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How to Identify Stock Trends and Iron out Sudden Price Spikes

A single video that helped viewers rejoin the larger uptrend in China’s social media platform giant, YY Inc. (NASDAQ: YY)

by Nico Isaac
Updated: October 10, 2017

What kind of trader are you?

  • "Fundamental" trader: You use company-specific events like mergers, stock splits, and earnings data to determine whether to buy or sell
  • Scalper: You get in and out of a market in as few points as possible using your guts and gumption alone
  • Top and bottom picker: You look for the big turning points before making any trades

Well, after a decade of trying on every different trading shoe on the shelf, our senior instructor, Jeffrey Kennedy, has found one strategy fits best of all: the trend trader "shoe." In Jeffrey's own words:

"Why attempt to pick tops and bottoms when there's only one of each. Within a trend, there are often multiple moves to take advantage of."

When Jeffrey looks at a market's price chart, he asks himself one question: "Is price action best identified as motive, i.e. trending, or counter-trend?" Each has its own dead giveaways:

  • Countertrend: Choppy, sloppy, sideways price action marked my numerous overlapping waves and often, contained within parallel lines
  • Motive: Strong, broad, smooth price action that often penetrates the upper or lower boundary of a trendchannel

Going further, if price action is motive, you have two choices:

Uptrend, defined by:

  1. Prices move from the bottom left-hand corner of the price chart to the upper right hand corner -- obvious, right!
  2. Prices develop as a series of higher highs ad higher lows
  3. The Relative Strength Index, RSI rises above bull market support in the 50-60 range

Downtrend, defined by:

  1. Prices moving from the upper left hand corner of the price chart to the bottom right-hand corner
  2. Prices develop as a series of lower lows and lower highs
  3. RSI moves into bear market resistance in the 50-60 range, and fails to recover

Now, that's all good in theory. But what about in reality?

Well, here we look back at our July 13 and September 7 Traders Classroom episodes, in which Jeffrey scans the stock market stratosphere for a high-confidence set-up, and lands on the weekly chart of YY Inc., China's popular social media platform. (NASDAQ: YY)

In the July 13 Trader's Classroom video, Jeffrey refers to his handy check-list and identifies the larger trend in YY as up, designating recent "choppy, sideways" movement as a clear opportunity to rejoin the larger move to the upside.

Jeffrey also encounters a popular onus in YY's chart: price spikes. Often, these bursts in price make it difficult for traders to draw clear trendlines. But Jeffrey has a simple solution, much like the Olympic average scoring strategy of eliminating the highest and lowest scores and taking the mean.

Then, in the September 7 Trader's Classroom episode, Jeffrey revisits YY Inc. to acknowledge the stock's $30 price surge since first alerting subscribers to its uptrend back in July. He then explains how YY still had higher to go.

Press play on the following clip to watch and hear Jeffrey walk his subscribers through the bullish opportunity in YY:

 

The final chart shows exactly where Jeffrey's Trader's Classroom analysis of YY's uptrend occurred alongside its news-making rally for 2017:

YY Inc

Up or down. Commodities, stocks, metals, and so on. Jeffrey doesn't care what market or what direction. The only thing he's concerned about is does this price chart offer a high-confidence set-up? And those that do become the focus of his Trader's Classroom video lessons so you too can benefit from his carefully cultivated insight.

One-of-a-Kind, Ongoing Mentorship Service for Active Investors and Traders

Trader's Classroom teaches you how to look at charts and spot trading opportunities for yourself. You'll get 15-20 video-based lessons each month that help you master the many critical aspects of finding -- and acting on -- high-confidence trading opportunities in your markets.