*In the last lesson we discussed support and resistance and how to identify these areas of price action, in hopes they help time your entrance and exit a little better. Learning areas of support and resistance can help you identify areas to start looking for places to take profit or go long (buy). Being able to identify these areas is very important to becoming successful at trading, but also something that is very hard to master. If you have gotten to this point in the curriculum and you can't really decipher between when an area becomes support verses when it is resistance, please go back and review the previous lesson. ***This next lesson is one of my favorite things that I use to trade every day, but it only builds on what we have already learned in the past lessons, so make sure you are confident and can explain what you have learned before continuing.

Introduction

Welcome to Lesson 3! In this lesson we will be talking about one of my favorite formations to target my entries and exit. Once you get a solid grasp for these things we are about to talk about, you will feel a lot more confident about your ability to take profit, as well as when to enter a position confidently.

One of the most important things in trading is confidence. If at any point in your trading career, you take a big loss or even multiple small losses in a row your confidence is the first thing to take a hit. You begin to question your ability to do this at all, and whether you are too stupid to do this. The latter is always (almost always) wrong, and it is just your mental side of the scale rising, causing you to slightly panic when placing trades(refer to our syllabus when I talk about the importance of maintaining the balance between your skill and mental game). There are multiple times, or days even, when everything I do I immediately question why I am doing that and sell out immediately instead of letting the trade develop. This is usually caused by me having a rough first few or so trades to start the day which then makes me doubt why the hell I am yolo'ing several thousand dollars on a .30 stock.

There are a few things that you can do to keep yourself from getting into this mindset. Once you are in the "failure" mindset, it is very hard to recover and starts to make you even take risks you shouldn't be taking just to make back the money you lost earlier, after being an absolute self proclaimed idiot.

They are:

• For every trade that you take, you should always enter the trade with an entry plan, as well as having an exit plan. Don't ever just fire from the hip because you have such bad FOMO you are sitting in a pile of shit and watching people in our stock chat talk about their mad gains they are getting. One of the hardest things to learn is never chase. I still find myself chasing stuff every now and then and it almost always ends up bad, with me questioning myself "how many times Daniel, how many times will it take...". If you are newer to trading, chasing basically just means you watch price go up, brain computes as enter now, stock falls, brain computes exit, you exit, you lose, repeat again when brain stops computing. Every trade you take should be calculated based upon cold hard facts that are CURRENTLY available to you in the chart. Every trade you take should also have a PRE-PLANNED exit! You should always be ready to sell as soon as you enter a position, meaning you should know where price must go for you to get out of the position with a loss if price falls against your plan. If you don't stick to this plan, you will find yourself holding stuff too long and eventually be what they call, a bag-holder. Bag-holders are people who have been holding their $400 shares of Gamestop since the beginning of time, waiting for that one day when games on disc and selling your gear for small fractions of a penny become relevant again. You eventually will those shares off to your grand kids in hopes one day they can buy a big mac with the value of those shares you ape'd into because everyone else was doing it and posting it on tic-toc.
• Learn to recognize EARLY, that today just might not be your day and stop trading. This is still one of the hardest things to do, and will always be the hardest things to learn. Our eyes just see dollar signs to be made, while our brain is doing everything in its power to make us lose stacks upon stacks, or big macs upon big macs depending on your portfolio size. As a personal rule of thumb if I have a day when I have 3 (I use 3, but this is up to you to be a grown up and decide what works for you) losing trades in a row, I usually, stop trading for the day and close my trading platform*.* It's almost like accepting defeat, which is horrible but you have to remember there is always tomorrow (unless it Friday of course). It is better to just stop trading, turn off your trading platform, go for a walk, then bury your portfolio deeper in the negative that you worked so hard to build.
• The final suggestion that I will give you is that you don't ever HAVE to trade. No one is putting a gun to your head making you be in the market exposed to losses or trying to take advantage of gains. It took me a long time to develop the discipline to be able to stay out of the market on days, where your strategy just isn't working or maybe there just aren't any opportunities. Some days, everything is red, pennies are dry, stocks aren't moving, and it's not worth the risk to jump in and beat the hell out of your confidence. Being able to recognize these days, and staying all cash out of the market is another nearly impossible thing to master. The day you are able to sit comfortably and relaxed, and watch the market do its dam thang, without your ass being involved, well, you should just order a huge pizza, wear a burger king crown, and drink a beer because you just conquered the game of trading discipline.

Now let's talk about what we are all here for...

Pennants

Pennants can be defined as a type of continuation pattern formed after a large move upwards or downwards in a stock. As shown in the image above, the dark black line above is called the flag pole, which you never should draw because its always irrelevant, I only drew it to help you picture the flag better, so... you're welcome. The movement of price sideways following the large move upwards forms the pennant. A pennant in price action terms is just indecision between buyers and sellers, about whether the price should continue upwards or fall back down. When a pennant forms after a large move upwards, we expect price to continue upwards by breaking out at some point in the future. Doesn't ever necessarily mean it is GOING to. Just means that it is possible. If it is after a large move upwards, it of course has a higher probability of breaking upwards and continuing in the same direction, but there is always a possibility of price breaking downwards out the bottom of the pennant.

Pennants are one of my favorite formations that I use to enter long into a position. These can happen on any time frame, 4 hours, day, or even 5 mins, depending on how long you plan on being in a position. Here are some examples:

Here is Tesla (TSLA) daily chart. Made a large move upwards which then went into a pennant formation, which lead to price breaking out and continuing upwards

Here is an example on the 5 min chart again, showing a pennant that actually breaks downward after a larger move upward, showing that it is always possible to break the opposite direction of the trend.

Here is Tesla (TSLA) on a 5 minute time frame. Price moved up early in the morning making a larger move, then consolidated into a pennant before moving upwards once again.

These are all great examples to show you how pennants are formed, which as mentioned before, are usually after larger moves in a certain direction. There are several ways that I trade these formations. I almost never blindly enter at a random price just because I see the pennant being broken. I always try to enter using one of the formations mentioned in lesson 1 and 2, such as the break of an inside candle, which then would lead to a break of the pennant. Or I could enter 1 cent above a break of a double top formation, or triple top break, that leads to the break of the pennant. There are numerous scenarios you can use to enter a pennant break formation, the video below explains the mindset you have to have real time while watching these unfold. Being able to identify these formations before they form will help you take advantage of movements a lot faster and be more prepared. Like mentioned previously, the more you use these in your entries and exits the more easily you will start to recognize these forming real time during trading hours.

I will try and do more of these, as seeing live examples probably helps you better understand these things, than just a wall of text 😂. I present to you, Pennants, an original Stonks Daddy production...