Rebel Traders 065 : Burning the Candles

There is a massive difference between an average trader and a good trader. However, we’re going to tackle what it takes to become a GREAT trader...

Serious question... How do you like your steak?

Me, personally I like mine rare, but it's not to everyone's taste and there are so many ways to make a steak great and even more ways to serve it and complement a REALLY good steak.

However, here's the thing, everyone is different. Everyone has a different way they like their steak but also the cut, the condiments, the way it's seared, etc.

The markets are very similar, everyone has different goals for their trading, the way they like to see their stocks position themselves for the portfolio plate so that you can take a nice juicy bite out of the market.

So, in this week's show, Phil and I are going to be discussing exactly what we are looking for in the charts. We are primarily chartists, technical traders and we look at the numbers and the story they tell us.

Come join us as we sit like lions on the plains and we'll show you how we like our steaks...

Time Stamped Show Notes

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Automated: How do you like your steaks? Rare? Medium? Or burnt to a crisp? Let's rock.
Automated: Rebel Traders takes you inside the world of two underground master traders who take an entertaining and contrarian look at the markets to cut through the noise of Wall Street and help you navigate the trading minefield.
Together, Sean Donahoe and Phil Newton are on a mission to give you the unfair advantage of a rebel trader. And now, here are your hosts, Sean Donahoe and Mr. Phil Newton.
Sean Donahoe: Hey, hey, hey, this is Sean Donahoe, and welcome to the Rebel Trader podcast. Now, we're a little unusual. I am back in California and I'm recording this in the hotel lobby so if there's a little bit of background noise, you understand why. We still have that little family thing going on, so I'm traveling back and forth between Texas and California. And on top of it, you might notice my voice has got a little deeper, going a little Barry White. Well, on top of everything else, I also have a cold.
Phil Newton: A little bit more James Earl Jones more than anything.
Sean Donahoe: Yeah, there you go. I could go James Earl Jones. My wife says I sound like James Headfield. So, yeah, yeah, yeah, yeah, yeah. So, if I start breaking into Metallica riffs, you know why.
But anyway, how're you doing Mr. Phil Newton? He's here as always, every single week and he's in .
Phil Newton: I'm doing all right.
Sean Donahoe: He's not in a hotel. He's actually sat with his feet up on the desk just chilling the hell out.
Phil Newton: Just chilling.
Sean Donahoe: Absolutely. So, anyway.
Phil Newton: Nice relaxed feet. spoken. Waiting for the markets to open as we record this.
Sean Donahoe: Absolutely. It is a little early in the morning, but, hey, that's good because we're setting up, ready to rock and everyday we're looking at the markets. Kind of like hunting lions on the Serengeti plains waiting for that nice juicy steak as the herd rolls on by.
Our primary way of finding that market-powered steak is kind of looking at the exact story that the charts are telling us. We're going to be revealing the kind of things we're looking at for in the charts. What triggers us to strike and basically put a stock in our sites. Take a bite of. Listen closely, ladies and gents. You may score a few very powerful nuggets of gold.
Phil Newton: I'm not quite sure I can get past all the analogies of the Serengeti and lions. Trotting by or ...
Anyway, we also added a new un-interesting section which is trade, fade, or evade. You know, rather than trying to find the trade as we've previously done, we're going to jump straight in and just, you know, lift the rock up and go, "Hey, there it is, there's the trade." Or maybe we fade it or evade it, so what we're trying to do with the segments which is, really more to demonstrate. You don't have to be in front of the computer all day, every day which is our big thing and if we can make a very quick but consistent decision making process, then we can find something to trade very fast and very efficiently without the heavy time investments that everyone think that you've got to do. That's trade, fade, or evade.
Sean Donahoe: The first thing to say, I guess, is that finding a stock is one thing. How you trade it is quite another. But, one thing we often don't do is we're not looking at charts, to start with. We're actually looking at watch lists. Phil, why do we do that?
Phil Newton: That's a very interesting, it was almost very formal-like, like we were sat at a desk, we had clipboards involved somewhere. "Why is that, Phil?" "Good question, Sean. I'm glad you asked me that." It sounded all ... To be fair, I mean, the big reason why we do, why I trade the way I trade is I don't want to be glued to the screen, so what I'm trying to do over is, and to be fair, it took me a while to get my head wrapped around this concept of you don't need to look at the charts. Because I did it like everyone else did it for many, many years. Flick through charts after charts for hours on end and hope that you find something worth trade.
But I'm looking for the same thing every day. I'm looking for certain conditions to be met that I'm going to put the trade on. But those certain, some of those certain conditions can be mechanized.
Sean Donahoe: Mm-hmm (affirmative).
Phil Newton: What I can do, is I can quantify them in some way and then put them in a tabulized version so that it comes up on a radar screen or a scan, or I get a little alert. Depends on the platform. It would do it in potentially different ways. But essentially, if you imagine the spreadsheets and I just click the column and it sorts all the numbers that the criteria that I'm evaluating, from high to low, or low to high, and then I can just say, "Well, okay. These five stocks meet this criteria because they've got this number associated with them."
Let's put some meat on the bones for that. Let's just say I'm using up the Bollinger Bands and the upper Bollinger Band represented 100. The lower Bollinger Band represented zero, I'm going to put all stocks into a spreadsheet and I'm going to compare where the current stock prices relative to the Bollinger Band.
If it's got a reading above 100, then that tells me that, "Hey, the stock is, or the last traded price is above the Bollinger Band." That's what I would consider a price extreme. That's one of my criteria or for one of the scans. And similarly, if it's below zero, it's at the lower end of the Bollinger Band and again, at a similar price extreme, relative to the tool that I'm using.
They're the two, well, one of the scans that I use is to look for a Bollinger Band price extreme. And I can do that in a watch list. All I need to do is click click and it sorts it in the spreadsheets and says, "These are the five stocks that are above the Bollinger Band, these are the fives stocks below the Bollinger Band for today." And that number's going to fluctuate.
Now what that means is I don't need to look at my entire universe of stocks manually to see if there is a stock at a price extreme, it's above or below the Bollinger Band. Because I can do it in the watch list. Click click, sort them all, relative to that ranking scale that we were just talking about and then these are the three stocks. Then that's when I can say, "Okay, these five stocks, for example, are above the Bollinger Band, they're the only five stocks I need to go and physically look at." And that means that it's all fast, efficient, and I'm not spending all day at the charts. And that's pretty much the primary way that I trade these days, so that, again, I'm just not looking at the charts all day.
Sean Donahoe: Let's just throw some extra meat on that. When you consider that there's other 27000 US equities, everything from the stocks, the ETFs, and everything else, first of all, Phil mentioned there our universal stocks, which, again, is kind of unlimited cut down version of everything that is worth trading. It's the ones that meet, first of all, our initial levels of conditions, that, "Okay, they got enough capital, they got volume."
Phil Newton: We want to trade some with options, so if we're looking at all the stocks that have options on them, because not every stock has an option, that kind of eliminates some of the other stocks that we don't need to trade and we maybe don't want to trade penny stocks because hey, they don't really move that much on a regular day to day or consistent basis. It just brings that, me and that, the universal stocks, we've got the cream of the crop. The things that are higher liquid, they highly, they move of a regular basis, they tend to set up opportunities on a regular or semi-regular basis and they've got options. And that's the universe of stock . If you want to copy that, we put a download for it somewhere.
Sean Donahoe: Yeah, if you go, actually go to stocks, you can actually download our 475-ish stocks.
Phil Newton: Ish.
Sean Donahoe: That we look at .
Phil Newton: That's the magic criteria, isn't it? Ish.
Sean Donahoe: Yeah, yeah. That's the extra secret sauce is the, it's a good dollop of -ish, in there. But, again, this list varies based on, we update it every now and then, basically refreshing ...
Phil Newton: It's what we've just described, yeah. It's highly liquid stocks that move on a regular basis with options.
Sean Donahoe: Yeah. So, again, then refining that down based on whatever strategy we're applying at any given time, allows us to say, "Okay, well, for this strategy, let's have a look and see what rises to the top. The cream of the cream. Of the cream of the crop." And then, "Okay, boom, once we eyeball, we ignore the rest for that strategy." And then if we got other strategies, maybe we do a couple of other refinements. But it allows you to kind of cut through all the noise, only focus on the ones that are checking all the boxes. It removes a lot of the speculation, the emotion, and everything else.
Phil Newton: For example, it might be that you're looking for a particular indicator. I mean, I'm not a big fan of indicators in the traditional way, but I'm using them to do this filtration process, so that I can then create my daily short list. Everyone's got one thing that they might want to look at. It might be moving average cross-over. It might be a Bollinger Band price extreme. It might be a reading. It could be an RSI setting or a CCI hook. All these things can be quantified and ...
I mean, you can hire someone for a couple hundred dollars, just to put a little kind of widget on your, a little bit of software that will do all the heavy listing for you and I think that's, for me, that is the secret sauce that means that I don't have to be all day at the computer.
Sean Donahoe: Mm-hmm (affirmative). Yeah. I mean, we hire, I actually, funnily enough, for a lot of platforms I use, I actually learned the coding language so I can code a lot of these up myself, but .
Phil Newton: I just can't be bothered to learn.
Sean Donahoe: Well, I'm a coder, so I'm a nerd like that.
Phil Newton: Yeah, but compared to ten years ago, it was like you either learned coding or it was several thousand dollars. Now, for a few hundred would be quite expensive just to get something simple done. And probably you could find someone on a forum somewhere that would do it for nothing.
Sean Donahoe: Absolutely. But then again, the charts tell a story. We've got through the filtering process, but we've kind of got it down to a few little stocks that we want to look at. And here's the thing. The charts do tell a story. All you have to do is listen. And we look at what's happening right now and what has ...
Phil Newton: Tell me a story, Jack and Ory.
Sean Donahoe: Absolutely. We want to see what's been going on. Where've they been? What've they done? What's ... And again, price action, the movement, the momentum, whether it's going up, down, sideways, it tells you a hell of a lot. A lot of people focus on what's happening right now. It's only the latest bar or the latest week or .
Phil Newton: One criteria, I think as well, what we're talking about, this is starting point to take a big list of stocks to a small list of stocks. That's not the reason for entering the trade but that's where people stop and then they get into a whole world of pain because, "Well, it was a move, it was golden cross, or it was a death cross," or whatever nonsense. Because that's what the talking heads talk about. They talk about one criteria. And over-sensationalize it as it's, that's the magic ingredient. The death cross. Or, "We've got a divergence," or something.
And that's one criteria. And for us, what we're saying is, "Yeah, you can use those criterias, but just use them, that's how you raise your awareness." Then the real work begins. That's when you apply your, you layer on all the other things. That would get you to the natural conclusion of placing the trade.
I think that's, I can't stress that enough. All we're talking about is this is the production line of, okay, this weeds out the things that are not good to trade today versus the things that are not worth trading today but are worth looking at today. And that's the difference between what we're trying to say with, by comparison to what most people associate. Or in the textbooks. The textbooks say if you just use this tool, this indicator or this set up. We're saying the set up is just to raise your awareness. Then you go and apply your knowledge or your experience or the next thing on your checklist.
Sean Donahoe: Yeah, absolutely. It is a checklist. And if it doesn't meet all those check boxes, move on because there's, again, it's refinement process all the way, all the way down.
Phil Newton: Imagine it like flying. You've got your preflight checklist and if you didn't go through ... Imagine for a moment that you've got on your flight to somewhere, and the pilot didn't go through the pre-flight checklist. Right?
Sean Donahoe: Yeah.
Phil Newton: "Are the tanks full? Yeah, right, let's go. Hold on, shouldn't we ... Do you think, perhaps, for a moment, do you think perhaps, that we should shut the doors and make everyone put their seatbelts on? Yeah, yeah, that's a great idea. Let's do that. Or how about ... How about we make sure that all the loose items are secured in the overhead compartments or under the chair, maybe? Just for the takeoff maybe. And then you can get them out later."
Imagine that for a moment, that it didn't happen. It'd be beldam, it's be absolutely crazy if something funky was to happen.
It's stupid example, but they've, the preflight checklist, they're there for a reason. All right, it adds to the takeoff and landing and maybe you've got to spend an extra 20 minutes on the tarmac while they check things, but it's there for a reason, it really is there for a reason. And that's what we're trying to do. We're doing our preflight checklist. We're making sure that the stewardesses return to the upright position.
Sean Donahoe: Well, copilot's got to be doing something in the background. Anyway. But here's the thing. We all, a lot of people also say, you're talking about death crosses, you're talking about all these different things. A lot of people talk about lots of different little patterns.
Phil Newton: And they all work, that's the crazy thing. They all work some of the time. But that's the condition.
Sean Donahoe: Yeah, exactly. I was like, "OH, well, head and shoulders patterns. Oh, look at this, no, that's after it's happened." The problem is a lot of these patterns reveal themselves after they've occurred and they're kind of updating in real time. You're showing in highlighting and stuff like that. But at the end of the day, you've got to look at okay, the rest of the story. What is unfolding.
And this kind of ties into one thing that you say a lot, Phil. You're always saying, "Hey, you don't want to be that guy down the pub that knows the name of every single pattern." What do you think about this? A lot of people, like the punditry and everything else, they're always saying, "Well, it's this, it's this pattern, look at this pattern here." A lot of the times, I think it's ...
Phil Newton: It's unnecessary, yeah. I was quite fortunate, I realized, I'm quite drawn to patterns, I quite like the geometric shapes in the market sign. That was what I cut my teeth on from the technical analysis viewpoint and what I did realize early on, and it's a thing that textbooks don't tell you, the textbooks give you the perfect illustration of what happened. Because that's what's the author's job is to do. "This si what the pattern looks like at completion and this is what it should look like, and this is how it should, the minimum, the criteria for the set up, as it were."
But what they don't tell you is that in real time, and that's the key. In real time, as the pattern is evolving, and there's the key word again, as it's evolving, it can potentially change and mutate and unfold and it ... Halfway through what you think might be a head and shoulders pattern, it might evolve into a wolf wave, or some other type of fractal, exotic pattern-type set up. It doesn't matter.
Or that the triangle pattern breaks the slope of the triangle but then doesn't break out, it just meanders sideways. It drifts through the trend line and evolves into a different inanes pattern. That's what they don't tell you in the textbook.
From my perspective, I quite frequently say, it doesn't matter what the name of the pattern is. It really doesn't matter. You don't need to be, as you said Sean, that guy down the pub who knows the names of every pattern under the sun. It truly doesn't matter. Because on the hard right edge of the charts, that's where it matters. As things are unfolding. You can only say, "Well," the best thing that you can can say, "At this moment in time, I can recognize this pattern."
And again, what I got into the habit of doing was not just stopping there and saying, "It looks like this pattern," and maybe that was the first pattern that you recognized. "It looks like a triangle," for example. But if you look at it from a different perspective, or you look at a little bit more of a time horizon, maybe there is a pattern within a pattern and it's part of a larger pattern. And it might look like something else.
Again, this is the thing that is not explained in textbooks. You can have
Phil Newton: Again, this is this thing that is not explained in textbooks. You can have the name of the pattern evolve and mutate into something else, or it could be part of a larger pattern, which has a different name and could be called something else, and maybe that's still evolving. It's in flux, it's in a constant state of development.
Again, I want to come back to starting, because I stopped trying to figure out what the name of the pattern was because it doesn't matter, and the only time you'll ever know the name of the pattern is after it's completed and after it's run to conclusion, and after it's at that point where you can take a screenshot and put it in a textbook. Because that's what the author's talking about. It's just giving you a perfect illustration of what it should look like after the completion.
But your job as a trader is to figure out what it's look like ... what it's looking like rather, as it's developing; and your job is to think about possibilities and scenarios and options, and the choices that it could unfold and could look at. If something new was to develop, you need to re-evaluate, and maybe it would be called something else in a few days' time. You know, with new information, has your opinion changed? And it can be quite difficult to do that in real time. It takes some time to get to grips with that concept. It's never gonna be a perfect example.
And to be fair, I think when you recognize that the pattern is, you know, if you can say categorically: Hell, yes, this looked like an: Insert the name of the pattern here, then it's probably too late to trade it anyway.
Sean Donahoe: Well this is one thing that I wanted to say is because a lot of people, they get ... they see what they think might be a pattern evolving and they wait. And they wait when the opportunity could be right in front of them to get in now because they say: Ah well, it's not quite developed that perfect pattern. They're all like-
Phil Newton: They're waiting for some sort of confirmation, whatever that is. You've not defined that. Which is another issue for another day.
Sean Donahoe: So you know there's a lot of traps involved in just waiting rather than: Hey, there are opportunities, all the check boxes are checked, everything's going off. Boom! Let's do it. And that's one thing I think a lot of people fall into that trap of not being able to act based on what is presenting or what's saying: Hey, all my boxes are checked. Put the bloody trade on. And that's one thing we say a lot, 'cause a lot of people get, I would say, fear in the trade headlights, so to speak, 'cause they get obsessed with-
Phil Newton: Well you can go from one extreme to the other as well. I think that you can go from waiting for more information and more information and more information. Then by the time you've got that information it's too late for the trade. And then there's the other extreme which is what we were talking about earlier. You know, you look for one criterion, one measurement of, okay, my awareness is raised because of blank, you know whatever the condition you look for. And they're not looking for other supporting evidence.
I think it's more like if you imagine courts of law where you're looking for enough evidence to prosecute. What you don't need is categoric evidence. If you've got it, great, 'cause sometimes you will get categoric evidence that is a slam dunk and you've got Colonel Mustard in the library with the smoking gun in hand standing over a bloody body. You know, sometimes you're gonna have that, but maybe you've just got enough evidence to prosecute, and that's what we're looking for. We're looking for enough evidence to say: Yes, Your Honor, I'm ready to put the trade on, you know? And that's what we're looking for, you know? Have we got enough to take it to court if you like?
I think when you put it in that context rather than think about: I need the sun, the moon and the stars all lining up, that one extreme of waiting for absolute confirmation. But to be fair, I think if you're doing that, you've not got a crystal clear image or process of what you need to put the trade on. You need to do more work on your strategy, whatever your strategy is. So you can get to the point of: Well I've got enough evidence to take it to court and look for prosecution, you know? To use that courtroom example.
So thinking about what do you need ... if you're at that extreme of: I'll just wait for whatever it is you decide, you know? Whatever ... I'm just looking for some extra confirmation, you can look for certain criteria if you've got that pre-flight checklist, that production line is how we often describe it. When you've got that checklist, check, check, check. What are you looking for? Step one: this needs to happen; it raises my awareness. Step two: this needs to have happened. Step three: this needs to have happened; Step four: this needs to have happened. So when you've got that three, four, five pieces of criteria that you're supporting evidence, so, okay, right, I've got enough evidence to suggest that my expectation of 'why' will happen. You know, whatever you expect to happen after that. So here's all the evidence that would suggest that I can get my ... let's use the courtroom example, to get my prosecution. There's a good chance the jury will convict.
That's what we're looking for but from time to time we won't because we don't know what's gonna happen next. We really don't know. But we've got enough evidence to put the trade on, and that's the point I'm trying to get to here. So when you can define what you're doing, when you're doing it and why you're doing it with enough clarity to then put the trade on, that's when you know you have a good strategy. That's when you can put the trade on with consistency, with and it's more next week and next month every time. That's what you're looking for. And that, for me, is what makes, well, the over-arching viewpoint of a good strategy and a good process and a good system to be a consistent trader. You know what you're gonna do at every juncture.
Sean Donahoe: Yeah absolutely. And we talk about hashtag #btfd and other moves again because there's, you know, some-
Phil Newton: That's it.
Sean Donahoe: Yeah-
Phil Newton: That's literally all we're going to see.
Sean Donahoe: I know.
Phil Newton: in an uptrend. It's going up, dickhead, buy it!
Sean Donahoe: Yeah exactly. Buy the dip. If you're looking at-
Phil Newton: Sell the rally.
Sean Donahoe: Yeah, sell the rally.
Phil Newton: Sell the rally.
Sean Donahoe: It's like six of them.
Phil Newton: Buy range low, sell range high. Yeah, there's six out of eight that you could do. Should we just rattle them off actually quite quickly?
Sean Donahoe: Go ahead. Sure.
Phil Newton: Buy the dip in an up trend, sell the rally in a down trend. If price is in an established range, buy range lows, sell range highs. Buy the break of range highs, sell the break of range lows. And then you've got your counter trends: the two black sheep of the flagship-
Sean Donahoe: Black sheep, yes.
Phil Newton: ... and that makes the eight. So if it's in an up trend then you're a counter-trender. But it all starts with that recognition of what's the chart doing?
Sean Donahoe: Yeah.
Phil Newton: Which is, where we always come back to. You need enough data to recognize what the canvas, what the landscape is looking at. So in the last 12 to 18 months, if you're in an uptrend then, probably, you should buy the dip in an uptrend. Because, guess what? That's worked since the market started!
Sean Donahoe: Exactly.
Phil Newton: That's not changed. So the tools that we're talking about are to help you recognize ... Well, what do you call, buy the dip in an uptrend? Because people just think buying the dip in an uptrend is a tactic, and really that's the strategy. And it's what to do, but not how to do it.
So what we're trying to do is use the tools and the tactics to figure out what do I consider a dip in an uptrend? So if we're in an uptrend and price is dipping, then I'm looking for price to be at the lower end of the Bollinger Band. Ta-da! Like magic, I've got this mechanical criteria that I can apply every day with consistency to data monitoring, that's from next year, and it puts that on my radar. It highlights my wins. This is at the lower end of the Bollinger Band. It's in an uptrend. Notice the wording. I've got conviction and clarity on: This has happened. It's not 'maybe' and 'it could be' and 'well, if you kind of half squint it looks like this pattern'. There's no ambiguity. This has happened. Fact. And that's not gonna change. That is not gonna change.
So I've got enough facts, and that's what we're talking about with the courtrooms. I've got enough facts to start putting a case together to, say: Okay, well, I've got this; I've got that; I've got something else; we're at a logical stopping point, am I going to trade this today? I've got a sign of exhaustion. They're the four criteria, the absolute minimum criteria for me to put a trade on. And it's, like: Well, there's nothing else that I need to put the trade on. Okay, check, check, check. Check. Last one. Four criteria, Trade goes on. End of story. That's it. And it's got to be that mechanical.
Sean Donahoe: Exactly. No, keep it simple. I mean literally, check, check, check. Do it.
Phil Newton: Everything else is a bonus after that. If you've got other things, great.
Sean Donahoe: Exactly. No, that's exactly it. So you know, again, one of the things we talk about: signs of exhaustion, because that's kind of the confirmation. Okay, we're in a dip. Okay, are we actually at the end of a dip? Okay, we're looking for the move to turn, looking for that little bit of confirmation. Boom! You know? And that's it. And we've actually got some very detailed trading on this entire process.
Phil Newton: Yeah.
Sean Donahoe: refinement.
Phil Newton: I think the candle ... we always gloss over it 'cause we spend a lot of time on the early part of the process, but I think The Candlestick pattern, which is the title of today's show, it's, again, not really about the name of the pattern 'cause there's lots of differently named Candlestick patterns. All I'm looking for is a big spike or a wick on the candle and a very small body. All that means is that the opening and the closure is really close together, whereas the high/low range of the day on the candle that you're looking at, is quite large.
And if you wanna look it up just so you've got a pictorial reference, you could look up a hammer or a doji or a shooting star or one of those types of candles. I don't really care what it's called, but that, for me, that's another one of the secret ingredients. Am I gonna trade those today? So you might have an uptrend. It might be dipping an uptrend. It might be at a logical stopping point. But am I gonna trade this today?
So this means that I'm not gonna waste my time looking at this chart any more if it's not got this sign of exhaustion at a logical stopping point in the context of dipping in an uptrend. Then I'm probably not gonna trade it today. I'll put it on a watch list. I'll come back tomorrow. Maybe the day after, but I'm not gonna waste time just trying to decide: Am I gonna trade this today? And is that, for me, is another secret ingredient? I don't know. Should we call it that? I don't know. It's hard to ... they're all equal.
Sean Donahoe: I know. I think it's another checkbox. It's one of the last ones. Yes, one of the last check boxes.
Phil Newton: Yes, it's the last one but it's the: How am I gonna trade this today? And if I'm not gonna trade it today, why do I need to spend 20 minutes looking at it?
Sean Donahoe: So there you go. That is what we basically do first thing in the morning: Find, filter, sort, rock on, check the boxes and place the trade. Now, before we jump onto the Trade Fade or Evade Act, give a shout out to a gentleman who wrote in, called Paul, and he says: Hey, I'm taking you up on your two time podcast offer to email you. I spent one year losing money in the market. Quarter of the year trying to find a method that works for me, thanks to you guys, and the last three quarters of the year, actually making money. He's almost back to break even.
Phil Newton: I just wanna pause there, actually. I just wanna champion that. That's a fabulous result. If you've been underwater-
Sean Donahoe: It is.
Phil Newton: ... and then getting back to scratch, that's when most people give up is when they're-
Sean Donahoe: Yeah.
Phil Newton: ... underwater, and they've got some money back, and they've bollocksed this for a game of soldiers. I give up. This is the time where, okay, I've cracked the code. You know, I've got to admit ... Paul, well done! And this is what I said too in the reply email: absolutely fantastic results. It's just wonderful to see that you've got that result. It really is, because so many people just give up before they get there. So this is the best-
Sean Donahoe: Absolutely.
Phil Newton: ... time. You don't give up. Keep going. Everything that happens now is gonna be magical, you know?
Sean Donahoe: It's gravy.
Phil Newton: I just know what's around the corner. So, yeah, well done.
Sean Donahoe: Yeah. Abso-bloody-lutely. Well done, Sir. He says it's kinda small but he knows the method works. And I'm starting to work on options profiled with his positive expectancy, and I'm seeing similar results, obviously a little more volatile than everything else.
Phil Newton: Yeah.
Sean Donahoe: And his question was ... and this is what we answered him to the next level. But, again, you know, that is absolutely fantastic. I'm so happy when I hear things like this from students. They're saying: Oh my God, it's like the penny dropped! And like you said, getting back to a point where you break even and you-
Phil Newton: This is about your podcast as well, yeah. It's just from the-
Sean Donahoe: Yeah.
Phil Newton: ... podcast information. You know, how can we take it to the next level. You don't need to. You really don't need to. You should keep doing what you're doing. I think that's, again, the trap that people fall into is they think they've gotta do something different. You figured it out. You're back to break even. You figured out what works. Keep doing it. Don't mend it if it ain't broken. Keep doing it.
Sean Donahoe: Exactly. And, again, if you're in a similar position you do wanna see, okay, well, how can I accelerate what I'm doing? How can I improve, refine, focus and everything else? I'll put a call with this. We're more than happy to have a chat about that and see what we can do to get you where you need to be. You can always ... just-
Phil Newton: Yeah. You don't have to make mistakes 'cause that's a good point. Get some coaching. Get some tuition. You can fast track what you're doing, and it would be a quick way of doing it 'cause, you know, I spent 20 years trial and error figuring it out and I didn't know there was other people doing it, you know? I thought you had to be a Wall Street guru type person and work for a bank or something like that. I didn't know that there was people to help you, support and a community of people so it was ... If you want to fast track yourself without going and hitting every possible pitfall and trap then, yeah, let's have a chat. At the very least we can point you off in the right direction.
Sean Donahoe: Abso-bloody-lutely. So, okay, jumping ahead. Trade, fade or evade. (atmospheric ad Trade, fade or evade). Okay, so, I wanna take a pause. We were gonna jump right in to five top chemical companies, just for a random sidebar, but I wanted to also take a step back, almost we'll walk like Michael Jackson in a pair of Nikes. So last week we were talking about Nike and the whole controversy -
Phil Newton: I've gotta admit I got some shit via email about this because I just wanna re-state: I don't care one way or the other politically. I have not got a bug in . I have no opinion on it. From a stock point of view ... No, but it's true. I got a lot of flack, to be fair, but from a stock trading point of view it highlighted an opportunity and all we were doing was comparing that, from a news point of view, it was a no news reaction.
Sean Donahoe: Yeah, exactly. I mean we had ... there was big dip but, again, what we did-
Phil Newton: I wouldn't even call it that, to be honest. But, yeah, it was-
Sean Donahoe: It was a dip in an uptrend.
Phil Newton: Yeah.
Sean Donahoe: It was enough to cause a lot of-
Phil Newton: It wasn't a crash, like The Talking Heads, we're talking about.
Sean Donahoe: .
Phil Newton: But to be fair, guess what? Five days later, it's like nothing ... I mean, I sent this in a message and put this in the Facebook group. It's like nothing happened.
Sean Donahoe: Exactly. And that's it. And, again, I put my money where my mouth was and said: Yes, it's a trade-
Phil Newton: Re-test of the recent highs. Yeah. Exactly what-
Sean Donahoe: So I said: Make some money off that. Thank you very much. Took my profits. Thank you very much. And that's it. And outside of all the hype and hyperbole and, again, I'm not gonna buy a pair of Nikes. I-
Phil Newton: I've even got a dog in this fight. I truly-
Sean Donahoe: I-
Phil Newton: ... don't care one way or the other. Yeah. I mean, I don't buy Nike anyway, but that's a different reason.
Sean Donahoe: That's a preferred difference.
Phil Newton: But that's preferred different branded products. From a company point of view and the pro ... I don't care, really. I'm just looking for a trading opportunity.
Sean Donahoe: Exactly.
Phil Newton: And just put your political belief to one side people. Stop sending me emails about it. I don't care. I truly don't care. I don't have an opinion on it.
Sean Donahoe: I know. .
Phil Newton: Trade opportunity. That's what I'm talking about. That's what we were talking about. Well, yeah.
Sean Donahoe: That's exactly ... that's what I was gonna say. I don't buy Nike and I have no intention of buying Nike. I never buy Nike. I buy Reebok. And it's because they make the best basketball boots.
Phil Newton: Yeah. I don't think I've ever bought Nike. It's not a brand I've bought. It's just a ... it's not an intentional choice. I just don't like them, you know? Prefer other things.
Sean Donahoe: Exactly. I did ask so it doesn't bother me. And, again, the whole-
Phil Newton: Whatever. Whatever. Products aside, trading opportunity was spot on. And it was the same thing that we saw with the United thing, you know? We saw that just that news over-reaction from the stocks point of view and, from a news point of view, it was a no news event that was over-inflated, which caused a little bit of a reaction. But the reality is, it's swum past in the news cycle. It's forgotten about from the stocks point of view and a trading viewpoint, it's been forgotten about.
Phil Newton: Yeah. So there you go. Anyway that's kind of a follow up from last week. But I want to dive into some chemical companies.
Sean Donahoe: .
Sean Donahoe: I've been to some chemical companies.
Phil Newton: Tesla currently seeing the reaction from the puff, puff, give experience they had on the Joe Rogan show. That's the same principle, an overreaction to what was essentially non-news. It's now reacting. Surprisingly, it's on the lower end of the range. Showed a sign of exhaustion, and it's now moving upwards. Nothing new is developing and the news was not really going to impact the stock. It's the same thing that we're seeing here if you want to have a look at real time example that's currently unfolding. It'll probably move up to about $320. It's the same principle. We touched upon this in a previous show.
Sean Donahoe: Oh yeah, I haven't actually got a single call on this one right now and I'm thinking there's a whole-
Phil Newton: Yeah, expensive options.
Sean Donahoe: It is pretty expensive.
Phil Newton: Think about the context. It's a range bound stock. Price was at the lower end of the range. Nothing new was developing. That ranging is probably going to continue, so it's probably going to move the middle of the upper end of the range. The whole philosophy behind what we do, Sean, is that until something new happens, the same thing's probably going to continue. That's why buying the dip in an uptrend works. That's why sell or rally in a downtrend works. That's why buy range lows, sell range highs lows, by the breaks range, but the breaks range. That's why it works, until something new happens.
Sean Donahoe: This is a BTFE.
Phil Newton: Yeah, I mean this is by the range low for me. It's in a range. It's that same principle. Nothing new is developing the news just raised your awareness on the opportunity. The people with money that can move and influence the market are doing just that, they're profiting in a classical way.
Sean Donahoe: Okay.
Phil Newton: Sorry, I found a soapbox under myself there, Sean. It does grind my ax a little bit.
Sean Donahoe: How unusual is that?
Phil Newton: It proves the argument, just ignore the news. Whatever the news is saying, do the opposite. We just see it proven time and time again. The caveat is, unless it is genuinely new news, it's a new piece of information that will influence the stock's behavior. They don't happen that often.
Sean Donahoe: Okay we're going to rattle through some chemicals.
Phil Newton: Trade, fade, evade.
Sean Donahoe: Absolutely.
Phil Newton: Throughout some chemicals like a certain chief executive that we know.
Sean Donahoe: Yeah, break out the mirror, ladies and gentlemen.
Phil Newton: What will he be on this week is what we should be asking Tesla.
Sean Donahoe: There you go. We're going to start with Dow DuPont and DWDP.
Phil Newton: DWDP let me just get that.
Sean Donahoe: Now they do chemical products, agricultural products, and plastics, and everything else. Trade, fade, evade, for me it's an evade.
Phil Newton: It's in a range, in the middle of the range, it's a good idea. I agree.
Sean Donahoe: Okay. Next one.
Phil Newton: Short and sweet, but that's how quick it should be. Again, just to illustrate the point. What it did in the last 12 months. It's in a range, middle of the range. It's not really at an interesting location, evade it. It's a snap, snap decision. That's the illustration that we want.
Sean Donahoe: Exactly. I probably got the next one and the MEOH, Methanex Corp.
Phil Newton: It's taken me longer to type tickers in Sean. I've intentionally not looked at them, because they don't usually come up on my usual scans. First impressions.
Sean Donahoe: It doesn't matter. This is just a kind of just general exercise.
Phil Newton: Just to illustrate the points. Yeah.
Sean Donahoe: Yeah. This one of evade for me.
Phil Newton: Yeah. Again, it's-
Sean Donahoe: Middle of the range.
Phil Newton: It's at what I would refer to as an angled range. It's technically going up, which people would confuse with a trend. Technically that's correct, but it's also ranging at the same time. It's in a defined upper boundary and a lower boundary. Again, it's in the middle of that defined boundary, so I would default to, if it's in a range, even if it's angled like this, we could call it a rising channel if you wanted to, but it's in the middle of that range. It's evade.
Automated: Yeah, absolutely. Okay. Now, next one ALB. Now that's if I say this Albemarle, it's the world's largest lithium producer. When you think about this, this is again, used by companies like Tesla and everything else, electric cars and what have you. What do you say sir?
Phil Newton: For me this half and half jump in the last 18 months, first half is pointing down from sort of October 2017. But most of this year it's been in a range. Again, it's probably not unsurprising it's in the middle of the range. It's going to be an evade. I'm going to guess without looking at the other stocks that we've got left, I think they are probably going to be the same, because we're looking at a sector. What I'm starting to get a feel of is the sector as a whole is going to be more of an evade because these five stocks that you've picked out of are in the sector. They're all behaving in a similar way. I would imagine the sector's going to be very similar. What we found though, we've extrapolated a theme, a trend for the overall sector. That in itself might provide an opportunity as well. It's not what we refer to as a day trade.
Phil Newton: We've got a contraction in price. Normally it's going to be an expansion. This is where you would keep an eye on the news to see if there is anything that is new news that we were talking about that might spark the movements. Because the sector as a whole is pretty stagnant, so you're looking for that trigger to get the ball rolling. That's when you do genuinely you use the news. It doesn't happen that often, but when you see it, it will happen. It will be there. It'll be on that surprisingly short. It'll be on the headlines. Clue's in the name.
Sean Donahoe: Absolutely. Yeah. This one will be an evade for me. This one I might keep an eye on. When I see a contraction in price. That usually indicates that could be something in the future, but it might be one I put up on the sidebar list. Keep an eye on it. It's a $98 stock, yeah, I would evade it right now, but I might put this one on a sidebar list.
Phil Newton: It's not doing anything interesting. It's pretty stagnant here.
Sean Donahoe: Yeah. Okay. Next one, WR Grace. This is GRA.
Phil Newton: GRA.
Sean Donahoe: They have a lot. They've got a lot of exposure, kind of a semi volatile, a lot of exposure into the gasoline sector, so it kind of follows along with that. They do a lot of fluid catalytic cracking. It's the main part of their business, part of the refinement process.
Phil Newton: This looks a little bit more interesting than the other stocks.
Sean Donahoe: I thought so. I thought you'd like this one.
Phil Newton: I think I can compare it to do the stocks. The other stocks were in the last several months, very flat, very exaggeratedly narrow band of range. It's up a day, down at day time, literally flat lines. Whereas this one, there's a bit more range of movements. The range, it looks like it's got a very defined upper boundary around about $77, $78. A defined lower boundary which goes down as low as $60. This is not quite a day trade, I think it is a trade, but it's a bearish trade. We're calling that fade aren't we? It's not technically in a trend, but it's already started to move away from the upper boundary from around $76, $77, pushing down towards $60. It would have been a bearish trade and I think the entry would have been a couple of weeks ago.
Phil Newton: It's still slow, very lethargic, very lazy. This probably would have been one to use stock on because it's just a slow, lazy trade use an option. Because you need the fast move with an option. If you're going to use options, you'd probably be thinking about buying your long dated puts just because it's slow and lazy. The sector as a whole is like that. Just so you've got plenty of time to put the trade on. I think this has already started moving. I caught myself rambling there Sean, surprisingly. Technically, it's a fade because we would be bearish on it.
Sean Donahoe: Yep. There you go. Okay. Now next one. I would've actually evaded that one. Just there's other opportunities.
Phil Newton: I'm kind of looking for the trade here just by comparison. It's already started moving. I mean from the range point of view was at the upper end of the range a couple of weeks ago. I would have to have been bearish. I've got to follow my philosophy and logic on that.
Sean Donahoe: Yeah, absolutely.
Phil Newton: If I was looking at it today to put a new trade on, probably not. But three, four weeks ago, yeah, it probably would've been it. It would've been a nice bearish trade.
Sean Donahoe: Yeah. If there was one a few weeks ago it would be. Okay. Next one, HB Fuller, FUL. These are adhesives. They are major a competitor with 3M.
Phil Newton: Oh let me look at 3M. I just don't like the look of it. It's a hodgepodge. Again, it fulfills criteria for a trade, but it wouldn't be on my list of things. I would class this as a messy chance. What a messy chance is to me, it's up a day or two, down a day or two. Technically you could find a trend and technically, you could probably buy the dip in an uptrend or whatever you want to do here. It's messy, there's no definitive movements. It's a sloppy chance. Again, notice the wording that I'm using. You can kind of hear it in the tone of voice. I'm not excited about this. To be fair, you mentioned 3M. Let's take a look at them, triple M, just to kind of follow Alice down the rabbit hole.
Sean Donahoe: I was going to say, FUL, I automatically traded this.
Phil Newton: It's one of those, it meets the criteria, but it wouldn't have got on my universe because it's a messy chance, because that's one of the things that I do look at. It needs to be a clean mover. It's very sloppy, messy. Triple M by comparison if that's its competitor, so I've just gone to that. Again, it's a higher value stock to be fair. I think it's the fact that I'm struggling to come up with something means that it's got to be an evade. Again, getting taken my own advice, I'm struggling to find something it's got to be an evade.
Sean Donahoe: I mean if I was going to do anything here it would be a fade.
Phil Newton: Yeah, because our time horizons are different. You're more short term in that respect, so yeah, I can see where you're coming from in the last sort of six to eight months. But look at the last 12 months. I can see that. I can see that.
Sean Donahoe: Yeah, I might do a quick counter trend trade though.
Phil Newton: Struggling to find the trade though, but it's nothing exciting there. I've got to admit, nothing exciting. It's funny actually. I actually had triple M, which is why I went to it. It did flag up as a potential opportunity earlier in the week, but it just wasn't quite there for me. That's why I went to it.
Sean Donahoe: Yeah, absolutely.
Phil Newton: Just checking my little list of things. I think just while we're at it, I'm going to randomly throw one out, just because it came up on my scan yesterday. Alibaba, BABA.
Sean Donahoe: I haven't traded BABA for a while. Let's have a look and see.
Phil Newton: I know. Just a random last one.
Sean Donahoe: I like a slice of that. I like that.
Phil Newton: Well this is a good example of what we were just talking about, which is why I've just thrown it into the mixing pot, just randomly shot across your bow, Sean. This is what we describe quite regularly something new is happening. For our loving listener, if you want to take a look at Alibaba at BABA. It's been in a range for 12 to 18 months. Now price is just pushing below that defined range lower, around about $170 dollars is what I see is the approximate range low. This is what we describe as something new is developing. It's now gone below that boundary. That makes it interesting. Now something new is happening, trade the break of a range low, and this is what it looks like for me.
Sean Donahoe: Yeah. I'm looking at that.
Phil Newton: It's not a today trade, but I'm definitely going to be bearish on it. I'm just waiting for my entry. I'm waiting for a little bit of a pullback.
Sean Donahoe: Yeah, I'm looking at that as well. A little bit of a kickback, maybe a short term. If I got confirmation. If we go a little more confirmation of a return to rate.
Phil Newton: I think there's a $50 target here. Yeah. If I can get an entry, if I can get a pull back close to one $170 and get my usual sign of exhaustion on that, on this little pullback, I think we could see a move down to $120. I think there's a $50 target on this. I'm just waiting for my entry, waiting for pullback. I just thought I'd throw a live one in there. This is what I'm looking at as my potential. Technically it would fall under the category of fade because we're going to be bearish on. It's a breakout, break down of a longtime consolidation. Something new is happening. Again, just to illustrate what we've been talking about as this is what something new looks like.
Sean Donahoe: Yeah. Very cool. Okay. I like that one like that. It might take a slice of that, and put that on the sidebar list.
Phil Newton: Again it's not a today trade. It's one to definitely keep an eye on. Wait for that pull back and wait for entry.
Sean Donahoe: Absolutely. With that being said.
Phil Newton: Awesome.
Sean Donahoe: Awesome sauce.
Phil Newton: Is that it?
Sean Donahoe: It is.
Phil Newton: We're just getting into the swing of it, if you'll pardon the pun.
Sean Donahoe: Well, when Phil gets into the swing of it, usually that ends up with an arrest.
Phil Newton: I know, keys in the bowl. I know that type of swinging, step away from the keys.
Sean Donahoe: Indeed. Okay, so that's it for this week. Thank you for listening to show. Please remember this show is not free. It will cost you a five star review. Just go to traders. You'll actually get access to all the stuff we've been talking about here. We're talking about a universal stocks, the trading with regard everything else. You can also subscribe and review to whatever way is your favorite way to hear the show. This helps us reach more traders and investors just like yo. Go there. Rock on, and what else can they do, Phil?
Phil Newton: Well, I prefer email. You can catch us on social media if you want to go to We've got a Facebook group. These people are nicely getting more active in that. Now that I know where it is, as I've said on the last few shows. Now that I know where it is, I can start getting a little bit more actively involved. If you want to reach out to me directly, you can do so at Phil.Newton. It's not at Phil, I always forget that. You can reach me via email on [email protected] That comes directly to me. If you want to have a little chat. Maybe we'll read out your little announcements, or comments, or questions on next week's show. Speaking about next week's show, Sean, what have we got coming up?
Sean Donahoe: We're going to be doing, what would you do if. If you can believe that with little dots, right there. We're going to ask ourselves a few questions, a few extreme examples of, "Hey, what if you got a swift kick in the nuts by the markets, what would you do?" And all sorts of other related questions. With that being said, rock the hell on.
Phil Newton: A trader's survival guide, you could say, yeah.
Sean Donahoe: There you go. Absolutely. Yeah. It's what to do when and if, there you go, some good stuff. Anyway, with that being said, rock the heck on. We'll see you all next week. Take care.
Phil Newton: Bye for now.
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Automated: Futures, options on futures, stock, and stock options trading involves a substantial degree of risk. It may not be suitable for all investors. Past performance is not necessarily indicative of future results. Trade Canyon Incorporated provides only training and educational information. If you actually understood and listened to this, then that means you are awesome. Congratulations and well done. Notice, this product may contain nuts.

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3 Key Takeaways From This Show

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