Getting Started with Technical Analysis | Lesson 5

Well, hello, everyone. Welcome to Getting Started with Technical Analysis. I have the pleasure of filling in for Mr. Cameron May today. And today we are going to talk about technical indicators. We are doing an eight-week rotation in this class, and we are in week five. And week five is technical indicators. And if you're new to technical analysis, you may be saying to yourself, like, I'm not even sure what a technical indicator is. Well, don't worry. We have 45 minutes together, and at the end of it, I think you'll have a pretty good idea about what some of the basic technical indicators are and how we might use those to make a more informed decision when we are considering placing a trade. So I want to thank those of you that are here live and participating in the chat.

You know, it really helps bring this class to life. So special kudos to Wiley for being the presenter. And I want to thank the first one into the chat today. So to Wiley and Alaron and Kevin and BJ and Jay and Marcus and Robert and Will and George and Kevin and Maligator and Speak Truth. I love some of these handles. It's great to have you all on board. If you're checking out this class for the very first time, feel free to type a greeting into the chat so that we can welcome you. We link arms here every Tuesday at this time at 2 o'clock Eastern. And. Spend some time together looking at the charts, and I can tell you in 2011, when I was first introduced to the world of trading, I saw a chart and I was just so jazzed.

I think my car about drove itself home because I thought I can figure this stuff out. And technical analysis is just one of the tools we use to make more informed trading and investing decisions. I can be the master. Of my own financial destiny, or at least have a bigger role to play in it that I have had up until that time. So I started as a student of these topics and I'm now on the other side of the camera, so to speak. If you are not following me on X, I invite you to do so. My handle is at BarbArmstrongCS Cameron may who typically teaches this class, his handle at CameronMayCS And we have Brett Crowther with us in the chat. He too participates.

On. In the land of X and his handle, Brett CrowtherCS. So it's we invite you to follow us there and just know that no coach will ever offer you a Bitcoin or a crypto deal. We will never reach out to you. The most appalling one I've seen is to say, hey, if you give me your login information, I'll trade your account on your behalf and split the profits. You had never fall for that one. My friend, you'll wake up and have no money in your account. I mean, it won't have been me or we won't offer you, you know, special education for a special few that for which there is a fee if I'm posting something on Twitter about education coming up, like the live event coming up in New York, the market date is Saturday, where I will be.

And I would love to meet you if you're going to be there. Those are all free of charge, you know, and we'll even pay for your parking, and we'll give you breakfast, and we'll provide a lunch, and we'll provide a great meal. Great reception and and lovely libations at the end of the day. I hope you'll consider joining us at one of those. But moving forward, just know that there's lots of great information posted on on X, but there are scammers out there. So just beware and know that, you know, I'm going to look at several stocks today and we are going to place an example trade. But know that everything that I do in this class is for information purposes only and shouldn't be construed as a recommendation on the part of Schwab or myself, and know also that we don't recommend that technical analysis be your only or sole means of investment research.

There are lots of other things you want to take into consideration, like earnings season, the upcoming elections, what's going on in the economy in general, what might be stressing a particular sector, what's going on internationally, all these things. You know, I'm going to look at a couple of different things that I think are going to play a role. You may want to look at fundamentals. Also, today, we're going to be using the paper money software application on the Thinkorswim desktop platform, which I think is a brilliant place to learn. And, you know, when I was trying to figure this out, if the coach drew a line, I drew a line. And, you know, if they placed an example trade, I tried to replicate that trade in my paper money.

And at first, man, it was pretty tough slogging. So if you're new, you know, if you are new, if you're new, you're going to have to have a little bit of a look at this. So just hang in there. And know that past performance isn't a guarantee of future success. Know that all investing involves risk, including the loss of principal. Yeah. Kenneth is saying, you know, love the live events. And I'll show you how to access those if you want some more information on them. So what we're going to do today is, you know, shed a little light on what I mean when I say a technical indicator. We're going to review some of them. We're going to look at some of the most commonly used technical indicators, some trend and momentum indicators.

And we're going to look at some things like moving averages, the MAPD, and RSI, which stands for relative strength indicator. And we're going to look at both some bullish and some bearish examples. Okay? Okay. Now, just before I do that, I am going to bring up a note. I'm going to go to my new window. Oops. And I'm just going to size it. Okay? And we're just going to come to, if you just type in Schwab. com. And, you know, I come here often. So we're going to go to Schwab.com coaching. And I'll post this on Twitter also. The default is overview. But if you come over here to in-person events and then scroll down, we've got like six or eight. I think we have six events happening.

Before the end of the year. Now, this market drive, the registration is full. If you live in New York and you showed up, I'm sure we'd find you a seat. Ben Watson is going to be at each and every one of these events. Joe Mazzola will be there. We've got some celebrities, you know, familiar faces coming from the NASDAQ. You know, so it's going to be a jam-packed event. And at these events, I mean, we start at, you know, the 50,000-foot level. And then bring it right down to how can you use that to make more informed decisions in how you're trading or managing your portfolio. The following weekend, we've got technical analysis and an option strategy two-day workshop in D. C. There's still time to sign up for that.

And then we head for Nashville. And this is the first advanced option strategies. It's another two-day event. Option strategies. We're going to be doing a two-day advanced option strategies on day two. So, a two-day event. And then the weekend before Thanksgiving, we're in Miami. And that's another market drive with Ben and Joe. And I believe Brett Crowther is going to be attending that one also. So, yeah, these are awesome events. There's no charge for you to register. I encourage you to register quickly because they are filling up fast. You know, we can only rent space is so big to accommodate everyone. And like I said, you know, we'll provide, you know, a breakfast. You know, there's often a lunch. And, you know, at the market drives, there's a reception at the end of the day.

As far as somebody reached out to me on X and asked if there was a schedule. And here's the schedule for the webcast. So, you know, today. Well, this is, yeah, this is today. The Investor Master, Investing Master Series with James happened at 11 o'clock this morning. And then I talked about protecting a portfolio with protective puts or protecting a stock position. And getting started with options. Then we had Ben with flag patterns. Up next, we'll, you know, after getting started, we've got exploring thinkorswim with Brent Boers. And that's a great class if you've not been there. Yeah. So. That's that. Okay. So back to our regular programming. And, you know, somebody in one of the comments one time said, like, you know, do you really have to talk about all these other things?

But I'd be annoyed if there was an event happening in my backyard, a live event that I could attend. And I loved those when I was a client. And I didn't even know about it. So I'm just letting you know about some of the additional resources. Okay. So trend indicators and oscillators. So there are hundreds of technical indicators. And I could put so many indicators on a chart. It would make your head spin. But what I found is that when I tried to embrace too many indicators, it did make my head spin. And what does the confused mind do? It does nothing. And so what I'm going to show you today are some of the ones that are most, you know, that are really important.

That many investors, you know, will or at least some investors will choose to use. But, you know, this is a personal decision. A lot of people always use relative strength indicator. And some people never use it at all. So, well, you know, there are hundreds to choose from. And most of these can be assigned to one of two categories. Either a trend indicator, something like a moving average. Or an oscillating indicator. Which is also known as a momentum indicator. So trend indicators typically show up on the chart. Like this trend line. And oscillating indicators are usually in a bar below. And this is our MACD. Moving Average Convergence Divergence is what that stands for. And this one actually, and I don't even know what stock this was pulled from or what timeframe.

You know, I didn't put these slides together. But what we can see here is we have a stock. Oh, just a minute. I've got to change my color. You won't see it. That is uptrending, right? And when we look at this indicator, it's kind of downtrending. And this is called a divergence on the MACD. And what does that mean? Well, it could mean nothing. But it could mean that this uptrend may be starting to run out of steam. You know. And, you know, do these always kind of hold true? No. Yeah, somebody's saying, yeah, you don't want to get analysis and paralysis. Yeah, analysis paralysis. Yep, exactly. And we'll talk more about this. In fact, I'll show you an example of this on a live chart. Yeah. So with a simple chart.

A simple moving average. A simple moving average represents the average closing price for a stock or an index. So we could use this on the S&P over, you know, the SPX index. Or we could use it on a stock like Apple over a period of time. And it creates a line price on the chart. And it's commonly used by technical traders to identify trend and to generate trade signals. And so when your simple moving average is rising, we see that as bullish or uptrending. And if it's falling, we might, you know, see that as bearish. So, you know, here's an example where, you know, our trend line is rising. And then here's an example where, you know, I call that a Humpty Dumpty move where it started to fall and it kept on rolling down the hill.

You know. So if you want to see a live example, let's just bring a couple up. So, and go ahead and type in. I like this to be participatory. So if we look at Sedge. So this is a solar company. What would we call that? Downtrending, right? Now I have three moving averages on the chart. And they're three different colors. So what moving average? Which moving average is which? Well, if you want to see which one is which and you can't remember what color you made them. If you come and you look up here. So we have a blue. Well, let me change my color. So you can see it. We have a blue line here. Right? That's the 10-day moving average. How do I know that?

Because it says here simple moving average 10. Now, when I, the red line. That's another simple moving average. And it's a 30. And it's written in blue. Written in red. And then the black is 100. And that's, you know, our line number 3. And that makes sense, doesn't it? Because the 10-day moving average is going to be closest to where the action is. And right now, this stock is below all 30 averages. And that makes sense, doesn't it? So that's the three averages. So not very bullish. And kind of starting to go sideways. Isn't it? Yeah. Yep. Somebody is asking a question on scripts. And I have posted to the top of my Twitter feed a number of the strips I commonly use. I think all the coaches have done that.

I know for sure that James Boyd has done that as well. Okay. So anyway, there's an example of a stock that is downtrending. How about a stock that is uptrending? Well, how about if we look at Cintas? Now, here's the opposite scenario. So we have our 100-day, our 30-day, and our 10-day moving average. This is up 40% year-to-date. And so with these moving averages, we can see. And I've also included the MACD here. And we can, you know, we'll reference that more in a little bit. But, you know, and some people, if you're a shorter-term trader, you might not want that 100-day moving average even on your chart. And if you're a longer-term trader, you may not want the blue line. You may not want a 10-day.

Some people will use a 20-day and a 50-day. It's really a matter of time. It's really a matter of personal preference. And even within the coaching team, you'll see a wide variation. Okay. So coming back to our slides. So what about the MACD? Why would I even want to put that on my chart? Well, what this measures is the distance between two moving averages to identify short-term changes in price momentum. And again, it's a matter of time. And again, here we can see something that was at a high here. Let me just get my drawing tool again.

So we had something that was at a high. Let me just change this. We had a high here or a high here. And then it went to a higher high, but the MACD started to fall. And then it came up here and it hit a new higher high, but this is a lower high. And so this can be a sign that this is maybe beginning to lose a bit of momentum, even though it's uptrending on the chart. So, you know, you're identifying, you know, shorter-term changes in momentum. And it oscillates from red, which is selling momentum. So, you know, when this is pulling back, it's saying there are more people interested in selling than buying. And then when it's rising and often this drives the price up, you know, green is buying momentum.

And this, you know, kind of zero line. Okay. So, you know, the red line is considered to be the horizontal signal line. And so this is an indicator that some might use just as a confirmation of what they're seeing on the charts. And sometimes, like you might have a limited amount of cash to invest and you see on the charts three stocks that all look equally appealing from a trend perspective. And this is where some traders might say, well, I'm going to go. And see what the MACD might have to tell me. Or there are other signals as well. But this is one of the ones that some traders might choose to use. And it's pretty common, actually. The other one is this relative strength indicator.

And this is a, you know, it's another oscillating indicator or another momentum indicator. And, you know, this is one that I think is fairly commonly used. And so we have, you know, upper and lower extremities. So it goes from zero at the bottom to 100 at the top. And when it's under 30, it's considered to be oversold. So when it's down here in this range, as it was. Now the trick here, you might say it's oversold. But I want to wait until I see some kind of confirmation that this has finished falling before I consider buying. And so, you know, how do you define finished falling? Well, I don't know what this moving average is. But let's say that's the moving average that you want to use.

Whether it's a 30-day or a 100-day or a 50-day. You might say I'm going to wait for it to cross the river. And then come back and test it. And then come back and test the ice. And if it bounces, I'm good to go. You know, so it came down and tested the ice again. Crossed the river. And so you may have said, okay, I'm going to consider this a point where I enter the position. You know, and at that point, it's gone from being oversold. It's looking more appealing. And then when it gets up here, this is saying, hey. You know. I'm going to consider that over 70. You know, might be considered overbought.

So this might be a place where a trader might consider tightening up their stop loss if they use one. And so they might say, well, here, I'm now in this oversold territory. So I'm going to tighten up my stop at least to below this moving average. Now, you'd still be in this trade as of this point. But, you know. It's a commonly used, you know, for confirmation of trade signals. Or of, you know, trade management opportunities. Okay. Yeah. Yeah, Michelle is saying, reminds me of going on river ice in Canadian rivers. Well, rivers in particular. I'm a big water person. Grew up in a lake town. Because rivers continue to move. Even underneath the ice. So, they're, you know, some might argue more dangerous than lakes. Yeah.

But, you know, there are dangers in the markets, too. Right? So let's go ahead and look at some more examples. And kind of pull all of these things together. So. Come over here. We'll bring up Thinkorswim. You know. And when we look at that. Like a river might be a stock that has a lot of volatility. Or that tends to move very quickly. Now, Synatas. If you're not familiar with who this company is. If you come to the analyze tab. You'll see it's in the industrial space. And then if you scroll down. And industrials have been kind of gaining in strength. They provide corporate uniforms. You know. So, you know. Companies that require uniforms in the U. S., Canada, Latin America. Uniform rental. That kind of thing. So, that's Syntas.

And you can see we recently had a 4-for-1 stock split here. But this stock is up almost 41% year to date. It's on the other side of earnings. And, you know, they were expecting here if you hover over it. Earnings to be a dollar. It was $1. 10. Now let's take a look. Is it up trending? Well, yes. Is it above our moving averages? Yes, yes, and yes. So that's check, check, and check. How about our MACD? Do we have a divergence on the MACD? Well, if we go from here to here, yes. But we had this recent high. And, you know, it's kind of not gone. It's been trading a bit sideways. It just has come up above that recently. So we might say, you know, the MACD is bullish.

And then if we come down here and we look at our relative strength indicator, this has gone nowhere near the oversold line in the last six months, has it? But it's also not currently in the overbought line. And so if we said, well, you know, we would like to add this to our portfolio. It looks like the 30-day moving average has been acting as a support level. So if you look at where this 30-day moving average is currently around 206, could I come out here and say, you know, we could also look at the news on Cintas? And it recently had earnings. And so what we may want to be looking for is, are they raising? Are they raising price targets or lowering them?

And, you know, this is not a substitute for proper fundamental analysis, but Barclays adjusted the price from 210 to 245. It's currently at 212. Jefferies maintains a hold, increased their price target to 200. Well, adjusted. I don't know if that was up or down. Goldman Sachs raised their price target to 236. So that's just another source. That's another source of information besides the technical analysis. But if we said, okay, if we see support here around 206, I'm going to take my 206, and you could put your stop 5% below that. We're going to use three as an example. You can make it whatever you want. But if we say we would like to buy 100 shares and then put a stop 3% below that moving average.

So, you know, if we had bought that back here and done that, when might we have adjusted our stop? Because our first stop might have been, and I'm just trying to cover here how we would maintain this. Also, once we get in and use technical analysis to do that. So if we had bought the stock when it crossed here, so say we bought it around here, we might have had our first stop. 3% below that recent low. So maybe here. And then it crossed below. So if we move our stop to 3% below, it might have been here. And again, it came down and kissed that line again. So we might have said, okay, we're going to move our stop up to 3% below here. And it kissed it again.

So we moved the stop up, kissed it again, kissed it again. And now we're looking at, you know, if we owned it, we might move our stop up to around that 200 mark, $199. 82. And so it's a way in the beginning of helping define our risk, although there's no guarantee with a stop that we'll get out at the requested price. If it gaps down, we could be out lower. But as we go through and we maintain the position, in the beginning, we're just trying to define our risk. And now we're at the point, if we had bought it back here, around this 170-ish level, we're trying to protect some of our profit. Okay? But let's say we don't own Syntas, and we'd like to add it to our portfolio.

So we're going to come to the trade tab. We are going to right-click, and we're going to buy custom with a stop. So we're going to buy 100 shares, and then we want to put our stop at $199, and $182. And we're buying this for growth purposes. Now, if you want to see if it pays a dividend, it actually does pay a dividend of 2. 94%. So we could put that in our dividend stocks. Now, one of the differences between paper money and a live account is that dividends are not paid in a paper money account. The other thing, even a live account, this may pay a dividend today and tomorrow, they could discontinue the dividend. There's no guarantee that dividends are going to continue to be paid.

Okay? So, confirm and send, and we'll put that in our in a book, in a group. You can put it in whatever group you like. So, there we go. Okay, let's look at some other stocks. Let's look at some other stocks. Let's look at some other stocks. How about Carvana? Now, this is one that's interesting. I talked about this in my class this morning. Oops. CVNA. Now, when we look at just the trend, here's a six-month trend. This stock is up 271% year-to-date. So if we look at a one-year chart, it's gone from $25 a share up to almost $200. Man, that's incredible, isn't it? But, and, you know, just coming back to the shorter term, we can see that we have earnings coming up next week. Now, here's one where the stock in the shorter term, and I'm just going to bring these up so we can see it. In the shorter term, it hit a high, and then it hit a lower high, even though the stock actually has gone up. And so, you know, if we're drawing lines on our chart,

this is what we call a MACD divergence. Now, might it mean anything? Well, come earnings, the stock could gap up and it could gap down. It's been known to go both ways. But, you know, that's something that might give us reason to pause. And then when we come and we look at the relative strength indicator, this too has been nowhere near the 30, but right now it's in the overbought area. And so that too might give some investors a reason to pause. So, again, if you have limited resources and you're looking at a number of different opportunities and you're not sure, you might say, well, I'm going to put that on my think about it list and, you know, maybe look at a couple of other stocks. So, maybe we'd look at American Express.

And if we look at American Express, is it, you know, and we come down, is it up trending? Yes. Not up 271% year-to-date, but it's up 45% year-to-date, which is beating, you know, the S&P 500 and the NASDAQ. And then when we look at, you know, the MACD, the stock has been going up, but the MACD has been rising as well. You know, although we're seeing, you know, we just had an all-time high and is this higher than this? No. So, you know, we might be seeing a bit of divergence. So, this might be leading some investors to think like, oh, are we getting close to the top? And, you know, when we look at the RSI, unlike Caruana, this isn't above the 70. It's not in the oversold territory.

You know, it's kind of in, it's dropped down to the middle of the pack. So, that might make it more appealing. And again, one may want to come over, and if you have a lot of news up, you might say, well, it just came with earnings. You know, it beat on earnings. You know, what do the analysts think? Jim; Jim Kramer says, buy the dip. Goldman Sachs increased their price target of three whole dollars to $303. Douche Bank raised theirs from 270 to 310. And, you know, like sometimes there can be huge differences. Like here, price target's 240. The other one is 310. Who's right? And these guys look at this company for a living. So, you know, there can be wide variation, but if you're just saying overall sentiment, is it going up or down, that might be another thing you consider.

And so, you know, if you look at this RSI, you know, you may say, well, it's on the other side of earnings, unlike Carvana, where earnings was coming up. In spite of this pullback, you know, I just want to be cautious. So, if I'm looking at adding American Express to my portfolio, I want to be sure I have a stop in place. And if we say, well, has it been using the 30-day moving average or more the 100-day moving average? Because it's come through this 30-day moving average, the red line, quite a bit. So, we might rather use the 100-day moving average as our support level, and then we're risking a whole lot more. You know, and so we might say, well, based on that, you know, does it mean that you can't buy the stock? Well, it doesn't mean that you can't buy it, but it means that you're risking more per share. If, in fact, we said, okay, we're going to put our stop, you know, 2%. So, if I took this $249. 37,

and I'll just use a different example. If we went with a 2% below, our stock would be at 244, and we'd be buying at 272. So, if our stock is at $244. 38, and we're buying at $272. 60, minus $244. 38, on this account, we can risk, let's say we can risk up to $5,000. Well, if we're risking $28 a share, that's 10% of our position size, kind of roughly just over 10%. So, if we said, if we're willing to do that, because we think this is a good company and the stock's going to continue uptrending, or whatever your rationale is fundamentally, if you think this trend is going to continue, then you might say, well, on that basis, I could afford to buy 100 shares.

Or, you might, you know, if you're saying, it's okay to have a $50,000 position, I'm risking, and you know, if it gapped down, we could end up losing more, but I'm risking $2,800 for every 100 shares. So, if we bought 200 shares, you know, that would be over $5,644. 22 times 200. So, we'd be risking $5,644. So, for our example, we are going to go with 100 shares. Now, could you do this as a longer-term trade? Absolutely. Now, if you wanted to do this as a shorter-term trade, you know, you could put in a trade target of maybe the previous high, but let's just assume that you just wanted to add this to your portfolio as a longer term investment.

I like to say that because I don't talk about that kind of investment very often these days. I teach getting started with options and trading a smaller account where we do a lot of very short-term perspectives. Yeah, so we could come here, right click, again, we're going to buy with a stop, and we're putting our stop at $244, and $138. Now, what if you had a shorter-term perspective? And so we might put that in our, you know, longer term. We might say we're going to put this in our growth stock group. And how much are we risking? $27,258. Why is that? Well, because the stock could go to zero. It's not taking our stop loss into account, and again, always read these lines in red. It's saying, hey, with a stop, no guarantee that we're going to get out at the price we requested.

Now, you might be thinking to yourself, so just a minute, what if I wanted to do this on a short-term basis? If I wanted to maybe buy the stock, maybe I, you know, we've got $300,000 sitting in cash in our account, what if we wanted to just buy 100 shares at $272,000 and then sell them when they got back up to $286,000? This, you know, that would be called a swing trade. And might we not want to put our stop in the same place? Well, we might say, 'Hey, I'm looking for a short move in a short period of time, and so I'm going to look at this recent low, which is today's low, at $268. 58, and I'm going to put a stop 3% below that.

So, $268. 58 times . 98. So, instead of having a stop at $244, we're going to put the stop at $263. 20 and then we're going to put in a target at $286. 36. Okay, does that make sense? And so, how much could we make on this? Well, it's at $272, we could make $14 a share about. Okay? So, we stand to potentially make, if we put our target at $286. 36 or $286, roughly $14 a share, and how much are we risking? We're risking about $9-ish. So, we're risking $9 to potentially make $14. And, you know, based on what we're seeing on the chart, based on our technical analysis.

So, to do that, we come to trade, right click, just like we did before, anywhere on this line, and we're going to buy custom only this time with a one cancels the other bracket. And, close this to smooth this out. We're going to make our target, the previous high, $286. 36. And we're going to do this with 100 shares. $286. 36. And our stop is going to be much tighter. $263. 20. $263. 20. And both of these, we're going to make good till cancel. Confirm and send. Now, we bought 100 shares of stock, just like we did the last time, but we bought them for a different purpose. So, we're saying, we're looking to potentially make up to $1,387 or $1,387.

How much could we lose? $929. Now, if the stock gaps up or down, we could get out at a higher price or out at a lower price. Like, these are going to trigger market orders. And there's no guarantee we're going to get out at exactly the price requested. And we're going to put this in our stock with target category. Because we've got a target exit and we're going to put a note in here to say, hey, this is a swing trade. We're just trading it up to the previous high. Okay. So, really, that's what I had to share with you today. We're going to come back and wrap things up. I've got a couple of things that I would like to ask.

First, if you haven't hit the button in the bottom right, you haven't already subscribed to the channel, I'd recommend that you subscribe to the Trader Talks from Schwab Coaching. This is where you can access the archives, where you can jump on the live webcasts, and of course, there's no charge for you to be part of that community. So, I ask that you subscribe. I'd also like you to hit the like button. Like, Cameron May was fond of saying it sounds like applause to him. And what it does is it helps move this up in the algorithm so that more people can find this content on YouTube. So, if you do that, and last but not least, don't forget to follow us in the land of X, Barb Armstrong CS, Brett Crowther CS.

Would appreciate having you there. So, we've looked at some technical indicators, moving averages, simple moving averages today. We've looked at the MACD moving average convergence divergence, if you want a mouthful, and the relative strength indicator, and looked at how those can help us make more informed decisions. We looked primarily at bullish examples today, but we also looked at a couple of bearish examples as well. So, that's a wrap for today, guys. I appreciate you being here. Have a really awesome day. Up next is Thinkorswim with Brett Moores. I hope you'll stick around and join us for that. Take care, and bye for now. Thanks to Brett for joining me in the chat, and thanks to the guys behind the scenes for bringing this great production quality to you.