Knowing how to read charts is crucial for day traders.
We’re not out here every day digging through SEC filings to find out a company’s value…
Or trying to compute the best entry price based on earnings per share or some other company fundamentals.
Since most penny stock companies are trash — we use the chart to tell us where the buyers and sellers are and what points to enter and exit.
So today I’m breaking down technical analysis with an example to show you support levels, entry points, and how to know if a stock is holding a trend.
Use this information to go out there and make the most of Money Monday.
Harnessing the Power of Technical Analysis
Let’s break down two important terms: fundamental analysis and technical analysis.
Fundamental analysis digs into the nitty-gritty details of a company’s business.
Details like sales, profits, debts, and how well the company is doing overall. It’s like peeking under the hood of a car to see how the engine runs.
On the other hand, technical analysis is more about reading the signs in the stock chart.
Instead of focusing on what the company does, we look at patterns and trends on the stock chart.
The Role of Technical Analysis
One cool thing about technical analysis is that it helps us spot trading opportunities.
Think about breakouts, a dip and rip, or an afternoon VWAP hold high of day break — those are all patterns based on technical levels or indicators.
Those levels tell us whether it’s time to get in or out, or when we can hold if a trend is still intact.
Technical analysis also helps day traders make quick decisions.
You don’t have time to base your position on fundamentals. You have to know how to read the chart and price action and be ready to react.
Let’s take a closer look at a real-life example to see how technical analysis works in action…
A Case Study of Technical Analysis
CXApp Inc. (NASDAQ: CXAI) had a small green day last Monday and was gapping up the next day…
The stock dipped after the market opened but it found support at the technical green-to-red level (the previous day’s close).
From there, it ripped higher and broke above the premarket high. That’s another technical level and the entry for my dip and rip pattern.
After it spiked in the morning you can see on the chart that all the dips held VWAP — a technical indicator.
2-day, 5-minute candle — courtesy of StocksToTrade.com
When a stock holds VWAP it’s a bullish sign. If you had a position you could’ve held it as long as that technical level on the chart holds.
You can sell into the spikes and maximize profits.
By understanding these chart patterns and trends, you can make better decisions.
If you’re ready to take your trading to the next level, join me for a tour of the Daily Income Trader system.
Let’s unlock the secrets of the market together and start making some serious progress towards your goals.
Have a great day everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade