Wall Street wants you to believe that fundamentals dictate stock price…
… that studying company earnings and balance sheets unearth its true value.
I don’t buy that nonsense.
Traders know differently… I know differently.
Stocks move up and down every day without news, sometimes swinging several percentage points.
There’s no way that’s investors ‘digesting’ new information.
Outside of earnings, companies rarely tell us anything new.
So what really drives stock price?
That very fact allows me to profit in the market every day.
But don’t take my word for it.
Let the charts do the talking.
Let’s start off by looking at one of my recent setups in action.
The other week I traded LGIH based on my TPS setup.
As a quick refresher, my TPS setup relies on finding a clear trend, identifiable pattern, and squeeze. The squeeze comes from the Bollinger Bands trading inside the Keltner channel.
The setup worked with the daily chart that showed all these characteristics.
LGIH daily chart
Here’s what’s extremely fascinating…
I want to point out the $89.10 level. That level came through a Fibonacci extension.
A Fibonacci extension uses the distance between two extreme points in a recent consolidation. In this case $87.37 and $80.15.
It then seeks to extend those prices above or below by percentages derived from the Fibonacci sequence.
Fun fact: Fibonacci is a famous mathematician who showed mathematical patterns exist in nature. His work has become an extremely powerful analytical tool for traders and market technicians.
For my extension, I used the 127.2% level.
Price ran up into that level, hit it within a few cents, and then backed off.
It let me snag a whopper in a few days.
A member of the Weekly Money Multiplier asked me a great question.
Do these numbers actually work, or do enough people believe that work that it becomes a self-fulfilling prophecy?
Honestly, I’m not sure. I’ve gone back through older charts before computers were around. These patterns seemed to exist back then.
Thankfully, my opinion on why they work doesn’t matter.
Because the fact is they do work.
But let me show you a spooky example from this last Friday.
The market fretted the upcoming Fed announcement this past Wednesday.
Prior to the announcement, the SPY, which traders use as a proxy for the S&P 500, hit a high of $302.63.
Now, you know the old saying, what was once resistance becomes support?
Check out how that level worked through the Fed announcement week.
SPY 15-minute chart
Just look at how the market treated that level every time it got near.
Each time the market came close, it bounced.
In fact, on Thursday, when the market looked like it might close below that level, buyers came roaring in the last few minutes to push the market higher.
Why would this happen?
Traders, algorithms, you name it, they all know technical analysis. All of them use these levels as reference points for their trading.
So when enough people use the same items to trade, it can become a self-fulfilling prophecy.
However, technical analysis can’t be taken as an absolute.
For years I studied the markets… trying to pinpoint the perfect moving average…the perfect indicator.
What I found was that you can’t rely on just one. There isn’t one indicator that will tell you everything you need to trade the market.
Every different trading style relies on a series of items coming together to create a setup. In my case, I use three components: trend following, patterns, and price squeeze.
Practically, I’m looking for a stock that already has a lot of people interested. That’s what the trend tells me.
The pattern gives me a reference that shows the stock hit a technical point that created either distribution or accumulation.
Squeezes identify the waning strength of those patterns.
A stock with a strong trend should only consolidate for so long. If the trend is valid, enough people want to both trade and invest, sending it higher.
If not, I’m wrong, and I move on.
The point is that all of my technical analysis relies on a convergence of multiple factors to be effective.
Knowing the $302.63 level isn’t enough to create a trade.
You need a setup… a context to give it life.
Otherwise, you’re working to discover what I and millions of other traders already have…
… that there is no magic indicator.
I won’t profess that my TPS setups are the only ones that work.
However, I will say, unequivocally, that they’ve been extremely successful for me and many other traders.
If you want to learn how to implement the TPS system into your trading, then join me at Weekly Money Multiplier.