Back to Basics (Reviewer Series): Identifying Trends

Trend in chart is simply the direction of where the market is moving in to.

There are three types of trends:

  1. The UPTREND
  2. The DOWNTREND
  3. And the SIDEWAYS

The trends can be identified by using

  • Moving Average
  • Channel Line
  • And the most important tool: Price Action

In the examples below, I’ll show you how to identify trends using the above mentioned weapons.

Let’s start with the easiest to trade, the UPTREND.

If you love traveling like I do, you can remember this as the trend that goes from South West to North East based on the Intermediate Direction, hehehe!

Identifying UPTREND using the Moving Averages

You can see in the chart sample of the PSEi below that the direction is Uptrend by identifying the position of the MAs and how they are aligned. The 20MA (Red Line) is above the 50MA (Magenta Line) and both are above the 100MA (the Blue Line).

And a very important note: it is important that the price (candles) is moving above the 100MA.Back to Basics 1 Trend Identification

Identifying UPTREND using the Channel Line

In this exact same chart sample of the PSEi we can identify that the stock is on an uptrend by plotting a channel line (Blue line).

To confirm the trend, you must plot the line from left to right by finding the points of support or the area where the stock is pulling back to.

To confirm if the stock is on an uptrend, the channel line must be angled up from left to right. Back to Basics 1 Trend Identification channel lines.JPG

Identifying UPTREND using Price Action – This is the best indicator!

By looking at the bare chart, the same example as the previous two, identify where the price is making a New High and a New Low.

If the price is making Higher Highs and Higher Lows starting from left to right, it is confirmed that the stock is in an Uptrend. Back to Basics 1 Trend Identification price action

 

Now let’s move to the Downtrend.

In Intermediate Direction, this is the trend that goes from North West to South East, hehehehe!

Identifying DOWNTREND using the Moving Averages

In the chart below, we use PSEi again as an example. We will know if the direction is Downtrend by identifying the position of the MAs and how they are aligned. The 20MA (Red Line) is BELOW the 50MA (Magenta Line) and both are BELOW the 100MA (the Blue Line).

And again, the position of the price (candles) against the 100MA is very important. If the price is moving BELOW the 100MA then this is a definite downtrend.

Back to Basics 1 Trend Identification downtrend mas

Identifying DOWNTREND using the Channel Line

In the exact same chart sample of the PSEi we can identify that the stock is on a downtrend by plotting a channel line (Blue line).

To confirm the trend, you must plot the line from left to right by finding the points of RESISTANCE or the area where the stock is resisting to.

To confirm if the stock is on an downtrend, the channel line must be ANGLED DOW from left to right. Back to Basics 1 Trend Identification downtrend channel

Identifying UPTREND using Price Action – This is the best indicator!

By looking at the bare chart, which is still the same example as the previous two, identify where the price is making a New Low and a New High.

If the price is making Lower Lows (Green Lines) and Lower Highs (Blue Lines) starting from left to right, it is confirmed that the stock is on a DOWNTREND. Back to Basics 1 Trend Identification downtrend price action

 

Lastly, the SIDEWAYS

This one can be found the Cardinal Direction, it is the trend that goes flat from West to East, hehehehe!

Identifying SIDEWAYS using the Moving Averages

In the PSEi sample chart below, we can easily identify if the trend is going SIDEWAYS or consolidating, if the Moving Average lines are in chaotic order and the price navigates inside the MAs.

In ZFT, the sideways MAs are also called spaghetti because of they appear to be tangled like the famous noodles.

Back to Basics 1 Trend Identification sideways mas

Identifying SIDEWAYS using the Channel Line

In the same fashion as plotting downtrend and uptrend, using the channel line to identify sideways is also by finding the areas where the price is supporting. In this chart, you will see that the support line is flat or even if we angle it up a bit to exactly touch the support it barely lifts up from its previous base.

Back to Basics 1 Trend Identification sideways channel

Identifying SIDEWAYS using Price Action – This is the best indicator!

In this bare chart, we can see that the price makes Equal Highs (Blue Line) and Equal Lows (Green Line). Simply put, it is resisting on the same Previous Resistance Area and it is supporting on the same Previous Support Area.

In the ZFT system, the box area you see in this chart sample is also called the Lower High Area.

Back to Basics 1 Trend Identification sideways price action

That’s it!

I hope you learned something, and I hope you will use this for its purpose – as a reviewer of the basics, which are very important as these are the foundations or our jump-off area.

Woah! I can’t believe it’s 2:02AM in my location already, I got so enamored with reviewing I lost track of time.

With this, I leave you with this fun, unconventional song, hahaha!

Then The Grand Master Yoda said “RS, I am”

This post is dedicated to my Erudite siblings Chronos and Nikko who has never watched the Star Wars. Let’s watch it together, shall we? I love you both.

You guessed it right, this is an RSI story. But why is grandpa Yoda in the title? Why is he even here? My answer is WHY not? Read grandpa Yoda’s Mentor ID and you’ll learn the Biggest WHY:

yoda the grand master

Who does Yoda train? Luke Skywalker, Clone Troopers? Yes! And grandpa Yoda’s trainees are called the Padawans.

Padawan, or Jedi apprentice, is a trainee who is apprenticed to a Jedi Knight or Master. Padawans receive one-on-one instruction in the ways of the Jedi. When a Padawan’s training is completed, he must pass the Trials to become a Jedi Knight. Padawan means LEARNER in Sanskrit.

Speaking of LEARNER, my Erudite siblings and I have this is our Top 3 Strengths, heheheh! (My blog post is not complete without a segue, I think I have to rename my blog Nunu’ Segue Segments. You see what I did there? A segue within a segue, the inception of segues. Okay, last ko na yon).

 

What is RSI? What does these 3 important letters stand for?

Let’s read it from Investopedia:

RSI.jpg

The ZFT uses RSI 14-day period and there are three types of RSI patterns each differently used in Uptrend, Sideways, and Downtrend. But here I just want to emphasize the most important level of RSI: the green line shown above – the RSI 50 demarcation line. This is a power line, if you consistently use this in an uptrend you are surely profitable by the end of the year. I emphasized the words consistently and uptrend, because your psychological capacity must be aligned with your technical analysis knowledge. Try back testing this simple system: Buy if RSI is above 50, if MAs are in AOTS and if price is above AOTS. It’s so simple right? Yes, but ONLY IF you are consistent in following it, ONLY if you have the psychological capacity to stick to this system. Go ahead, back test it, trade it, and see the results if you did it to 100 consistent trades.

Remember what Coach Celeste said: TRUST THE PROCESS, but before that you train to master the PROCESS OVER PROFITS.

That’s the end for now. I hope you enjoyed reading as much as I enjoyed writing this piece.

Take care and God bless your trades!

Hanggang sa muli kabayan!

 

Si Fibonacci at ang Golden Bibe

Sino nga ba si Fibonacci at bakit sikat na sikat siya sa Stock Market trading community?

I asked Google and I found out about a secondary fact that surprised me. Remember Britannica? Those set of encyclopedia books that you’ve always wanted when you were a kid (or was it just me)? They’re still alive! Hurrah! If my parents were rich I would probably have acquired every single volume of these badass babies back then.

Ayun napa segue na, sorry naman! Na excite na naman ako.

So, ladies and gentlemen, without further adieu, I present to you… Mr. Fibonacci!

Who is Fibonacci.jpg

Mr. Fibonacci introduced to the world the Fibonacci sequence, which is a series of numbers where a number is found by adding up the two numbers before it. Starting with 0 and 1, the sequence goes 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, and so forth. Written as a rule, the expression is xn = xn-1 + xn-2.

Kilala din ang Fibonacci Sequence na ito as THE GOLDEN RATIO. Here is an image that represents the Golden Ratio accurately:

Fibonacci GOLDEN RATION.jpg

The Golden Ratio is known to be found everywhere, in nature and even in the human body, here are the images to explain more about this:

Because for Mang Donald, hair perfection is life!

How is Fibonacci used in Technical Analysis?

As a charting tool, the Fibonacci levels have three main functions that help technical traders like us decide on our setup. Since Fibonacci is a leading indicator, or one that helps us forecast the probable next price action, it helps us find the following:

  1. Expected area of Support & Resistance
  2. Probable Retracement areas.
  3. Possible bounce areas.

Notice that I used the words Expected, Probable, and Possible; because remember, NO TOOL works 100% accurate all the time just like how we are always reminded that NO TRADING SETUP works 100% at a time. No matter what lagging or leading indicator you use, always MANAGE YOUR RISKS WELL (that’s also a note to myself).

How do we plot the Fibonacci in the chart?

Here I’ll just show you a visual of how fibonacci is plotted in the chart, I’m using the investagrams chart, the Fibonacci levels used here are 0%, 23.6% 38.2%, 50%, 61.8%, 78.6% and 100%. Please note that 50% is not a formal member of the fibonacci sequence but since it has been proven in back test results that price reacts at the 50% levels it has been added to the sequence numbers that we need to consider.

In plotting your Fibonacci in an uptrend, you must start at the bottom of the latest consolidation prior to the run up, going up to the highest point of the recent run up. Simply put, ZERO must always be at the TOP on an UPTREND plotting.

The opposite must be done in a downtrend price pattern. The plotting must start at the highest point of prior to the decline, and must go down up to the lowest point of the decline prior to the consolidation or sign of reversal. In short, ZERO must always be at the BOTTOM in a DOWNTREND plotting.

Please refer to the Blue arrows shown in the image below:

Fibonacci Plotting

Here comes the fun part, pag-usapan naman natin ang GOLDEN BIBE:

Para wala ng pa-ligoy ligoy pa, I’ll just show you in the next 3 illustrations on how you can use this Golden Ration tool as your Golden Goose that lays Golden Eggs during the uptrend of a stock.

  1. On an uptrend, your 23.6% area:

fibo 23 retracement

2. On an uptrend, your 38.2% area:

fibo 38 retracement

3. On an uptrend, your 50% and 61.8% area:

fibo 61 retracement

How do we use Fibonacci on a Bounce Play setup and on a Downtrend you ask…

Well that’s a different story, 2 different stories actually.

All I can tell you now is that the Fibonacci tool helps you

MAKE MONEY GOING UP

and

MAKE MONEY GOING DOWN

Stay tuned!

Mahal Kita, Mang Kulas

Play mo muna ito, tapos sabayan mo ng lyrics na nasa baba 🙂

Enjoy!

Mang Kulas,

Paguhit nga ng Darvas

Pagod ng umusad

Baka mabutas

‘Tong Lumang support maging resistance

Support maging resistance

Support maging resistance

Support maging resistance

Unang nakaligtas nang mauntog sa taas

Buti nakaiwas

Resistance na malakas sing-lakas ni Hudas

Ligtas! Dahil kay Darvas

Kayaaaaaaaaa aaaaahhhh!

Mang Kulas! Paguhit ulit ng Darvas

Sakaling mag breakout

Lumusot sa resistance

Ang luma mong Darvas

Lusot sana sa resistance

Lusot sana sa resistance

Lusot sana sa resistance

Lusot sana sa resistance

Sabay nakalabas sa malakas na resistance

Walang nagawa si Hudas

Ngunit ng lumampas isa palang fakeout

Bumalik kay Hudas

Relate ka?

Sa fakeout ni Hudas

Kayaaaaaaaaa aaaaahhhh!

Mang Kulas! Paguhit ulit ng Darvas

Sakaling mag breakout

Sana hindi mag fakeout

Galing sa lumang Darvas

Lusot sana sa resistance

Lusot sana sa resistance

Lusot sana sa resistance

Lusot sana sa resistance

Ubos na ang bids pero bagal umusad

Kaya na time-stop

Wala ng lakas, inip at banas

Relate ka?

Sa conso na time-stop!

Kayaaaaaaaaa aaaaahhhh!

Mang Kulas! Paguhit ulit ng Darvas

Sakaling mag breakout

Sa conso’ng makupad

Ang luma mong Darvas

Lusot sana sa resistance

O aking Darvas naubusan na ng gas

eto na ang wakas

Kay tagal umusad ng conso’ng makupad

ilang candle ang lumipas

Mahal Kita!

Mang Nicholas Darvas

Kayaaaaaaaaa aaaaahhhh!

Mang Kulas! Paguhit ulit ng Darvas

Sakaling mag breakout

This time walang fakeout

Ang luma mong Darvas

Lusot sana sa resistance

Lusot sana kay Hudas

Lusot sana kay Hudas

Lusot sana kay Hudas

Lusot sana kay Hudas

Lusot sana kay Hudas

Lusot sana kay Hudas

Lusot sana kay Hudas

It’s Freakin’ 3:00 AM

I promise you this is not a creepy story.

It’s three in the morning from where I’m currently stationed. Too damn early even for an early-riser like myself. Then I noticed it’s already 7:00AM in the Philippines, that explains it – jet lag…

It’s 3:00AM, my eyes are wide open, staring at the ceiling, it’s dark, and Boss Zee’s oppa voice is ringing in my head (okay, I think I just broke my promise, this is beginning to sound creepy)…  “Combining the best of both worlds” that’s basically what he taught us yesterday, the process of HOW & WHY we should do it, and once again, the session was   MIND BLOWING. This guy never cease to amaze us, I wonder how many more magic tricks he has up his sleeve.

ZeeFreaks the Magician

I don’t know yet how I’ll explain to you how we learned how to combine the best of both worlds in technical trading, I’ll get back to you once I find a creative solution 😉 In the meantime, this will more than suffice your curiosity:

Magic Boxes

Ta-ta! Enjoy!

Here’s a fun & positive song for you, one of my favorites 🙂

The LIGHTNING Before That Long Loud Roaring Thunder

A Strike of Knowledge

Before I discuss my subject, tanong ko lang, trader ka ba? Kung oo, siguro kilala mo na si ZeeFreaks noh? Kung hindi pa, ito siya: Zeefreaks (n.) an awesome trader who became an awesome mentor to so many awesome traders who later on became awesome mentors too!

Ang dami bang awesome?

Madami talaga sila! To know their names, just check this out: ZFT Mentors

Eto din pala ang listahan ng awesome blogs nila where you can learn a lot of free awesome trading lessons: ZFT Blogs.

Sabi ko sa’yo eh, madaming awesome sa ZFT!

Kung may awesome ka naman na tanong na kailangan ng awesome na sagot, comment ka lang sa awesome page na ito: FB/ZFTribe

Para sa kin, ZeeFreaks Tribe creates a lightning of knowledge that whenever it strikes it’s so epic that it leaves a long loud roaring thunder – the mentors & the students that become.

Which leads us to my topic, the strike of knowledge that I welcomed to my brain with open arms.  If you’re a trader, you’ve probably heard of Boss Zee’s ZS Play or the Zeus Strike Play. If not, let me explain it to you in the best way I could.

ZS is a phenomenon where the 100MA dives under the price of a down-trending stock that can signal the beginning of a trend reversal. The amazing thing is, I only knew six days ago that there are two ways to play the ZS. And if you catch both of them they’re going to reward you handsomely! 

“ZS is one of the best strategies for Trend Following” –Zeefreaks

Well I hear ya’ boss! With your years of experience, I would listen.

So I did, intently…

Here’s to show you how to spot it in the chart:

ZS and iZS

Whoooops! Hold your horses! Before planning that long-overdue vacation and buying that private jet you’ve always drooled over in magazines, you have to put in the hours of studying this mystical event. Before you go ALL IN when you think you found a stock that is poised for a ZS play, well, think again, and better yet… LEARN IT FOR FREE. It’s not as easy as it looks, believe me! Here’s your link for the study materials:

ZEUS STRIKE PLAY

And of course, one of my favorite songs and music video (pagbigyan nyo na, related naman eh).

Hanggang sa muli…

Have fun learning!

How do I love Zee?

Let me count the ways…

5     10      15

20

25     30     35     40     45

50

55     60     65     70     75   80     85    90     95

100

I hope I made you think for a moment there that I was writing a poem. Elizabeth Barrett Browning’s famous piece was what popped up in my head last night when I was thinking of something that could make Boss Zee’s cute “counting” preference the center of my journal entry. It may be cutesy and fun, and was not even the main topic of our class, but it is what made a lasting impression on me – probably because I’m always thrilled to learn any of Boss Zee and Coach Celeste’s likeness to us mere fans.

Reading Elizabeth’s poem for the first time after so many years brought back vivid memories of my high school life particularly that corner of the library where I first discovered How Do I Love Thee. Her and her husband Robert’s poetry intrigued me so much that I enjoyed scouring through the dusty books that told their love story, Google was not yet even a word back then. I can’t help but compare their relationship with the #ZeeLeste tandem which I’m equally obsessed to.

Sorry I just had to interject that in here because I’m a huge #ZeeLeste fan! Pinapakilig ko na naman ang sarili ko, hihihihihihi.

How do I love Zee.png

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20     50     100

Last night was Thursday, June 21, it was our 2nd Technical Analysis mentoring session with Boss Zee. Identifying Trends through the two most popular ways – Moving Averages and Trend Lines – was what he taught us and the numbers 20, 50, 100 were the main characters of our session.

As for the moving averages and trend lines, it’s really up to you which one you want to use, as my classmate and friend Nikkosan said:

“Perspective is everything”

It might help to note though that Moving Average is Zeefreaks’ favorite and the rest of the ZFTs use them too.

If you are a technical trader:

  • You most probably have read Zeefreaks’ blog and know these numbers as the famous composition of the AOTS, the Alignment Of The Stars.
  • You might already know that the above numbers pertain to the Moving Average parameters that the ZFTs use.
  • You are sure that 20 MA is used for short term trends, 50MA for medium term trends, and 100MA for long term trends.
  • It’s also easy for you to identify that when the PRICE IS ABOVE the MAs, the trend is bullish or it’s in an uptrend.
  • Equally easy for you to identify that when the PRICE IS BELOW the MAs, the trend is bearish or it’s in a downtrend.

If you are just beginning to study technical analysis, well, consider the above pointers as ZeeFreaks Tribe’s gift to you. And you can read Boss Zee’s clear explanation in his blog.

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The colors on the chart.

We all know that Boss Zeefreaks uses Red color on his 20MA line and Blue for his 100MA line or the Zeus Strike (we’ll talk about that some other time). But we had a bit of a debate last night whether the 50MA was Pink or Purple. So I asked myself, what if Red and Blue merged and had a baby, what would it look like? I did some checking and here is the result…

Tadaaaaa!

Guys, it’s MAGENTA!

So I don’t know about you but I’m changing my 50MA line color to MAGENTA! Hahahaha!

magenta

magenta 50

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Seriously, why do I love Zee?

I was surprised that Boss allows us to share in our blogs what he is teaching us in class, I mean he could’ve easily said “Let me think about it” when he got asked, but he gave a straight answer he did not even hesitate for a second and said “You can share it publicly if you want Nu.” Hindi talaga madamot si Boss pagdating sa pagse-share ng knowledge niya. His RAK works already reflect his genuine generosity, but sharing his knowledge this way just adds up to my admiration for him… I have mad respect for the guy. I said guy, not guru 🙂 

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Heal the world with love.

Writing about love made me feel warm inside it reminds me of how addicted I am to loving my life partner, too. Here’s the music I play on during cool down exercises, when I hear this it means it’s almost time to go home to my love.