The Smart Spin

# 94 Summary of Trading: Technical Analysis Masterclass: Master the financial markets by Rolf Schlotmann

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In this episode, we are discussing book by  Rolf Schlotmann. This book focus on importance of charting, trend analysis, candlestick patterns, and momentum indicators for making informed trading decisions. It also stresses the crucial role of risk management, including stop-loss orders and portfolio diversification, and the need for a disciplined trading plan to manage emotions and achieve long-term success. The video encourages viewers to read the original book for a more in-depth understanding.


These resources cover a range of topics, including candlestick patterns, momentum indicators, risk management, trend identification, support and resistance, chart patterns, breakout patterns, and the importance of combining technical factors with a trading plan.

I. Candlestick Charts and Patterns:

  • Definition: Candlestick charts are a visual representation of price movements over a specific period. Each candlestick represents the open, high, low, and closing prices for that period. (From the Youtube Video)
  • A green candle signifies a price increase during the period, closing above its opening price. The body of the candle is green
  • A red candle signifies a price decrease, closing below its opening price. The body of the candle is red
  • Candlestick Patterns: Specific candlestick formations can indicate potential shifts in market control. (From "Summary of Trading")
  • Bullish Patterns: Examples include the hammer and morning star, which suggest buyers are taking control. The "38.2 candle" or a "pin bar" as discussed in "Trading Candlesticks with Trends" the body of the candle is 38.2 percent above the low of the candle.
  • Bearish Patterns: Examples include the shooting star and evening star, which suggest sellers are taking control. "Trading Candlesticks with Trends" notes that the body of the candle is 38.2 percent below the high of the candle.
  • Engulfing Candle: As defined in the Youtube Video, a bullish engulfing pattern is when a green candle has a larger body than the preceding red candle. A bearish pattern is when a red candle has a larger body than the preceding green candle.
  • Close Above/Below: "Close below" is when the closing price is below the low of the previous candle and "close above" is when the closing price is above the high of the previous candle. (From the Youtube Video)
  • Importance: While useful, candlestick patterns should not be used alone. They need to be used in combination with other indicators. (From "Summary of Trading")

    • II. Momentum Indicators:

    • Purpose: Momentum indicators measure the rate of change of price movements, helping traders identify potential trend reversals or overbought/oversold conditions. (From "Summary of Trading")
    • Common Indicators:Relative Strength Index (RSI): "The RSI measures the strength of price movements and indicates whether an asset is overbought or oversold." Readings above 70 suggest overbought conditions, while readings below 30 indicate oversold conditions.
    • Moving Average Convergence Divergence (MACD): Measures the difference between two moving averages and helps traders identify potential trend reversals. A bullish signal occurs when the MACD line crosses above the signal line; a bearish signal occurs when it crosses below.
    • Application: "By using momentum indicators, traders can anticipate potential trend reversals or overbought/oversold conditions helping them to make informed trading decisions". (From "Summary of Trading")
    • Average True Range (ATR): The ATR, discussed in the YouTube Video, is used to measure the average movement of price over the last 14 candles. This tool can help traders stay in line with the volatility of the market to keep from "getting wicked out".

      • III. Risk Management:

      • Definition: Risk management involves managing and minimizing potential losses to protect capital and preserve profits. (From "Summary of Trading")
      • Key Techniques:Stop-loss orders: Orders to sell an asset when the price reaches a certain level, limiting potential losses. (From "Summary of Trading")
      • Position sizing: Determining the appropriate amount of capital for each trade based on the risk-reward ratio. (From "Summary of Trading") The size of a position should be based on the volatility of an asset, as indicated by the ATR, discussed in the Youtube Video
      • Portfolio diversification: Investing in a variety of assets to minimize exposure to market volatility, spreading risk across different markets and sectors. (From "Summary of Trading")
      • Importance: "By using these risk management techniques, traders can minimize their exposure to potential losses and protect the capital which is essential for long-term success in trading." (From "Summary of Trading")
      • ATR for stops and targets: The YouTube Video describes the use of ATR to determine stop and target prices. The video describes taking stops one ATR from a swing high or low and targets 2x or 4x the ATR.

        • IV. Trading Plans:

        • Necessity: Having a trading plan is essential for achieving goals and staying disciplined, avoiding impulsive or emotional trading decisions. (From "Summary of Trading")
        • Components:Clear entry and exit points (price levels)
        • Risk management strategies
        • Realistic profit targets based on sound analysis and market conditions. (From "Summary of Trading")
        • Benefits: A trading plan enables traders to evaluate their performance and adjust their strategies as necessary. (From "Summary of Trading")

          • V. Trend Identification and Trading:

          • Definition: Trends are identified by "higher highs and higher lows" (uptrend) or "lower lows and lower highs" (downtrend). (From the Youtube Video)
          • Trading with the trend: The YouTube Video promotes trading "with the trend" because it "adds accuracy to a trade" and "makes for better reward to risk setups."
          • Objective Identification: According to the YouTube Video, a trend is identified by noting "impulsive moves" and "pullbacks." An uptrend is sustained as long as the low of the previous pullback is not broken and a downtrend is sustained as long as the high of the previous pullback is not broken.

            • VI. Support and Resistance:

            • Definition: These are areas in the market where price is likely to react. Support is an area where price is likely to bounce up; resistance is an area where price is likely to fall. (From the Youtube Video)
            • Use Cases:Spotting possible reversals.
            • Entry points for trend continuation trades
            • Determining stops and targets. (From the Youtube Video)
            • Break and Re-test: In a trending market, a previous level of resistance is likely to become support in an uptrend and a previous level of support is likely to become resistance in a downtrend. (From the Youtube Video)

              • VII. Moving Averages

              • Definition: Moving averages are the average movement of price over a certain period.
              • Use Cases:Defining Trends - If price is above a moving average, the market is in an uptrend; if the price is below, the market is in a downtrend.
              • Areas of value - The 20 period, 50 period, and 200 period moving averages are commonly used as support and resistance in a trending market.
              • Trailing Stop - A moving average can be used as a trailing stop to capture more profit in a trending market.

                • VIII. Chart Patterns:

                • Definition: Identifiable patterns formed by price movements, typically involving 10 to 50 candlesticks that indicate possible reversals, market sentiment, or entry points. (From the Youtube Video)
                • Double Tops/Bottoms: The video describes that these patterns are formed with two highs or lows followed by a "neckline" which is the support level after the first top and the resistance level after the first bottom. The patterns are confirmed when the price breaks the neckline. Trading is often done on the pullback to the neckline after the break.

                  • IX. Breakout Patterns:

                  • Definition: Patterns indicating a transition from low to high volatility.
                  • Flag Patterns: The video describes the "pole" or the "impulsive move" in the direction of the trend followed by a period of consolidation or a flag before the trend resumes with a breakout candle that moves in the direction of the trend.
                  • Ascending/Descending Wedges: The ascending wedge is when price approaches a level of resistance but is unable to break through. The pattern shows lower highs until the resistance level is broken to the upside. A descending wedge is the opposite, with higher lows until the support is broken to the downside. Breakout trades can be placed on the breakout candle or on the pullback after the breakout.
                  • Use Cases Breakout patterns are used to "capitalize on volatile trends" according to the video. Trades are placed in the direction of the breakout.

                    • X. Combining Technical Factors

                    • Importance: No single indicator or pattern works in isolation. All the resources emphasize the importance of using technical analysis with multiple confirming factors.

                      • XI. "Trading Candlesticks with Trends" Specifics

                      • "Pin Bar" or "Tail Bar": The presenter defines a pin bar as a candle with a body with 20 to 30 percent the size of the total length of the candle and wicks or "tails" that make up the remaining 60 to 70 percent of the candle, with a larger emphasis on the importance of the size of the wick.
                      • Trend Definition: Defines an uptrend as a series of higher highs and higher lows and a downtrend as a series of lower highs and lower lows.
                      • Using Moving Averages: The video promotes using a moving average to identify trends as well, noting that uptrends have the price above the moving average and downtrends have the price below the moving average. The video also mentions Simple Moving Average (SMA) and Exponential Moving Average (EMA) and explains the difference in the calculation of the two.
                      • Entry Methods: The video describes two types of traders:
                      • Aggressive Trader: An aggressive trader will place a trade immediately after a pin bar forms.
                      • Patient Trader: A patient trader will wait until a second candle forms that has closed in the direction of the intended trade before placing the trade.
                      • Stop Loss Placement: Recommends placing stop losses a small amount past the body of the pin bar.
                      • Target Placement: Recommends taking target positions that are 1.5 to 2 times the length of the stop loss
                      • Location: Pin Bars are more reliable when they are formed near a moving average, where they are more likely to succeed.

                        • Conclusion:

                        These resources provide a solid foundation in technical analysis for trading. The recurring themes are the necessity of understanding candlestick patterns, using momentum indicators in confluence with support and resistance levels and trends, managing risk, having a trading plan, and using a variety of technical indicators and patterns to understand market conditions and make informed trading decisions. The videos all stress that no indicator should be used alone and that trading strategies are a combination of many elements.


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