I know the markets have been shaky, and this can be scary for many traders…
That said, we got a small bump yesterday from lower-than-expected inflation numbers…
Stay tuned.
And as I keep reminding you, with day trades and penny stocks, there’s always an opportunity, no matter how ugly the market gets.
This is the time when your stock charts really matter…
Here’s what I told my StocksToTrade Advisory members on Monday:
Learn your technical analysis, use those [support and resistance] levels, map them out on your chart, and never do anything random. Let the chart guide you through your trade…
I genuinely believe that the chart is the ultimate arbiter of truth.
This week, that was demonstrated in spades with Dogwood Therapeutics Inc. (NASDAQ: DWTX).
Using support and resistance, I mapped out a trade using an entry (resistance) of $7 per share, a stop loss of $6.50 (support), and a target price of $8.50.
Here’s what happened with DWTX…
DWTX 5-Day, 5-Minute Candles Chart; SteadyTrade
Once the stock broke through $7, it slowly ground up to reach a high of $14.60, for a return of 108.57%*.
Not too shabby in a market like this!
Wanna know what made it so easy for me to spot and chart the DWTX trade?
Simple: StocksToTrade.
It’s the trading platform I use every day, and it has all the scanners, charts, and tools you need to stay ahead of the game.
And right now, you can get two weeks of both the STT platform and our Breaking News Chat service for $17.
Grab your 14-day StocksToTrade + Breaking News Chat trial today for only $17!
Today, let’s talk about how else you should use your charts to navigate these choppy waters.
Table of Contents
Strength Versus Weakness in Stock Charts
Strong charts and weak charts…
These terms get thrown around all the time, but they can be a little confusing if you’re new to trading or charting.
One question I get all the time is: “When you say ‘weak chart,’ do you mean weekly chart?”
Yes, people do ask me that…
Hey, if you’re brand new to trading and you’re just hearing the word and not reading it, I get it.
Nope. They’re not the same thing.
A weekly chart refers to a time frame, like a 7-day chart, a 1-month weekly chart, or a 1-year weekly chart.
And a weak chart is about price action. It’s a downtrending chart, the opposite of strength.
When we talk about strength and weakness, we’re looking at uptrends versus downtrends.
What Defines a Strong Chart?
If you’re a long-biased trader, meaning you buy stocks because you expect them to go up, you need to look for strength.
Here’s what a strong chart looks like:
- Higher highs and higher lows
- Consistent green candles
- Breakouts to new highs
- Strong closes leading to potential gap-ups
Look at the DWTX chart again. Basically, that’s everything it did this week.
If you’re looking for swing trades or stocks with momentum that could run for multiple days, this is the kind of price action you want if you’re looking for.
What Defines a Weak Chart?
On the flip side, a weak chart defines a downtrending stock and is ideal for short-sellers.
By the way, I strongly urge you not to short in this market unless you really know what you’re doing. I advise waiting until the market sorts itself out and we have better visibility.
Read my recent blog post on shorting to learn more about it.
Here’s what to look for in a weak chart:
- Lower highs and lower lows.
- Red candles stacking up.
- Support levels breaking down.
- A stock that ran big yesterday but is fading today.
If a stock had a huge move up and then starts making lower highs and breaking support, that could be a short opportunity.
Why All Of This Matters for Your Trading Strategy
Long-biased traders should stick to strong charts.
Buying into a weak stock hoping for a reversal could be disastrous. Momentum stocks tend to stay weak when they break down.
And big surprise! Short-biased traders should focus on weak charts.
Shorting a stock that’s ripping to new highs? You might get lucky once or twice, but that’s about it.
My Final Thoughts…
At the end of the day, it’s all about knowing what to look for in your charts and following the trend.
Want to go long? Find strength.
Want to short? Find weakness.
Trying to fight the trend is one of the fastest ways to blow up your account.
Keep it simple, especially right now, and trade the path of least resistance.
If you’re still uneasy with the behavior of the market right now, I got you.
Join our StocksToTrade community.
Our webinars run all day and are completely FREE. They offer trading tips and tricks, info on our Oracle trading system, and other valuable training.
And for additional trading mentorship, subscribe to my StocksToTrade Advisory service.
You’ll get a monthly newsletter with a list of my top picks, three weekly videos with my watchlists, bonus reports, and more.
Sign up for StocksToTrade Advisory right here!
Have a great day, everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade