenever stocks getting into that range they're adding to their position they're adding to their positions as it goes uh price goes up they stop adding and then price comes back down again and they're right let's add more to our position so it's another reason why you get these zones once they've um filled up their quoter and they've got um the the U portfolio weight that they're after well then obviously they're no longer a buyer and then price can fall and

break out of that range as well these are just some of the reasons why these ranges happen you know we're a big believer um that you know we have to have this understanding because it helps us in our analysis uh no matter what technique that we're using all right all those reasons are psychological um but they've been evident in the market for decades the way I like to think about support and resistance is more like spongy zones rather than hard and fast barriers um you know small brakes again candles Shadow brakes whisker brakes are are

really not important um what we're really looking for is um breaks of bodies and things like that um when we see these Peaks and troughs repeating we know that we're in a a Zone like that already mentioned this the longer that we've been bound in a Range the bigger the move out will be uh because everyone's just sitting there waiting waiting for that uh that breakout all right couple of ways of doing um calculating and um identifying support and resistance zones so in this case here you know we've got these Three Peaks that we've identified

um there's not a really clear one price so then what we end up doing is start to create a Zone you know particularly if there were I I'd prefer to see more than three but this was just a great example um and so we create this Zone and we're looking at this range and saying okay well we expect anywhere from the lowest to the highest peak there that we selected we're expecting to see support and resistance in that range there um and so we just typically what I do is just draw all these lines and

once I've got the horizontal lines on the chart I'll then replace place all of that with a channel to make a a nice Zone on the chart uh that I need to watch out for um a Donan breakout method is actually one of the uh the strategies uh mentioned in the book here uh basically what he's doing is is looking at the past four weeks what's the highest high in the past four weeks and then when I get a breakout of that zone uh where these arrows are is where that happened then I know that

um you know sry the strategy that he talks about is buying on a breakout on the positive side because if I've broken out on the past four weeks well then statistically uh looks like the Market's going to go up and then when I get a breakout on the downside um you know I will uh exit that trade so bit of a conservative model this one uh you know when you consider where the market went so from the low all the way here uh up to the high you know we didn't enter the trade until there

uh and we exited at that point it was a nice trade um you know but here's one that didn't work you know we entered at this point and then we exited that point we would have uh lost on that again so important any technique like this anything that you're doing anything you're learning about as part of this program with technical analysis that you go through and test it you've got to understand is this a good method does this work is it something that um is going to give um good results does it work in the

markets that I trade many of these techniques were developed by people who are trading a specific market and it worked fantastically for them but it may not make um it may not work perfectly for the markets that you're trading in or that you're working in so again it's good good to have that understanding learn these techniques and then make sure that um you're able to apply them all right where are we um um support and resistance switching the final point about um support and resistance is that in all of these cases whenever you have a

price like this what was once support can become resistance in the future and what what was once resistance can become um support so when you look at this line here this green line all those red arrows are places where the market bounced off this one price level so we hey that's a really strong support line um but then when you look at the Green Arrow uh the market had broken down went down um sry broken through the line uh the level came back up and hit that level again and then suddenly it became resistance and

so then the price fell away now as time went on you can see by the blue arrow you know it there was a little bit of a pause you know we talked about that before as well that often at these levels even if the the um price doesn't reverse at that level there was that slight pause only really small you can only just see that little bit of extra congestion around where that blue arrow is but nevertheless that again is something that um we would consider and a lot of people must have been watching that

price level and uh looking to see whether which way the the market would go there so that's the uh the trends the support the resistance very important you're able to identify primary secondary t be able to know where to place a trend line uh know the difference with an internal trend line um being able to uh um identify support and resistance um and understand this switching between um support and resistance as well as always any questions send them to through to us at The Forum at forum. optima.com and make sure you log in got to

log in with your same username and password so you see the um the appropriate um uh Forum that uh you can post your questions too uh and other than that we'll continue on in the next session thank you