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Technical Analysis Basics – Oversold Pattern and Continuation Pattern

Stocks look vulnerable again today, as the market seems to be cooling off after two straight months of buying pressure.

But I’m not fazed.

You see, there are 252 trading days in 2019.  

And over that time… I expect stocks to melt up and down… I expect periods of low volatility and high volatility…. I expect to have trading days where everything works and days where I can’t get anything right.

It’s all part of the game. And the life of a real money trader.

That said, I crushed it with about $300K in realized gains in my first two months of trading this year.

 technical analysis oversold pattern continuation pattern

How was I able to do it?

Simple. I focused on my strengths, and I eliminated strategies that weren’t working (for me that was trading options).

Now, I look for three primary chart patterns to take trades on. However, the trades need to have a catalyst, and the risk-reward needs to be stacked in my favor (value buys).

Of course, not every trade is going to work, and there will be losers along the way. It’s to be expected when there are 252 trading days in the year.

Now, my profit and loss (PnL) is off its highs from earlier this year… but just like the market… it won’t go up in a straight line every day. It will dip and move sideways too.

However, when you’re experiencing a bad run, you need to take responsibility and address what’s going on.

How do you do that?

You review your trades, the decisions you make, replay and ask yourself if there is anything you could do differently next time. Sometimes you can have a good trade idea, but it could still be a loser.

But I have also noticed that traders will force the issue… that is… take on other people’s ideas… put on FOMO trades… chase or even revenge trade.

That is not acceptable, and that is not taking responsibility for your actions.  

How do you snap out of it?

Simple. By going back to basics and reiterating your strengths. That’s why I hopped online yesterday and did a free live teaching session on YouTube. I taught two of my patterns (the fish hook and rocket) and how I made $36K trading the fish hook in UXIN.

technical analysis oversold pattern continuation pattern

If you missed last night’s Youtube live you can watch it here

Now, two types of traders struggle.

The first, are people who lack knowledge and have no real edge.

The second, are people who have a basic understanding of trading but have self-destructive psychology (where they can take weeks and months worth of winners and wipe them out in a matter of days).

I’m here to help both types of traders. And the best way I know how to do that is by teaching them strategies that work and how to apply them in today’s market. 

Technical Analysis – Oversold Pattern and Continuation Pattern

 

Just by knowing some basic chart patterns – oversold, continuation, and breakout – coupled with catalysts, it’s not hard to find winners.

One of my bread-and-butter patterns is the “fish hook”, which is considered an oversold pattern.

For example, here’s a look at Arlo Technologies Inc. (ARLO) on the daily chart.

technical analysis oversold pattern continuation pattern

It doesn’t look too pretty, you don’t always get “textbook” setups that look exactly like a fish hook in the market.

So what do we mean by “fish hook” here?

Well, first the stock drops and finds support or an area of demand. That said, the area of demand here was around $3.50.

In other words, the stock had a tough time breaking below $3.50 because traders were buying ARLO at that level. Thereafter, it starts to make a move higher and forms a hook.

Now, I actually alerted Millionaire Roadmap members about this setup:

“… Teachable moment. UXIN, which I scored huge on recently after a few weeks of aggressively buying the base of the fish hook for the bounce, completed the fish hook Monday. Do you see the fish hook here? This pattern happens all the time on penny stocks and is probably the most reliable pattern on all of Wall Street.

technical analysis oversold pattern continuation pattern

ARLO is the same pattern but it’s been stubborn. But remember, UXIN was stubborn too, until it wasn’t. So I’ll continue to monitor ARLO anytime the market looks ok for risk on trading. A big thing to keep in mind is that if the fish hook fails, a bear flag is at risk of playing out, which is why I’m very selective with my allocation overnight.”

Just by knowing this pattern and identifying an area of value and being selective with my trades… I was able to lock in $6K on the trade:

technical analysis oversold pattern continuation pattern

Now, another way to make money trading small cap stocks is knowing continuation and breakout patterns.

For example, check out this daily chart on Veritone Inc. (VERI) – this is known as the ascending triangle pattern.

technical analysis oversold pattern continuation pattern

This stock was beaten down during the volatility in December… However, VERI was catching a bounce, as shown by the blue trendline. You’ll also see the blue horizontal line, which is the resistance area – also known as the supply line.

In general, when you see a pattern like this… more times than not, the stock will break above the blue horizontal line. That said, I was already in this stock and decided to add to my position when I found an area of value, right around $5.30.

technical analysis oversold pattern continuation pattern

What were the catalysts here though?

Veritone reported earnings and had a good chance of potentially hitting news due to its emerging technology in the artificial intelligence space. Not only that, VERI was presenting at the JMP Securities Technology Conference… so there was another positive catalyst there. I don’t think any company would be willing to go to a conference unless they had positive comments…

Here’s what happened with VERI.

technical analysis oversold pattern continuation pattern

Now, I was able to sell my shares of VERI from my flight to Florida.

technical analysis oversold pattern continuation pattern

Want to know how to put it all together? Well, you’re in luck, because on Tuesday, March 12, I’ll be hosting a live event that’s focused on becoming the complete trader. Click here to get sign up and register. Please don’t hesitate, I have a feeling we’ll reach full capacity fast. 

 

 

 

 

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