Trading Methodology

All throughout the history of trading, stocks have followed the same basic patterns and movements. Stock movements are dictated by the decisions of traders, humans who, just like traders 50 years ago, use the same brain and have the same internal biases. Thus, by studying the markets historically, studying how stocks move, you will start to notice patterns. This is the fundamental belief that guides technical analysis. Setups:

Setups are created on the basis of technical analysis. They are essentially a recognition of a pattern, allowing you to have an edge in predicting stock movements. In terms of mastering setups, it is often best to do lots of research, actually understanding the market conditions in which setups work, and the different iterations in which they appear. Breakout:

Background: The breakout is the only setup you need to make insane returns. Typically, the breakout setup works best when the market (QQQ/SPY) is above the 10 and 20 day moving averages, in a bullish cycle. Furthermore, the best breakouts typically happen amongst stocks that show relative strength (later explained).

Explanation: So what actually is a breakout? A breakout is a stock literally breaking out of a range. Stocks tend to move in stair-like patterns, making big moves up, pulling back and consolidating, then breaking out of that range making another leg higher. How to Trade: Buy opening range highs, setting stop-loss to the lows of the day, risking 1% of your portfolio per trade. Trail your stop-loss using the 10 or 20 day moving average, also selling 1/3 - 1/2 of your position 2-5 days after opening the position. Examples:

SMCI BEFORE:

SMCI AFTER:

As you can see, SMCI made a huge move up, pulled back a little, bounced off the 10-day moving average, and then went on an absolutely insane run, literally tripling in just 3 months. Catching 1-2 of these trades can double your portfolio every year, you just need to follow the leaders, wait for setups, and trade momentum. Stocks that are up continue pushing higher! TSLA BREAKOUT:

As you can see here, in early December TSLA had a breakout. In previous months it had made a big move, then consolidated for a couple of weeks, and then broke that range, continuing to then make a 30% move upwards.

RELATIVE STRENGTH:

Relative strength is extremely important. It is defined by stock performance, relative to general market performance. If the market is going down--QQQ/SPY below 10 and 20 day MA--but a stock is going sideways/up during this period, then it is showing relative strength. Despite poor market performance, the stock continues to buckle down, not giving into the bearish pressure. This means that when the market finally enters a bullish cycle again, the stock is MUCH more likely to breakout, making a huge move upwards. Example: IONQ:

QQQ:

Explanation:

Despite QQQ going sideways/down during October, IONQ made a huge move. When QQQ gapped down in late October, IONQ made a slight pullback essentially going sideways. Despite market pressure, it continued doing extremely well. This meant that when QQQ finally broke out in the beginning of November, closing above the 10 day MA, IONQ broke out even bigger, setting it on a 400% run. This is the power of relative strength: it gives us hints into performance when the market will do well, offering us an edge so that we can beat the market, and properly predict the movement of a stock.