Introduction to Stock Trading and Technical Analysis Strategies

In this lesson, you will manage a virtual portfolio, using technical analysis methods to analyze and make trading decisions. Focus on identifying support and resistance levels, utilizing breakout filters, and considering Fibonacci targets for potential trend reversals.

Introduction to Stock Trading and Technical Analysis Strategies

You'll be managing a virtual portfolio. The stocks include Israeli companies listed in the US and companies that comprise the Dow Jones in real-time. Before starting trading, you'll have a virtual deposit of $160,000. From that moment on, no further deposits or withdrawals can be made.

Your portfolio will consist of Dow Jones stocks, plus the most liquid Israeli stocks, approximately 50 stocks in total. You will begin by analyzing these stocks using technical analysis methods at You are allowed to perform various trading actions, including short selling.

Working Process:

  1. You will be dealing with approximately 50 stocks: Dow Jones plus Israeli stocks traded in the U.S.
  2. Typically, you'll trade only in active stocks. Start with an index, using it as a list to monitor. The NASDAQ 100 is a good baseline. Then, open each stock individually, or just the top ten most liquid – most active, and decide to focus on technology stocks or the most liquid stocks.
  3. There are two types of stocks you want to invest in: those you want to buy long or those you plan to eventually sell. Stocks that are above the rising trend line I want to buy, and stocks that are below the descending trend line I want to sell. Create a list of these stocks.
  4. For the stocks you want to buy/sell, the question is when. Follow the rules of technical analysis. Another option, the stock isn't interesting to you now, it becomes interesting when it reaches $38 per share. Then you add the stock to your watchlist. You should manage two portfolios – the actual investment portfolio and a watchlist. On the Globes website, you can add personal notes to each stock in your portfolio and set alerts.
  5. During trading hours, monitor the stocks you're involved in. After trading hours, look at other stocks. Perform analysis, update your watchlists, etc. You can go to, where there are sectorial analyses. See which sector is interesting, select the stocks belonging to that sector, and choose the most liquid stocks.
  6. Execute approximately 3 transactions per week at a minimum, but ten transactions are suggested. Record all transactions in an activity diary.
  7. Don't perform transactions with more than $6,400.
  8. The tools you will be using are the ones we have learned up to this point.

Support and Resistance

A support level is a price level where a decrease is expected to halt and reverse to an increase.

A phenomenon of reversal of meaning – a support level that is broken becomes a resistance level.

Often, we search for support and resistance levels not at extreme points but in a certain area. There is more than one possibility.

A resistance level is a potential point for selling, and a support level is a potential point for buying. Hence, it's essential to define in advance what you do with the stock, locate the opportunity and wait for the opportunity to occur. An indicator is examined over time. For example, a support resistance level is examined over time, to what extent the level provided a significant fact for the stock.

Breaking a trend – Trade or Wait: Do I trade in the breakout, on the event signal, or do I buy after the correction and then buy. The advantage of waiting is that I get a better price. I will buy comfortably until the stock reaches the support/resistance level. We don't chase the stock, the stock comes to us. The disadvantage in waiting is that sometimes there are stocks that pick up speed quickly, before they perform a correction, and then the whole process we build on doesn't create a buying opportunity.

A reliable breakout

There are breakout filters – time and price. The breakout should be above a certain percentage that is defined, and above units of time, for example in day trading two units of time of 10 minutes, in long-term trading two units of time of two days for example. If the stock is very volatile, and less liquid, it needs larger time intervals, and if the stock is less volatile and more liquid, you can shorten the time duration for the breakout indicators.

You can also define how much you are willing to lose, for example, 1%, where you put a stop loss.

Take into account that if you trade at the launching points to the support/resistance lines, which are clear critical points to all, there will be enough chartists who know what we know, hence actions at critical points will be very volatile.

There is a technical indicator called – Parabolic SAR. An indicator that follows the stock and determines the point for flipping the position.

Fibonacci Targets

Both uptrends and downtrends are composed of waves. The question is whether the last line indicates a change in trend, a correction signal, and the continuation of the downtrend. According to the proportions between Fibonacci numbers, a small correction will return 38% of the wave it corrects. A maximum correction will return 62% of the wave it corrects, often the number, and the opportunities will be around 62%.

For example, if a stock fell from 50 to 40, I would expect it to reach at least 43.8, and at most 46.2. If it passes these levels, there is a chance of a trend reversal. The message is that if the stock is at 40 and on a downtrend, until it reaches 43.8 it's a minimal correction. If it gets there and starts to fall again, the downtrend continues. By the way, there are also other Fibonacci points below and above. The next important point is 46.2. If the stock is in a downtrend, the assumption is that the stock will continue to fall, and the assumption is that the stock is just correcting. Therefore, when the stock makes a maximum correction, you can follow it and see how it behaves during the day, or decide to sell for security at 46. If the trend continues, if it doesn't happen and the stock breaks out, I go back to the stock and buy it because of the increases. I gained security.

On the wave of the rise, they make a new series of Fibonacci, and so on. This method maps in every unit of time.

The method works great. Most people are not familiar with this method.

Trading Indicators and Candlestick Patterns for Technical Analysis
A pushing wave is one that follows the trend, while a corrective wave goes against the trend. In a bullish market, we expect each new peak to set a record in trading volume and vice versa in a bearish market.