The Definitive Stock Trading Guide (for Beginners)

[00:00:00] Mike Bella Furie: okay if you're interested in stock trading but you don't know where to begin or you don't know what actually works in the real world and what doesn't this free in-depth course is for you i'm mike bella furie and we're one of the top proprietary trading firms located in new york city and proud to develop number seven and even eight figure per year traders we hope you agree this is the top youtube channel to help you grow your trading account [00:00:42] Garrett: garrett here from the new york city desk as always you can follow me on twitter in the link below today we're going to cover the basics of stock trading we're going to dive deep into this topic with a full comprehensive review of the tools processes approaches that professional traders take to the market by the end of this video you'll have everything you need to know to get started as a beginner so if you're new to trading you're likely asking questions you know can you make money what does it take to make consistent profits what's the absolute best way to get started you should be asking these questions i know how this feels there's no real established roadmap to becoming a successful trader so it can be difficult to know where to begin at one point not long ago i was in your shoes i didn't understand the basics of trading i mean heck i didn't even know what the tape was something i had to find what i truly needed to become successful as a trader and fortunately i had the help of smb capital which has built its firm teaching new traders the fundamentals of trading the steps to take in order to become successful so so if you're asking these questions this video is for you so you know for over a century people from all walks of life have dedicated their lives to generating profits from the stock market a lot has changed over the years in terms of technology and the way that traders operate but the fundamental truths about supply and demand remain the same and so this fact will become key as we cover some of the major topics today navigating this world takes great skill fortunately for us these are skills that can be taught so i will lay out in this video what i know about getting started so that you don't have to dig like i did and if you notice that we return to certain topics a number of times it's because there are particular things about trading that are just that important so we want to drive them home so in this video uh we're going to cover a number of topics including trading terminology what is stock trading understanding stocks the stock market where to trade stocks the types of stock trading that we can do how to trade stocks risks and rewards of stock trading what you need to become successful technical analysis fundamental analysis the ingredients of a profitable strategy and specific trading strategies at the end let's start with trading terminology okay i think this is important just to kind of lay the groundwork so just like in any medium stock trading has its own language so let's break down some of these terms so that you can sit on a trading floor and know exactly what these people are talking about it's quite simple once it's laid out for you if you don't get it at first that's okay we'll go into greater detail on many of these topics later in the video so here are a dozen of the most important terms a trader uses on a daily basis number one is stock right so also known as shares or equity a stock is a type of investment that represents ownership share in a company when you buy a stock you're purchasing a piece of the company market capitalization number two this is this is the total market value of a company's outstanding shares of a stock it's calculated by multiplying the company's shares by the current market price of one share companies with a high market capitalization are often referred to as large caps those with medium market capitalization are referred to as mid caps and those with small market capitalizations are referred to as small caps okay so number three bull and bear market a bull market refers to a market condition where prices are rising and widespread optimism often sustain the upward trend right so we basically have an uptrend in a bull market conversely in a bear market we have conditions where prices are falling and widespread pessimism often sustains the downward trend so we have a downtrend in a bear market all right next we have the bid and the ask a bid is in order to buy shares of a stock at a certain price an ask also known as the offer is in order to sell shares of a stock at a certain price just like at an auction the highest bid and the lowest ask represent the inside market where most of the business is being done and we'll kind of return to this auction analogy a little bit because the stock market is much like this so next we have the spread this is the difference between the highest bid price and the lowest ask price it represents a cost associated with trading with wider spreads traders are required to pay more to exit their position immediately okay so this is something that has to do with liquidity which we'll cover later it's very important so next we have volume this is the number of shares of a security traded during a given period of time high volume often suggests high interest in a particular stock and that's a theme we're going to return to right that's going to end up being very important to our own trading next we have liquidity which i just mentioned this refers to how easily a stock can be bought or sold without impacting its price high liquidity means the stock can be traded easily and vice versa so a tight spread and high volume things we just covered are two factors that can contribute to high liquidity a wide spread and low volume are two factors that contribute to low liquidity okay so next we have volatility this refers to the price movements of the stock or the stock market as a whole more specifically volatility is the magnitude of price moves per unit of time so high volatility stocks are ones with extreme up and down movements in wide intraday trading ranges okay so we're just talking about the magnitude of these moves when we talk about volatility next we have fundamental analysis this is the evaluation of anything related to the company itself or overall market narratives a fundamental analyst studies a company's a technical analyst is going to study statistical trends and price movement and volume and they're going to use charts as a case of financials and financials and financials industry and general economic factors to draw a conclusion about the stock and make trading decisions so on the other hand we have technical analysis our next term and this is the evaluation of anything related to the actual trading activity of the stock the stock or the movement of the overall market so a technical analyst is going to study statistical trends and price movement and volume and they're going to use charts as a key tool and we're going to cover a lot of charts in this presentation we will talk about some fundamental analysis as well but we're going to cover as traders there's a lot of technical analysis because that's where we get information about the price action of the stock which is very important to us all right so next we have the stop loss order so this is an order placed with a broker to buy or sell a stock when it reaches a certain price so mainly it's designed to limit a loss on a position so very important for controlling risk next we have long and short positions so in trading if you're long a stock it means you're initiated a position by buying the stock with the expectation price will go up in order to sell at higher prices conversely if you're short it means you've initiated a position by selling the stock with the expectations that the price will go down in order to buy the stock back at lower prices so at first the idea of selling a stock to make a profit can seem a little backwards but we'll cover the concept of short selling in more detail later in this video and it'll become second nature um it's it's really pretty simple so what is stock trading so have you if you've ever seen stories of stock prices going up and down you know on tv like erratically like all over the place and just wondered how like people make money trading these movements it's you know it's an activity that requires a lot of specific tactics a lot of understanding of market dynamics so simply put stock trading is the buying and selling of shares in publicly listed companies traders aim to profit from these fluctuations in the stock prices by buying at lower prices and selling at higher prices so they're really just two types of positions a trader can initiate a long and a short position and we just cover the definitions of these in our terminology section so a trader can get long a stock by initiating a buy order and looking to profit from a price increase by selling the stock so to visualize this i like to imagine going to a garage sale and finding a baseball card of your favorite player projecting this player will have a great season so you buy the card with the idea that you have a high probability of selling that card at a higher price to collectors online in a few months okay so conversely a trader can get short a stock by initiating a sell order looking to profit from a price decrease right so instead of an increase it's a price decrease by buying back the stock right and this is called covering your position this may seem strange at first how can you sell something you don't own well short selling is made possible by the act of borrowing shares before selling them and then returning them back to the rightful owner after buying back the share so to put this short selling into context imagine borrowing your friend's rare comic book collection and selling it to a buyer and later you find the same comic book at a discounted price buy it and return it to your friend the difference between your selling and buying prices is your profit so with stock trading in our modern age this process is streamlined it's all done with the click of a button so the act of buying and selling is only really the tip of the iceberg so in order to have a shot of becoming profitable over the course of many trades we have to first understand what to buy and sell and what makes these stocks move so understanding stocks like let's let's just talk about that like what is a stock so you know when i buy a stock do i really own anything well yeah i mean stocks represent a fraction of ownership in a company so when you buy a stock you do in fact own a portion of the company and you know imagine imagine you've opened a lemonade stand by issuing stocks you're essentially inviting people to buy small parts of your lemonade business so these shareholders now have a stake and your lemonade stands success just as you do and as a shareholder there are there are really two ways you can see returns on your investment there's dividends and there's capital gains okay so dividends are generated from companies sharing a portion of their profits with shareholders as a thank you for their investment so they're a steadier stream of income relevant mostly to investors and long-term holders of a stock so as traders we're really not focused on this as traders we're focused on the capital gains and these are generated from selling a stock at a higher price than you pay so active traders focus mostly on this generating income from capital gains and this is what trading is all about right capitalizing on the fluctuations in the stock price so a company's performance influences its stock price so if your lemonade stand starts selling the most delicious lemonade in town and profits soar those who own your stock will likely see their value increase and on the other hand if your lemonade starts tasting terrible and people stop drinking it the value of your stock might drop so these earnings are reported quarterly to the public and they become kind of an essential piece of being a trader is like watching these earnings so ultimately and this is important to remember the price movement of a stock depends on the supply and demand dynamic present in the market so if demand for a stock is overwhelming supply the price will rise and if supply is overwhelming demand the price will fall and this is just a fact and this is like a key thing to remember when trading right and it doesn't matter really what the earnings were what's going on with the lemonade if there is supply for the stock prices will fall and if there's demand for the stock prices will rise so just as your uber ride price will go up when it's raining because now everybody wants to call a car a stock price will go up if everyone wants to buy it so if you've ever watched the news and heard a reporter kind of you know rave about a company's earnings only to see the stock tank the next day this is when it's crucial to remember the supply and demand dynamic at play so if a very large player in the market wants out of a stock there doesn't need to be a fundamental reason or a news story behind the move if there's selling pressure the stock will go down so as traders we use this dynamic to our advantage we learn to read the buying and selling pressure and we love volatility because it helps us make money the stock market let's talk about the market as a whole and we talked about the auction analogy earlier and this is kind of where this comes into play so if you want to buy and sell something you need a marketplace the stock market acts as a marketplace for buyers and sellers of stocks very similar to that auction so just as you might bid for a precious piece of art or vintage car and auction traders bid for stocks the trading of these stocks is facilitated by exchanges such as the new york stock exchange and the nasdaq which lists the stocks of thousands of companies okay so have you ever been mystified by the hundreds of tickers like flashing across the financial news and wondered like how can i follow all this chaos like how can i organize this well we can group stocks into broad market averages in order to easily digest this information so to do this we look to indices like the dow jones industrial hedgehog average the s p 500 nasdaq 100 the russell 2000 which offer snapshots of the market's performance they track a selection of companies each with a different focus so you can think of these indices as the stock market's pulse like vital barometers of overall health economic trends if these indices are on the rise the economy is often seen as doing well and if these indices are falling it might suggest economic downturns so the dow jones industrial average traditionally referred to as the dow like that's how people talk about it on tv is made up of 30 of the largest publicly owned u.s companies so think of the dow as the highlight reel representing a sample of some of the biggest and most influential companies in the us and we can trade this index via the ticker dia then we have the s p 500 and that includes the 500 of the largest u.s companies across various sectors and it offers a comprehensive snapshot of the u.s economy's health so due to its focus on a wide range of industries and large market capitalization the s p is often seen as the most accurate representation of the u.s stock market as a whole we can trade this index via the ticker spy then we have the nasdaq 100 and this includes a hundred of the largest domestic and international non-financial companies listed on the nasdaq exchange with technology making up a significant portion of this roster so the index serves as a reliable barometer of the tech sector's performance it's worth noting that a stock can be listed on multiple indices simultaneously so for instance apple is on the dow and the s p and the nasdaq 100 so we can trade this index via the ticker qqq and as a trader i actually trade qqq quite often because it has all the tech stocks then we have the russell 2000 index and unlike its counterparts this hones in on 2000 smaller up-and-coming u.s companies and because these small capitalization companies are often riskier investments the russell's often seen as a barometer for speculation risk appetite within the stock market and we can trade this index via the ticker iwm where to trade stocks this is a topic that i get tons of questions about as a new trader there are actually so many options between brokerages trading platforms you know it can be overwhelming for sure but this is something that will become very comfortable like once you examine the options and kind of see what's out there it's it's actually not that intimidating and you can always experiment with various platforms before you settle on one so stock trading can take place through several avenues online brokers will help you set up a trading account they offer platforms with tools for independent trade management such as charts and watch lists and so you know a few of the popular online brokers that many traders use are thinkorswim trade station interactive brokers e-trade robin hood there are more but those are some main ones trading fees are a key component to this so trade execution short locates margin interest other fees they'll all be specific to the broker that you choose so as you gain experience you may seek out brokers for high volume active advanced day traders such as light speed center point securities cobra trading speed trader and some of these are just more conducive to traders who like to trade a lot intraday and place a lot of trades and then we have full service brokerage firms so these offer a suite of more comprehensive services including personalized investment advice portfolio management they may not provide the features that an active trader is looking for so a few popular full service brokerage firms include fidelity ubs morgan stanley jp morgan charles schwab and you can tell those are those are basically banks so each each of these options carries its own set of pros and cons mainly due to cost services degree of control that you have over your investments and then we have charting software packages and these offer charting and research tools without the ability to place trades so you may want to investigate other charting options or you may seek more advanced trading tools after you gain experience and this is where standalone charting software can come into play so a few of these popular options include trading view tc2000 e-signal stockcharts.com marketsmith bloomberg just to name a few just because a company charges a fee for a standalone charting platform it doesn't mean it's necessarily better than a platform that comes with an online broker account such as thinkorswim or tradestation many online brokers and charting software packages offer fantastic charts indicators custom scripts watch lists stock alerts financial analysis so many of these will suffice like i can't even really recommend one over the other it really matters to the individual trader so ultimately your choice should align with your own trading goals your style your desired level of involvement at smb capital we utilize our own proprietary trading platform and tools to manage trades we conduct research on these we develop algorithmic trading strategies some traders supplement these tools with charting platforms right so thinkorswim trade station trading view tc2000 just to name a few that traders use on our desk and there are plenty of free options out there that offer more than adequate resources so let's talk about how to trade stocks getting more specific into the nitty-gurdy here so you understand the different types of brokerages now the charting platforms you know you've done your research you've decided to try one that makes sense to you you might be asking yourself like how do i even make a trade right so these brokerage accounts are like your personal command center giving you control over your trade so here you can place different types of orders so there are market orders and these orders execute immediately at the best available price think back to the auction analogy if someone's bidding for the stock at say sixty dollars you can take that bid to buy the stock at sixty dollars by placing a market order the key thing to understand with a market order is that when you place the order there's no limit to the exact bid that you will actually take if liquidity is low or the bid drops to a lower price the broker will fill you at whatever the best available bid is regardless of price so this is the fastest way to buy or sell a stock because you're guaranteed to get filled but you're also subject to the liquidity level of the market then we have limit orders these orders set a specific price at which you're willing to buy or sell the stock so unlike the market orders that execute immediately at the best available price limit orders only fill when the stock hits your predetermined price or better so for example if you want to buy a stock but not for more than say fifty dollars you would place a limit order at fifty dollars in our auction analogy your order will become a bid at fifty dollars and this type of order is not guaranteed to execute but when it does you are you are assured of getting filled at fifty dollars or better then we have stop orders or stop loss or these orders trigger a market order to buy or sell a stock once it hits a certain price called the stock price so for instance if your longest stock currently priced at say forty dollars and you want to limit your potential loss to five dollars per share you could place a stop order at thirty five dollars if the stock falls trades below thirty five dollars your stop order becomes a market order to sell getting you out of the position however if the stock's price falls rapidly past your stock price the actual selling price could be lower because remember in this case your order becomes a market order where there is no limit to the price at which you get filled so then we have stop limit orders these orders are a combination of stop orders and limit orders so once the stop price is reached the stop limit order becomes a limit order to buy or sell at a specified price or better and these are the kind of stop orders that i use this gives you more control over the price at which the trade is executed but just as in a normal limit order there's the risk that the order may not fill at all if the stocks price if the stock price moves away from the specified limit price after the stock price is hit so for example let's say you set a stop at fifty five dollars with a limit price at fifty four dollars in this case the order will turn into a limit order once the price trades below 55 filling you anywhere from 55 down to fifty four but if the price continues to fall and skips over fifty four dollars the limit order may not execute so now that you can visualize the different types of orders their effects think back to our original definition of liquidity a highly liquid stock most likely gives you a better chance of getting filled a highly liquid stock might require looser limit prices on stops or might cause you to get slipped on a market order which is a term used to describe the instance in which the market moves past your intended execution price and remember just like any business trading comes with a cost of business which include commissions and transaction fees as well as the spread which as you now know is the price difference between the highest bid and the lowest ask if you pay the ask to get long the only way you're guaranteed to exit immediately is by hitting the bid with a market order so the larger the spread the more it costs a trader to execute if you're interested in how these specific order types come into play when trading real world setups i made a video about it on our channel and we can link it up up above let's talk about the types of stock trading so now that you understand the basics of what the stock market is and how we can participate in it you may be asking you know what kind of trader should i become you know how how should i trade there are various styles of stock trading each tailored to different risk profiles and even lifestyle choices so for instance some styles might suit those who can devote their entire day to trading while others may be more suitable for those who can only dedicate a few hours a week an easy way to break down the different styles is by time frame and this is a measure of how long a trader is looking to hold the stock position so there are four basic time frames a trader might employ number one is intraday trading number two swing trading three position trading and then we have investing and in this video we'll focus on the former three types because investing really falls outside the scope of active trading for the most part so let's talk about intraday trading intraday trading is like being a sprinter in a race an intraday trader enters and closes out a trade all within a single day so these can be scalp trades which are very quick trades based on short-term signals or they can be move to move trades meant to capitalize on intraday swings in the market and if you're interested in learning more about these types of trades intraday trades scalps move to move trades and trades to hold i made a video about them we can we can link it up here so because intraday trades are meant to capture short price fluctuations intraday traders often utilize a large amount of capital or leverage in order to execute these trades and they typically set very close stops meaning they plan to sell the stock if price drops a small amount to limit losses due to the quick turnover of trades intraday trading requires constant attention quick decision making skills and a deep understanding of short-term market movements intraday traders are typically required to sit in front of the screens all day all right so the most elite intraday traders on our desk possess the ability to process information very quickly and so that's that's something that you know you might key in on like if you're the kind of person that processes information quickly and you like that kind of quick thinking like you might fall into an intraday trader category and really excel there all right so next we have swing trading and swing trading can be thought of as it's like the middle distance race a swing trader holds a position for several days even weeks aiming to profit on short-term price swings and often has multiple positions open at the same time traders employing the style need to anticipate market trends and time their moves to optimize their profits so while swing trading doesn't call for quite as much speed as intraday trading it demands patience so you know strategic foresight and act for understanding market momentum like these are all the kind of things that a swing trader is going to possess swing trader must still spend much of their time in front of the screen and be constantly aware of their positions the top swing traders on our desk possess the ability of multitask and analyze a lot of information at once and then we have position trading so this on the other hand is kind of like the marathon of stock trading a position trader holds a position for months or even years with the aim of profiting from long-term price trends so position trader typically allows more room for their trades to work and bases their analysis on the big picture ideas position trading requires far less screen time and daily attention to the price fluctuations of the positions but a position trader might not have to watch quotes all day but they still have to find time to develop a sound strategy and recognize quality trading signal so that's just going to take up just as much commitment and just as much time as a swing trader or intraday trader top position traders possess the ability to analyze information in a deep and multi-dimensional way so with each of these trading time frames a trader can utilize both fundamental and technical analysis to make decisions and a trader can employ a number of different setups to make trades so a setup is a statistically repeatable pattern that informs your trader that a trade is on the horizon and we'll dive more into detail on trading setups later in the video so let's talk about the risk and rewards of stock trading and you know this could very well be the most important section in this video for a new trader because at its core stock trading comes down to risk rewards and probabilities the combination of these factors is what gives us an edge in the market so you know of course just like any any other business trading stocks does not come without risks market volatility can whip the value of a stock back and forth and in the blink of an eye you know our gains can morph into significant losses if the stock price takes a nosedive so this is why we trade with safeguards right so you know professional savvy traders are in control of their risk and equip themselves with risk management tools like stop orders they place these stop orders in strategic levels in order to minimize risk while also giving themselves a high probability of success in the trade some traders set profit targets to help manage their potential returns so a simple way to set a profit target is by placing a limit order to sell the position above the market at a price at which you'd be happy to exit for a profit other traders might set trailing stops which you know for a long position as price rises along with the stock you know the the price of the stop also rises as the stock moves right so if it reverses a meaningful amount the position is exited at a profit so you might be wondering like how do i balance these risks and rewards so i become profitable and that's what this is all about so for one a strong self-awareness is key right because you know to successfully implement a trading strategy that suits you like you've got to kind of understand yourself so you should have a sound understanding of your own risk tolerance your own goals and sizing your trades is a crucial factor in trading successfully right your share size and stop level should always reflect how much you're willing to lose on a single trade so simply multiply your share size by the price difference between your entry and your stop and you have your risk so to get your share size simply divide your desired risk amount by the price difference between your entry and your stop this is the kind of math we do in our heads when trading every day so just as an example let's say you buy a stock at 80 and think it can go to 86 so you place your stop at 78 because you think it should not trade below 78 so you want to risk a hundred dollars so since you have a two dollar stop you now know that you can buy 50 shares at 80 to risk a hundred dollars like that's just a hundred divided by two equals fifty right and now you know that with a six dollar target if the stock trades to 86 your reward will be three hundred dollars right that's just 50 times six equals three hundred so in the in the in the example this three to one right risking a hundred to make three hundred this three to one relationship between reward and risk is something traders will focus on so let's define two key terms that have to do with this so profit loss ratio this is a measure that compares the average profit of a trading system to its average loss so for instance if on average we either lose 50 or make a hundred our profit loss ratio will be two to one in other words our average winner is two times the size of our average loser the second term is win rate this is a measure of the number of profitable trades relative to the total number of trades it's expressed as a percentage so for example if a trader makes a hundred trades and wins 60 of them their win rate would be 60 percent if your profit loss ratio is very high you can afford to lose more often so think about if you're realizing a three to one profit loss ratio on your trades you only need to win more than 25 percent of the time to eke out a small profit bearing transaction costs for every three times you lose you need one winner to cover the losses and then on the other hand like if your win rate is very high you can afford to lose more on your losers than you make on your winners so imagine you win 68 percent of the time because you're winning more than twice as often as you're losing you only need a 0.5 to one profit loss ratio in order to eke out a small gain so this isn't an opinion this is just math and it's just interesting to think about it in this way because you can start to see the kind of metrics the kind of risk rewards and probabilities that you need in order to have edge in the market so the profit loss ratio and win rate together can determine if a strategy is profitable or not this is why traders are always thinking about risk reward and probabilities when executing and developing strategies as a trader demonstrates edge and strong performance in a particular strategy he or she will incrementally increase the risk and therefore the share size in order to grow the strategy and again these increments should reflect your own understanding of your own risk and tolerance and goals all right so now that we've laid out the groundwork for trading stocks let's dive into some of the tools traders use to gain an advantage in the market technical analysis so by now you know that technical analysis is the study of any information that comes from historical price movements and volume this information can come in the form of price patterns statistical indicators relative strength or weakness since most technical analysis is centered around price charts let's examine how to read a candlestick chart which is the most common chart style used by traders okay so what is a candlestick chart well the candlestick chart is a highly visual tool that's part of almost every trader's arsenal so simply put a candlestick chart is a type of price chart it differs from a traditional line chart and that it offers much more information about price movement okay so here's an intraday chart of spy in this example each candle represents five minutes and the chart starts at 9 30 a.m and ends at 4 p.m so it encompasses the regular trading hours for every candlestick chart each candle represents a specific time interval called the time frame and illustrates four significant price points within its respective time frame the open the high the low and the close okay so let's break down a single candle so that we can learn to interpret price action from one of these candlestick charts each candle has two major components the body and the wick okay the body of a candle is the rectangular section within the candle and it represents price movement between the windows between the open and the close of the candle's time interval to determine the price direction of the candle we must understand the coloring of the body most often an up candle body will be colored green while a down candle body will be colored red occasionally especially when color is not an option an up candle body will be hollow while a down candle body will be filled in the color designations of the body depend on personal preference as most charting platforms allow for customization okay so where is the open and close of the candle okay the open is the price at the beginning of a candle's time interval and the close is the price at the end of the candle's time interval because the body represents a net change from open to close the open and close will be located at each end of the body so to find the open pinpoint the bottom of a green body or the top of a red body and to find the close pinpoint the top of a green body or the bottom of a red body all right the wick on the other hand sometimes referred to as a shadow is the thin line extended from either side of the body so the extremes of each wick represent the price extremes of the candle and contain the high or low of the candle's range all right so where's the high or low so naturally to find that we pinpoint the highest price point of the candle and it could be an upper wick or it could be the open or close and then to find the low we pinpoint the lowest point in the candle which could be a lower wick but also could be the open or the close so in each of these examples that you see here the high and the low can be found at the extremes of the wicks on either end of the candle and now we can see why we call them candlestick charts right we we combine the rectangular body with a thin wick and we we kind of get the shape of a of a candlestick so by interpreting the structure of the candle we can easily identify the open high low and close of each candle's time interval so then we combine these candles together and we get our chart okay so the candlestick chart is more informative than a line chart because the line chart only illustrates the close of each time interval and that's why candlestick charts are more helpful when assessing price action so how do we interpret these candlestick charts so now now that we understand how the candle is constructed let's kind of bring it to life a little bit and examine some of the ways we can use these candlestick charts to read the price action so we'll examine the range of the candle along with the length of the body and the wicks and then take a look at what it means to use different time frames okay so the range of the candle can tell us something about the volatility of the market the length of the body and the wicks can tell us even more information about the price action within each candle a candle with a long body signifies a strong directional price move within its time interval a series of consecutive large directional up or down candles can represent range expansion and a strong trend a candle with a narrow range on the other hand signifies minimal price movement within its time interval a series of consecutive narrow range candles at similar prices or within the range of the previous candle can represent volatility contraction and price consolidation a short body with long wicks on both ends signifies minimal net change between the open and the close within a large range so these candles often represent indecision by market participants right it was a huge range but it really closed at the same place that it opened so we can kind of see that the market doesn't know where it wants to go a very long upper wick and a close near the low of the candle tells us the price attempted to rally and was rejected all within the time interval of the candle all within the time interval of the candle so a series of long upper wicks or one very aggressive upper wick at a key price level can represent rejection at potential resistance and then conversely a very long bottom wick and a close near the high of the candle can tell us the price attempted to drop and then was bought all within the time interval of the candle a series of long bottom wicks or one very aggressive bottom wick at a key price level can represent absorption at potential support the elements of each candle are really building blocks that tell us a story about the price on the chart okay so as these candles print we're assessing the price action as it goes and so the entire story told through the cumulative effect of the candles on a chart is much more important than any one candle in isolation and so we can use different time frames to zoom in and out in order to see the entire picture okay so as you know each candle represents a time interval referred to as the time frame so on a one minute time frame each candle represents one minute of price action on a 30 minute time frame each candle represents 30 minutes of price action and on a daily time frame each candle represents one day of price action from the 9 30 a.m open to the 4 p.m close and so on so a new candle will start printing for the current time interval after the previous candle closes a higher time frame refers to a longer time interval such as a daily or weekly chart and provides a more zoomed out perspective and a lower time frame refers to shorter time intervals such as a five or one minute chart and provides a more zoomed in perspective so i like to use a two minute or five minute chart to look at one or two days of price action and i like to use a 15 minute or hourly chart to look at anything from five days to a month of trading and i like to use a daily or weekly chart to look back over the course of a quarter a year or or even longer so when you start to use candlestick charts play around with the time frames to visualize which time frame represents your trading style the way that you wish to look at the market it's a breath it's a best practice to utilize multiple time frames to get a multi-dimensional view of the market so now we can add volume to these charts okay so let's talk about that so now we understand how to read candlesticks we can actually include the volume for each of these bars and that's going to show up as a sub graph at the bottom of our chart each volume bar represents the amount of shares traded during the corresponding candles time frame so as we read the chart we can associate the volume traded with each candle's price movement this can be helpful when assessing significant moves so in this example notice how the volume increases on this gap down and continuation there was clear interest in selling this stock on this day and we can see that by looking at the volume so traders look at volume to analyze the participation behind a price move how many shares were traded here right that's a question that a lot of trades will ask at certain points how many shares were traded compared to its average so we'll cover this dynamic in more detail later in the video so now let's talk about technical indicators okay so everything in technical analysis is pure math and this is because everything is a function of time price and volume okay so the candlestick chart is a graphical representation of price points over time the volume bars below the candlesticks are pure volume number of shares traded and this can certainly be enough for some traders to analyze the technicals however there are also things called technical indicators that break down the math of time price and volume in different ways so let's dive into four of my favorite technical indicators so that you can get a feel for what these things are and how they can help us trade moving averages a moving average is the average price of a stock over a specified time period the reason it's called a moving average is because this specified time period rolls ahead as new bars print so the bars used to calculate the average move along with time and we can plot a moving average on our price charts like this right so common moving averages on on a daily chart for instance used by many traders and investors are the 21 day moving average the 50 day moving average the 200 day moving average and these are all shown on this chart so think back to how these indicators are just math these moving averages are average prices they represent the mean on various time frames so for example the 21 day moving average shown here in purple is the average price over the last 21 trading days which is about a month the 50 day shown in yellow here is the average price over the last 50 days and the 200 day our longest moving average on the chart shown in blue shows the average over 200 days this chart shows daily candle data for the last three years so notice how during the first half roughly the july of 2020 into the end of 2021 the moving averages are stacked and orderly demonstrating a clean uptrend then when the bear market begins in 2022 this pattern breaks and the moving averages become much less orderly we can use moving averages to see if price is trending on a time frame just like in this example and assess how extended it might be from its mean so most traders use moving averages as guides rather than specific price levels all right let's talk about view app our second indicator view app stands for volume weighted average price it's a cumulative average of price from the first bar of calculation each bar weighted by volume so just like a moving average we can plot it on our price chart like this most traders use an intraday view app anchored from the first bar of the day as shown here on this one minute chart of nvidia's some traders anchor their view apps freely and use them on higher time frames view app represents the average transaction price for the period in which it calculates so traders use view app to visualize the relationship between supply and demand over that particular period if price is holding above view app it is thought that buyers are in control if price is holding below view app it's thought that sellers are in control and if price is above and below view app there may be indecision or a battle going on between buyers and sellers all right atr our third indicator atr stands for average true range and the average range of the price bars over a specified time period so just like the moving average this time period is rolling so atr measures the volatility of the market so many traders on our desk look at the daily bar atr of the stock they're trading on a regular basis this metric represents the average daily range of the stock and can be tremendously helpful in assessing on relative terms how far a stock has rallied intraday so for an example let's just say tesla daily atr is 12 so instead of saying like tesla is up six bucks in the first hour trade a trader will say tesla is up half an atr in the first hour this provides a better understanding of its typical price movement as we can see in this example that six bucks is a big move for tesla to make in an hour all right arval our fourth indicator okay so this is relative volume and it's crucial to finding active stocks stocks that are in play if a stock typically trades two million shares by 10 30 a.m but today it has traded six million shares by 10 30 a.m we consider this stock to be doing three arval that's three times its average volume this indicates that there's considerable interest in the stock today so sometimes if news you think is significant is reported on a stock you can check out the arval to confirm your suspicion if the stock is doing normal volume it's highly likely the market doesn't care about the news but if the stock is doing three five or ten times its average volume then you know this move has generated significant interest okay so let's let's talk a little bit about why these technicals matter okay so the concept of a short squeeze is actually a really good example to tackle when we talk about technicals right so you know why do we analyze the action of a stock itself when really the stock price is supposed to be a reflection of how well the company is doing financially right the fact is that's not always the case so think back to our discussion of supply and demand and how it's the buying and selling pressure of the stock itself that moves the market so oftentimes this buying and selling pressure transcends any fundamental reason around the quality of the company and there's there's really no better example for this than a massive short squeeze in a stock so a short squeeze is an aggressive move higher in price caused by an overwhelming amount of short covering in the stock so think about it sentiment in the stock is very bearish positioning is skewed to the short side sentiment in this case is a contrarian indicator right so too much short positioning creates a lot of potential demand in the stock so now we have a dynamic where there's an abundance of short sellers who someday will have to cover their positions by buying back the stock like hence potential demand so what if price starts to rise and it causes these traders to cover as their stops start to get hit well this creates a feedback loop where price can rise faster and further than one might expect in the situation right so in this kid in this case everyone is a buyer so in the beginning of 2021 gme gamestop the infamous leader from the meme stock era squeezed from you know below 20 to about 500 in like one month nearly 190 times the low that it put in nine months earlier in april 2020 so this was an incredible short squeeze on massive volume and the company itself was generally losing money so if you read the technicals of the stock you would have been able to identify the short squeeze and witness multiple technical breakouts on elevated volume along the way now let's talk about fundamental analysis so unlike technical analysis fundamental analysis is the study of information that comes from the performance of the company itself rather than the action of the stock so this can include balance sheets of financial report and news catalyst that may change the way the market sees the company so after all you know by trading stocks we own shares of the company and so a trader might want to understand if the business is growing or not so when looking at fundamentals it's always important to think about what might be a surprise to the market versus what might already be priced in so just because a company has a strong balance sheet and tremendous growth it doesn't mean that it will trade higher in the near future but if we can find instances where the fundamental picture changes and forces the market to rethink the stock then we have a situation where the supply and the demand relationship in the stock might shift dramatically so think back to our baseball card example if you buy the baseball card of your favorite player expecting him to have a good season but the consensus of the entire baseball nation is that he will have a great season then he might have to win league mvp or win a championship this year for him to surprise the market and for that card to significantly rise in value in the near future so earnings season which happens four times a year is the time when public companies report quarterly earnings these reports can offer fantastic opportunities to trade active stocks with shifting fundamentals for some traders earning season is their playoffs personally i like to combine technicals with the fundamentals to make trading decisions but when the rubber hits the road the price of the stock is what we're actually trading and the supply and demand dynamic for the stock is what moves the market so that's an important fact remember all right so now let's shift to what you need to become successful okay so many of us grew up playing sports or learning a musical instrument and you know if you ever studied the masters or maybe you are one yourself in one of these fields and wondered how these people get so good so of course there's a lot that goes into it and trading is no different these are all high performance endeavors and they require routine practice a high level of focus okay so let's talk about trading fundamentals because that's one of the key topics here that we're going to have to really really drive home so when i was a kid my dad was a basketball coach he helped coach a youth program and developed high level division one athletes as well as actually one career mba player there were certain things that he required his players to practice every day things like footwork dribbling drills foul shots these are all fundamentals so in trading we also have fundamentals that we should master we want to have a chance at becoming elite things such as stock selection chart reading tape reading risk management these are all fundamentals that smb teaches its new traders so let's talk about stock selection and as as bello wrote in one good trade you're only as good as the stocks you trade so this is absolutely true if you're trading the wrong stocks you will not make money so imagine as an example of this for an analogy you're the best concert pianist in the world so just before your concert begins you're given a terribly written piece of music to play for the audience so in this case no matter who is playing it it just sounds awful so now your hands are tied you won't be able to sound good so if you're interested in trading trading is the same stocks are our vehicles so we have to choose the ones that will move well so the stocks you choose will largely depend on the strategy that you trade but generally there are some universal things i like to look for so one of them is a fresh news catalyst so a news catalyst that catches market participants off guard so this will fuel participation in the stock create a supply and demand imbalances that could generate opportunity for traders and this can be as fast as breaking news or as slow as a large phenomenal shift that fuels the stock for weeks or even months the second thing is relative volume rvol right so looking at the amount of volume the stock is trading relative to how much it usually trades is typically a fantastic way to measure the level of increased participation and interest in the stock this can be measured intraday or over the course of a number of days the third thing is relative strength and relative weakness so finding a stock that is significantly stronger than its peers or significantly weaker than its peers can be a great way to filter for stocks that have unusual trading activity okay the fourth thing is a technical catalyst okay a stock with an a plus technical setup can present great risk reward trading opportunities this could be a hold of a significant price level or a gap extended significantly from its mean and these are a few things that we will get into later in video when we get more specific about setups okay the next thing respecting price levels so if a stock is respecting price levels and trading well then this becomes a candidate especially if other factors are aligning so the cleanliness of how a stock is trading often reflects significant strength or weakness and something i want to gravitate towards so if the stock is trading erratically and unpredictably i don't want to be involved and so we say that a stock is in play if it's exhibiting any of these behaviors that demonstrate an unusual amount of activity and interest in the stock and ultimately as traders we want to we want range we want liquidity you know we want direction in the stock we're trading trading in place stocks will help us find better risk reward opportunities all right so now let's talk about chart reading another fundamental in trading so chart reading is the study of historical price movement and volume of the stock that you're trading technical analysis something we define briefly is any kind of information gleaned from the price movement and volume of the stock so naturally traders look at charts to visualize these technicals the price movement of the stock is caused by the buying and selling from market participants so recall the supply and demand dynamic that we spoke about earlier we can use charts to see this dynamic at play we might identify demand at certain price levels where buyers have stepped in and pushed the stock higher and we often call this potential support so this chart shows tesla getting bought twice at the same price level similarly we might see supply at a certain price level where sellers have stepped in and pushed the stock lower and then we often call this potential resistance this chart shows tesla getting sold twice at the same price level these become significant levels of interest when the stock trades back into these levels we will watch closely support and resistance levels typically reveal themselves when the stock has developed the trading range these two examples were both taken from the same tesla chart so let's zoom out a little bit to identify this trading range in tesla so here the blue rectangle represents our trading range on the right side of the blue rectangle we can see the price finally broke the range to the upside came back retested held and traded higher so this is called a breakout a powerful setup that we'll cover later in the video so when a stock is not stuck in a range there might be an uptrend in place established by higher highs and higher lows in an upward sloping price path this chart shows nvidia in a clear uptrend with the higher highs and higher lows marked on the chart a downtrend on the other hand is established by lower lows and lower highs and a downward sloping price path so this chart shows qqq in a clean downtrend and this time with price swings within the downtrend marked on the chart so we might see big volume surge on a break of a key price levels and this signifies increased interest and participation in the price move so this chart here shows smci breakout above a key price level on significant volume you can see this surge in volume on the initial breakout and then again a pickup in the volume on the second breakout these are all simple examples of how traders use charts to look at historical price and volume patterns to help frame the current market and the risks rewards and probabilities around their trades next we're going to talk about tape reading another fundamental of trading so tape reading is the study of the order flow of the stock that you're trading tape is a tool that allows traders to see the orders that are getting executed on the bids and the offers in real time the tape consists of two components the level two and the time and sales so the level two this is the order book it shows the bids and the offers for the stock that you're watching the highest bid and the lowest offer comprise the inside market and when you're placing a market order you will be able to see the bid or the offer that you'll be taking and the size that it will be showing so in this example of my level two the inside market is at the top highlighted in yellow nvidia is showing 31 shares at 46272 on the bid and 33 shares at 46284 on the offer so the bid side is on the left with the highest bid at the top and so of course the outside is on the right with the lowest offer at the top in this case the spread is 12 cents which we get by subtracting the highest bid from the lowest offer and if we pay the 46284 to get in we have to sell the 46272 to get out and then we have the time and sales this is also known as the prince so this is a record of real time transactions that are going off in the stock that you're watching so these transactions represent aggressive orders that are hitting the order book and taking shares from the bid or the offer so in this example of my time and sales we can see the orders that are getting executed on the time and sales for nvidia in this example the most recent order that hit the tape was the red sale of 10 shares at 460.19 shown at the top all other prints are buys as indicated by the green color on my box i do not show the actual time of day because these orders are zooming by so quickly in real time so for me this info is unnecessary what i do care about is the speed of the tape the color indicating if it's red for a sale or green for a buy the price and the size the market center is also shown on the left so traders will watch how the time and sales interact with the level two and this is how we see the order flow so in this example the time in sales is shown along with the level two for nvidia and this is my tape this is how i watch the stock that i'm trading we can see that the last transaction that took place was a buy of 16 shares at 459.85 we can also see that the current highest bid is 459.76 and the current lowest offer is 459.88 when we go to place a market order to buy nvidia we can expect to get filled at 459.88 until those offers are all taken or pulled when our order gets filled it will flash across the time and so let's see if your stock is trading at 60.80 and you passively post a limit order to sell 100 shares at 61.80 and that's because one represents 100 shares and there are six of these 100 shares offered at 459.88 all at various market centers so once those offers disappear the market will move to the next offer at 459.89 so let's say your stock is trading at 68 and you passively post a limit order to sell 100 shares at 61. your order if it doesn't immediately get filled will now be seen sitting in the order book on the level two your hundred shares will be there at 61 waiting for some aggressive trader to come by and pay the offer at 61 and take your shares now let's say you see on the level two that the highest bid is at 60 and it's showing 1200 shares to buy you decide to aggressively send a market order to sell 100 shares when you sell 100 at the market your 100 shares at 60 will flash across the print screen in red letters as it hits that 1200 share bid now you will have sold 100 shares at 60 and the bid will now show 1100 shares because you took 100 of the original 1200. this is how the time in sales interacts with the level two so in real time there are many trades going off all at once and traders use the tape as a way to visualize the order flow and see buying and selling pressure at certain price points it can seem very overwhelming at first but the more you watch it the more it makes sense so when you watch the tape imagine the prints on the time in sales as water pressure and the bids in the bids in the offers on the level two as a river dam so like with enough pressure the aggressive orders can take all the size on the bid and offer and if the bit if the dam is not strong enough then the aggressive orders will push through the dam to the next price level and this is how markets move so whether you're an intraday trader looking to play off particular bids and offers or whether you're a swing trader looking to assess the character of the tape and see the order book as you're executing a trade reading the tape is valuable skill for for any trader to have the tape is a key part of my trading setup which i do describe in a video about my setup which we can link above so now let's talk about risk management again another fundamental of trading risk management is important to understand before you start trading with real money and that will keep you in the game so that you can continue to learn and build your craft so at smb each trader and each account has a daily loss limit and this means that there's a certain amount we are allowed to lose before our account is no longer able to put on risk for the day and this may sound you know mean or disruptive but it's actually doing us a great service some days the market's more difficult than others sometimes some days it's more opportunistic right some days we just don't have it as traders it becomes important to recognize these days and let your foot off the gas and wait for only the best setups we discussed earlier how it's possible to pre-define our risk in a single trade well this individual trade risk becomes a function of our daily loss limit so we can set our risk per trade to gracefully interact with our loss limit and trade within our own risk guidelines so when we grow when our strategies grow we increase our daily loss limit and our risk per trade so when you start out trading decide how much you're willing to risk per day and design your trade risk around that number this will keep you within your own guard rails and assure that you survive as you grow towards becoming a profitable trader all right let's switch to trading process okay because this is another key element in order to become successful you've educated yourself on the fundamentals of trading right so how can you assure that you're doing everything you need to do to grow and advance your abilities on a daily basis so when my dad was coaching our basketball team it was not enough that we learned the fundamentals we had to practice them every day and build our arsenal of moves and game time awareness and all that good stuff so we would have a a process for this 30 minutes of dribbling drills 500 shots a day tape review team building exercises weight training so in trading our process is what keeps us developing and adapting to changing market conditions so we'll discuss things like the playbook review work research technology game planning even personal care stuff like that as well as trading rules so let's start with the playbook when an nfl quarterback takes the field he's not just winging it he has a specific plays that he and his coach call depending on the game time situation and this allows them to follow a process and make sure they're maximizing their edge on every possession so how do the qb and the coach keep track of these plays and refine them and study them well they have a playbook so trading is actually no different a playbook is a for us is a document compiled by the trader that catalogs his or her setups with specific examples broken down with charts trade variables market statistics so as a new trader you start without a playbook so you have to develop one as an experienced trader you'll want to refine and add to your playbook as you go so i would recommend start by reverse engineering successful plays that make sense to you mark up the charts take screenshots record the variables that make this play actionable and repeatable record market conditions that coincide with your setup and categorize these examples into clearly defined setups and really like don't worry about making mistakes as you add trade examples to your playbook you'll find that you're improving at identifying a plus trades and you might choose to eliminate older less powerful examples as they become less relevant when i look back to some of my own original playbook entries i can't believe how muddled and naive they were so you know we have to start somewhere and this is a best practice that will help you figure out what kind of trader you'll become so now when we have a playbook when the opening bell goes off you'll start watching the market you'll be armed with specific variables that will help you make calculated decisions just like the nfl quarterback then we have something called the book of charts and this is very similar to a playbook it's just a little bit less formal so just like in the worlds of history and science there are patterns in the stock market that tend to repeat themselves a successful trader is going to build a keen understanding of these patterns so as we've discussed charts help traders make sense of historical patterns that might repeat themselves in the future so we want to keep a book of charts as a way to commit to memory these repeatable patterns a book of charts is a it's really a catalog of charts it differs from our playbook in that it's less formal a single entry could be a screenshot of a chart that includes a pattern that you find interesting something you might have seen repeat in the market enough for you to record it all right next we have review work okay when our nfl quarterback finishes the game winner of loss he doesn't just forget about it and move on he watches film of the game and this allows him to learn from mistakes and make adjustments for the next game the same goes for traders we want to review and detail our trades especially the biggest opportunities along with how well we are following our process review work can come in many different forms and this largely depends on your learning style and personality so on our desk some traders keep a journal where they jot down everything from execution mistakes and milestones to how they were actually feeling on that day some traders record their screens and like the quarterback review film of the tape after each trading session and some keep a daily report card where they grade themselves on a set of criteria that they've defined for the month but the common thread that i find among effective review methods is detail trading is all about making adjustments so we want to be detailed about the things that we're doing well and want to repeat and things that we need to adjust in the ways that we'll take action to make these adjustments so i'm a numbers guy i like to focus on things that are clearly definable so i find that keeping a spreadsheet around each of my trading businesses is the most helpful to me so each day i record the variables that factor into the quality of my trades the risk that corresponds to the quality of these setups the executions and the environment which informs me of which plays to make so this allows me to see quickly and in detail which parts of my trading needs attention i call my spreadsheet the trade log and i actually did a video about it and we can link it here you may be starting to notice how these processes are linked together and how important for example having a clearly defined playbook can help us review our trades relative to our clearly defined place so next let's talk about research okay the market's always changing environments shift back and forth between bull and bear markets fast and slow markets momentum and ranging markets and the most successful traders on our desk have not only been able to develop a setup with edge but they've been able to broaden their playbook to include multiple plays for various environments so this breadth will allow you to make money consistently so imagine you're a guitar player who can rip a guitar solo as well as anyone in the world you feel that your finger picking chops however are poor but you want to be able to get called for those jobs where intricate rhythm playing is crucial especially if guitar solos go out of style so how will you go about this you're you're going to examine the best examples of finger picking styles learn them practice them spend a year figuring out how to apply this to your own playing so in trading we have the opportunity to do the same and much of this is done through market research so i spend a good chunk of my time conducting research and this work does not pay off immediately but in the long run it can be incredibly powerful so that's why we want to build research into our process so you might have an idea you might find 100 examples of this idea you might extract statistics from these 100 examples and study them refine your idea come up with a setup that's not just a theory but now has the statistics to back it up some of my best plays have come from this practice and it's it's actually it can be creative it can be fun you know it's definitely fun when it can make you money and you know on the weekends or when the market's slow i think it's a good practice to take an idea look into it let that process kind of take you down a rabbit hole and you might find more edge in an existing play doing this as well so you might add breadth to your playbook you know this kind of curiosity and in-depth work is definitely a common thread throughout the most successful traders on our desk and i think is paramount to fostering longevity in the business because as we said before the market's always changing so if you're interested in hearing more about the process we take when developing a play i made a video about it and we can link it here so now let's talk about technology um you know technology is not just a tool it's it's a skill so in trading we can use technology to our advantage and we can create market filters that alert us to tickers that are trading a certain way we can create indicators that alert us to special market conditions we can write scripts that trade stocks for us based on specific criteria and we can back test our strategies as part of our our own market research so the more we understand how to use the technology the more powerful we become as traders so this is why is why i build technology work into my process i make sure that each week i'm spending time either creating technology that can give me an advantage or increasing my skills so that i'm able to do more technology so frankly the more skills i obtain the more time a week i find myself spending on technology because it's just that powerful so you know the world's evolving quickly all the time and you know the trading world's evolving right along with it and so my advice to any new trader is to start early and begin developing tech skills uh this can be as simple as getting to know your platform inside and out or as advanced as learning how to code um you you know you don't want to find yourself playing the pga tour with a wooden driver right and that worked in the 70s but today you'd be at a great disadvantage with the titanium clubs that are available so you know there was a time when traders operated on the trading floor reading you know the energy of the pit and shouting over one another passing pieces of paper to get orders filled when that world changed and technology allowed traders to operate upstairs on computers it was it was actually traders like linda ratchkey who adapted learn new technology and were able to survive and even flourish amidst that transition so i'd try to be like linda and you know use her as inspiration and build into my own process ways to stay one step ahead of the competition when it when it comes to you know new developments and technology and things like that all right so let's talk about game planning every day in the market is different right there's different flows different stocks in play different market narratives so just as a basketball coach will cater his or her approach to a specific team with specific matchups tactics a trader will design a game plan before each trading session so depending on your style this might include specific stocks that you're watching key price levels fresh catalysts in the market and any economic data that might be released during the day as traders we often operate with if then statements right so like if my stock does this then i will do this basing your game plan on if then statements is a solid way to focus your pre-market preparation and just like the basketball coach you'll most likely be forced to modify this game plan with game time decisions once the market opens and this this is it's fine but starting with an outline of what you're looking for it really helps us streamline our efforts and stay focused and then we stay flexible and open-minded once the market opens all right let's talk about trading rules so we have our playbook we understand our setups inside and out we know what market variables need to be present for us to enter the trade and we have outlined how to execute these trades markets to put it simply we have trading rules so the market can be tricky right so jesse livermore the great stock trader from the 1920s once said the stock market is never obvious it's designed to fool most of the people most of the time this is why we have trading rules without rules it will become very difficult to do the right thing instilling these rules as part of our process will help us stay in line with our trading system so and in our trade review we can grade ourselves on how well we're following our rules if you clearly define your trading system there's no excuse really for not following these rules so if you find a flaw in your trading system it's better to actually modify your system in a calculated way than it is to just break your rules so imagine you're an algorithm that takes trades only based on specifically predetermined conditions would you be able to outline this logic from front to back and follow the system so i would i would actually wager that most struggling traders would be surprised to find that they're unable to outline their logic of their system with no holes from front to back now let's talk about personal care so imagine being a concert pianist at carnegie hall or a tennis player in the final round at the us open think of the pressure these performers must overcome on a regular basis these performers often have physical trainers as well as psychology coaches to keep themselves in gear and ready to face the challenges of peak performance trading is a performance too so therefore our own mental and physical health is crucial so let's outline some of the basic ways the traders on our desk keep themselves in tune so diet and exercise mick jagger he's known for his wild antics as the rolling stones front man but he actually has a serious responsibility and he's found ways to keep himself in peak condition in order to headline stadiums consistently throughout his career right and he's not getting any younger he's still doing it so as part of his process he maintains a diet of fruit and vegetables whole grains legumes chicken fish and he commits to regular interval training and stretching routine and i'm not saying anything about the fact that his diet is better than anything else it's just the fact that he's actually focused on this stuff so if mick can do it why can't we so as traders we need to feel energized every day most people understand what makes them feel good so for me it's running i love to run in order to clear my mind get in a good sweat you know whenever i let my busy schedule interfere with my running routine i can start to feel it show up in my training i lack sharpness i'm not as energetic i just don't feel as good so i do whatever i can to prioritize getting out for a run almost every day all right sleep sleep is one of those things that is very easy to ignore i'm totally guilty of this we all know how important sleep is to our cognitive ability not to mention our ability to keep up with our workout schedule we talked about before so many of us on the trading desk track our sleep some traders will take a step back if they notice they have not gotten a good night's sleep and that's how much it can affect our performance right sometimes traders will not trade i do a lot of coding in my script and algorithm development and i find that a lack of sleep greatly reduces my efficiency and accuracy when writing code something that i can really i mean it can really make or break my progress mindfulness so in the oxford dictionary mindfulness means the quality or state of being conscious or aware of something so in trading this is actually our game with all the noise and trading signals in the market on a given day we must be conscious and aware so i like to use running as a way to clear my mind i also like to spend time with friends and family as trading can be a pretty solitary journey especially if you're not on a trading desk which i am and i'm thankful for that but some people will use meditation you might find that self-talk works for you being kinder to yourself it'll be a valuable exercise to find out what works for you what activity helps you gain a clear mind for trading the market and that naturally leads us into psychology and this is a big topic that a lot of people talk about right as the tennis legend billy jean king once said pressure is a privilege um he can't make diamonds without pressure right so this is what we're signing up for as traders okay so on a certain level we accept the pressure that's part of it it's very natural to feel nervous upset under pressure while trading no serious competitor really in any performance endeavor is going to escape these feelings so there's a lot of talk out there on trading psychology i'm certainly not a psychologist i have no authority in that matter but i am a trader and i understand the challenges that we face like you know i've been there right the feeling of a stock dropping as soon as you buy it disappointment that comes with a bad trade a bad month the pressure to perform when you've had a losing streak and of course you know there's the notorious term on tilt used to describe a state of acting irrationally out of emotion when trading it's easy to let our emotions get in the way of quality decision making and this is why we have a process this is why we don't just wing it dr brett steenbarger an associate with the firm and a valuable mentor throughout my career has written some fantastic books on trading psychology but as dr s would concur psychology doesn't matter if you have no edge in the market a lot of psychological challenges can be solved with having a solid trading system with edge let me say that again it might be easy to conclude that your problems with losing money are due to psychology when in fact you're not trading systems with edge therefore if you focus on the three personal care practices outlined above you know diet exercise sleep mindfulness and combine them with finding a trading system with edge that works for you you'll be putting yourself in a good position to find success so we've covered trading fundamentals our process for growth as well as ways to keep ourselves sharp for performance is there anything else that we need to be successful and yes we need patience actually learning to master anything takes time training is certainly no exception we're competing against the best in the world every day here so one thing that's helped me tremendously over time is having great mentors because you get to hear about their journeys and also learn from them so for me it's been senior traders on the desk like k fits or trading coaches like bella or dr s i want to surround myself with people better than me if you don't have access to a trading desk yet you could reach out to a successful trader you might be surprised by how receptive they are or you can devour books on trading written by successful traders i think mimicking successful traders and their process even their setups in a lot of cases is a great practice so now that we've set up the basics of what stock trading is what we can do to help ourselves become successful let's get into the nitty-gritty and the next few sections will cover the basics of how we can find setups with edge and we'll go over the ingredients of a profitable strategy and a few specific trading setups so let's first talk about the ingredients of a profitable strategy so at this point you've developed a playbook that you like you understand what you want to see in the market in order to put the trade on you might be asking how do i put this all together so that i can make consistent profits how can i make this process automatic so there are a number of factors that i like to consider and drill down into detail in order to hear the trading signal loud and clear so number one is the environment okay so what kind of market environment are we in okay like what what plays are conducive to this kind of environment so say you're trading a long technical breakout a strategy where we play for a big move when the stock gets above a key price level but we're in a bear market all breakouts have been failing so is this the same technical breakout as one that occurs within a bull market where dozens of stocks are breaking above key levels and running so the answer is no the environment matters traders on our desk have certain plays for certain market environments okay the second ingredient is the play so we we start with the big picture right we should clearly define in our playbook what kind of play we're making is this a technical breakout and a relative strength stock is this a day two earnings break out is this a breaking news play the big picture idea frames why we're looking for an imbalance between supply and demand traders on our desk categorize these plays and understand clearly what kind of play they're making stock selection is paramount here and if this is a high quality play then we're in the right stock the big picture informs us but it doesn't mean that we have a trade yet so number three is the setup so have you ever had a big picture idea put on a trade i mean i know i have only to feel lost in the wild oscillations of the stock as you watch your stop get hit so to avoid this traders on our desk wait for the stock to set up so a stock is set up when conditions that make this play a plus are present a stock is set up when there is clear risk reward so create a checklist and make sure that all the checks are in your favor say you're trading the technical breakout the market environment is right for this you see that the stock looks like it's breaking out this is not enough does it have a strong catalyst is the stock doing over 3r vol is the sector in play is the range on the daily chart compressed enough to make this a powerful trade is the time of day appropriate for a breakout is the order flow active with offers being taken easily on the tape these are all questions you might ask yourself before looking to enter the trade if enough checks are in your favor then your stock is set up so now you you know that you have a trade but how do you enter so the fourth ingredient is the trigger the trigger is the condition that gets you in the trade once all the checks are in your favor you wait for your entry within your particular strategy do you like buying the first offer that lifts above the key level do you like buying the first pullback and retest after the stock breaks a level do you like anticipating the break as long as the stock hasn't moved one daily atr already and this could all occur in a split second especially if it's a fast play such as breaking news or a scalp so traders on our desk have all kinds of different styles each trader has ways to execute that makes sense to them and these triggers are usually specific to the strategy that they're trading there are nuances to how you might manage a trade and the way you manage the trade highly depends on how you enter the trade so this needs to be baked into the strategy okay so the final component here is trade management i once made a fantastic breakout trade in iwm it had been consolidating for months above a key level and it broke out on volume and a really strong tape i felt like i was in the driver's seat after all i'd been waiting for this trade for months and it was working so three days into the trade i had substantial open profit but my target was still much higher and there was nothing to do so i sat on my hands and then the market started to shift the tape got weaker iwm started to lose momentum my open profit started to deteriorate but i sat tight i'd been waiting for this trade i didn't want to give up right i was letting some psychology kind of creep in i woke up the morning before thanksgiving to see the entire market along with my iwm position had gapped down significantly iwm opened well below my stock price i turned a big winner into a full loss which was a terrible way to spend thanksgiving so i was furious not because i'd lost money but mainly because i had mismanaged the trade this loss forced me to define much clearer and in more detail the trade management rules for this particular strategy in this case i had ignored a handful of the warning signs and i did not have rules in place to deal with these warning signs so i'm worlds better at trading the strategy now because nothing can get me to manage the trade poorly i have clearly defined rules for every possible outcome different traders have different styles as we said before but there's going to be a trade management method that best suits you and your strategy so knowing how you will manage a trade before entering will help avoid a lot of the confusion and poor decision making that that i experienced with iwm one of my top plays is capturing a market trend day and these are rare but highly profitable so if you're patient and strike with intention these can be great so i made a video outlining the factors of this play and we can link it above let's talk about specific trading strategies now so there are no two traders on our desk that are exactly alike right each trader has their own cognitive strengths on playbooks each trade their own setups in unique ways so jack schwager interviewed dozens of highly successful traders in his classic trading series market wizards which is an awesome book by the way if you haven't read it one of the first trading books i ever read one of the conclusions he drew from the interviews was that there are a million ways to make money in the markets the irony is that they are all very difficult to find and that's that's his quote so while the following strategies are real world applications completely legit ways to trade the market they are basic introductory level guidelines so you'll want to add detail nuances and your own twist in order to capture the truth in order to capture the true edge in the trade so again these are outlines support and resistance so remember the supply and demand levels that we discussed in the technical analysis section when trading price action identifying high quality price levels is really important and this is because stock prices tend to react off these levels so one way they can react is by failing and reversing so a support or resistance play is made when a stock trades into a significant price level and we play for that level to hold so in this chart qqq tested the same level four times before failing and you might have identified that the stock is in a downtrend and you think the likelihood of it continuing along the current path of least resistance is high so in this situation you can key in on this significant supply zone to get great risk reward on a short trade you might look for a failure to follow through you might look for volume to dry up a change of character on the tape there are many factors that can set up this play for you but the key is that this basic support or resistance concept plays into the fundamental principles of supply and demand at a significant level breakout so what happens if a significant price level cannot hold well we might actually have a breakout on our hands so a breakout play is made when price compresses builds up energy against a significant price level and then takes that level out with significant volume this can cause a cascade of momentum to surge into the stock and follow through in the direction of the breakout recall our smci example from earlier so we've discussed how important the volume was on this breakout highlighted here in the blue shaded areas and this is an hourly chart so let's zoom out to a daily chart and assess the trading range that it broke out of so we can see the stock failed three times at 116 over the course of three months in a tight trading range before it broke on massive volume price compression builds energy for the stock the volume on the breakout gives it fuel a breakout is often due to a catalyst or an entire sector move in the market in this case of smci this was a massive quarterly earnings beat and guidance raise amidst an artificial intelligence theme that was igniting many of the semiconductor names it had all the ingredients of a good breakout trade quite often the time of day is important as the most participation and price expansion typically occurs in the morning so next we have mean reversion so if a stock runs far enough after breaking out that it becomes significantly extended from its mean like a stretched rubber band that will often snap back violently to its mean so a mean reversion play is made when an overextended stock trades back to its mean this is often a counter trend trade and made on intraday time frames so do you remember hearing about the meme stock madness in 2021 gme traded from as we talked about before below 20 to almost 500 in less than a month so this kind of move is extremely rare here's gme on the daily chart and the price is adjusted for stock splits and stuff like that so it gets a little weird historically but it's the same chart notice how steep it gets notice how extended from its moving averages it gets notice the volume that comes into the stock when gme got overextended it eventually offered a fantastic intraday breakdown trade shown here on this one minute chart notice the intraday trading range marked by the blue rectangle the breakdown below vwow the increased volume and the volume climax at the low so a stock can run further than expected so it's critical just like in any play to have proper trading signals in place and plenty of checks in your favor especially with these extension plays because they really can move further than we think before the trade is truly set up so now let's talk about momentum scalping so some stocks when they're in play have tremendous order flow this means that traders are able to gain a lot of real-time information from watching the tape a trader might identify a significant hole in the bid and then see them pay the offer aggressively or a trader can join in on this order flow and look to exit when the pattern changes sometimes a trader will combine this order flow with significant price levels to gain edge in the trade so these are very short-term moves and require quick thinking and decision-making skills so these four strategies are guidelines they are starting points so you can start with something simple like a breakout strategy and develop it further adding your own twist so you know say you're very good at dissecting earnings reports and you do well when trading stocks that are in play with fresh news catalysts you might specialize in day one earnings breakouts your checklist of trade attributes environments and triggers will be specified to earnings day one situations all right so to wrap it up there's there's a lot of dogmatic trading talk out there so most people think that their way is the only way right if you go online you hear a lot of opinions and things like this some people will claim that fundamentals are king others will say technicals are the only thing that matters right reading the tape is the only way to do it looking at charts is the only way to do it some consider buying breakouts to be chasing and others actually make the living buying breakouts right so what is correct right so from my experience there are many different and valid ways to trade i see it on the desk all the time the key is finding what you see really well so everybody is different with different cognitive abilities and i see it on our trading desk every day various styles time frames setups and all with edge so my advice is find what excites you and what makes a lot of sense to you because that's probably where you will excel so we've covered a lot today if you have any questions about any of this please put them in the comments below and i'll be sure to get to them so good luck out there and as always thank you for all your support of our channel cheers so [01:45:23] Mike Bella Furie: you're an active trader not doing as well as you want not doing as well as you deserve and you just can't figure out why you can't become profitable no matter how hard you try well let me show you why this is your competition the traders in this room this room right here is full of elite traders some of whom are making seven and even eight figures a year in fact our top guys have made nearly 20 million each in net trading profits in a single year let's head to my office so i can share more so you're probably used to seeing videos of lavish trader lifestyles trading gurus trading off of the laptop for an hour a day heck maybe even 15 minutes a day and then them relaxing on some secluded beach for the rest of the day well all i can tell you is that our traders train like pro athletes they live and breathe the markets and are continually working on their trading skills because at our firm that's what we found it really takes to make it in this game i'm mike bella furie co-founder and managing partner of smb capital one of the world's top proprietary trading firms located in midtown manhattan and we're always looking for trading talent to hire and develop and not just to trade in-house on our desk but also to trade from their own home entirely using our firm's capital and we have numerous traders doing just that allowing them to make upwards of seven figures trading the firm's capital without risking their own money but to even get a shot at something like that you need to have the right training that's why we're doing a new free online presentation in which we share how you can get an interview with smb to become an in-house a remote trader trading firm capital without risking yours and gaining access to all of our firm's coaching and resources and the best part you don't have to be a profitable trader yet in fact we prefer to mold profitable traders with our methods and our techniques that's why we have just three simple criteria that can earn anyone an interview we're looking for highly ambitious and determined traders who fit our culture first and foremost so if you believe that could be you sign up for the free one hour online presentation by clicking the link that's in your top right corner of your screen now [01:47:50] Speaker ?: Thank you.