Wouldn’t you like to know that you’re making the “right” investments and not just willingly throwing money at the market with hopes of riches. I think we know that by the amount of hopeful millionaires out there, that hope doesn’t just always make success come. Sometimes you need a fool proof plan.

I know all the excuses that people say when they think about trading charts or even reading charts. Charts are useless they scream! I just buy good assets and the market goes up! Gosh, I wish this was true, but sadly it isn’t. See, our preconceived notion about what makes a good asset a good asset is usually very wrong. We spin ideas in our head saying that the board of directors makes the asset go up, or the new product makes the price of the asset go up, or new markets, or FED rate cuts, or whatever else makes the price of the asset go up.

Really, I think it’s all just magic. Since it’s all just magic. The only logic thing to do is have a system that doesn’t look for these “things” people say makes the market go up because they’re hard to quantify. We need easy things to quantify so we can quickly know if we are right or wrong in our investment and not waste our hard earned time.

Yes, a new board of directors can make a company profitable again and therefore make the stock price go up, but how long does it take for that change to be reflected in the stock? 6 months? 1 year? I don’t know about you, but I don’t want to wait that long when another stock or another crypto is ready to rocket tomorrow.

This is everything I know about reading charts for the average investor and the exact method that I use to trade stocks and crypto every week. It’s simple, not easy, but if you follow the rules and build your intuition, you can have this success as well.

The 6 Mandatory Rules & Some Preferred Ideas

My trading rules are pretty simple. I follow CANSLIM, which was introduced by William O’Neal and I follow VCP patterns, which is Mark Minervini’s addition to the CANSLIM model. I take these ideas and use them in my own interpretation which allows me to build my intuition and experience over my trading career.

1. Price must be over the 50 day moving average or the 30 week moving average

2. 50 day moving average must be over the 200 day moving average or the 30 week must be over the 40 week

3. Price and moving averages must be going up

4. A proper base must be formed for a low risk entry like a cup and handle, consolidation, double bottom, or VCP pattern type base

5. You can never risk more than 10% on a position entry meaning you should never lose more than 10% on a position

6. Never buy in a Stage 4 downtrend and never average down

Those are the mandatory ones. If you never break any of these, you will limit losses, find winners, and at least follow the right trend even if you don’t make the most amount of capital gains. This is a fool proof plan that will put you ahead of the masses when it comes to investing.

Here are the preferred rules that I sometimes change depending on the scenario.

1. Buy your crypto/stocks when they are within 25% of their all time high

2. Buy the best assets in the best industry

3. Buy assets with Relative Strength of 85 and above

4. Volume should dry up before breakout and push much higher on breakout day

5. Only buy on the breakout day

These aren’t as mandatory because crypto is harder to judge relative strength on vs Bitcoin, you can still make good buys when they are not at all time highs, volume doesn’t always work out perfectly, and sometimes you can cheat and buy before the breakout day. Should you break these preferred rules, not really, but you can be more flexible with them as they aren’t as detrimental to your success.

The most ideal buy points whether it is crypto or stocks has all the mandatory rules and a maximum amount of the preferred rules.

Applying The 5 Rules To Find Killer Assets

Okay so we have some rules, now how do we find the assets that meet these rules as simple as possible. You might think, “well I can look at Bitcoin and Ethereum and Apple and Tesla and see what those are doing”…….wrong. What you need is a system that can tell you assets primed for your rules on a weekly basis.

Bitcoin won’t always be in the perfect buy point. Cardano won’t always be in the perfect buy point. You need to know when a certain asset is in the perfect buying window so you can take action then. Not two weeks later.

In order to do this, you must start screening. Screening basically gives you a list of stocks/cryptos that meet these criteria. The deeper you go into the crypto ecosystems, the less feasible screening is and the more manual chart work you will have to do in my experience.

To start screening, a good free option is on TradingView. Click the spiral in the bottom right corner. After that, you will get a few screening options. I like the Stock Screener and the Crypto Coins Screener. After you pull these up, you can just add the rules we talked about into the screener. Scroll down to see my example. On the crypto coins screener, I just removed stablecoins from the category field.

At any point in time, lets say you have too many stocks/cryptos to go through (like 500 or more) on your screener, you can simply just make the criteria harder to pass through in order to filter out more “bad” assets. I do this by making revenue numbers higher, adding weekly 10 and 40 moving averages to the screener, etc.

Once you set the screener up, then you have a weekly or daily thing you can look at that filters assets to match your criteria. Then all you have to do is go through the list and find ones you like for entries. Sounds simple, but there are nuances in everything.

Failure Isn’t Failure & Some Realistic Examples

We have our rules and we have a way to find good assets at the right time. Now the last piece of work is just trial and building intuition. Every Sunday, I go through about 200 to 300 assets that fit these criteria. Are they all good buys? Absolutely not.

A good example is BNB coin. We can see that it shows up as an asset that meets our criteria currently on our screener, but the buy point isn’t exactly perfect for a low risk entry at today’s price. If we would have bought a few weeks ago as BNB broke out of its base at the first red arrow, that would have been a great buy. Today, we don’t want to buy until price pulls back into the 21 or 50 day SMA at the second red arrow so it can build a new cup and handle to buy off of.

Another example is Pancake Swap and its CAKE token. This looks much different than BNB as it hasn’t broken out just yet. We can see price being pushed against this line of least resistance, building out a Stage 1 base, and decreasing volatility against this VCP pattern. We would want to buy as it breaks out of this area and limit our potential loss to 10%.

Price is above the key moving averages, and while today might be a little early to buy, on the breakout we could join a good move. One strength that the BNB chart has compared to CAKE is the BNB has been going up and therefore has more reason to keep going up. An object in motion tends to stay in motion so just keep that in mind.

Lastly, let’s check out Bitcoin. Bitcoin actually doesn’t show up on our screener because price is falling just a bit, but that doesn’t mean we should write it off completely. BTC is a good asset and will have another great opportunity to buy so we just have to keep our finger on the pulse of its action.

Below you can see how BTC frequently uses this cup and handle breakout pattern, and right now it might be building out another good cup to buy off of. What we want to see is how does Bitcoin handle the current price action, can it get back above the 50 day SMA, and can it head back up to its ATH. At that point, it will probably build a cup and handle pattern with an advantageous buy point.

With these rules, you can see how this game is all about probabilities, timing, and a little bit of instincts. You will never be 100% right, and actually as I am writing this, the stock market is having a very red day. I’m not worried though because there is no reason to worry. I put my stop losses in, I have good positions, and if they work they work.

You have to accept that learning to make money means you will make mistakes. Making mistakes means you will lose money. As long as you limit those losses, you can stay in the game and keep practicing. I am no where near a professional at this game, but I can still make money in the market, which means you can to. These rules have been a great guideline for me to base my investments off of, and I think with some proper application, you could do the same.

As you work these rules, you might eventually find some rules of your own or different scenarios that you have found an advantage in the market. Either way, remember that failure isn’t failure and mastering the mind will allow you to be successful. Trading and investing is just as much mental and emotional as it is skill, and working the mind muscle connection is going to help you tremendously. These rules helped me to limit emotion and flex the necessary discipline that I needed to build up some key confidence. Hopefully they can help you do the same.

Thanks,

Dawson