What timeframe works best for the EMA Cloud?

There is no universal best timeframe. Many traders use a higher timeframe for trend bias and a lower timeframe for entries.

Stock Chart Learning

Q: Is the EMA Cloud good for day trading?

It can be, especially in trending sessions. In choppy markets it may whipsaw, so many traders add confirmation or higher-timeframe filters.

Q: What are the best EMA Cloud settings?

Common settings include 5–12, 8–9, 20–22, and 34–50. The best settings depend on the market, timeframe, and volatility.

Q: Is the EMA Cloud the same as Ichimoku?

No. Ichimoku uses multiple components and different logic. EMA Cloud is simply two EMAs with shading between them.

Ten Signs You Are Probably A Terrible Trader

2026-06-02T09:12:57.428-07:00

Warning: The following article is beyond harsh and contains information no seasoned trader will tell you. Before reading further, I have been trading since 2011, when I was still in college. I have over 1,100 trades and have beaten the market (S&P 500) since 2013. I have also earned well over six figures in profits. So, the information below comes from experience and honesty. Take what you will from it.

Over 90% of traders will lose money in the stock market. If you are reading this, you are a loser in the Market. To encourage you to quit before you lose all your money, I created a list below to make you realize you are terrible at trading and should find another dream to pursue.

1 - You follow "professional" traders on Twitter. The truth is, many on Twitter are complete phonies and have built a fake trading persona to end up selling you something in the end. More on this can be found in my guide on identifying fraud traders.

2 - You look at inspirational quotes or quotes from "famous" traders as part of your trading regimen. This is nonsense; this won't help you.

3 - You assume psychology is a major part of trading, much more than an actual system. As such, you constantly remind yourself that you lost money in your last trade because of psychological mistakes, and thus, you refer to #2 on the list to regain focus (useless trading quotes). If psychology were such a big part, the simple solution would be to write programs that would trade for you (this isn't a moneymaker). Many "professional" traders instill that psychology is big enough to sell you their products to improve your "weak" psychology. To be clear, I am sure most of you lack discipline, but even with discipline, you still would lose money.

4 - You watch CNBC or look at mainstream media for advice on trading the Market. News flash, journalists, and people who write articles are unlikely to understand the exceedingly complex and random forces that are the Market. Always ignore the headlines when trying to justify market movements.
5 - You think the more time you put into the Market will directly result in actual profits. No, this is not true. Again, this is false information given by "professional" traders to up their winning persona so that in the end they can sell you something. If indeed one has developed a winning system, it does not require hours of looking at charts on Friday night while your wife gets dressed up before you guys go out. It's done with programs and scripts scanning the markets, which take seconds a day (after the initial work done to develop a winning edge..this will likely never happen).

6 - You buy a lot of trading books and software. The information from trading books or software may have been profitable. However, once that information is public and its knowledge is known by many, it will likely yield an edge in the Markets. Hence, a reminder that if you have something truly profitable, you should keep it a secret.

7—You subscribe to a trading service. By 2024, you should have learned that all these services are bogus scams. The article linked provides a plethora of information to understand why I claim that stock trading services are bad.

8 - You trade options. Options are gambling. It always gives the person who sells the options a massive edge. Let's hope you have yet to be inspired by WallStreetBets on Reddit to go all-in with out-of-the-money options, YOLOing your life away.

9 - You hindsight trade. If you do this, you have no business even owning a stock trading account. Should of, could of, and would of is not a winning strategy! It's a strategy for the fastest way you can lose your house to the bank!

10 - Finally, your account continually goes to $0. Take a hint. Quit.

How many of the ten listed above are you guilty of?

For those who want to stop losing, look at our article on creating a trading edge based on your current system. It's an in-depth guide I have yet to see anywhere else online.

Also, I wrote an in-depth article on how to create a winning trading system. These two articles will take your trading to a level you have never imagined, as long as you put in the work!

Options Vs Futures: Should You Be Trading Futures?

2026-05-30T09:04:03.560-07:00

In the financial markets, traders and investors often debate the merits and risks of different securities. Two of the most commonly compared are Futures and Options. Understanding the differences between these two can help traders decide which suits their trading style and risk tolerance.

In short, Options contracts allow traders to trade but not the obligation. In essence, investors can buy or sell Options shares at certain prices at any time if the contract is in effect. On the contrary, Futures trading requires a seller to sell shares and buyers to buy them on a specific date unless the holder closes their position before it expires. Therefore, the transaction is solid and must proceed, as futures often involve physical commodities (such as corn, gold, and oil). There is no backing out when it comes to Futures; the transaction must go through at the expiration date. This is partly why oil prices went negative during the COVID-19 pandemic.

While both futures and options are financial products that make money, their markets are widely different and pose considerable risks. This article considers the differences between these two financial products to help you make a better-informed trading decision as an individual investor.

Futures: Defined and Demystified

Futures contracts are standardized agreements to buy or sell an asset at a predetermined price at a specified time. These contracts are legally binding and typically involve commodities, such as agricultural products, energy resources, and metals. However, Futures are also prevalent, including those based on market indices.

Futures contracts are time-oriented. They expire, forcing you to make certain decisions, such as selling the contract to take your profits or losses, staying out of the market, or taking the delivery of the equity, product, or commodity the contract represents.

Most Futures contracts can be traded from Sundays, 6 PM (EST) to Fridays, between 4:30 PM and 5 PM (EST) – depending on the commodity. Technically, trading stops for thirty to sixty minutes daily. So, essentially, Futures are traded 24 hours, which can add to individual investors' stress and workload. Where your sleep may be severely hindered.

What Are the Risks of Trading Futures?

Simply put, Futures contracts can lead you to huge debts. While other traditional financial products, such as bonds and stocks, are associated with high-end risks, Futures undoubtedly generate high yields but even higher possibilities of extremely severe losses. Futures allow for significant leverage, meaning that a small margin deposit controls a large amount of the underlying asset.

Futures expose investors to maximum risk, potentially losing all their money within the twinkle of an eye. You have to put some money down when buying a Futures contract, and your rewards and costs aren’t established until such a contract expires. It is not until then that both involved parties discover their outcomes. What does this imply? You have “almost zero” control over your risk profile.

Futures prices are accounted for daily, meaning a certain amount of money is transferred between the seller and buyer at the end of the day. If the prices are unexpectedly volatile, you may be required to add additional funds at the end of each trading day, so you don't get margin-called. So, you will either have a massive account or be heavily leveraged.

Lastly, the Futures market is traded on a relatively thin volume, as not many people can afford to trade it. As a result, it is heavily prone to manipulation by hedge funds and other trading entities. You will often see a huge crash or weird price action, wondering what just happened, only to find out a month later it was manipulated by a firm under investigation. This really makes it difficult for the individual investor to be successful.

These three issues listed above make trading Futures extremely dangerous for retail investors. If you don’t have just enough assets to cover your losses, you can end up losing both your trading portfolio and personal finances.

Understanding The Basics Of Options

Options, like Futures, are also risky. The Options contract is based on the value of underlying assets, like stocks. As mentioned earlier, an Options contract offers the opportunity to buy and sell assets at a certain price, but not the obligation. In essence, you don’t have to buy or sell an asset if you don’t want to. As a derivative investment form, even when you buy or sell shares, it doesn’t represent the actual ownership of the underlying investment until you finalize the agreement.

Is Options Trading Risky?

The technicalities associated with Option trading risks are that it is relative. This means that not all Options contracts have the same risk. As a buyer – otherwise called a holder – you have a different risk than if you are the seller – otherwise called the writer.

You can continue reading more about Options contracts and the associated risks.

The Bottom Line – Futures or Options?

Both Futures and Options offer unique opportunities and risks for traders. Futures contracts may be suitable for those looking for a straightforward, high-leverage way to trade commodities and financial instruments. Options, with their ability to structure varying degrees of risk and potential return, can be attractive to traders with a more nuanced market outlook or those with a lower risk appetite.

However, with one wrong move when trading Futures contracts, your account may be wiped out, and maybe even plunge into enormous debts for your entire life. Technically, it’s not worth the risk.

Ideally, you should stay away from both!

The MACD: The Perfect All In One Indicator?

2026-05-28T11:00:35.488-07:00

Expert traders quickly tell you that combining two indicators will inevitably give you better and more reliable signals on when to enter or exit an open position. Moving Average Convergence Divergence (MACD) is a trend-following momentum indicator that shows the relationship in the movement of the price of a security. It combines two indicators: a 12-day exponential moving average for the short-term changes and a 26-day exponential moving average for the long-term changes.

Gerald Appel invented the MACD in the 1970s. He intended to create an indicator to reveal a stock's trend direction, momentum, strength, and length. This makes it unique from other indicators, as it's an "all-in-one" indicator.

The MACD Formula

MACD is calculated by taking the 26-period exponential moving average (EMA) and then subtracting the 12-period EMA. This gives the MACD a 9-day EMA, the signal line.

When the 12-period EMA exceeds the 26-period EMA, the MACD will be positive. It will be negative when the 12-period EMA is below the 26-period EMA. When the MACD and baseline distance increase, it indicates a growing distance between the two EMAs.

MACD = 12-period EMA – 26-period EMA

Signal Line = 9-day EMA of MACD

Histogram = MACD Line - Signal Line

The chart below breaks down the three aspects of the MACD indicator.

When the MACD crosses above its signal line, this indicates that a trader is in a position to buy the security, while when the MACD crosses below its signal line, it’s an indication to sell or short the security (selling short is not advised, beware).

MACD's data can be represented with a histogram, which maps the distance between the MACD and its signal line. When the MACD is above the signal line, the histogram will be above the MACD's baseline, and vice versa. The MACD histograms are used by traders to identify when the bullish and bearish momentum is high.

MACD Indicator Interpretations

The MACD is designed to focus on the convergence and divergence of its two moving averages.

Where divergence happens when the moving averages go in opposite directions, while Convergence occurs when the moving averages move closer to each other. This is the foundation of how buy and sell signals are generated using the MACD Indicator.

Below are a few easy-to-understand signals generated by the MACD. Keep in mind this is a basic interpretation and as you practice and continue to read more material, you can have much more advanced readings, which will reduce false signals.

When the MACD line crosses above zero, it indicates a bullish trend, while a bearish trend will be indicated by the MACD crossing below zero.

When the MACD line crosses the baseline back and forth, MACD traders will avoid the market to deal with minimal portfolio volatility. If you see this, you should really stay away from buying options, as it shows no clear trend.

A stronger signal is indicated when the divergence between the MACD and the price action is in line with the crossover signals.

You can see a breakdown of the basic interpretation in the chart below. Please note that this indicator is lagging, so it's quite hard to use as a way to predict future price movement. It's really about riding the wave of momentum.

MACD Bullish Divergence and Bearish Divergence

When the momentum of a security price is waning, a divergence indicator is meant to correctly show that a reversal is imminent. When an indicator makes lower highs while the price is higher, this is called a Bearish Divergence. When the price makes lower lows and the indicator makes higher lows, this is called a Bullish Divergence. Divergence is one of the most powerful aspects of this indicator.

You can measure divergence via the histogram as well as the signal line. You can even draw support and resistance lines on this indicator (they may even be more meaningful than drawing them on pure price charts).

Look at the example below, which shows a bullish reversal using divergence. The histogram never made a lower low in this example, but the price did. Eventually, the MACD's bullish divergence signals correctly foreshadowed price-making new highs shortly after. I added a horizontal line at 0 to indicate when Bulls and Bears are in control (just a bit more pleasing to the eye).

Conclusion

The MACD indicator is commonly used by traders to detect when the current momentum in a stock’s price may indicate a change in its underlying trend. It is also important to note that since the indicator uses historical data, it can be referred to as a lagging indicator and will reverse course after a price action change has occurred. Therefore, it's important to note this severe limitation and possibly use other indicators/signals to exit your position. Although it was meant to be a multi-use indicator with several different parts, I think it really falls short on its own, but can be used in conjunction with other indicators to develop a more concrete trading system, where it will allow you to ignore a lot of the false signals the MACD indicator tends to generate.

It's best to use the MACD as a trend-riding signal, where you want to capture a strong trend briefly. Remember, it's not good to let you know when it's time to exit unless you interpret histogram shrinking as an exit entry (basically, as the histogram Y-axis shrinks).

One of the best ways to create a trading system is to scan the market daily, where you find stocks with their MACD line above the signal line (bullish buy signal). You can further backtest this strategy and continually add further refinements until you have something close to beating the buy-and-hold strategy. This is a great starting point for creating a trading system. For those looking for a world-class scanner and backtesting tool, sign up for TrendSpider, and use the links provided here for up to 40% off. Make sure to check out the "enhanced" package, which offers weekly one-on-one sessions!

For those interested in other indicators, please check out the Stochastic Oscillator.

Is Your Stock Trading Service Scamming You?

2026-05-25T11:16:57.027-07:00

The following is a guide I compiled to help prevent people from being conned by fraud when dealing with stock trading. Remember this applies to any medium (e-mail, websites, forums, TV, Discord rooms, Twitter (X), and so on).

Stock trading and Social Media are a match made in heaven. Stock traders heavily rely on social media for news and trading ideas. However, there is one alarming trend: many con artists can profit from their followers by selling misleading subscription services or having them follow their pump-and-dump schemes. Recently, the ATLAS trading group was indicted for stealing 125 million from inexperienced, naive traders via Twitter/X and Discord. However. Somehow, they got out of a jail sentence.

The finance world is the most unethical/dishonest place (remember the economic collapse of 2008). Some of the dishonesty that accompanies subscription services is due to competition. Each service has to do a "bit more" than competitors. It snowballs! People must advertise in "creative" (dishonest/misleading) ways to gather their followers' attention.

It is important to highlight that even the slightest twist of the truth is still misleading, as that can be a huge difference when trading the Market. Here are a few tips that should help identify dishonest/misleading stock traders on social media:

11) The trader in question speaks with 100% certainty. If someone speaks as if something in the market will happen at 100% (ex, "Apple will go to $200 by Friday"!), that person is full of it. Markets, for the most part, are unpredictable. There are just too many forces coming together for predictions to be consistently reliable.
10) The trader claims to have the market figured out with a special formula (ex. a better way to price options). Uh no! Not possible. This is an outrageous claim; only those not well-versed in the market will accept this reasoning. If it were true, a hedge fund manager would hire this person. They would be bigger than BlackRock.

9) The trader claims to be making 1000% on each option trade. If this is true, what is this person doing on Twitter? This seems to be the source of many retail investors messing with out-of-the-money option strategies, due to a lot of "fakes" promoting this dangerous strategy. If someone is making 1000% on each trade, what are they doing on Twitter, babysitting their subscribers for a fraction of the profits they are allegedly making? After the 10th trade, that 1000% gain becomes over a million dollars.

Also, beware of those who trade options professionally for a living. Trading options and being profitable over a long period is nearly impossible. Either they are lying, or their subscription services involve them buying low-volume option strikes, which, when followed in the trade, causes the price to spike, thus making their trades quite profitable. In other words, a low-volume option pump-and-dump (similar to penny day trading services).

I've noticed scammers have adapted through the years; they will often post one huge loss over social media along with an inspirational quote. Their simps will often just reply, thanking them for their honesty and how humbling this is. This strategy is there to let your guard down. It's often a trade they gave that is really hard to hide so being honest about this particular loss just gets you to trust them more, for "being honest" unlike others out there. BEWARE.

8) The trader in question never makes a bad call. A lot of charismatic people can spin any call they make into a "good call". Beware. I see this happen all the time. Also, watch out for quantity versus quality. A good strategy to trick people is just to spew a bunch of trade setups nonstop, so many that people can't keep track of them. Then at the end of the day or week, just retweet your "good calls". It's not that hard; 50% of the time you will be right in guessing the direction!

7) The trader doesn't act professionally, and tweets don't seem to be written intelligently. Warning SIGN! If someone can trade the market using a winning strategy, their IQ should be high enough to speak and act properly on Twitter!

6) The trader is a "beautiful" girl (ex., current model on the side) and is now trading the market.

People used to post pictures of fake "model" women on social media pretending to be traders when social media first became a thing. However funny enough, "model" women caught on, and now actually pretend to be successful traders, posting traders every so often, and then posting their travel, with the occasional bikini picture every 10-15 days. They will also mix and mingle with other traders in person and post pictures. This gives the idea that they are legitimate. You will see them at your favorite Trading Conference in Vegas or Hawaii. All this is designed to make them seem more legitimate.

Their trading content is often very superficial and generic, but guess what? Some guys eat that stuff up! I guess there is some biological feature where guys tend to drop 50 IQ points in front of a woman they find attractive.

Beware of this model turned "amazing trader". Eventually, they end up building a huge follower base and will launch a private trading service. They have no business offering trading advice. Some may be savvy and just end up peddling a pump-and-dump scheme with no paid service to be found.

This is not to say that because they are women, they cannot trade. This could be said about "model" guys. Often, these types of traders will trade crypto and provide commentary on that market closely.

5) The trader doesn't keep a proper account of his/her calls. If someone is making claims, at least try to find a PnL spreadsheet with actual exits and entries that a person leading the subscription service actually took. This, unfortunately, doesn't fully verify anything, but this is the best we can do.
Also, if a service shows you a spreadsheet with a crazy amount of positions (hard to put a number on how much is too much), they are probably paper trading. It's ridiculous to think someone can manage 15+ live positions; this is a huge hint at paper trading. Since it's very possible they took 30 positions, stopped out of 15, and now have 15 positions all green (of course, all theoretical). Not practical. The slim chance these are real, you will get eaten up alive, trying to pick and choose these winners anyway, since it's doubtful one can follow all these "buy signals". In reality, even if these claims are real, one must have a huge, good-sized account, at least $50K.

4) Doubt theoretical profits. It’s not that easy to spot fraud; there really doesn't exist any way to fully verify actual profits (maybe a neutral hired auditor). Another way to spot fakes is to ignore whatever claims they make about their service (I've noticed people have been very creative in spouting less-than-impressive results as something amazing). You will notice that with a lot of services, if you dig through their websites, they keep actual trading results in an Excel sheet. You'd be surprised how truthful these are, versus the claims these people make on Twitter. For whatever reason, these Excel sheets show more of the true story, and you will usually see something less impressive (ex., those .5% theoretical gains are actual .5% losses coupled with the fact that this service costs $100 a month).

Here is the catch, though: the results on the Excel sheet are sometimes shown using fuzzy math. They don't always include the cost of commission (especially with options), and they often include theoretical buys and sells. Being able to show your results in terms of theoretical buys and sells can give the appearance that a Twitter trader is making a lot of money, but in reality, they are not. The theory is one thing, the actual execution is different (so many variables can cause these trades to go wrong).

Try to ignore results that show cash value. I see many services touting that we made "$1,000 this week". What you should be asking is: What is the return on the investment? That $1000 could be a profit of $100,000, and often, a 1% gain when the market is up 6% is not very impressive. Profits should be shown in terms of percentages, not actual money (this is the easiest way people trick others). That 1% gain for you may be $19 when you are paying $100 a month for that sub-service.

In conclusion, anyone using theoretical profits should doubt; this is a major red flag! The actual trades being executed by this stock Twitter trader should be recorded. At the very least, percentages should be shown of actual trades.

3) Ignore CNBC/Fox Business and other TV Channel Personalities. It is best to avoid CNBC traders’ advice on Twitter; don't even touch the services they are selling.

2) Be wary of stock traders with a lot of subscribers who probably no longer trade (they make at least $150K a year with their subscription service). You can tell those who no longer trade by how often they tweet during trading hours; they tweet lots of ideas (as opposed to tweeting about their actual POSITIONS). They also often post obnoxious trading quotes. Real traders don't have time to mess with Twitter talking (tweeting 5+ tweets an hour) about stock setups and market commentary.

This means they are making more money with subscribers and are content not putting their money at risk in the market. In other words, whatever edge they are trying to sell to you is not that impressive (however, it might be better than what you can do by yourself). There is nothing wrong with this ethically. Just be aware of it.

1) Avoid those who are not humble when it comes to the market and those who brag about huge gains (ex, "Only I know this stock"). Real winning/consistent traders know the market is not something you can take for granted. Those who get cocky will eventually get a huge beating from the market. Either that or the person in question is a paper trader.

A Beginner's Guide On Learning How To Trade

2026-05-21T12:39:31.294-07:00

Stock trading can be a rewarding skill to acquire, offering insights into financial markets and potential opportunities for personal economic growth. For beginners, the journey into stock trading requires a solid foundation of knowledge and understanding. This article provides a starting point by highlighting various resources beneficial for learning stock trading.

Ask Experienced Traders For Advice

One of the best ways of learning how to trade is by approaching experts in the area and asking intelligent questions. Successful traders may be reserved about the methods they use to trade, of course. However, if you ask them what they think and feel in particular situations, and how they deal with their emotions when trading, you may receive many life-changing tips. In fact, we can almost assure you they’d love to do it. Everyone likes to be a mentor if the mentored person is truly interested. After all, if he is a trader, he is most likely passionate about it.

Learn by Reading and Researching

Suppose you don’t have the opportunity to learn directly from an expert trader, probably because you don't know any. In that case, there are other ways you can acquire knowledge on trading: reading and researching. In the stock market, an incredible variety of books are written on the subject. However, for beginners, it is vital to know about the specific strategies and methods of analysis, traders, and the way they think. The Internet is crowded with information; finding some for ourselves to learn is as simple as googling what we want to know and identifying reliable sources. Then read 10 articles about it and draw your own conclusions.

A good starting point is reading all the articles on this site under "Stock Market Education". For those who don't have the time to read all the articles here, a few great starting points from this website would be learning about Japanese candlesticks, as well as a breakdown of technical indicators and how useful they really are.

Great Trading Books

Let’s recommend a quick book trading checklist that I’m sure will help you in the process of becoming a successful trader. Here is a handful of useful and valuable books:

Henri Lefevre’s book Reminiscences of a Stock Operator (1923), written in honor of Jesse Lauriston Livermore, is well-known as Wall Street’s "Great Bear" and "Boy Plunger", and is a really practical book. At the beginning of the 19th century, Livermore was one of the main traders on the Wall Street stock market. Through the book, Lefevre illustrates Livermore’s way of thinking, strategies, and concepts regarding trading.

Jack Schwager’s The Market Wizards and The New Market Wizards are really useful and enlightening pairs of books created from the basis of conversations with the best traders from markets of diverse markets. By reading these books, you will have the golden opportunity to get familiar with the habits that top traders have to be successful.

Michael Covel’s The Complete Turtle Trader portrays a trial whose origin was a discussion between a pair of traders. Led by a trading expert, the training process of some specifically chosen people, as well as what comes out of it, is shown in the book.

You can also head over to my list of the best Must-Read Stock Trading Books to help you become a winner.

Internet, Research, and Trade

There are countless online resources to learn how to trade. You can research specific topics related to trade on specialized websites. Additionally, you can try different stock trading platforms using demo accounts and see which one fits you most. In these, you will quickly see how possible and even easy it is to find a great deal of valid, useful information.

What you can do to learn:

Learn from other traders through the interaction between them in discussion forums.

Use your Stock trading platform information, Discord trading rooms, social media, and also Reddit boards. Here is a list of the 100 Best Stock Trading Blogs.
Learn via YouTube Videos, a simple search like this will lead you to countless educational materials: Learn How To Stock Trade via YouTube.

Use the technical indicators provided by your stock trading platform or broker. These will lead you to acquire experience and knowledge on analysis and technical indicators. I personally recommend TrendSpider charting software. They have the latest cutting-edge indicators and a great price (use the link for up to 40% OFF). Additionally, they have one of the most extensive YouTube libraries explaining how to use their site's indicators and features. I recommend their Enhanced package, which comes with weekly one-on-one training.

The Internet and online trading also allow more accessibility to trade. You can open a Stock account with a tiny amount of money and test yourself in the business, especially with the Robinhood era, as now the cost to trade is essentially free. However, I recommend one of the bigger brokers like E*Trade or Ameritrade, as Robinhood and other budget trading platforms are not reliable when the market becomes very volatile.

New Era of Learning - Artificial Intelligence

Utilizing AI bots for stock trading is an increasingly popular method among traders. Platforms like ChatGPT offer a fresh perspective on market analysis and trading strategies. These tools are in their early stages, often compared to the 'Wild West' due to their novel and untested approaches, yet they hold potential for both educational and financial benefits in the stock market. As AI technology continues to evolve, these bots are rapidly improving, providing more sophisticated market insights. It's important, however, to use them with an awareness of their limitations and the inherent risks involved. For those interested in using AI bots in trading, my article is a helpful resource. It outlines effective ways to utilize tools like ChatGPT for stock trading, serving as a good starting point for anyone looking to integrate AI into their trading strategy. You can read it here: Top Stock Trading Prompts for ChatGPT.

Conclusion

To summarize, becoming skilled in stock trading involves various learning methods and resources. It's crucial for beginners to seek advice from experienced traders and to engage in extensive research and reading. Starting with basic concepts such as Japanese candlesticks and technical indicators is highly recommended. Reading the established trading books mentioned above can be a great starting point.

The AI revolution now adds additional learning opportunities through online resources, interactive platforms, and new tools like AI trading bots, which can provide different perspectives and trading simulations. However, these tools should be used with caution due to their novelty. Online trading platforms can also provide valuable hands-on experience, crucial for understanding market dynamics, especially those that allow accounts for "paper" trading (trading without real money).

Remember, practice makes perfect, but it's important to acknowledge that many people struggle to become profitable in stock trading. You might be one of the few who succeed. Finally, I strongly advise avoiding options and flashy traders on social media, as they are often involved in scams.

How to Make Money on Kalshi

2026-05-16T10:23:32.258-07:00

Most people approach Kalshi the wrong way.

They try to “be right.” They argue macro narratives. They hold positions to settlement.

That’s not how experienced traders approach it.

Kalshi is a pricing market.

If you understand probability, expected value, liquidity, and settlement mechanics, you can build an edge. If you don’t, it slowly drains your account.

What Kalshi Really Is

Kalshi is a CFTC-regulated binary prediction exchange.

Every contract settles at:

$1 if YES
$0 if NO

If a contract trades at $0.32, the market implies a 32% probability.

Your job is not to predict the future. Your job is to determine whether 32% is mispriced.

Edge = Expected Value (EV), not conviction.

How Traders Actually Make Money on Kalshi

Mispriced probabilities
Timing & liquidity shifts
Settlement rule precision
Event-driven volatility

This is closer to probability-style trading than traditional betting.

Want to test it without committing real capital? Get $25 free on Kalshi and treat it like a structured practice account.

The “Bet Everything NO” Idea

Short answer: It works sometimes.

Long answer: It works selectively and fails badly when misused.

Why NO Positions Often Look Attractive

Many markets are structured around deadlines:

“Will approval happen by X date?”
“Will CPI exceed Y?”
“Will recession be declared by Z?”

Processes take longer than expected. Deadlines slip. Bureaucracy moves slowly.

Because of that, YES contracts can be slightly overpriced due to optimism.

When NO Has Real Edge

Short-dated contracts
Process-based approvals
Multi-step regulatory outcomes
Hype-driven narratives

You are betting against timing, not truth.

Why NO Eventually Fails as a Blind Strategy

1) Fat-tail risk
One low-probability YES resolving true can erase weeks of NO gains.

2) Capital drag
NO positions tie up capital for long durations.

3) Market efficiency improves
Edges shrink as participation increases.

Kalshi Strategies That Work in Practice

1) Selective NO Bias (Low Risk Base Strategy)

Tight timelines
Multi-step approvals
Over-optimistic sentiment

Risk small. Exit early if pricing shifts.

2) Buy YES Early, Sell the Hype

Buy when liquidity is thin
Sell into media-driven price spikes
Do not hold through binary resolution

This converts Kalshi into a volatility market, not a prediction contest.

3) Settlement Rule Arbitrage

Every contract specifies:

Data source
Time cutoff
Specific wording

Minor wording differences create opportunity.

4) Event Volatility Harvesting

During CPI, Fed decisions, elections, spreads widen. Skilled traders enter early and exit before normalization.

Common Mistakes

Confusing belief with probability
Holding every trade to settlement
Ignoring capital efficiency
Oversizing positions
Trading headlines emotionally

Simple Framework

Risk 3–5% per contract
Track expected value, not win rate
Favor short-duration contracts
Take profits before settlement when possible
Always read settlement wording

FAQ

Is Kalshi gambling?

No. It is a CFTC-regulated exchange trading binary event contracts.

Can you consistently make money on Kalshi?

Yes — but only if you approach it as probability trading and manage risk appropriately.

Is betting NO a guaranteed strategy?

No. It works selectively, not universally.

Final Takeaway

The edge on Kalshi is pricing, structure, and discipline.

Test it with $25 free: Claim $25 on Kalshi

Trading event contracts involves risk. This article is educational and not financial advice.

The EMA Cloud: The Next Generation Of Indicators?

2026-05-12T10:34:00.000-07:00

EMA Cloud Indicator (Quick Answer)

The EMA Cloud is a trend-following indicator (popularized by Ripster) that plots two exponential moving averages (EMAs) and shades the area between them. Traders use the cloud to quickly see trend direction and likely support/resistance zones during pullbacks.

TL;DR

Green cloud (fast EMA above slow EMA) = bullish bias
Red cloud (fast EMA below slow EMA) = bearish bias
Best in trending markets; can whipsaw in sideways chop
Common settings: 5–12, 8–9, 20–22, 34–50

Jump to: How to use · Best settings · Step-by-step · Backtesting (TrendSpider) · Examples · FAQ · Conclusion

Most traders use the same public indicators in the same obvious ways—so they end up with the same results. Real edge comes from thinking outside the box, testing variations, and building a repeatable process. The EMA Cloud is a “simple-but-useful” twist on traditional EMAs that makes trend and pullback zones much easier to see at a glance.

How to Use the EMA Cloud Indicator

EMA Clouds are built from two EMAs. When the faster EMA is above the slower EMA, the shaded area becomes a bullish (green) cloud. When the faster EMA drops below the slower EMA, the cloud flips bearish (red).

In the SPY example above, the 20 EMA is above the 50 EMA, creating a green cloud. As price pulls back into the cloud, many traders treat it like a dynamic support zone—a place where price may bounce and continue the trend.

If this concept feels familiar, that’s because it overlaps with the logic behind the Ichimoku Cloud System: a shaded zone that helps visualize trend and likely support/resistance.

Best EMA Cloud Settings

Common EMA Cloud settings include 5–12, 8–9, 20–22, and 34–50. The first number is the faster EMA, and the second number is the slower EMA. The shaded region between them becomes the cloud.

According to Ripster, popular combinations include:

5–12 or 5–13 for a fluid trendline (often used for day trades)
8–9 to help identify pullback/bounce areas
34–50 as a higher-timeframe trend filter (bullish above / bearish below)

Below is an example where the 34 EMA is below the 50 EMA (34–50 setting). The cloud turns red and starts acting as resistance.

Many traders layer multiple clouds: 34/50 as the long-term trend filter, plus faster clouds for pullbacks, adds, and exits. This creates the “rainbow” cloud effect shown below.

Step-by-Step Guide on Using the EMA Cloud

Find the indicator on your preferred platform such as TrendSpider (exclusive discount code available via the link). As new as this indicator is, it’s only available on a few platforms—currently TrendSpider and TradingView.
Add your preferred moving average type (commonly the exponential moving average). Use one longer-term set (e.g., 34–50) and one shorter-term set (e.g., 8–9).
Much like Ichimoku, you can shift the cloud forward/backward using an Offset. Offset 0 keeps it aligned to current price; higher values push it forward. Test this—offset can improve visuals, but can also create false confidence if you don’t validate it with real results.

Backtest EMA Clouds (Instead of Guessing)

EMA Cloud settings can work great in trending markets, but the best combo changes by ticker, timeframe, and volatility regime. The fastest way to improve results is to backtest and scan setups consistently.

Backtest EMA Cloud settings across markets/timeframes
Use automated scanning to find strong trends faster
Confirm entries with multi-timeframe analysis
Reduce whipsaws by filtering out sideways chop

Open TrendSpider (exclusive discount code)

Disclosure: This is an affiliate link. If you use it, I may earn a commission at no extra cost to you.

Chart Interpretation

Bullish: When the short-period EMA crosses above the long-period EMA, the cloud turns green.
Bearish: When the short-period EMA falls below the long-period EMA, the cloud turns red.

Pay attention to inflection points where the cloud flips colors—these can act like trend confirmation signals. But avoid getting chopped up: use settings that don’t flip too easily in sideways markets.

Examples

Here is another example showing how SPY repeatedly reacts to the EMA Cloud over time (daily chart, 20/50 EMAs):

Below is an annotated example from Ripster using a 1-minute AAPL chart and the 34/50 EMA cloud:

EMA Cloud FAQ

Is the EMA Cloud good for day trading?

It can be, especially in trending sessions. For choppy markets, consider stricter filters (higher timeframe trend, fewer flips, or confirmation).

What timeframe works best?

There is no universal “best.” Many traders use a higher timeframe (daily/4H) for trend bias and a lower timeframe for entries.

What are the best EMA Cloud settings?

Common sets include 5–12, 8–9, 20–22, and 34–50. The best settings depend on the market, timeframe, and volatility.

Is EMA Cloud the same as Ichimoku?

No. They share a “cloud” concept visually, but Ichimoku has multiple components and different logic. EMA Cloud is simply two EMAs with shading.

Next Reads (Build Your Edge)

Conclusion

The EMA Cloud is a rare “simple innovation” that improves how traders visualize trend and pullbacks using EMAs. The real key is to backtest settings on your markets/timeframes and learn when it works (trends) versus when it fails (chop).

If you want a faster workflow to test EMA Clouds and scan for strong trends, use: TrendSpider (exclusive discount code via the link).

Why You Should Never Trade The Market

2026-05-09T09:58:00.000-07:00

Note: I am a successful trader who has consistently outperformed the S&P 500 index since 2013, so please do not take the advice below as if I were a jaded, losing trader, because I am not. The article contains some excellent advice, and I recommend that some of you take it. I have had a 96% win rate since 2016. More about my trading system can be found here.

The Market is a tough place to make money. You will be hurt if you think you are a genius or know what you are doing. If you don't quit while you are on top, you eventually will be wiped out. If you are trading options, making a ton, and think you will continue in the long term, you are dead wrong. Those who trade options are most at risk.

An accurate risk management model needs to be developed to address the issue. This is proven by how the Quants could not predict or mitigate the 2007 Market crash and several hedge funds getting squeezed out of billions due to their arrogant Gamestop ($GME) and $AMC shorts. You are only kidding yourself if you think you are properly risk-managed because you are not. To be truly risk-managed, you must have a full understanding of the Market. In reality, no one has such an understanding (or they would be able to make unlimited money). Many of these "million-to-one" events seem to occur periodically, such as the GameStop Squeeze, the Coronavirus Pandemic, and the 2008 financial collapse. Blackswan events are just too common; the improbable continues to become a reality.

It's worth noting that at any point you have all your money in the market, you face the "Risk Of Ruin" (chance of losing it all). You never want to be put in that position, especially if you have an "edge" in the Market.

I think not all hope is lost. I have a few tips that can help make sure you can trade the market for the next 30 years. However, the catch is that you need to have a real edge. I am not talking about the phony fake advice posted on all of Twitter or what these sub-services try to sell you by using MACD indicators and "break out" setups, drawing silly triangles all over their charts. Those don't work. Real edges aren't given away. They aren't sold; they are kept secret.

First, you need to have a quick, accurate edge (don't bother, unlikely any of you have or ever will discover one), one that allows you to be in and out in 24 hours with good profit (not day trading). This edge should have at least a 75%+ accuracy. You have an exponentially higher chance of never getting hit hard in the Market where you trade quickly (within an 18-hour time frame). This is an important concept; the longer you are in the Market, the more risk you take. Note that an 18-hour time frame can span two trading days. Where you buy at the close of one day and sell at the opening of another.

Your edge won't last forever (assuming you have a real one), often "setups" (use the term loosely) can evolve. You will need to pick up on this as fast as possible without ever going broke or getting hit hard. To do this, the only solution that may save you is never investing more than 3-5% of your portfolio. This way, you can either adapt your edge if it isn't working or realize you no longer have one and can get out safely. Don't bother with "hedging your position"; that is nonsense. Correlation is made to break; it isn't a guarantee. When things go really bad (i.e., when you need a hedge the most), correlations get wiped out (look at the Coronavirus Pandemic: Gold, Oil, Bitcoin, and Stocks all wiped at once)!

Assuming your edge fits a quick time frame and is accurate, you *might* be ok trading via options. As your risk is now capped, and your upside is unlimited. In this case, you will need to always take money off the table quickly, it's okay to leave some profits on the table and hold a fraction of your initial option position to let the stock run (i.e. say you made 60% with options, sell enough that makes you some profit and leave the other options on the table for a potential continuation).

I have often debated the best way to trade, not the one that makes the most money, but the one that has the highest chance of making money over 30+ years. That is to trade quickly and invest very little of your portfolio. The catch is that this type of trading requires a huge account, where trimming and 3-5% gains matter in terms of profitability. In other words, the more money you have, the more money you will make.

The strategy I listed above is unlikely to help many of you because finding a truly profitable edge is unlikely. If it does exist, you won't find it on Twitter or in books. Everyone needs to realize they are not a genius; the Market is nearly impossible to beat in the long term. It is just better not to play it. You will go broke in the long term. You are unlikely to be the exception. Just put your money in an index fund.

Now, for the next step, if this article has inspired you, read our in-depth article on how to create an edge for your current trading syste,m as well as how to create a trading system. These articles provide information on how to create a trading edge & system to enable you to be that 1% that makes money.

Y4Trade: How One Prop Firm Is Transforming Trader Education and Funding

2026-05-03T11:27:00.000-07:00

In a world where prop trading has become one of the fastest-growing sectors in finance, a firm is connecting trading capital with real education and changing how traders succeed. That firm is Y4Trade, and in partnership with platforms like ChartLearning, it's helping traders move from theory to real profit.

Combining Knowledge and Execution

Today’s traders consume huge amounts of educational content—indicators, strategies, systems—yet many still fail to become consistently profitable. True results don’t come from information alone. They require structure, psychological readiness, and an environment that rewards performance.

That’s where Y4Trade comes in.

Unlike traditional prop firms that focus mainly on challenge fees, Y4Trade is focused on building successful traders. It offers a clear path: prove your skills, earn a funded account, and trade with institutional-quality support – without risking your own capital.

Thanks to partnerships with platforms like ChartLearning, traders don’t just get funding—they gain the mindset and method that helps them win.

A Modern Prop Firm Built on Trust

Y4Trade was founded by traders who experienced the frustrations of other firms—unclear rules, delayed payouts, and hidden restrictions. That’s why they built a platform based on transparency and fairness. In 2025, traders are responding with trust.

Why traders choose Y4Trade:

● Payouts within 24 hours

● Fair rules – no confusing daily loss limits or hidden resets

● No hidden fees – just a one-time challenge fee ● Own trading platform – with TradingView charts built into the interface ● Strong community – thousands of active traders on Discord every day

It’s not just a prop firm – it’s a complete trading ecosystem. How ChartLearning Supports the Y4Trade Mission

While Y4Trade provides capital and structure, ChartLearning helps traders understand market behavior on a deeper level.

Courses focused on price action, technical analysis, psychology, and strategies teach traders to think like professionals. Instead of blindly following setups, they learn to act with purpose and discipline.

Traders combining ChartLearning education with Y4Trade funding have a distinct edge: They don’t just trade because they can. They understand why they trade. Built for the Modern Trader

The 2025 market environment is dynamic and demanding. AI bots, fast-moving events, and global macro shifts require readiness. Y4Trade provides just that:

How it works:

1. Choose your challenge – based on your style and goals

2. Prove your edge – hit your target without breaching drawdown

3. Get funded – trade with real capital (80/20 profit split)

4. Scale and withdraw – weekly payouts, with optional scaling plans

Trading happens on Y4Trade’s own platform, with TradingView chart integration, so analysis and execution happen in one place. Who Wins with Y4Trade?

From intraday traders to swing specialists – they share one thing: a mindset.

They’re not gambling. They’re building systems. And with ChartLearning, they learn to make decisions based on logic, rules, and self-awareness.

Many receive their first payouts just weeks after getting funded. Some scale to six-figure accounts. But most importantly, they’re building long-term skills.

A Prop Firm That Understands Traders

Many firms promise funding, but lack a real path to sustainable success. Y4Trade is changing that – offering everything traders need:

● A fair evaluation process

● Fast, reliable payouts

● Education through ChartLearning

● A platform that respects trader freedom

This is the new standard in prop trading.

Curious how to turn knowledge into profit?

Find out more: www.y4trade.com

Join our community: Discord | Telegram | Instagram

Education partner: ChartLearning

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Trading is risky, and past performance is not indicative of future results.

The Truth About Stock Trading Discipline

2026-04-30T23:29:00.000-07:00

Traders often blame their losses in trading due to "lack of discipline" and mental breakdowns. The truth is, this isn't the actual problem causing you to lose money trading. There are many out there willing to sell their services to help you improve your trading psychology/discipline; these range from books, seminars, and even expensive weekly one-on-one video call sessions. The truth is, these products will only help you short term and are flat-out a waste of money. Many people who sell these products exploit inexperienced/naive traders.

The real underlying issue of why traders keep losing is that they lack a clear-cut profitable edge. A stock trading edge is defined as a set of consistent decisions (including a trading algorithm) used to buy and sell stocks. Following a profitable system will keep you "disciplined" because it guides all your decisions for you and removes emotions.

The list below is a series of steps on how I use my profitable edge/system to buy and sell stocks (important to note real edges aren't given out to the public as they fear they will no longer be profitable once publicized).

Run proprietary trading algorithm code to generate a stock list for the day. This is typically code used to scan the Market to find stocks that fit technical patterns that can be exploited as an edge. Note, this is basic; if you don't do this, you likely don't have a real edge. Getting a daily/weekly stock list from someone else will probably not keep you profitable long-term. Oftentimes times my watchlist will have 0 stocks for months and even years (not kidding).
Filter out your scanned stock list. This involves going through the list generated by step 1 and identifying whether the stock truly fits the desired pattern to exploit for a trade.

Determine the probability that the stock to trade will be a winning trade. The next step is to calculate the odds to see how likely this trade will be profitable (Should be approached exactly like a hand of Texas Hold'em poker). This involves determining how strong the pattern is, and what the market conditions are. Calculating probability comes with experience; it will be difficult and inaccurate at first. But slowly over time, you will get better and will adjust the trading size based on the probability that the trade will come out green.
Bound the worst-case scenario of the trade going badly. No matter how perfect your edge is, you're going to eventually have a trade that goes badly for you. In this case, you need to understand this in every potential trade you make and understand the worst case. For example, if it's an oil-related company or a Chinese company, the risk is high, and the stock could go to zero (this has happened more frequently than many realize). If it's a trade in a large-cap company like Apple or IBM, oftentimes if you are stuck in the stock, you'll end up getting paid a dividend while you wait to get out. So buying a Chinese stock versus buying a prominent established technology company has very different worst-case scenarios.
Come up with a buy-and-sell plan. Before purchasing, ALWAYS come up with a trading gameplan of when to buy, and when to sell (including stop losses). This includes deciding whether to buy the stock directly or use options (almost everyone should steer away from options!).
Reassure yourself that if this trade goes badly, you can afford to lose. Remind yourself again before purchasing the stock that this is a trade that you can afford to lose. Never trade with money you can't afford to lose; it will cause you to make bad decisions. This is why it's dangerous to aim to become a professional trader; it's just too much stress. Always treat it like a hobby until you make retirement-level money.
Decide on the size of the position you want to purchase. How much I decide to purchase the stock is usually a factor in the size of my account, the market conditions, my current confidence in your trading, the probability I think this will be a winning trade, etc. Keep in mind that #3 above will have a huge factor in what size you put in.

The list above is meant to help you understand the odds of the trading going well versus going badly and trying to position yourself to consistently make money on your trades, and when you don't, to minimize the losses. This is really what it means to be disciplined: following logical steps and completely removing emotions. If you don't have any steps to follow (that actually help make money), then, of course, you will attribute your losses to a lack of discipline. You constantly fool yourself into thinking all your bad trades are due to a mental breakdown, and all your winning trades are due to your amazing invisible system that's somewhere in your head. The cycle never stops until your account hits $0.

In summary, trading isn't about the discipline; it's about finding a real winning edge that you continually exploit over time to make money. The catch is that finding a real winning edge is almost impossible (no one will sell you a winning edge, it's just not how the world works). Hence, 95-99% of traders end up losing in the long term or, at the very least, never beat a buy-and-hold strategy. Remember, focus on finding a very reliable edge, and if you can't find that, quit the Stock Market and save your money; otherwise, the Market will get the best of you in the long run. For those who want to create a trading edge, this in-depth article I have written is probably one of the best starting points you could ask for.

For those serious traders looking to make a change, I've written about two trading systems that are a great starting point for becoming profitable: The Elder Impulse System and Trading With Ichimoku Clouds. Be warned, though, that you will need to tweak them and put in the time to be profitable.

For those who really want to take their trading to the next level, it's a must to read my tutorial on how to create a winning trading system. Where you can plug in systems like Elder Pulse, and Ichimoku Clouds and see how well they do and how they can be improved upon.

Why Quantum Computing Is Bitcoin's Greatest Threat

2026-04-29T16:42:00.000-07:00

As Bitcoin continues to dominate conversations in technology and finance, another revolutionary advancement—quantum computing—is rapidly progressing. This dual momentum raises an intriguing question: What threat does quantum computing pose to Bitcoin?

Understanding Bitcoin’s Security Framework

At its core, Bitcoin’s security relies on robust cryptographic algorithms. These algorithms are designed to be secure against attacks from traditional computers:

Elliptic Curve Digital Signature Algorithm (ECDSA): This algorithm secures wallets and verifies transactions, ensuring the integrity of Bitcoin’s network.
SHA-256: A cryptographic hash function underpins Bitcoin’s mining process and blockchain structure, making the system tamper-resistant.

These technologies are highly secure against classical computers. However, quantum computers operate on an entirely different paradigm, which could make these algorithms vulnerable.

The Quantum Cryptocurrency Threat Explained

Quantum computers leverage principles of quantum mechanics to perform computations far beyond the capabilities of classical machines. Here’s how they could disrupt Bitcoin:

Breaking Private Keys: Mature quantum computers can efficiently use Shor’s algorithm to break elliptic curve cryptography. This means they could derive private keys from public keys, allowing malicious actors to steal funds from exposed wallets. Robbing everyone blind, starting with exchanges.
Mining Vulnerabilities: Using Grover’s algorithm, quantum computers can solve SHA-256 hashes significantly faster than classical computers. This would disrupt Bitcoin’s mining process and undermine its consensus mechanism.

Mitigating the Quantum Threat

While the risks are real, several mitigating factors and solutions exist:

Timeframe for Development: Quantum computing technology is still in its infancy, but it has made huge strides via Google! Luckily, today’s quantum computers lack the stability and computational power to break Bitcoin’s cryptography. Experts suggest it could take 10 to 20 years or more for quantum computers to pose a credible threat, but with the introduction of AI and recent strides, we don't know the true timeline. I suspect it may be much shorter.
Limited Public Key Exposure: Bitcoin wallets are only at risk if their public keys are exposed. When funds are stored in a wallet that has never been used to make a transaction, its public key remains hidden, reducing the immediate risk for dormant wallets.
Upgradable Protocols: The Bitcoin protocol is not static. Developers are already exploring quantum-resistant cryptographic solutions, such as lattice-based cryptography. These new algorithms could replace current ones, ensuring Bitcoin remains secure in a post-quantum world. However, the Bitcoin community has never really agreed on anything, especially when it comes to halving the coins. So will they be able to move fast and nimbly enough?

The Path Forward

Short-Term: Bitcoin’s security remains robust against current quantum capabilities. For now, other threats exist, but they are not in the scope of this article. However, it's worth noting that there are other cryptocurrency coins created using technology that are supposedly quantum-proof. So, these dangers are known to some in the community. But whether they can succeed or catch on in popularity is a topic for another article.
Medium-Term: The Bitcoin community must prioritize implementing quantum-resistant cryptographic upgrades if quantum computing progresses rapidly.
Long-Term: As quantum technology matures, it will drive innovations in cryptography and security, enabling Bitcoin to adapt and thrive in the face of new challenges. That is the hope, of course...

Conclusion

Remember that those developing quantum computing have little incentive to reveal how far along their technologies truly are. A foreign country with interests opposed to the United States could develop advanced quantum computers in secrecy. Such an entity might quietly exploit vulnerabilities in Bitcoin’s cryptographic systems, robbing vast amounts of cryptocurrency before any public announcement.

While this scenario is not guaranteed to occur, it remains a possibility. As controversial as it is, Bitcoin must prioritize becoming quantum-proof to mitigate this risk if such a transition is feasible. Failure to act swiftly could lead to severe consequences for the cryptocurrency’s future.

For those interested in a primer on how cryptocurrency works.

Mastering the Art of Japanese Candlestick Reading

2026-04-26T12:11:00.000-07:00

Throughout my decade of trading, one of the most important skills needed to be successful in the Stock Market is mastering the art of Candlestick reading. Candlestick reading can give you an indication of highly accurate future price movement.

There are easy patterns, complex patterns, fake patterns, and so forth in Candlestick reading. That is why a careful study and countless reviews of thousands of candlestick patterns over decades of stock charts will be required to give you the experience needed to develop an edge in the Stock Market. This article will provide an overview of Japanese Candlesticks and my thoughts. Hopefully, that will inspire you to master your art form of interpreting them when chart reading.

The Basics of Japanese Candlesticks

Candlestick roots originate from Japan, where it was a part of the technical analysis of the merchants trading rice in the 17th century. It is believed that a well-known rice trader named Munehisa Homma, belonging to Sakata, was the first to develop candlesticks. Though its present form was conceived by Charles Dow of the US in 1900, most of its guiding principles remain the same.

A candlestick may be defined as a form of a price chart used for technical analysis of a particular security. It shows the opening and closing prices and the highest and lowest prices of a stock for a given period. The fat and wide part of the candlestick is known as the real body. It compares its closing price with the opening price, indicating whether the stock closed higher or lower than the actual price. Take a look at the picture below, taken from Wikipedia.

Why Learn Candlesticks?

Broadly, candlestick charts show a specific stock's opening/closing and highest/lowest price for a specific period. By reading the stock behavior at a particular time via candlesticks, certain patterns can form that hint at future price movement. This is the most important aspect of candlestick reading: the ability to predict future price movement! Several types of compelling candlestick patterns can predict future prices. I love to combine Japanese Candlesticks with my other favorite technical indicators for a powerful and very accurate trading system.

Types of Candlesticks

Some of the most famous candlestick patterns include (the goal is to know these by heart):

Dragonfly
Hammer
Morning/Evening Dojis
Bearish/Bullish Harami
Engulfing Bullish/Bearish
Gravestone
Big Candles
Dojis
Dragonfly and Gravestone

Look at the cheat below for a representation of many of these patterns listed above.

How To Make Money With Japanese Candlesticks

Below is an example of very powerful candlestick patterns that can be exploited to make money if they can be identified in real time. However, I must emphasize that studying these patterns in the past and during the present requires a lot of backtesting and practice. This is where the "art form" comes into play.

The Bottoming Hammer (chart taken from Investopedia).

The Gravestone Doji hints at a bearish reversal. (chart taken from Chart Formations)

There are an endless number of simple and complex patterns to learn and explore. I go into depth about incorporating Japanese Candlesticks into a trading system, as well as covering the top 5 best patterns to trade.

For a more advanced starting point, head over to Amazon and check out many of the books, such as Japanese Candlestick Charting Techniques.

Conclusion

Chart and candlestick reading is an art. Make sure you understand it, and as the time comes, you will gain experience in reading these patterns to maximize your money in the market. It's important to remember that none of these chart patterns guarantees that you will end up a winner in the stock market. However, following candlestick patterns can increase the chances of you ending up in a winning zone--which very few have been able to achieve. That is why you must master reading them and not simply memorize them. Remember, mastering involves going over countless charts over the last few decades, as well as trying to predict in real-time as the candlesticks are formed.

The Truth About Technical Indicators: The Good The Bad and the Ugly

2026-04-25T11:00:00.000-07:00

When first introduced to technical analysis, it can be overwhelming and quite confusing, as a lot of jargon is thrown around. As the years go by, I focus less and less on technical indicators (chart patterns are much more useful, and I don't mean patterns like head-and-shoulder patterns). I find the indicators out there to be ineffective since they are so overused by trading robots and retail traders, thus taking the edge away.

The Reality of Technical Indicators

Early in my trading career, I followed Tom McClellan, and he has always emphasized not to use the same tools everyone else does, as it takes away the edge. I have always taken that as motivation to find new/unique ways of interpreting indicators. For example, with the RSI, I don't look at it to tell me whether a stock is overbought or oversold; there is so much to the indicator that many don't discuss (or notice). In fact, trying to use it to tell if a stock is overbought or oversold is inaccurate and hard to profit from its signal. Ever notice that when a stock is more overbought, it just keeps getting more and more overbought? That's not a very useful way to exit/short a stock. However, I would rather keep the ways I read them to myself and maintain my edge. The point is, try to think outside the box, even when looking at other indicators, don't just go with the way everyone else reads them.

I cringe when people draw wedges and trend lines, saying, “Here’s a great setup”. Sure, these setups work occasionally, but often the stock trades sideways, going nowhere. Remember, just because something works occasionally doesn’t mean it’s profitable. It’s an insult to think that the market can be simplified by drawing lines on a chart. In reality, thousands of forces come together, giving the appearance of random movement with a bias towards trending higher (the market always goes higher as time passes).

It's important to understand the edge in everything you are doing, i.e., if you want to trade trend line setups, you need to make sure it actually has an edge. Remember, the key to trading is to beat the buy-and-hold strategy. So, if you are making money, it’s not enough,h it’s about making more than you would if you just held.

The Best Technical Indicators

My top 2 favorite indicators are RSI and Bollinger Bands. RSI is a very accurate way to represent price without all the noise. Basically, it measures how the speed and change of price movement, you can read more about the RSI here.

My absolute favorite indicator is Bollinger Bands. I cannot trade without them.

From Wikipedia:

Bollinger Bands consist of:

an N-period moving average (MA)
an upper band at K times an N-period standard deviation above the moving average (MA + Kσ)
a lower band at K times an N-period standard deviation below the moving average (MA − Kσ)

In short, it gives a range of what is statistically possible regarding price. So, 95% of the time, the price of a stock should be inside the bands. Therefore, being outside the upper or lower band is one of the most reliable ways to tell if a stock is overbought or oversold. However, this is only sometimes the case, especially during an earnings movement or surprise news event surrounding the stock. As an example, the chart below is AAPL and the Bollinger Bands. Note how often the Bands acted in areas where the price would bounce from! But only sometimes!

There are plenty of video tutorials on interesting strategies on how to use Bollinger Bands. I have written an article dedicated to helping you master Bollinger Bands. Hopefully, the article will help you think outside the box and create/maintain an edge!

Japanese Candlesticks

Every stock trader and investor should be comfortable reading Japanese Candlesticks. Flat out, they are the most reliable predictor of future prices. I've written an introduction to candlesticks in Mastering the Art Form of Japanese Candlestick Reading. It's a good tutorial to truly understand Japanese Candlesticks.

Combining Japanese Candlesticks and Bollinger bands is a killer combination of a high-probability setup. For example, if you encounter a stock that has lost about 30% from its highs, and is sitting right on its lower Bollinger Band, with a hammer candlestick, the stock will likely bounce hard. Just take a look at the example below using Apple's weekly stock chart.

I discuss various tips and tricks regarding Japanese Candlesticks and my favorite patterns in the article. Keep in mind, technical analysis is most reliable when you have a cluster of signals. In the example above, it's the stock hitting the lower Bollinger band, as well as the formation of a bottoming hammer candlestick. Both signals indicate a bottom is forming, which means a bounce may occur. That is the type of setup you want to look for (multiple signals confirming a direction).

Conclusion

I wrote this blog post to inspire people to focus on Bollinger Bands and the RSI, and to try to find new, innovative ways to use them compared to the current crowd.

For the dedicated reader, feel free to explore the Stock Market Education Library on this site, which includes countless articles on various indicators, giving you hints and tips on applying them and making money.

The Stochastic Oscillator: The Best Momentum Indicator?

2026-04-23T13:17:00.000-07:00

Day and short-term traders use technical indicators to analyze price movement for a short period, while long-term investors also use technical indicators to identify entry and exit points. There are two main types of technical indicators, which are:

Oscillators: These are technical indicators that oscillate between a local minimum and maximum; they are plotted above or below a price chart. Examples include the Stochastic Oscillator, Moving Average Convergence Divergence (MACD), or Relative Strength Index (RSI).
Overlays: These are technical indicators that use the same scale as prices and are plotted over the top of the prices on a stock chart. Examples include moving averages and Bollinger Bands.

The Stochastic Oscillator is an indicator that compares the position of a security's closing price relative to the highest and lowest prices during a specified period, typically 14 days. It gives readings that oscillate between zero and 100 to indicate the momentum of a security's price movement.

George Lane, a financial analyst, developed the stochastic oscillator in the late 1950s for use in the technical analysis of securities. He was among the first researchers to publish papers on applying stochastic indicators, especially compared to the Elliott Wave Theory and Fibonacci Retracement. In addition to gauging the strength of price movement, the oscillator can predict market reversal turning points.

Stochastic Indicator Calculations

The Stochastic Oscillator is plotted as two lines: %K and %D.

%K = 100(C - L14)/ (H14 - L14)

Where:

C = the most recent closing price

L14 = the low of the 14 previous trading sessions

H14 = the highest price traded during the same 14-day period

%K= the current market rate for the currency pair

%D = 3-period moving average of %K

This formula works based on the assumption that closing prices are more important when it comes to predicting market conditions.

How to use the Stochastic Indicator

When the security price is making a new high or low that is not reflected on the Stochastic Oscillator, divergence occurs. It is worth noting that the Stochastic Oscillator may give a divergence signal sometime before price action changes direction.

For example, when the oscillator gives a signal of bearish divergence, the price may continue moving higher for several trading sessions before turning to the downside. The failure of the oscillator to reach a new high alongside price action indicates an impending market reversal from an uptrend to a downtrend. You can see an example below using Apple's ($AAPL) weekly chart, where the oscillator did not confirm the new highs.

Similarly, a bullish divergence occurs when the market price makes a new low, but the oscillator does not move to a new low reading. Bullish divergence indicates a possible upcoming market reversal to the upside. This is the reason why it’s recommended to wait for some confirmation of a market reversal before entering a trading position. The 15-minute chart is the best time frame for day trading because it is not too fast and at the same time not too slow. Trading decisions should not be based on divergence only, but in combination with other elements.

Overbought and Oversold Levels

Another use of the indicator is to identify overbought and oversold market levels. When the Stochastic Oscillator value goes above the reading of 80, we are in an overbought market condition, which indicates that if you already have a long position, you should start reducing your position size or look for opportunities to sell the underlying asset. Conversely, when the Stochastic Oscillator value goes below the 20 reading line, it is considered to be an oversold market condition, which shows that if you already have a short position, you should start reducing your position size or actively look for opportunities to buy the underlying asset

Even though the overbought and oversold signals generated by the Stochastic Oscillator are quite reliable, it is important to note that these signals work best during a range-bound market. However, during an uptrend market, the Stochastic Oscillator becomes overbought, and during a downtrend market, the Stochastic Oscillator becomes oversold at a very fast rate and gives the illusion that the market is about to reverse.

Beginner-day traders usually complain that they placed a buy or sell order during an uptrend or downtrend after seeing an overbought or oversold signal generated by the Stochastic Oscillator, which resulted in a loss.

These issues with the Oscillator are why reading technical indicators is much more of an art. Where experience and the use of other indicators and elements in combination will decrease the probability you will get a fake signal, thereby maximizing your profits.

Conclusion

When used optimally, the stochastic indicator can help you gauge price movements a lot better in both trending and range-bound markets. It is possible to develop a strategy that produces sound signals regardless of whether the market is trending or range-bound. Stochastic divergence is the most useful indicator because it can be used with other indicators to eliminate losing trades and make entry signals more accurate.

I recommend back-testing the indicator, with as many charts as possible, and observing it in real-time, and see if an edge can be added to your current trading system, or simply create one from the start with the Stochastic Oscillator.

Measuring the Edge Of Your Trading System: Is It A Winner?

2026-04-19T17:59:00.000-07:00

Often, I hear many traders discuss making gains on certain trades in terms of net profit, such as "I made $10,000 on a swing long trade on XYZ." They will also say, "Made 5% on XYZ for a day trade." The biggest problem is that average traders need to understand the importance of analyzing performance metrics for their trading system or method. In Quantitative Systematic trading, the risk and performance metrics are the most important analysis of your process. Over the years, there has been a range of conflicting opinions on what is most important. The three most important metrics are P-Fac, Win-Ratio & Maximum Draw Down, but for now, we will focus on the importance of the Win-Ratio.

The Win-Ratio calculation:

#Winning Trades / #Losing Trades

The win ratio only focuses on the probability of your signal, system, or process's success after the trade has been executed and then closed. If your trade after the said signal has a positive return value, it's considered a win; if negative, it is a loss. Win Ratio is the method to calculate the positive or negative probability of your trading or system. Probability measures and evaluates the following: Risk, Luck, Likelihood, Chance, Uncertainty & Randomness. If these concepts are important to your trading, then you must consider probability, since it is the only way to factor in these concepts, deal with them properly, and evaluate your system's performance.

The win ratio is important because it shows the percentage probability of your signal being correct, and naturally shows you the edge you have in being right and having a profitable trade on said signal & position. The higher the Win-Ratio, the more probable your system's market-timing ability is and your strategy's robustness. The key to analyzing the Win-Ratio metric is not just the "higher the better" but how consistent the Win-Ratio is. This is where large samples of data come in. To eliminate bad data and misleading performance metrics, you have to test the system's signals on a large sample of data. To have statistically valid data from sampling to derive a reliable performance metric, the rule is always at least 100 trades, preferably 1000 trades or more, and of course, the more trades the better when calculating the win ratio.

So, for example, if you have only 10 closed trades and 8 of them were winners and 2 of them were losers, your Win-Ratio would be 80%. However, this is misleading and false since the sample size of the trades is too small to be consistent. The key is going back as far as possible with back-tested data or historical trades the further back you can go the better & more reliable the Win-Ratio is (some say further than 10 years is too much due to market regime change but that's a different debate which can be easily solved by comparing the 10 year to the X period longer and measure the difference) so in short the higher the number of trades and longer periods tested, the more consistent the Win-Ratio. The more consistent the signal, the more robust the signal/system becomes.

In conclusion, the Win Ratio is a fantastic performance metric for analyzing your system, signal, or trading.

How To Create A Stock Trading Edge

2026-04-14T20:17:00.000-07:00

“90% of traders fail.”

It’s a phrase that almost all traders have heard at least once in their trading journey. Some might have experienced it and quit already, while others have overcome it, and some are probably thinking about quitting now. This post is for traders still struggling to find their path to consistent profitability and for winners trying to maximize their edge even further.

Trading is a field where the odds are stacked against you. It’s your job to choose the right instruments to trade, the right side of the trade, and the right strategy to execute at the right time if you want to stay afloat in the game. Getting so many things right can be difficult for a new trader.

Setting yourself up for success in trading is simply having a strategy or a system with a positive expectancy, in simpler terms, if you trade, you should make money over some time or over a certain number of trades. Some call this having an “edge” in the market.

What Is A Trading Edge?

What does having an “edge” in the market mean? What is an “edge”? An edge is simply having a well-defined, well-tested trading system or a strategy that tilts the scale even if just slightly - in your favor.

From the highest tier of trading - HFTs, institutional traders, etc., - their edge is simple - it’s the speed of execution and speed of information. We (retail traders) can never compete against them. Next tier of traders - small prop firms - their edge? Experience in the market and heavily backtested systems designed by the brightest quants in the field. They, too, are a tough bunch to compete against. Finally, we have retail traders with lots of money and who can read the market accurately purely based on decades of experience. At the bottom, we have new traders with barely any money and no experience.

So… now that we’ve clearly defined what an “edge” is and how far back of the race we are starting. What can we do to create an edge or find an edge of our own?

How To Create An Edge

Let’s start simple: Say, you have just started and you have 10 trades under your belt where you traded based on some simple strategy you derived or learned from.

What’s next? Improve the strategy? - How?

If you are losing money, is it the strategy’s fault? Or your fault? - How to determine this?

Based on the above questions, how can you find your “edge”? The answer to all of these questions is quite simple. In fact, we bet most of you have already done this in a different context many times. Remember studying for tests in university & school? If you did badly on a test, would you simply throw away your answers and go in blindly to the next exam? Or did you analyze your answers, find faults, and re-studied the material in which you thought you were weak?

The same concept applies to trading. But a very small number of traders understand this. Here’s a PnL curve of a real trading account for 60 days:

Looking at the graph above, one may wonder, what happened? Why was the performance so inconsistent? Were the initial gains just due to luck? Perhaps favorable and easy market conditions? The answer is simple: this is simply a system with no trading edge.

Always remember: Unless you have a solid, well-tested trading system, no matter how much earn in good market conditions or at the beginning of your trading journal, it’s not a question of “if” you will blow up your account - rather, it’s a question of “WHEN” you will blow up your trading account. Just like in the example above.

How do you go about finding your trading edge in the mess above? The answer, once again, is very simple: use a trading journal or spreadsheet that has enough features to help you figure out all the good and bad parts of your trading.

Here are some of the biggest losing trades the trader in question incurred from the PnL graph above:

Here are some of the biggest winning trades:

How would you go about filtering the good from the bad, other than just the PnL?

There could be a million reasons why you lose a trade. But the real question is, how do you stop making those losing trades?

Here is the analysis you need to do to figure out why you keep losing:

What times are you best at trading? Market open? Market closed?
What size do you feel comfortable trading with?
What asset types are you good at? Options? Stocks? Futures?
Are you good at swing trades? Or short intraday scalps?
Going long? Going short? What’s your winning percentage for these trades?
Do the market conditions (like RSI/ATR of popular indices) affect your win rate?

Sounds complex? It’s not. Analyzing your trades and system can be done via hand or various software out there. This article will walk you through how to do this. To make this as easy as possible, we will use TradesViz.com, a free trading journal software.

Optimizing Your Stock Trading Edge

Using TradesViz, after importing your trades, it will break down your system in an easy-to-understand manner, as shown in the picture below.

As shown in the picture above, TradesViz pointed out that 87% of the trading system losses were a result of trading stocks within the range of $10-$21.

Who would’ve thought this person absolutely would have lost so much money just trading above the $10 price range? The steps to follow here are to break down why the trader is losing in this range, or simply just avoid this range for now and re-evaluate in the future.

Here’s how the chart would’ve looked like if we removed those trades:

Here’s another example:

Premarket trading is another aspect where this trader is losing money. This money leak can apply to a lot of traders who try to get in before the news/market-open-based price changes, but this is often very risky (as pre- and post-market are easily manipulated to sucker in retail traders).

With just two removals of trading behavior—i.e., trading > $10 and trading in pre/after hours—we’ve made massive improvements to our system. Now, it’s time for forward testing, where you strictly follow these rules and compare your performance before and after. Once again, this can be done with the strategy compare tool.

Stock Trading Metrics

One of the important statistics you need to keep track of is, what is your average profit factor.

Stats such as max pain/average wins/losses, etc., all can be easily found in the overall statistics tab of TradesViz, or you can do this via an Excel spreadsheet.

We only explored how 2 very simple trade-based properties - i.e., trade time and trade price affected your overall performance. TradesViz has identified 50+ other attributes to analyze a trading system, which is used to optimize trading systems. Their blog breaks down the various visualization tools they use to identify leaks in your trading system. It's a good starting point for those serious about trading.

Here’s another example with visualization using a histogram chart:

These charts give us an easy-to-understand analysis of our trades. A quick glance tells us this trader is bleeding money and trading tech stocks. Losing via trading tech stock is very common, as tech stocks are at the forefront of FOMO. Especially during earnings times, options of these stocks become very risky to trade. But there would be 10 other reasons why the performance is bad.

How to find that? You can add filters to your spreadsheet/journal, where you simply filter the stocks by the tech sector and repeat the analysis we did previously! TradesViz Blog breaks down many types of useful filtering, which can be used to continually find leaks and edges in your system.

We just found that the low-price range stocks that this trader did not perform well in are pretty much ALL tech stocks

Like this, simply refining what you have, focusing on the good parts of your system, and learning how to avoid large losses can itself be a trading edge for you. This is done by simply taking the time and analyze your system and not blindly following other Traders on Social Media or on Reddit.

Conclusion

This article shows how changing minor things with your trading strategy can greatly affect your trading performance. Depending on your computer savviness, it might be difficult to do all of this on your own without any assistance from an advanced analytics platform like TradesViz.com (free to join and use), but it can be done using spreadsheets (either via Excel or Google).

As we showed, once you have identified your flaws, all that is left to do is be disciplined and strictly follow the rules you put in place. This is the hardest part of trading. You might find an edge with complex analysis and backtesting, but the execution of your trading system/edge is purely done by you, so with your dedication and effort to adhere to the rules of your system, you are inevitably going to fail. However, if you do pull this off and are used to this cycle of analysis -> testing -> putting it into practice, you’ve just gained a skill to consistently make money for the rest of your life.

For those who want to actually want to create a trading system, please follow the tutorial shown: How To Create A Trading System. If you are interested in improving your overall trading skills, be sure to check out our recommended books for stock trading.

Why You Should Never Short Stocks

2026-04-11T10:58:00.000-07:00

If you want to be a winning trader, you should never short-sell stocks EVER! I know shorting seems very lucrative as stocks go up slowly, but it takes a split second to plunge; that is why shorting is an art, and timing is everything (unfortunately, timing often is random).

People tend to short stocks for the reasons listed below:

You think the stock is overvalued.
You think the stock went up too fast.
A famous short-seller put out a short-seller report (i.e., the stock is fraudulent)

There are several approaches to shorting, one is doing the fundamental "short", where the trader in question has spreadsheets and their model shows the stock is severely overvalued based on earnings, growth, debts, etc.

Another approach is a short based on technical analysis (stock charts), where your technical analysis determines that the stock is in a downtrend.

There are issues with both approaches; the first is that the Market no longer runs on P/E ratios. Since the technology renaissance started with companies like Apple, Tesla, Google, and Facebook, stocks have traded on hype. They no longer follow the old-school fundamental models. Just look at what happened to stocks like Carvana and cryptocurrencies like Bitcoin.

The second approach is based on Technical Analysis. I'm sorry, but your technical analysis isn't that accurate. Too many people are using it, making it less reliable, leaving you vulnerable to margin calls or severe losses with put options. However, if you had to short a stock for whatever reason, the route would be via put options, at least limiting your potential losses. Shorting a stock directly can expose you to infinite losses!

For those following the short reason of #3, where a famous short-seller puts out a famous report (like Citron Research), they often make a ton of money on the initial scare. If you look at the majority of their track record, you will often see it's awful! Their short thesis revolving around being overvalued should usually be ignored. However, a short-seller can really nail it with stocks entangled in fraud, and that’s when you should move out of the way (i.e,. Luckin Coffee got exposed and went nearly to 0 before bouncing back almost half a decade later).

In the last few years, stocks like GameStop ($GME) and $AMC have pulled off some epic short gamma squeezes! This has caused many hedge funds billions of dollars. Do not be short! The market isn't rational; it does what it wants. Sometimes you get so caught up in the emotions of trading that you forget that no matter how right you think you are and no matter how over-valued you think the stock is, the market is boss. Remember that!

Epic examples of "easy" short trades in recent years have ruined trading careers and forced early retirement for many of those who continued to remain short Tesla ($TSLA) and GameStop. Around 2011, Amazon was a huge short target, and many articles were published on Seeking Alpha on why it should be shorted. Currently, at the time this article was written, it is trading at 10X what it was during that time!

Often, it is just best to avoid shorting altogether. If you trade/invest in large-cap stocks, you will make money as the Market in the long term always goes up (despite the 2000/2008/2020 Market crashes).

As a reminder, the chart below shows the S&P 500 for the last twenty years. Does this look like a chart you want to shorten? especially in the last ten years, when the market was driven by the Federal Reserve printing infinite money.

You may be right about a stock being overvalued, but you don't have the resources to efficiently short it and become profitable over the long term. Maybe you get one or two lucky trades, and that will give you false hope. In conclusion, NEVER SHORT, and if you must, do it via put options. However, options are also dangerous, and I have also covered why in depth in the linked article.

How To Trade Using Elliot Wave Theory

2026-04-08T22:49:00.000-07:00

The financial market is one of the avenues that allows innovativeness. The more innovative you are, the more money you will make, period. After spending some time with the graphs and understanding the price action, you can develop a system that will give you an advantage over other traders. Your system should work and have some supporting evidence to back it. That is what Ralph Nelson Elliott did to develop the Elliott Wave theory.

After Elliott was forced into early retirement due to illness, he was left with various price action graphs and studied them to understand the market price action. Ralph was able to identify fractal wave patterns that kept recurring. These waves could be seen in stock price movements and consumer behavior, representing recurring long-term price change patterns directly related to changes in the sentiments and psychology of investors.

The pattern consists of two waves, impulse waves that create the trend and the corrective waves that oppose the larger trend. These waves are then fitted into larger sets of waves that have the same impulse and corrective pattern. This investing method is called Elliot Wave Theory.

Technical traders have profited from using Elliot Wave theory since the late 1930s. The reasoning behind the trading method is that the stock prices can be predicted as they move in up and down patterns referred to as waves. These waves are a result of the psychology or sentiments of investors.

As a trader with over 10 years of experience, it's pivotal to understand Elliot Wave Theory, as stocks do move in impulsive and corrective waves. However, there are severe limitations on how it should be used. In this article, I will summarize the key takeaways from Elliot Wave Theory to help you make money swing trading (as I have yet to discover its value in other types of trading timeframes).

Elliot Wave Impulse waves

These waves are composed of five sub-waves that form the net movement in the same direction as the trend of the next largest degree. It is the most prevalent motive wave, hence easy to identify in the market. Like all motive waves, it has five sub-waves, where three of them are motive and two are corrective. This creates a 5-3-5-3-5 structure. The 5-wave structure is shown below.

The formation of this wave is governed by three cardinal rules:
The second wave cannot retrace the first wave by more than 100%
The third wave can never be the shortest of the waves 1, 3, and 5
The fourth wave cannot surpass the third wave at any given time.

If the pattern doesn't follow the above rules, it cannot be called an impulse wave. Check out an example of an idealized Impulse Wave shown below.

Elliot Wave Corrective Waves

They are also referred to as diagonal waves. These waves comprise three or a collection of three sub-waves whose net movement is in the direction opposite to the trend of the next largest degree. The corrective wave is further subdivided into five sub-waves, with the difference being that the diagonal looks like either an expanding or contracting wedge. Note that corrective waves also follow the rules of motive waves.

To complete the process, the impulse and corrective waves are then fitted into a fractal with similar shapes to create a larger pattern. For example, a 30-day chart may be in the middle of a corrective wave, but a 7-day chart may indicate an impulse wave that is developing. This will give the trader with this combination a long-term bearish approach with a short-term bullish approach. An example of a corrective wave is shown below via the ABC label,s which is the "3" structure described in the Impulse Wave section above.

What You Should Take Away From Elliot Wave Theory

This section is going to be quite controversial, as I lay out my thoughts on Elliot Wave Theory and what you should take away from it to make money trading. Keep in mind I have been a winning trader for the last decade, so my opinion does have weight to it.

I have seen many traders and blogs dedicated to trading via Elliot Wave Theory. I am sorry to say that it simply isn't a profitable technique of trading. One reason I believe this to be the case is the excessive use of Elliot Wave theory, where there can be so many subjective interpretations of what the current wave count is, and what is corrective versus impulsive. It simply does not have an edge.

I do realize Elliot Wave Theory does have a huge following with people spending hours and hours a day dissecting charts and figuring out what cycle a current stock or index is in. Despite my negative stance on trading purely with Elliot Wave Theory, I do believe understanding its idea is key to being profitable in swing trading.

As Elliot Wave theory describes, stocks do not go directly up; that is the main takeaway from Elliot Wave Theory, which everyone should understand. This is key to swing trading as stocks move very similarly to the impulsive and corrective waves in Elliot Wave Theory. Understanding this will give you patience in swing trading stocks, and not panic when a corrective wave occurs in the stocks you are trading.

Conclusion

The Elliott Wave Theory is subject to the investor as it is used for different wave analyses. It is therefore important to note that this is not a trading system but a way of understanding the price action movement in the graphs at a deeper level, which gives you the conviction not to panic once your stocks don't go straight up. For those interested in understanding Elliot Wave Theory in much more detail, I recommend Investopedia's introduction to Elliot Wave Theory.

Dissecting My 95% Winrate Trading System

2026-04-04T12:25:00.000-07:00

A trading system is everything when it comes to navigating the unpredictable and challenging stock market. I've mentioned it countless times in this blog and on X (Twitter). I've never disclosed my trading system, and I have no plans to. However, this article aims to break down the bigger details about my trading system and provide hints and tips to help you develop your winning system.

The Trading System

My trading system is quite unique. I’ve perfected it for almost a decade with countless hours of backtesting and real-time analysis. It’s definitely something I have yet to see in any public trading system that even remotely resembles it. Throughout the years, it has become quite profitable. I have managed to beat the market over the last decade using it. There are years when the market beats my returns, but as a whole, over the previous ten years, my system has come up at the top!

What people may find hard to believe about my system is that I can count the number of trading losses I've had since 2016 on one hand. Here's a breakdown of my stats since then.

I've had 55 wins and just 3 losses. Where two losses were less than $1000 on experimental option trades. The other loss was during the COVID-19 lockdown where I decided I would sell $SPY and put the money in $SPCE because the return would be greater (which ended up to be true).

Why I Have a 95% Win Rate

Without discussing my trading system in detail (as giving it away would remove the edge I have over everyone else), I'd like to share a few tips, hints, and facts about it that may help you in your trading journey.

Below are a few facts and tips about my trade system that help me become a winning trader

I rarely trade options. Options put time constraints; there is too much noise short term, and options are designed for you to lose.
I don't trade as my sole source of income. I have a regular job. With my trading system, I do not need to stare at the screen nonstop. You shouldn't have to either. This alleviates a lot of pressure, and I don’t need to force a trade. Your goal should be trading as a supplement, not your sole source of income!
I don't let large swings affect my emotions. There are times when I am down 6 figures due to volatility. None of it affects my emotions. Because I only invest in what I’m comfortable with.
I trust my trading system. I've had this system for the last 10 years. However, Market conditions continually change so do the nuances of my trading system. So even when I'm on the sidelines, I'm still studying and thinking of ways to adjust. In other words, always pay attention to the market and look for new edges to exploit!
As per #4, I don't trade just to trade period. I do have FOMO, but I try to take a break and walk away from the keyboard. I eventually got over it.
As I mentioned in #4, Market conditions continually change. At the moment, I love trading select stocks that went parabolic and then proceeded to crash. This is a tricky area as some of these stocks will never recover from their peak highs. This is where a strict trading rule set and experience come into play.
Whenever I invest in a stock, I do some basic fundamental analysis. I need to understand the business model or be passionate about the company. Otherwise, when things go bad, I may have trouble holding on.
I don't get greedy. Sometimes, I will sell for <1% profit if I'm just not in the mood for a trade. I can change my mind! I’m very flexible and understand my initial thesis can be wrong in the blink of an eye.
I don't read other people's opinions; that's just a death trap. Even as an experienced trader, I can be affected. Hence, you can see I rarely follow other traders on Twitter (X).

For those who are dead serious about trading, I have written an in-depth article that provides a step-by-step process on how to create a trading edge using your current trades. The information provided here is something I have not seen anywhere else on the internet, as it really competes with those trying to sell you trading services. After all, if I can teach you how to fish, why would you continue buying fish from others?

Ultimately, what makes a successful trading system with an insane win rate is a world-class technical analysis technique as well as hard-earned experience( I continually learn every day, as I don’t trade perfectly and make countless mistakes). There really is no shortcut to experience; sometimes you just gotta learn through the pain and losses.

Hopefully, this article inspires you to improve your trading and brings you one step closer to your trading goals. If you are looking for more stock market educational content, check out How To Create a Stock Trading Gameplan.

Should You Trade Out-Of-The-Money Options?

2026-04-01T10:41:00.000-07:00

Options enable investors to trade contracts worth 100 shares of stock that expire by a given time. Investors then leverage these contracts by betting on where they think the stock price will be by a given date. New investors turn to options due to their “cheapness” compared to buying underlying shares of stock. If investors were to buy an option, they could purchase this contract from a seller for a small fee, otherwise known as a premium. With this contract in hand, the investor can hold it until expiration, assuming the selected price will retain its value, or they can sell the contract back into the market for an additional premium to collect. However, investors don’t often consider the risks associated with options trading.

Trading Out Of The Money Options

Let’s examine a popularly traded stock, such as Apple ($AAPL). Currently, $AAPL is trading at $130.81 a share. If I were to own one share of $AAPL, I would have to invest $130.81 to buy a share. It’s quite logical, right? Theoretically, by next week, $AAPL was to increase 2% in stock price to $133.42. What would happen if an investor were to buy an unlikely profitable out-of-the-money call option on $AAPL that expires next week? Well, for example, let’s say that this investor purchased a $135 strike for next week’s expiry on $AAPL. Instead of spending $130.81 to buy a share of stock, this investor will only spend $122 to hold the contract worth 100 shares of stock, which will ultimately be cheaper than buying one share but will offer significant leverage on the investment. Little do most investors know, this leverage doesn’t guarantee any profits if the stock goes up in price. Since $AAPL increased in stock price by 2% to $133.42 a share, the investor will ultimately lose their entire investment. Here’s why: since the stock didn’t reach the strike price of $135 by the date of expiration, the option expired out-of-the-money, resulting in becoming a worthless contract.

Don M. Chance, author of Introduction to Derivatives and Risk Management states that options trades should be blamed on the investor, not the brokerage. He quotes, “Is electricity to be blamed when someone with little knowledge of it mishandles it? Is fire to be blamed when someone using it becomes careless?” Chance proposes a unique perspective on options. Instead of blaming brokerages for the mistakes of enabling inexperienced investors to trade options, he claims that the investors themselves are the problem of exposing themselves to the underlying risks. The reason that investors lose a lot of money when they trade options is because of their poor risk management. Far too many investors don’t realize that they’re taking a significantly higher risk when leveraging compared to buying shares of the underlying stock.

Ultimately, this poor risk management and lack of stability cause millions of portfolios to be wiped out, resulting in larger corporations taking advantage of such foolish investments. Unfortunately, viral and super-lucky trades of gamblers striking the lottery with out-of-the-money (OTM) options have given a lot of traders false hope. The subreddit WallStreetBets is partially to blame, giving the impression that traders can return 1000-10,000% "YOLO trading options".

For those interested in understanding how options are priced, including Out-Of-The-Money options, please check out What You Should Know About Options Pricing. For more information about options in general, please check out Why Options Are Dangerous.

For those who still want to trade options, I break down several profitable option trading strategies that will help tremendously when dealing with out-of-the-money options.

Elder Impulse: The Perfect Trading System?

2026-03-30T22:07:00.000-07:00

What is the Elder Impulse System?

The Elder Impulse System (Alexander Elder) is a simple trading framework that combines a 13-period Exponential Moving Average (EMA) to define trend and the MACD Histogram to measure momentum. When trend + momentum agree, the system highlights “impulse” buy/sell conditions using color-coded bars.

Quick Summary

Green bar: trend up + momentum up → bullish impulse
Red bar: trend down + momentum down → bearish impulse
Blue bar: mixed signals → no impulse / neutral
Works best when you align your trades with a higher timeframe trend

Jump to: How it works · Signal rules · Timeframes · Entries & exits · Conclusion

When you’re starting to trade, it helps to learn structured systems used by professionals. The Elder Impulse System, designed by Alexander Elder and featured in his book Come Into My Trading Room , is a simple but powerful framework combining trend and momentum.

How the Elder Impulse System Works

The system combines two indicators:

13-day EMA: identifies the direction of the trend
MACD Histogram: measures whether momentum is increasing or decreasing

When both improve together, you get a bullish “impulse.” When both deteriorate together, you get a bearish “impulse.”

Signal Rules (Color Bars)

The ease of use comes from the color-coded bars (see the chart at the top). Here are the rules:

Green price bar: the 13 EMA is higher than the prior period’s 13 EMA and the MACD Histogram is higher than the prior period’s MACD Histogram.
Interpretation: bullish impulse (often a “go long” environment).
Red price bar: the 13 EMA is lower than the prior period’s 13 EMA and the MACD Histogram is lower than the prior period’s MACD Histogram.
Interpretation: bearish impulse (often a “sell / go short” environment).
Blue price bar: the conditions for green or red are not met.
Interpretation: neutral / mixed signals (many traders avoid new entries here).

In plain English: green = rising trend + rising momentum, red = falling trend + falling momentum. Blue means the system is telling you to be selective.

Timeframes (Trade in Harmony With the Bigger Trend)

Elder emphasizes aligning your intermediate timeframe with a higher timeframe trend. A simple heuristic he suggests is:

Higher timeframe ≈ 5× your trading timeframe
Example: If you trade the 60-minute chart, your higher timeframe is roughly the 4-hour chart.

This helps you avoid fighting the dominant market direction.

When to Enter & Exit the Market

Use the system as a filter:

Buy bias: higher timeframe trend is up and the Elder Impulse bar is green.
Sell / short bias: higher timeframe trend is down and the Elder Impulse bar is red.
Ignore: when the higher timeframe trend is unclear or bars are mostly blue (mixed conditions).

Example: If your intermediate timeframe is daily, check the weekly chart first. If weekly is in a clear uptrend, you prefer acting on bullish (green) impulses on the daily chart.

Conclusion

Elder designed this system to encourage a professional approach: enter carefully and exit quickly when conditions change. It’s meant to keep you out of low-quality, choppy trades where trend and momentum disagree.

I encourage readers to use a website like StockCharts to paper trade and test the Elder Impulse System. It’s a strong starter system that can be refined through practice and backtesting.

Below is an example showing how to use StockCharts with the Elder Impulse System:

I hope this guide helps anyone who wants to start using an actual trading system. Check out my other articles on indicators like ADX and RSI. And if you want a deeper system-based approach, check out: Using Ichimoku Clouds for Daytrading.

McClellan Oscillator: The Best Market Timing Indicator

2026-03-28T08:25:00.000-07:00

The ability to time the Market bottom of a correction is the holy grail of trading. There are not many tools out there that can consistently indicate when a rabid market correction is underway. Throughout my decade-long trading career, I have found one indicator that can consistently do so: The McClellan Oscillator.

The McClellan Oscillator's overall goal is to measure how much money is in the stock market. This liquidity measurement is useful because the more liquidity the Market has, the higher it will go!

What Is The McClellan Oscillator?

The McClellan Oscillator is an indicator used to show the breadth of the market in terms of advancing and declining issues in a stock exchange. The indicator fully reflects the changes in the sentiment of the market as an index; strong shifts in the index are referred to as breadth thrusts. Through divergence or confirmation, the indicator can also be used to measure the strength of the index trend. In other words, it can predict future rallies and also indicate when corrections are complete.

How To Read The McClellan Oscillator

The McClellan Oscillator tends to be much harder to read and interpret than other indicators. Take a look at the indicator below, where it's used to measure the breadth of the NYSE Composite Index.

An above-zero reading indicates that the index is on the rise, while readings below zero indicate the index is on the decline.

A combination of a rising index and a falling oscillator is a warning that the index is about to start going down, while, when the index is on the decline and the oscillator is on the rise, this indicates that the index is about to start rising. This is what is referred to as divergence.

A change that is noticeable, such as a move of 100 points or more from a negative reading to a positive one, is referred to as a breadth thrust. If this occurs, it may indicate that a strong reversal from a downtrend to an uptrend is about to occur.

Readings +150 indicate the indicator is overbought, while -150 indicates the indicator is oversold.

The McClellan Oscillator Formula

For those curious about how the McClellan Oscillator is calculated, take a look below. If you are simply interested in unlocking the power of this Indicator, feel free to skip this section and go to the one below.

Ratio-Adjusted Net Advances (RANA): (Advances - Declines)/ (Advances + Declines)

McClellan Oscillator: 19-day EMA of RANA - 39-day EMA of RANA

19-day EMA* = (Current Day RANA - Prior Day EMA) * .10 + Prior Day EMA)

39-day EMA* = (Current Day RANA - Prior Day EMA) * .05 + Prior Day EMA)

* The first EMA calculation is a simple average.

• When the 19-day EMA is below the 39-day EMA, this indicates that the market is on the decline, and vice versa. When the chart indicates that the movement is on the rise, the market is in the buying phas,e while negative values show that the investors are selling their stocks.

• Crossovers from positive to negative show that the trend has changed direction.

How To Use the McClellan Oscillator

I find the McClellan Oscillator has two incredible uses: the ability to foreshadow stock market uptrends and to time market bottoms.

The

McClellan Oscillator can foreshadow future strength in the Stock Market when the indicator spends several days (if not weeks) overbought. Where overbought is readings above 150. Tom McClellan has coined the term "a complex structure".

So, a complex structure is called a complex structure when the McClellan Oscillator is overbought for several days/weeks (readings above 150). Once this occurs, the market tends to pull back afterward, then thrust significantly higher in the upcoming months.

The McClellan Oscillator predictability ranges from 1-6 months (which I consider a medium time frame). So it won't give you predictable readings that span further out than that (leave that to the NYSI indicator,r the father of the McClellan Oscillator).

Let's take a look at the example below. The McClellan Oscillator was overbought for several days/weeks, forming a complex structure. As soon as it pulled back to work off the overbought condition, it appreciated 17% in the following months. This probably blindsided many bears if they were not paying attention to this indicator.

How To Time Market Bottoms

When the McClellan Oscillator hits below -150 (which is interpreted as oversold), it tends to be great at timing the Market bottom. Readings below -150 often signify the Market is about to rebound. Thus, buying around -150 is almost always profitable.

What's even more lucrative is when the Oscillator hits -300. This is often rare and occurs maybe once or twice in two years. When this happens, it tends to mark very significant long-term bottoms. Readings of -300 in the Oscillator are a great way to buy into indexes over the long term (for those who are wise and patient enough to invest in ETFs).

Take a look at the example below, where I have marked every reading of -150 in the McClellan Oscillator and a rare reading of -300. You can see how the Market rebounded each time!

Also, take note that once the Oscillator hit -300, the market bounced very hard.

Conclusion

The McClellan Oscillator is one of the few indicators out there used to measure the amount of liquidity in the market. As the general thesis is that the more money there is, the more likely the stock market will rise as a whole. As shown above, Complex Structures are a great way to foreshadow strong bullish moves in the upcoming months (1-6 months). On top of that, the McClellan Oscillator oversold readings, making a great case for timing Market Bottoms.

There are a ton of nuances when it comes to this indicator that take years of practice and studying to recognize. I've only mentioned two uses of this indicator, but hopefully have convinced you to add it to your trading toolbox.

If you enjoyed this article, check out How to Tell If A Stock Has Bottomed Out.

How To Create A Stock Trading Plan

2026-03-24T12:09:00.000-07:00

I'm sure you've heard countless times from various outlets about the importance of always having a trading game plan. However, let's be honest: most traders don't fully understand the proper execution of a trading game plan. Novice traders emotionally fall in love with a stock and ride it either down to zero or sell at a loss. Often, people will just follow others they deem experts (unlikely they are), and that's their trading game plan.

In reality, this is no way to trade. Eventually, your account portfolio will show this, as you will realize you cannot outpace Market returns in the long run. This begs the question: What exactly are you doing wrong? The answer is many things, from lacking an actual trading system to having the most basic trading game plan.

In this article, I will help break down the essence of a trading game plan. The aim of this is to have you become a much more solid trader, and one step closer to becoming the rare Market-beating trader.

Why Have A Stock Trading Plan?

The benefits of having a trading game plan are there to help you remove emotions from your trading; it's there for you to follow when you get caught up in either the stress of everything or the euphoria of holding too long as your gains fade. In other words, a trading game plan is there to help you maximize profits and minimize losses when your emotions become overwhelming.

When things become too much, whether it be your stock squeezing to the moon or your stock tanking due to general market conditions, your game plan is there to help guide you.

I have compiled a trading gameplan outline below, which involves a series of questions you should have answered BEFORE YOU ENTER ANY TRADE! This will help remove emotions, as trading often gets heated.

I doubt you will answer these questions optimally the first time you do it. But it's all about trial and error, about the 10th or 15th time you compose your game plan from the questions below, when you will see it's much different than what you originally came up with. Why? Because of experience, you're forced to think about your trades in ways you were not before!

Below are the questions that, when answered, become a solid trading game plan. Preferably, write this down, and answer these questions for each trade going forward. Make sure to review each game plan and figure out what went wrong and what went right as you continue to make trades in the market.

The Stock Trading Gameplan

How much of my portfolio should I allocate to this trade? This question is important as it helps you sleep at night. If you have too much of one stock and it goes bad, that's when emotions come kicking in with the bad decisions. Ultimately, you should be using something like the Kelly Criterion formula for how much you should allocate of your portfolio to one stock. It's all about risk vs reward.
Do I have a stop loss? If so, what price? This is a complicated question to answer. I have huge faith in my trading system; therefore, I do not trade with stop losses. But many people don't have such a reliable trading system. Always determine your stop loss before purchasing a stock!
What will I do if things go bad? Will you decide to average down or not? Will you hedge your position at the cost of profits? Will #2 trigger? Will you follow through and sell?
What is my stock price sell target? Sometimes, your stock will squeeze hard, and if it does, it may be naive to continue to hold. You may be caught up in the emotions as your stock continues to squeeze unexpectedly, that's why you should always have a sell target. So you don't get caught up and lose profits.
Why do I believe in this stock? This is very important; this really comes from your trading system. Whether the answer is the technicals or a fundamental story, or you simply believe WallStreetBets from Reddit will eventually squeeze the stock. Having an answer will allow you to not sell when you start losing patience or when things go bad (#3).
What is the catalyst for this stock (such as earnings, news events, surprise announcements)? You need to have price-moving catalysts mapped and follow updates daily because these things can change the fundamentals of a stock easily, whether it be for good or bad. I often hate holding on to stock during its earnings. So the majority of my game plan is "will hold until before earnings and re-evaluate".
What would make me want to sell this stock? Sometimes things change, maybe a stock has declared bankruptcy, but the price hasn't reacted that badly, and that is when you need to adjust things for #2 and #3 above. Because your game plan can't always be static! Similarly, on the upside say in #6, fundamentals changed for the positive, at that point you may want to readjust your trading game plan (for example, change your sell price target). It's important to be flexible at the same time, not emotional. It's hard to maintain that line, hence why trading often becomes a mixture of art and science.

Hopefully, this list can be the start of you having a trading game plan. With practice and iteration, you will see it start to maximize your profits and minimize your losses. Now all you need is a solid market-beating trading system, and that is not so easy to come up with (as Hedge Funds can't even beat the Market long-term without cheating).

Interested in more articles like this? Make sure to read more about Stock Trading Discipline, as well as Ten Signs You Are Probably A Terrible Trader, and finally, on How to Create A Trading Edge.

Explaining The Relative Strength Indicator (RSI)

2026-03-19T17:45:00.000-07:00

Trading financial instruments is a constant process of speculation. Knowing when to buy or sell an instrument helps ensure you rake in trading profits. This can be done by using tools that aid in predicting the future movement of the price of a stock.

What Is The RSI Indicator

The Relative Strength Index, also known as RSI, measures the momentum in the price movement. This means how strongly the stock is moving up or down. A strong movement in a particular direction may indicate a likely future trend, but it may also show when a stock is overbought or oversold. The RSI's ability to give multiple signals with high accuracy in predicting future prices is why it is one of the most powerful indicators available to traders.

How To Read The Relative Strength Indicator

Technical traders use RSI as a key indicator to measure momentum. RSI stands for Relative Strength Index and is between 0 and 100. Values above 50 show that an upward movement is likely to occur, while values below 50 indicate a downward momentum. The further the distance from 50, the stronger the momentum in either direction. Values above 70 or below 30 show that the momentum is so strong, indicating that the market is oversold or overbought. Often in extreme conditions, the price will move in the opposite direction briefly to alleviate the oversold/overbought condition

Look at the example below, which shows Tesla ($TSLA). The price bounced when the RSI was oversold, followed by a pullback when the RSI was severely overbought. Notice that as the price moved in the opposite direction due to the overbought/sold conditions, the stock returned to its original direction (up). This is another reminder that stock trading is just as much science as art.

RSI is measured through how often the market closes up vs closing down and by what margin. It is calculated through the use of two relatively simple formulas:

100

RSI = 100 - ---------

1 + RS

RS = Average Gain / Average Loss

Therefore, the relative strength is measured by taking the average size of all the up moves over a particular period, divided by the average size of all the down moves over the same time.

How to Use The Relative Strength Index (RSI)

One powerful indication of a price reversal is RSI divergence. Using RSI to catch divergence makes the indicator one of the most popular and profitable indicators out there. It occurs when RSI does not confirm higher highs or lower lows. For example, the price has reached a new low, but RSI has not. The chart below shows RSI divergence and how it can signal a selling opportunity (beware of using it to short stocks). Using the RSI indicator for identifying divergence is one of the most powerful technical tools out there. Being able to identify divergence when a stock has made a lower low but the RSI has not, thus foreshadowing a reversal, can be used for a great buy entry.

I do not recommend using divergence as a tool for shorting. You would have to be really skilled and would need additional technical signals to even make this profitable.

Conclusion

As you can see from this article, the RSI has several powerful methods of signaling future price action. The first way is that once the indicator is overbought or oversold, you will likely see a price reversal. The second way is with price divergence, whether the price does not agree with the RSI. My favorite usage of the RSI is when the price makes a lower low but the RSI does not, which usually foreshadows a wicked bounce.

Lastly, I highly recommend against using the RSI to short stocks; that is a dangerous game. Ideally, you would use the RSI indicator to try to sell the high and buy the low. Whether this buys using the overbought/oversold signals or divergence. It's up to the reader to understand the nuances to maximize the profitability of this indicator through backtesting and watching the RSI in real-time, as stocks trade.

If you are interested in learning more about technical indicators, take a look at The Art Of Mastering Japanese Candlesticks as well as my favorite two stock chart technical indicators.

How To Use RainDrop Charts: New Way To Trade Volume

2026-03-10T12:16:00.000-07:00

The Financial Market world continually evolves as creativity and innovation change how things are done. Traders are always looking for better ways to view stock market price action to gain an edge. In the last couple of years, there have been many innovations in the field of Technical Analysis. One of the most impressive new indicators is EMA Clouds. However, there have been many innovations in the last few years as new traders enter the market. One such innovation is Raindrop Charts, which allows chartists to visualize stock charts in a new way.

Raindrop charts are designed to represent what is happening in the market regarding price and volume. The chart gives the trader a visual representation of supply and demand in the market over a certain time frame. The raindrop charts incorporate volume directly into every price bar through histograms, and the volume of the weighted average price is called VWAP. Hence, Raindrops are a visual culmination of where the price moved, how much time it took to get there, and the flow of the volume as time passed.

Raindrops are meant to replace/supplement traditional charts such as:

Renko
Heiken Ashi
Hollow candlesticks
Japanese candlesticks

You can see a breakdown of RainDrops below.

The image is courtesy of TrendSpider Use the link for up to 40% off!

Each raindrop is divided into two trading periods: the first and the second trading period. As in the US, the trading of equities is 6 1/2 hrs, each half will be 3 1/4 hrs, and for cryptocurrencies that trade for 24 hours, it will be 12 hours a half. Another difference between the traditional candlestick and the raindrop charts is that the raindrops do not use opening and closing prices but rather use VWAP. This is because the developers believe that using opening and closing prices doesn’t show the price action during a particular time, but only what the price of the stock was at that time.

The raindrops are color-coded into three colors: red, blue, and green. If the right VWAP of the trading period is lower than the left VWAP, the raindrop will be red, and if vice versa, the VWAP will be green; and if the VWAP is at the same level, the raindrops will be blue. The blob shapes in the raindrops represent the complete volume profile for that half of the period. This shows how volume moved during a complete half. A green raindrop is a bullish one, while a red raindrop is bearish, and a blue one shows indecisiveness.

Blue raindrops are constantly used to mark the top and bottom of a trading period. If an asset is highly liquid, buying and selling will not be the same throughout the day; hence, this is an indication of a change in price movement. Keep in mind that blue raindrops that require both halves to have the same VWAP are extremely rare!

To summarize, RainDrop charts do not show the closing price, but rather show price action throughout the day, based on two halves. Each one of these halves has a blob that indicates the volume that was traded around that price. Red, Green, and Blue RainDrops indicate whether the right side VWAP (2nd half of trading) closed lower, higher, or equal to, respectively. Simply put, RainDrops shows you the price range as well as the volume traded at that price through the time period you are focused on!

Why Use Raindrop Charts?

Raindrops aid in identifying breakouts and fakeouts. A move in either direction should be supported by volume. If a chart looks like it's breaking out, you can always double-check what the volume is saying. As such, it's best to confirm with Raindrops charts as they will be able to say if volume may not be supporting such a move, as such, they are great at detecting fakeouts
.
Raindrops aid in locating market indecision areas- A Blue Doji shows that the market is trying to determine the direction to move. It may also represent a change of a negative or positive move (basically foreshadowing a reversal).
Volume inclusivity - The volume in trade will help you in weighing the strength; this is a major merit of the raindrop charts. It helps visualize whether any move is backed by volume.
Utilization of special raindrop patterns- Strong moves are represented by balloon-shaped raindrops, which show that the volume has congregated at an extreme position. Keep note of this last point, as raindrop patterns can emerge. Spending countless hours backtesting and analyzing raindrop charts will help you identify such patterns and increase your profitability in the market.

Examples Of Raindrops Charts

In this section, I will be using many examples provided by TrendSpider's Twitter account. If you are interested in using their service as they are the creators of Raindrop charts, use my affiliate link: TrendSpider (for up to 40% off), using the link provided. Consider using the "Enhanced" package provided by TrendSpider, as it gives weekly one-on-one training by their customer training team.

The stock below is Roblox. Notice in the channel that each time a blue Doji (which represents indecision) was encountered, the price bounced hard!

The stock below is the Apple Raindrop ($AAPL) stock chart. In this real-life chart, note that after incurring two daily red raindrops, a blue indecisive raindrop shows up, which represents indecisiveness. The next day, after the blue raindrop showed up, the price bounced!

The chart below is a weekly Raindrop chart of Moderna ($MRNA). Notice how the stock continually bled, until it found support at the WVAP, where a few blue Raindrops showed up which is a sign the bearish momentum is waning.

The chart below is the daily Target ($TGT) Raindrop chart. You can see after the breakout that a blue Doji has emerged, which hints that the breakout might fail and be a "fakeout".

There are many ways to use Raindrop charts. I gave a few examples, and I left it up to the reader to continue their research and use them in practice and in real time to learn the advantages and disadvantages that they have.

Conclusion

The use of raindrop charts helps you see what other traders do not, giving you an edge. The inclusion of volume in the candles and the use of VWAP aid in identifying the strength of trade. Add this tool to your arsenal of trading indicators and back-test it to know when it gives a high winning rate.

For those interested in incorporating RainDrops, check out TrendSpider (for up to 40% off) using the link provided. Please consider the enhanced package as it provides excellent one-on-one training, weekly!

Want to learn more about RainDrops? Check out TrendSpider's Whitepaper on Raindrops!

For more next-generation indicators, check out my article on the EMA Cloud. Or if you are interested in building your own stock trading system check out this detailed guide.