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Step 1: Foundations

Before you name any pattern, you need to answer three questions about a chart. Which way is price moving? Where are the prices that buyers and sellers have fought over before? How much can you afford to lose if you are wrong? This step answers all three.

Lessons in this step​

  1. Reading the chart
    • What a price really is, and who moves it
    • Line, bar, and candlestick charts, and the four prices in every candle
    • Timeframes
    • Trend: uptrend, downtrend, and sideways, using Dow theory
    • Strong and weak markets: outperformers and underperformers
    • Support, resistance, trendlines, channels, and role reversal
    • Volume
    • Moving averages: simple, exponential, the 5-13-26 stack, and crossovers
    • Fibonacci retracement and extension
    • Oscillators: RSI, stochastic, and MACD
    • Divergence
  2. Method, risk, and mindset
    • Common myths about trading
    • The three parts of a trading plan: method, money, and mind
    • The three-screen method: tide, wave, and ripple
    • The two-screen decision checklist
    • Entry, stop-loss, target, and trailing exit
    • Position sizing and loss limits
    • Mindset rules and rules of the game
    • Building and journaling your own method

What to do next​

When you can mark the trend, the key levels, and a stop on any chart, go to Step 2: Candlesticks.