Playbook
From zero to the chart. A book in three levels, told through everyday things, one chapter at a time. Nothing is locked: start wherever you want.
Open the book's PDFLevel 1 · 8 chapters
The market
"The market isn't a monster that decides to go up or down. It's the reflection of millions of people trading at the same time."
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About this level
This level has no chart, no strategy and no formula. It only has the start of it all: what the market is, what gets bought and sold in it, and how a price is born.
If you've never invested a single real, you're in the right place. If you already trade, read it anyway. Almost every expensive mistake starts in one of these eight chapters.
What you'll know by the end of this level:
- Why the market looks more like a street market than a casino.
- What you really buy when you buy an asset.
- What the market's shelves are.
- Who decides the price (spoiler: nobody).
- What liquidity is, with help from a delivery rider.
- Why each market has its own rhythm.
- Who to ask to take the first step.
- That the chart exists, and what comes in Level 2.
AThe street market
By the end: I know where the price comes from.
BShelves and rhythm
By the end: I know the shelves and the rhythm of each one.
Level 2 · 9 chapters
The chart and time
"And those who were seen dancing were thought to be insane by those who could not hear the music."
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About this level
In Level 1 you saw that the chart exists. Now you'll learn to read the markets.
The chart is a symbol. It isn't the market, it's the drawing of what people did in the market. But it's the most honest drawing there is, because nobody can buy or sell without leaving a mark on it.
The most important part of this level is time. Almost nobody understands that the five-minute chart and the monthly chart are the same chart. Once that makes sense to you, the rest gets easy.
What you'll know by the end of this level:
- Why the chart only shows the price, and why that's enough.
- How to read a candle without memorizing any names.
- That there are many timeframes, and that you can use all of them.
- Why they're the same chart, with a comparison to music: the note and the chord.
- How to tell if there's a trend, using the moving average.
- How to draw a trendline.
- How the RSI measures fear and euphoria.
- How to set up your chart.
- Who moves the chart, and what comes in Level 3.
CCandle and time
By the end: I can build and read a candle.
DTrend and mood
By the end: I can set up the book's chart.
Level 3 · 21 chapters
The utility belt
"If I had eight hours to chop down a tree, I'd spend the first six sharpening the axe."
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About this level
Now you know what the market is and you know how to read a chart. It's time for the tools.
A comparison: think of a utility belt. Each chapter in this level is one more tool hanging from it. No tool solves everything on its own, and none of them is a recommendation. What makes the difference is knowing which one to pull off the belt in each situation.
What changes in Level 3. Up to now the question was "what is the chart showing?". From here on the question is "how do traders use this?". That's why this level has patterns, entries, exits, stops and psychology. Everything here is a guide for you to study, not an order to follow.
How to read it.
- Chapters 1 to 14 are the tools: support and resistance, the classic patterns (2 to 6) and the setups.
- Chapters 15 and 16 put it all together: the most likely scenario, the entry and the exits.
- Chapters 17 to 19 protect you: risk, psychology and day trading.
- Chapter 20 is about options and how the big money protects itself.
- Chapter 21 closes the book: finding your edge.
One idea before anything else. Every setup in this level is shown in three parts: where to enter, where the stop goes and where to exit. It's not a rule. It's a way of thinking: if you know all three before you get in, you know what you're doing.
Every figure in this level is a drawing, including the entry and exit ones. None of them shows a real asset, date or price.
Do your own research. The entries, stops and exits in this book are examples drawn to teach how a setup works. They are not a recommendation to buy or sell. Everyone has their own money, their own timing and their own stomach. Study, test it on past charts and decide for yourself.
Patterns are people. A pattern isn't a magic drawing. It's the trail of people who are scared, in a hurry or patient, always in the same places. That's why it repeats, in any market and on any timeframe. Chapters 2 to 6 explain each pattern through the people, not the numbers.
When the pattern dies. Remember the tree comparison in Level 2? As long as the price grows in the shape of the pattern, the pattern is alive. When a different shape shows up, a different fruit, it's not the same tree anymore. The pattern has been invalidated, and the idea behind the trade is over.
Watch
- Chart Patterns · The Chart Guys
- Introduction to Technical Analysis for Beginners · The Chart Guys
- Learn to Trade with Technical Analysis · The Chart Guys
- Bear Flag vs. Bounce: what's the difference? · The Chart Guys
- Long Term Patterns · The Chart Guys
- What is an Inside Bar · The Chart Guys
EPatterns
By the end: I know where the pattern dies.
FSetups
By the end: I can describe entry, stop and exit.
GPlan and protection
By the end: I have a plan before I go in.
HSpecialization
By the end: I know what my edge is.
2
- 20 EMA
- The average price of the last 20 candles, drawn as a smooth line on top of the chart. On the chart it shows up as the 20 EMA: the 20-period exponential moving average.
A
- Ask
- The lowest price someone is willing to sell at right now.
- Asset
- Anything bought and sold in the market: a share, a bond, a contract.
B
- Backtest
- Testing an idea on past data to see how it would have played out.
- Bear
- A downward price move. A "bear market" is a period dominated by sellers.
- Bid
- The highest price someone is willing to pay right now.
- Bottom
- The lowest point of a move.
- Breakout
- When the price breaks through resistance on the way up, or through support on the way down.
- Broker
- A licensed company that takes your buy and sell orders to the stock exchange.
- Bull
- An upward price move. A "bull market" is a period dominated by buyers.
C
- Candle
- A bar that sums up the price over a period: open, high, low and close.
- Commodities
- Oil, soybeans, corn, cattle, coffee. And gold and silver, where money runs when panic hits.
- Custody
- Holding your assets in your name, done by a licensed institution.
D
- Day trading
- Buying and selling the same asset on the same day.
- Divergence
- When the price makes a new top or bottom and the indicator doesn't follow.
- Dividend
- Part of the profit a company pays out to its shareholders.
- Drawdown
- The drop from your account's highest value to the lowest value after it.
E
- Edge
- The advantage of your way of trading, which only shows up when you look at many trades, not a few.
- Entry
- The price or area where you open a trade.
- ETF
- The ready-made package: one unit, and inside it comes a little bit of dozens of companies.
- Expiration
- The date until which an option's right is valid.
F
- Fixed income
- You lend money to the government, a bank or a company, and get the agreed interest.
- Futures contract
- You agree today on the price of something that will be delivered in the future.
G
- Gap
- A price jump between one session's close and the next session's open.
H
- Higher High (HH)
- A top higher than the previous top. Part of an uptrend.
- Higher Low (HL)
- A bottom higher than the previous bottom. Part of an uptrend.
I
- Index
- It's not a company, it's an average. The stock exchange index shows whether the overall mood is good or bad.
L
- Lender
- The one who lends. With fixed income you become a lender: you lend, and the deal is to get it back with interest.
- Leverage
- Trading with more money than you have in your account. With 100x leverage, a move of just 1% against you wipes out the account.
- Limit order
- An order that only fills at the price you set, or better.
- Liquidity
- How easy it is to buy or sell without moving the price much.
- Long
- A buy position: you make money if the price goes up.
- Lower High (LH)
- A top lower than the previous top. Part of a downtrend.
- Lower Low (LL)
- A bottom lower than the previous bottom. Part of a downtrend.
M
- Market order
- An order that fills right away, at the best price available.
- Mini index and mini dollar futures
- Small slices of the giant futures. The most famous ones, and the most dangerous for day traders.
- Momentum
- The strength of a price move.
- Moving average
- The average price of the last periods, recalculated with each candle. It smooths out the chart.
O
- Options
- You pay a little for the right to buy or sell something at an agreed price, up to a certain date.
P
- Premium
- What the buyer of an option pays for that right. The seller gets the premium now and takes on the obligation.
- Pullback
- A short move against the trend, before it continues.
R
- R
- The size of a trade's risk: the distance between the entry and the stop. Moving 1R in your favor means moving that same distance.
- Resistance
- A price area where rises tend to run into sellers.
- Risk/reward
- Comparing how much you're willing to lose with how much you expect to gain.
- RSI (Relative Strength Index)
- Relative strength indicator. It measures the speed of rises and drops, from 0 to 100.
S
- Setup
- A chart situation with rules set in advance: where to enter, where the stop goes and where to exit.
- Share (stock)
- A small piece of a real company. If the company grows, the piece tends to be worth more.
- Short
- A sell position: you make money if the price goes down.
- Spread
- The difference between the best buy price and the best sell price.
- Stock exchange
- The place where buy and sell orders meet. In Brazil, it's B3.
- Stop
- A preset exit order that limits a trade's loss.
- Strike
- The agreed price in an option: the price at which the buyer has the right to buy or sell the asset.
- Support
- A price area where drops tend to run into buyers.
T
- Target
- The price where you plan to close the trade with a profit.
- Ticker
- The short nickname of each asset on the stock exchange: four letters and a number, like ABCD3. It's just the name that shows up in the corner of the screen.
- Timeframe
- The time span of each candle: 5 minutes, 1 hour, 1 day.
- Top
- The highest point of a move.
- Trade
- Buying and selling assets to try to profit from price changes.
- Trend
- The main direction of the price over a period: up, down or sideways.
U
- Unit
- A slice of a fund. Whoever holds a unit owns a little piece of everything inside it.
V
- Volatility
- How much the price swings. More swinging usually means more risk.
- Volume
- How much of an asset is traded in a period.
W
- Wick (shadow)
- The thin line above or below the candle's body, showing the high and the low of the period.
No terms found.
Translating trader talk
- "I'm waiting for a pullback.""I'm waiting for the price to dip a little before it keeps going up."
- "It broke resistance on the daily.""The price got past an important area, looking at one-day candles."
- "My stop is below the bottom.""If the price drops below that point, my idea is wrong and I get out."
- "I'm long.""I bought, and I make money if the price goes up."
- "I'm short.""I sold something I didn't own, and I make money if the price goes down."
- "Volume dried up.""Almost nobody is trading, so the move lost steam."
- "It gapped at the open.""The price opened the day far from where it closed yesterday."
- "This trade is 2 to 1.""The possible gain is twice the loss I'm willing to risk."
15 words to memorize first
- Longbought, betting on a rise
- Shortsold, betting on a drop
- Entryentry
- Stoploss limit
- Targettarget
- Supportprice floor
- Resistanceprice ceiling
- Breakoutbreak upward
- Breakdownbreak downward
- Wick (shadow)The thin line above or below the candle's body, showing the high and the low of the period.
- Pullbackshort pullback
- Momentumstrength of the move
- Volumeamount traded
- RSIstrength thermometer
- Higher Lowhigher bottom
- Lower Highlower top