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
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
Anyways, some of the best advice I have been trying to impress upon Paul is that he should not try to pick tops and
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
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,
pricecould 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 pricewas 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 warningzone so you should have suspected that the move lower was probably done muchof what it was going to do … you should have taken any profits and not lookedto short any bounce into the 20EMA. Count your profits and call it a day.
theoryyou could have played the bounce back up higher, but you never knowif it will just chop sideways in such a strong down trending day. One of theclues that could have led you to go long was the distance that price was fromthe 20EMA … in essencethe rubber band was really stretched and likely goingto 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
pricewanted 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
dojicandle – 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