A Trader in Training …

My son Paul who is 25, is very keen on better learning how to trade stocks. I have been trying to teach him as best as I can about the right way to go about learning, and all I can say is that I wish I had someone with as much knowledge helping me back in the day.

I’m trying to keep it simple, and teaching him basic principles that he can apply to intra-day charts at first, and then eventually, learn how to transport those fundamentals to the bigger task of swing trading using 195min/daily/weekly/monthly charts.

I won’t go into detail, all that I have try to teach him so far with the blog post, but I think it might make sense to sort of pick up the general ideas behind the biggest points he is trying to learn and put it down in blog post and PDFs so other readers trying to learn trading can also benefit.

So a bit more of a background on Paul – he is 25 as mentioned and has a good job in marketing/sales at the Canadian division of Genreal Mills (GIS). He has done a really good job saving money, and despite my warnings/cautions, he has been aggressively investing the past couple of yearss in both pot stocks and crypto stocks (along with others). Thank God Paul listened to my warnings well at times when I was telling him how/when to take profits. Paul even listened to me when I told him to buy GIS as part of the tax-loss trading I was doing in December … he texted me the other day feeling pretty good about all the money he has made on his corporate stock the last month (lol).

Anyways, some of the best advice I have been trying to impress upon Paul is that he should not try to pick tops and bottoms in stock moves, and that he should only enter a trade once he has “evidence” that price is moving in the direction he wants to trade. That generally has him looking at price in relation to the moving averages and price relative to the support/resistance ATRs.

Paul is trading in a sim account while he practices intra-day trading, and he has keyed into the 3x leveraged nat gas stocks DGAZ and UGAZ as his vehicle of choice the past little while because of all of the intra-day volatility. He’s making sim money and when I get him to explain in writing why he entered a trade where he did, it is obvious that he has listened fairly well to our lessons, and I think he his well on his way to a life long journey/education in successfully trading stocks.

So he told me the past couple of days about a couple of his trades on Thursday/Friday but I won’t bother telling you about what he actually said … bottom line is that he did the right thing on his entries. I will share with you the charts that I just emailed to him with a copy of my summary comments I made about those charts – all of the comments are basically the principles to what I am trying to get Paul to learn.

Here is the DGAZ 5min chart …

DGAZ – 5 Minute Chart

The above chart is from TC2000 and Paul has the same system along with the same chart indicators. The basic ones I have him following are a 20EMA and 8SMA signal line calculated off of that 20EMA. The charts also have ATRs and inside candle markers.

The next panel has DI+ and DI- indicators along with the ADX histogram which is basically the same as my trend strength histogram other than the values shown – mine are using 100 as the extreme level marker instead of the above ADX reading of 55.

The last panel is the 8-period Rate of Change drawn from the 20EMA … pretty much the same as my MA Spread indicator.

Here are the points I shot over to Paul in a quick email …

  • Early on, price could not get back above the opening 5 min candle’s high … eventually, price broke back below the moving avg’s (Point #1) … you could have been suspecting a break lower, and therefore prepared to either short the DGAZ or gone long the UGAZ (see next chart).
  • Point #2 … if you waited for the 5min ATR break before going short, you could have watched the push into the 20EMA and tried a short at that point … the DI- was confirming a downtrend and the ROC of the 20EMA was still pointing lower (the ROC was moving down and to the right).
  • If you didn’t see this chart until Point #3, you still had evidence that price was going lower … you could have tried to short the bounce into the 5min 20EMA.
  • Point #4 … the trend strength histogram was in the extreme strength warning zone so you should have suspected that the move lower was probably done much of what it was going to do … you should have taken any profits and not looked to short any bounce into the 20EMA.  Count your profits and call it a day.
  • In theory you could have played the bounce back up higher, but you never know if it will just chop sideways in such a strong down trending day.  One of the clues that could have led you to go long was the distance that price was from the 20EMA … in essence the rubber band was really stretched and likely going to see a bounce higher that you could try and profit from.

UGAZ – 5 Minute Chart

The opposite to the bear natural gas 3x ETF is the bullish one – UGAZ. The exact same chart should appear here from Friday, with some minor exceptions. Here are the points I made to Paul in an email earlier today.

  • price actually was able to peak below the low of the opening 5min candle … however, it wasn’t ever able to close the 5min candle below the low of the opening candle so you could have been looking for or expecting a bigger move higher at least to start the day.
  • Point #1 … price made it above the 5min moving averages and was consolidating there … more evidence that price wanted to move higher.  Price finally broke above the ATRs and pulled back to the 20 EMA (Point #2) where you could have looked to enter long
  • Point #2 as mentioned was the first pull-back to the 20EMA after breaking the 5min ATR.
  • Point #3 was the next pull-back to the 20EMA and the next good place to enter a long if you wanted to add to your trade or if you did not partake in the earlier entries. You should have utilized the 1min and 2min charts to get your entry better timed for that 5min pullback.
  • Point #4 … extreme warning on the trend strength histogram … take profits and don’t look to buy pullbacks.  Short here at your own risk.  Note the inside candle markers at the top right after a doji candle – signs of balance in buying and selling which indicates that buyers are no longer winning the battle anymore.

UGAZ – 2 Minute Chart

UGAZ – 1 Minute Chart

So there you have it … I think I am going to try and document the lessons I am trying to help Paul with going forward as they are also good reminders to me of the fundamentals that all traders should keep in mind as you trade every day. Look for more posts and PDFs going forward.

Cheers … Leaf_West

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