Brian Shannon TA

As momentum trader, goal is to enter a stock as it begin a re-new trending campaign within
primary trend wo exposure to large equity draw down. To achieve low risk and high profit
potential, ask 2 questions

1. Where is potential support for long trade and resistance for short trade. Technical level
allow me to determine potential risk and set stops based on objective observation of
price.
2. Where does stock have potential to go ? If stock move in anticipated direction, I want to
have approximate price targe wehre stock has potential to travel.

After satisfied there is sufficient profit potential relative to perceived risks, I buy on strength
and sell short on weakness as new momentum begin.

Have 3 choices in markets Long, Short or sideway.

1. Market is discounting mechanism -> it discount past and anticipate future events.
Strong understanding of market structure allow u to use past history to determine
potential future outcomes for a trade.
2. Price move in trends
3. History repeats itself
Chapter 2
Four Stages
1. Accumulation – follows a period of decline. Process of buyer fighting for control of
trend. It is neutral period marked by contraction of price ranges that offer no tradable
edge for trend trader
2. Markup – once buyer gained control of stock pattern of higher highs and higer lows has
been establish, path of least resistance is higher. It is bull market and traders should be
trading long side aggressively as price expand higher in search of supply.
3. Distribution – after market exhausted majority of buying demand, sellers become more
aggressive turn market neutral. This period of price contraction precedes a decline
4. Decline – when lows of stage 3 breach, price expands to be downside in search of
demand to satisfy aggressive supply. Pattern of lower highs and lower lows is hallmark of
bear market . Only appropriate strategy for trend trader is to sell short.

Short-term consolidation areas within primary trend are where we want to study price
action for clues to a resumption of momentum.

In some stocks, it is difficult to identify order in any timeframe and if you are trend trader,
these stock should be avoided.

Successful trading is all about finding edge and exploiting it for the gain. If can not find
advantage, no reason to be involved.

Chapter 3
Stages 1 - Accumulation
Accumulation begin with completion of downtrend and is transitional period where once-
aggressive sellers begin to ease their activities. During this stage, gradual shift in control
from sellers to more neutral environment. Momentum point of view, stage 1 represents a
period of diminished volatility and trading volume as lack of trend encourages moeney to
seek returns in better performing stocks. Biggest risk in owning stock in this stage is time
and opportunity cost.

Tightening of range and loss of interest in this stage is similar to the way bouncing ball loses
energy. (Detail in page 31). Decline , scary part end(stage 4)as boring stage 1 begin.

Stage 1 is period of recovery for a stock. Sometimes taking years to redevelop on longer-
term timeframes. Those stock should be avoided by Trend trader
Stage 1 – moving aveage begin to cross above and below each other in a stock where there
was prior downtrend. Near beginging of stage one, it is common for longer-term ma to
continue to decline as healing process for stock [Link] will also begin to slow as
neutral environment is reinforced by price contraction and diminished trading activity.

Range bound activity of stage 1 stock offers no rason for trend trade to be involved. Even
with what can appear to be low-risk strategy, it is never acceptable to let your guard down.
There are times where stock that appear to be undergoing accumulation breakdown
furthers
While u sit on sideline, ranges from which scalers attempt to profit are created by larger
forces at work, institutions holders of long stock whowere unable or unwilling to liquidate
their position in declining environment will recognize chances of stock recovering to
previous high diminishes as time pass and trading volume decline institution often become
consistent passive seller of stock.

Quiet accumulation of shares is possible because there typically are no catalyst for
movement present.
A mutual fund may be net seller one month and net buyer of same stock next month.
Mutual funds decision to buy and sell are not always motivated soley on making money .
They may still believe in prospects for company in longer term, but they must disclose their
equity holding end of each cal qtr, they are forced to sell underperforming [Link] is
simple , they don’t want to look dumb with large position in weak stock. Motivation to buy
or sell base don how portfolio look to public is know as window dressing.

Stock can remain in accumulation for years, but when it awakes from it long slumber, can
represent enormous opportunity from long side. Recognition of latter stages of
accumulation allow not just institution but u to better anticipate when a new trend may
develop.

Clues to end accumulation stage

Are revealed on the chart by higher lows , increased trading volume, more frequent test of
key level of resistance, flattening to rising action of longer-term ma.
When stock break above high of accumulation stage and complements recent higher low
with higher high, transition is complete and stock enter bullish stage 2 markup phase.

CHAPTER 4
STAGE 2 – MARKUP
When stock clear high of stage one and establish higher high, buyers are firmly in control of
stock. With prices above significant and rising moving averages, path to least resistance is
higher. On chart, stock carves out patten of higher high and higher
 CHAPTER 7
SUPPORT AND RESISTANCE
Price has memory. Memory is not just something displayed on technical chart, it is shared
memory of market participants and how they interact, playing out their psychological games
in market, fear and greed.

Note that breaking support or resistance level often is good place to establish new position.

The longer a prior support or resistance level takes to form, greater memory of price at that
level. It become major support and resistance. Violation of these major consolidation level
cause greater emotional response from participants.

Strength and importance of support and resistance levels is influenced by three factors

1. The time it takes to form

CHAPTER 8
TRENDS
A trend once established, more likely to continue than it is to reverse. The best reason for
trend trading because trades heading to direction of primary trend are where largest gains will
be achieve in any market. Direction of trend is know as “path of least resistance” as stock able
to move largely unchallenged by offsetting source of supply or demand.
 When trend begin to develop on longer-term (monthly or weekly) timeframe, view it as a
signal that there will be numerous trading opportunities in coming weeks,months. Once
underway, fresh ttrend will create alignment trade opportunities after short-term pullback.

All trends experience correction in their development.