These are the tools we use to combat the market. Video with further explanations can be found here.
Gravitational Theory – The 200 day moving average acts as a field of gravity for the stock price. Below this line, the stock will get bought until it goes above the line. If the stock price is above this line, it will eventually get sold until the price goes below the gravitational line. We use the short-term, and mid-term moving averages along with the gravitational line to time the entries of our trades.
Rent Theory – The stock that is trending upwards and resisting the rest of the market will most likely continue trending (During COVID-19, think of EBAY and ETSY). These stocks should only be purchased when you are unsure what to trade. The odds are, you will continue to make a little profit by holding them.
Triangle Theory – This is based on ascending and descending triangles. Ascending is when the stock goes up, down, up, down into a flat line, then goes way up. Descending triangles are the opposite. The stock goes down, up, down, up into a flat line, then crashes downwards.
Catalyst Theory – News or rumors hit which cause people to purchase or sell a stock. This creates breakouts in the direction of the Flag theory.
Titan Theory – When huge market cap companies begin to crash, the whole market will begin to tank even if most of the stocks in the S&P 500 are going up. Eventually the SPY will crash after the titans fall. Think of AMZN, AAPL, MSFT, TSLA, FB. If these companies prices are going up, the market will stabilize and eventually get pulled upwards.
Flag Theory – There is a huge buy or sell bar which indicates the direction of the stock. A bull flag consolidation is when the price rockets high up, then goes sideways into the triangle theory and rockets higher. A bear flag consolidation is when the stock price drops, then goes sideways into the triangle theory and drops lower.
Trend Pattern Squeeze – The stock is trending up and the the stock begins to go sideways. This sideways movement corresponds to the triangle theory. The stock goes up, down, up, and down into a small flat line, then it rockets higher. It could also go down, up, down, up in a small flat line, then rockets lower.
TTM_Squeeze – This indicates the intensity of buying (light and dark blue bars). It also shows the opposite for the intensity of selling (red and yellow bars). This is good to use to figure out when the stock price is about to have a reversal. Areas of pause are indicated by consecutive red dots.
VWAP – This indicates the volume weighted average price. This will give you an idea of what price the majority of the stock was bought at. As a general rule of thumb, you want to sell above the VWAP line, and buy below the VWAP.
Relative Momentum Indicator – This indicates the strength of the buying and selling of a stock ticker. Below the 30 RMI line, the stock is oversold. Above the 70 RMI line, the stock is over bought. Oversold means the stock is at its lowest in the given period, and overbought means that the stock is at its highest in the given period. Between 30 and 70 RMI, the stock is traded at a normal level.
Fish Hooks – The stock price sharply falls due to bad news or missed earnings. The selling begins to slow and the stock buying momentum picks up and sends the stock price upwards.
Unusual Options Activity – If you see a huge amount of volume in comparison to the open interest on a stock ticker for a call or a put far away from an in the money strike price, somebody probably knows something that you don’t. This is especially true if their expiration date is relatively soon, or it is a huge bet on a Friday going into a Monday.