TLDR;
This video explains the essential tools and techniques for short-term trading mastery, focusing on identifying and capitalizing on institutional buying trends. It emphasizes the use of a two-minute chart, a 20-period simple moving average (SMA), and a 200-period SMA to recognize "pictures of power" in both bullish and bearish scenarios. By understanding the relationship between these moving averages, traders can identify optimal buying or selling opportunities, increasing their accuracy and trading with the market's flow.
- Use of a two-minute chart, a 20-period SMA, and a 200-period SMA
- Identifying "pictures of power" in both bullish and bearish scenarios
- Capitalizing on institutional buying trends
Tools for Trading: Two-Minute Chart [0:08]
The two-minute chart is the primary tool for the trading tactics discussed, although other time frames like five-minute, hourly, daily, or weekly charts can be used. The two-minute chart is optimal for training traders because it provides frequent opportunities to build experience rapidly. The goal is to identify a trading opportunity approximately every eight minutes. Each bar on the chart represents two minutes of trading activity, with green bars indicating upward price movement and red bars indicating downward movement.
The 20-Period Simple Moving Average (SMA) [2:35]
A 20-period simple moving average (SMA) is essential and should be overlaid on the two-minute chart. The most significant use of the 20-period SMA is as a trending mechanism. A 45-degree angle indicates the most powerful and sustainable trend, while sharper angles are less sustainable, and milder angles tend to peter out. When the 20-period SMA trends at a 45-degree angle, it often acts as a support level, with prices rebounding off it.
The 200-Period Simple Moving Average (SMA) [7:32]
The 200-period SMA is used in conjunction with the 20-period SMA as a "buddy system," with the 20-period SMA representing the shorter-term "child" and the 200-period SMA representing the longer-term "parent." A chart is incomplete without both moving averages. The relationship between these moving averages can be in one of three states: narrow/flat, trending (where the 20-period SMA separates from the 200-period SMA), or wide (indicating significant separation). Identifying these states is crucial for consistent trading success.
Bull and Bear "Pictures of Power" [11:25]
A "bull picture of power" occurs when a rising stock is above a rising 20-period SMA, which is above a flattish 200-period SMA. Conversely, a "bear picture of power" occurs when a falling stock is below a declining 20-period SMA, which is below a flattish 200-period SMA. Tesla is used as an example of a stock demonstrating the bull picture of power.
Trading Strategies Based on the "Picture of Power" [14:55]
When a stock demonstrates a bull picture of power, the strategy is to buy strength and color changes near the 20-period SMA. Strength bars (large green bars) originating near the 20-period SMA are buying opportunities. A color change, where a green bar takes out a red bar, near the 20-period SMA, is also a buy signal. Focusing on stocks with a picture of power at or near the 20-period SMA can significantly improve trading accuracy. This approach aligns traders with institutional buying activity, as the separation of the 20-period SMA from the 200-period SMA indicates institutional accumulation.
