Don't Use Candlesticks to Trade, Use THIS Instead

Every trading guru and video out there tells you how to read candlesticks and that if you don't then you're going to lose money. It's turned into a little bit of a gimmick of who can create the most complicated strategy and tell you it's how to win. But in reality you don't actually need to. I pretty much ignore candlesticks and price action completely and use a bit of a different strategy or method. It's much more simple and you can turn it into a checklist and pretty much a five year old can execute it properly to make money. This has kept me in the trading game for the last 14 years. So in this video I'm going to show you why candlesticks and price action is a bad idea and won't actually make you the money that you want, but what strategy to use instead. And live examples on the charts of me implementing it. So why are candlesticks kind of such a bad idea? Well, look, it's not actually the candlesticks themselves that are a bad idea, but it's the context at which people use them in. See, price action is something that can be very, very subjective and context specific. It doesn't really explain the reasons as to why people make money in markets. And the reasons why people make money in markets is down to inefficiencies being exploited. So why do people push using candlesticks? Well, it's because there's such a low barrier to entry. You see these twats online that would look at a fancy pattern and would say, oh yeah, this is the killer pattern. This is the, that's made me a million quid a month for the last 10 years and it's complete bollocks. Basically. The way that you need to understand price action is very, very context specific, as I've already said. And to understand price action sufficiently, you need to really understand the functions of the market. And something called risk premium. What are you actually compensated for doing in the market? This is absolutely key and believe me, the subjectivity of using something like price action requires something a bit deeper. It requires a lot more experience than you first think. And it's not that subjective. It's actually quite objective when certain traders use it, but it's objective from the perspective of they understand exactly the functions of the market. Now I'm telling you now, there's no institutional traders that are using price action anymore. A mate of mine who had traded spreads which is basically trading one asset versus another on different time frames. Calendar spreads, they're called he recently tried to trade outright, which is basically directional trading. He is struggling. He has been a fantastic trader for the last 10 years. However, on an intraday timeframe, he finds it extremely difficult. So I never understand why people think that a simple pattern is able to make them thousands, millions. It never makes sense to me. Why are these people doing it? Well, they want to sell you something. We run an academy, of course. However, we're trying to get people invested in the stock market. We're not trying to teach you some stupid way in which it just will not work. And so there's a bit of a difference here. We're trying to get people to invest, not become day traders. That is not, not our goal. Day trading is a complete waste of time. Actually, I will go as far to say that now you know why candlesticks are a bad idea. Here is the easier and simpler way that I mentioned, and it involves following this checklist right here. I'm going to break it down step by step. But you do need to understand every single part. So if you skip through it, it won't make sense and it will not work. I'm going to explain to you the 1, 4, 10 method. And yes, it sounds very, very gimmicky, but it's very important to understand this pur. It allows you to recall the foundation of everything that you're going to be doing going forward. So number one, we focus on equities from the United States. That is all. We focus on four, we focus on four moving averages, which allows us to understand which way the market's going. It allows us to understand if a trend is strong or weak and allows us to filter down the ones that are actually going to be useful in our analysis. And then 10, we're looking at US stocks that are above, above $10 billion in market cap. We don't want to be playing in small caps, mid caps. They are useless. We want to be focused on companies that have managed to meet a massive market capitalization because they're actually benefiting the economy. They're useful and they have a legacy within the US Market. Now, there's some other discretionary factors that we can include. I'm just going to run through five different things that we might look at to be able to pick then the right trending stocks. And so what we might do is we might look at a certain volume uptick that would indicate that there has been a change in inflation 10 on this specific stock. Now, you have to remember we're looking at much longer time frames here. We're not day trading. So we're looking to hold things for maybe a month minimum. I personally hold things for three months minimum. That's the time frame I'm looking for. And some things I've held for five years. This is what we're focused on here. So the first one would be volume, as I've just said. The second one is going to be we want to focus on close only. So we're focusing on actually having a signal when the market has shut. We don't want to do anything, anything when the market's open in terms of analyzing whether we have a valid signal or not. The third thing is that we want to be focused purely on things that are hot. So multiple things have to be coming together alongside the actual sector being relatively hot. That is another real probability shift that we can use. The fourth thing as well can be focusing on some sort of valuation metric. For instance, I might look at the price to earnings of a stock and see whether its sector is actually meeting its valuation or not. If I see that a stock is undervalued relative to its sector, price to earnings or price to book or some other valuation measure doesn't really matter, then that shifts the probabilities further into my way that this breakout is probably gonna shift a little bit more. And remember, we are focused consistently on probability. We're not certain any point. We just want to be able to enact investments over enough of a time frame. That means that yes, we're going to have a bigger price increase than any kind of drawdowns. That is what basically leads to positive price P L at the end of the year. End of the year being key because we are long term focused here. Now the fifth element is relatively important as well and this is actually managing the trade. So risk management on the downside is what is key. We do not have price targets yet. Take profits and price targets out of your head. We want to maximize upside without capping our belief in the market. Markets expand due to earnings growth and they don't fall down purely because you think that their share price has gone high enough. They fall because of various other reasons. People selling obviously being the key one. But the reasons as to why they're selling are quite important. They don't just fall because they've met some arbitrary sort of price target you've got in your head that you think the market should stop at. Now you know why candlestick for me, or at least price action trading like that don't work and what the better alternative or methodology to use instead is I'm going to show you some live examples on the screen right now of me picking some stocks that you might want to have a look at. So we're going to run through three examples that have literally just popped up today. These are the examples and exactly how I screen for stocks that I'm going to buy. There are discretionary factors that will go more into this, but I want to show you the basics of the 14 10. If you do want to understand the other factors that go into all of this, and there's quite a lot, then do subscribe to the Think Academy because you will learn a skill of a lifetime. What you can see in the dashboard in front of you is effectively our strategy for the relevant companies. Now we're going to exclude all of the ones that say adr and what we're going to focus on are the ones that basically don't say that because the ones that are ADRs are secondary listings from other countries. So you can see here for instance, that United Microelectronics Corp. Is an adr, but the main listing is in Taiwan. This means that the main listing isn't in the US Less so we're going to ignore it. Now what I really like about this is that there are two pretty cool stocks that have popped up. So we've got Ferrari, the ticker is Race, and we've got Intel. Intel is one of my favorites and has been for a long time for a different reason because I've considered it a fallen angel, which is a strategy that we also teach in the Think Academy. This is more of a value based strategy, but it makes perfect sense and it only pops up maybe three, four times a year. The hit rate is extremely high on that one. So if you want to know more about that, do jump on the Think Academy. Now back to what we're focusing on with our current examples here we have Intel. Now with regards to the 14 10, you can see that we're focused on the U.S. intel is a U.S. company. You can see that we've got the four moving averages here. And based on the screener we have seen that there is the relevant volume uptick. Why do I like intel though? Well, well, it's part of one of the most insane themes currently, which is obviously chip makers connected with AI. Now they have been battered for a very, very long time. You can see it here. You know, last year they shed workers and when a company sheds workers, you would expect their share price actually to go up because their operational expenditures have decreased. However, that didn't happen with Intel. And what we're noticing now though is that we are fulfilling some of the criteria that we look at. The discretionary factors are kind of there as well. But you can see the way in which we're formulating this. We can see the price starting to shift above the relevant trend metrics. We're starting to see that there is some momentum coming into the market. Now for a chip maker like intel to be this battered, but then to be showing signs of momentum, that is absolutely key purely because we're then allowing the kind of joys of the thematic entries and the systematic funds who might see it as undervalued relative to the current theme and relative to the valuation of the rest of the sector to start jumping in. If you want to know more about this again, think academy. Jump on it. The second stock is also very, very interesting. Ferrari. And there is a brand new signal on that for the first time since May. Okay, you can see here again now in pre market we are slightly below, but the signal is from yesterday. This is what we base it on. We are looking at a relatively fresh signal and in a space which is an interesting one purely because Ferrari would be considered a discretionary spend, probably the most discretion respond stock ever. You don't often go and just buy a Ferrari, which is a bit of an understatement to be honest with you. So the way that we're looking at this is exactly the same way and I hope you can understand the simplicity here. The simplicity of the complexity is probably a better way to put it actually, because we've distilled all of our understanding of the last 14 years into what makes money over time. Now we are looking at Ferrari potentially as one of those stocks that has sheer legacy. It has in fact been a bit of a monster stock since its listing. It's just gone straight up and to the right. The reason for this is that it continuously prints money. And this really, really compounds the central thing. I need you to get into your head. The reason the stock goes up is because people expect it to make more money in the future. That is the only reason. And so whenever people are talking about sort of macro doom and things like this, you really got to not listen to them. The reason why is that macro exposes risk. It doesn't exp those opportunities. At the end of the day, the US is only in a negative growth environment. 6% of the time, 94% of the time the US is in positive growth. Positive growth on a GDP measure means that earnings growth is also increasing if earnings growth is increasing, it means that companies are making more money, which means that their share price goes higher because companies pay out dividends to investors who then become more and more wealthy. It's very, very simple. You do not have to be negative about the US stock market or even the US necessarily. It's much, much better to be optimistic, maybe have your gripes, but it's much, much better to remain optimistic as much as possible when it comes to investing anyway. Now, the third stock is Casey's General Stores. No, I have never heard of them either. Being a Brit, however, I don't care. At the end of the day, it goes up and to the right. That is all we're focused on. If you can get up to, to the right into your head and just be focused on that as something to look for over the long term, you will do so much better than everyone else trying to predict markets on an intraday, intra week perspective. Up into the right is probably the best framework that you can burn into your mind purely because it just inspires that perception of continual growth. You can zoom out on this chart. If we zoom out here, you can't lose money just being long that asset. You cannot lose money if you've lost money being in this stock, Casey's General Stores, you should probably just stick all of your money into, you know, a Vanguard fund and just, you know, direct debit each month. Because quite frankly, I, I don't know what to say. If you want to be able to juice your portfolio, you need to be able to hold individual stocks for longer than a week. Stocks that have gone up and to the right for ages are likely to continue to go up and to the right for ages. Now, of course, past performance is not indicative of future. However, let's be reasonable with our intelligence here. I would rather have a bet on a stock that has, you know, pretty much continually gone up since 1983 than mess around with day trading where you're anxious, where you're stressed, where you're in front of screens for 12 hours a day. It's nonsense, okay? We want a systematic process which aligns with the other enjoyable things we want to do with our lives. And then we throw it into a nice tax efficient wrapper like an ISA sip SaaS junior isa and we get on with things. Okay, let's get a little bit deeper at Casey. So if we look on a daily, daily time frame, we can see a monumental gap up. I have no idea why this is gapped up. It's just my system tells me that it should really be a buy with some caveats here. So what we do when we see things like this, we do have a system on a much, much smaller scale whereby we'll say, okay, what we're going to do is we're going to wait for a certain volatility metric to die down a little bit, then we buy. I wouldn't really want to buy a big gap up like that purely because it's it doesn't allow me to have the adequate risk management in case we do get a short term drawdown that's covered in the academy. It goes into risk management in a lot of depth Now. I hope that all made sense. And just to recap, we've gone through why reading candlestick charts don't work, what the better alternative is, and how to implement that alternative through a step by step checklist that is easy to follow. Hopefully that all made sense. And if it did, all I ask please is you to like this video and tell me in the comments below have you gone down the trap of reading candlestick patterns and what was the outcome? If so, when did you realize that it was absolute? Or did you realize only just today? After watching this video I'll be responding to all of the messages and giving hints, tips, advice, that kind of thing. But I'll see you in the next video and thank you for watching this.