Fast track your stock trading career in 20 minutes
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In this video, we review what is claimed to be The Ultimate Trading Guide, a highly respected resource in the trading world. Backed by a team of renowned experts, including Oliver Kell and Stan Weinstein—both of whom we've covered in previous videos— The 100-page guide is packed with trading strategies and insights, we summarise them so that you can take away the key points and apply them to the markets.
Before diving into the details, let me share a bit about my background. With over 30 years of experience and a solid track record of equity growth, I’ve honed a deep understanding of what works in the market and what doesn’t. My approach has been recognized in a highly reputable magazine, reflecting its credibility. I break down complex concepts into clear, actionable insights. Having read and absorbed lessons from hundreds of stock trading books, I’ve crafted a proficient strategy that I’ve successfully applied for years. Additionally, we developed a bespoke scanner, tailored to align perfectly with this approach. That being said, let’s get back to the video.
Let's begin with the Phases of Trading. Traders typically move through four recognized stages. It starts with the Unprofitable Phase, characterized by random, emotional trades with no defined strategy, often leading to losses. A notable trait in this phase is frequent small wins but occasional large losses, often driven by a trader’s ego and the need to be right. Interestingly, profitable strategies tend to show the opposite pattern—larger, less frequent wins and more frequent small losses. The key takeaway here is to have a plan and avoid letting ego interfere with your trading decisions.
Next is the Boom-and-Bust Trader Phase, which begins when traders start taking trading more seriously by learning new strategies and setups. Despite occasional successful trades, they struggle with consistency, leading to a highly volatile equity curve. The frustration from these inconsistent results often causes traders to give back their profits during market downturns, leaving many disheartened. This phase can prompt some to quit trading entirely.
Once the discipline of applying a solid approach is achieved, traders then move onto the Consistency Phase. Here the trader has fully committed to their strategy, they improve their risk management and become more aware of the broader market trends. Notice how they flip to larger wins and smaller losses from when they were in the unprofitable phase, ultimately creating a favourable risk to reward profile. The outcome? A positive equity trend.
Once you've progressed through the first three phases, your efforts can truly pay off as you enter the Performance Phase, the peak of trading mastery. In this phase, traders have fully refined their strategies and gained complete confidence in their process—key to maintaining discipline and consistency. They excel at identifying when market conditions align with their strategy, allowing them to scale in or out accordingly, minimizing drawdowns while maximizing returns. Through patience, selectivity, and continuous refinement, traders maintain their competitive edge in this phase. Next, we’ll discuss how to achieve and sustain this level of performance.
Let’s begin by identifying the most common roadblocks traders encounter on their journey—many of which you may already recognize. Fortunately, a strong trading plan ensures you rise above the noise and distractions. Now, let’s lay the foundation for building such a system.
The foundation of any trading system goes beyond recognizing chart patterns—it’s about understanding supply and demand and how the balance of buyers and sellers shape price action. Once understood, you will be better placed to determine if a stock is under accumulation or distribution. It is at these junctures that chart patterns can be used to enter and exit the markets.
Supply and demand can be seen within every candle within every chart pattern, let’s start by looking at one candle. The price movement within a candle is created by buyers and sellers, and much like a game of tug and war it is the force from either side that determines the outcome. If the volume or strength from sellers is greater than the buyer’s, price will move down, conversely if buyers have more power, then price will increase, leaving the slack of the losing rope on the floor. The more rope on the floor indicates stronger buying pressure, signalling that buyers dominated. If no rope appears on the buyers’ side, it suggests they still had untapped strength, meaning there’s potential for even greater momentum.
These battles between buyers and sellers occur within every candle, regardless of the timeframe. Each of these battles contributes to the formation of larger, tradeable chart patterns over time. Candles and chart patterns should however never be analyzed in isolation; volume is also a critical factor. High volume, in particular, can indicate the involvement of institutional buyers, making the pattern more significant. Volume could be likened to a crowd watching the battle—the larger the crowd, the more significant and meaningful the event.
For a deeper understanding of how volume interacts with price action, check out our previous video, where we explore this relationship in greater detail.
Let’s take a closer look at some real-world examples from the book to understand how volume provides important clues. Here, we see the stock ROKU in a flag setup. The breakout candle is accompanied by strong volume, which is generally a positive signal. However, two days later, we notice a sharp down day, also marked by high volume. This was no coincidence, as the price retraced from a significant resistance level around 480. The high volume on the down day indicated strong selling pressure, and the price dropped heavily after the rejection. In fact, if we zoom out to the weekly chart, we can see that the rejection off the high marked the beginning of a major decline. One key rule we follow in our group is trading only when the stock is above the 20-week moving average. This simple yet effective strategy allows us to capture most of the upside while avoiding much of the downside. By adhering to this rule, we align ourselves with the trend and reduce the risk of being caught in a downturn.
Let’s move on to a recent market leader NVIDIA, before diving into the chart we are reminded of a very important lesson by William O’Neil, author of How To Make Money In Stocks, again a book we covered previously. He says “ It is one of the great paradoxes of the stock market that what seems too high usually goes higher and what seems too low usually goes lower”.
This lesson has certainly held true for NVIDIA over the years. In 2016, many investors likely thought that with its price passing $1, the stock wouldn’t have too much room to rise. Yet, defying expectations, it continued its remarkable ascent, reaching an impressive price of $138 in just 8 years. This serves as a clear example of how what may seem overvalued in the moment can continue to climb. My advice would be “Don’t judge a stock by its price, pay attention to its action and the momentum behind it”.
The Trader Lion book consistently emphasizes the importance of price action and volume, and this example perfectly encapsulates that message. In fact, this example aligns seamlessly with my own trading strategy. Here we can see a tight consolidation and a strong breakout making new highs with good volume.
Another key point highlighted in the Trader Lion book is the drying up of volume before a breakout. This is often seen as a strong indication that institutions are absorbing supply, reducing available shares, which primes the stock for a stronger upward move once the breakout occurs.
This chart offers several key insights: a period of consolidation, reduced volume, price holding above the 20-week moving average, and a breakout accompanied by increased volume. If we zoom in on the breakout, at that moment, it might have appeared expensive. However, it reinforces the crucial lesson: "Don’t judge a stock by its price—focus on the action and momentum driving it."
With some insight into price action covered lets now move onto a very important topic, Stage Analysis, a topic covered in depth by the Stan Weinstein, not often in the spotlight but a legend among those in the know.
Stage Analysis is a core concept in market cycles, closely aligning with the accumulation and distribution patterns within individual stocks, but on a broader, more comprehensive level. It provides traders with a bigger-picture view, allowing them to identify key phases—consolidation, growth, and decline—and make more strategic entry and exit decisions. Stan Weinstein classifies these cycles into four stages, using the 30-week moving average as a key indicator for identification.
Let’s take a look at a real-life example: PayPal. On this weekly chart, we can clearly identify the different stages—starting with the basing or consolidation phase, followed by the advancing phase, then the topping area, and finally the declining phase. More recently, we can see that PayPal has entered a new basing phase over the last two years. Interestingly, we recently took a position in PayPal as it made its first higher low since its sharp decline, moved above key moving averages, and began to move away from its consolidation pattern. This suggests the potential for a new advancing phase.
Trading doesn’t have to be complicated, and this theory illustrates that perfectly. By simply holding a position only when it’s above the 30-week moving average, you capture much of the upside while avoiding the majority of the downside. The crossing of the 30-week moving average in this example was a significant test for long-term investors with a buy-and-hold mindset. However, with a double top forming in Stage 3 and the subsequent breakdown, exiting would have been the wiser choice. As Stan Weinstein himself advises: “Take the oath today to never look across the valley and decide that you’re going to ride out a Stage 4 decline, because there’s no telling how far it will fall.”
Don’t forget, to learn more about Stan and his approach, make sure you check out our video using the links below.
With the foundation of chart analysis complete let’s now move onto the chapter; Three Setups You Can Master.
A setup is a method for identifying and entering a stock position, with position management following afterward. Both should operate within a consistent and repeatable framework. While individual trade outcomes can vary, mastering the setup and management within the appropriate market phase increases your chances of success. Together, these elements create a feedback loop that fosters continual improvement.
The three setups covered next are the Gapper High Volume Setup, the Launch Pad Setup and Up The Right Side Setup.
The book provides an example of the Gapper set up using the daily chart, the setup focuses on high volume momentum due to specific factors or catalysts, they often occur from earnings reports, surprises or other relatable industry news. The event is often seen by a gap up on the chart. Another requirement is that the days candle needs to close in the upper half of the candle showing strength from the buyers.
Let’s look at another real-life example of the set-up in action, once again we use Paypal, this time on the daily chart. Here we get a huge spike in volume, followed by a gap up which closed near the top of the daily candle. The company reported their 1st quarter earnings report that beat all estimates.
In this example, I used the 30-day Moving Average as a potential exit signal. However, the exit strategy detailed in the book suggests looking for multiple moving averages converging and then crossing downward. To see this exit clearly, we need to zoom out. The initial gap-up entry occurred here, but the moving averages didn’t cross until October 2021, which coincided with the Stage 4 decline we discussed earlier. The trade would have resulted in a 77% gain.
The approach I take to exit a position considers the weekly chart and the mack dee indicator. Each time the indicator closes negative I raise the stop loss under the wick of that closing candle. I repeat the process until the raised stop is met.
We can see that I would have been stopped out of the trade here, once again just before the stage 4 decline for a slightly larger profit of 82%…. There are numerous ways to use price action for exiting a trade, but most, including the examples we’ve covered, rely on similar core principles—In particular, a loss of momentum that signals a potential trend reversal.
Let’s now look at another recommended entry technique, the Launch Pad Set-up.
Once again we can use Paypal as a great example of what to look for in the setup. In a similar way to how we exited when the moving averages clustered and crossed down, here we look for the opposite, a cluster and a cross up. Let’s zoom in and check all the criteria.
First we want to see the coming together of the moving averages and then all of them moving up.
Next we want some increased volume shortly followed by some drying up. We also want a failed attempt at breaking past previous resistance. This area is then called the Launch Pad. A spike in volume and a break above previous resistance would have been a great time to enter.
The final setup named Up The Right Side is based on similar principles, the difference being is that the set-up looks to take a position over separate intervals as the stock rises, effectively a pyramiding process, average up along the way. Each position would be taken as price passes previous resistance points.
Ultimately the three setups are all looking for positive upward momentum, guided by volume and the moving averages.
Next let’s take a look at the Finding Champion Stocks chapter.
The finding of champion stocks comes firstly from studying, finding common characteristics of strong performers and building your own mental template of what those stocks look like before making big moves. The chapter then moves onto their own screening software for finding such stocks, including parameters to find Gap Ups, Market Leaders, and stocks making new 52-week highs.
I also use a screener to find winning stocks based on a similar concept used by Nicolas Darvas.
Without going into detail in this video, I too look for consolidation breakouts with increased volume moving above key moving averages. It’s a concept that I have tailored into my own approach based on many years of research.
The next chapter covers Managing Risk, a crucial yet often overlooked topic by new traders focused on the thrill of chart patterns. However, mastering risk management is foundational for long-term success in trading. The first segment examines the use of stop-loss orders, a key tool to protect your capital by limiting potential losses.
First, let’s clarify why stop losses are essential. This table provides a clear rationale: the larger the loss, the greater the gain needed to break even. For instance, if a stock drops 50%, it would require a 100% gain just to return to its original value. In contrast, a 7% loss only needs a 7.5% gain to recover. Personally, I aim to keep my losses around 9%, though I may allow up to 16% if I have strong conviction in the trade. Staying away from this area is crucial.
Another valuable takeaway from the book, which I fully agree with, is the importance of placing stop losses in logical, meaningful areas. Setting a stop in an arbitrary location is ineffective; it should be positioned where it aligns with significant support or resistance levels, maximizing its effectiveness. Let’s get a little more practical.
Every stock behaves uniquely, so a good starting point is to examine its chart and observe different moving averages. Does it consistently respect a particular one? Identifying this can help guide your stop-loss placement. For example, this PayPal chart suggests that positioning stop losses on either side of the 30-week moving average, depending on your long or short position, would be a sensible approach.
The same principle applies when creating trendlines beneath highs and lows within market structure. Depending on the trade direction, stops can be placed or trailed just outside these trendlines, as a break of a strong trendline often signals a reversal. As I mentioned, my recent position in PayPal was based on this approach: I entered during an upward trend following a break of structure, with a stop loss positioned just below the trend channel. Needless to say, the structure of a chart can be very insightful.
Let’s move onto another key component to risk management, position sizing.
A common question from new traders is how many positions they should hold. While this ultimately comes down to personal preference, the guide recommends aiming for 8 to 10 positions, gradually building up to this number only as the right opportunities present themselves.
With a $10,000 account aiming for full exposure across 10 positions, you could allocate $1,000 per position. However, this guide suggests that as you build your portfolio, you might consider starting with larger allocations—potentially up to 25% per position—before gradually diversifying as more setups emerge.
If you set a 10% stop loss for each of these 10 positions, the maximum potential loss, should all stops be triggered simultaneously, would be $1,000—equivalent to 10% of your total equity. This serves as a straightforward guideline to manage risk effectively.
To recap, we explored the phases of a trader's journey, emphasizing that true mastery comes from effectively limiting losses while building a solid foundation for favorable risk-reward ratios.
We identified common trading pitfalls to help you recognize and steer clear of them.
We examined the stages outlined by Stan, identifying signs of accumulation and distribution, while also recognizing the critical roles of price action and volume.
We explored how moving averages can guide you through the different phases of a stock's cycle, helping to time entries and exits effectively.
We discussed the importance of price action rather than the price itself, and how some of the best traders in the world recognise that what seems too high usually goes higher.
We discussed how setups are only one aspect of a comprehensive strategy and highlighted the importance of trade management in achieving successful outcomes.
I demonstrated that by conducting your own research, you can develop a personalized trading method, and how using scanners, such as mine, can save time in finding the right set up.
Keep your losses small before they work against you, and always use rationale to determine where your stop losses should be placed.
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