Yesterday I bought 5 Nvidia (NVDA) Calls. Please check out why I bought the Calls using Technical Analysis. My decision was based on both Trend Lines and Moving Average Lines I placed on the Candlestick Chart.
I just spent about 2 hours on the computer looking up what it means when 3 Moving Average Lines converge, and different Wedge Patterns formed by 2 Trend Lines and what it means when they converge. I also looked up articles on these Technical Analysis components to get confirmation on the direction I feel NVDA will take.
Take a look at the chart below and I’ll give my analysis and why I feel NVDA will be going up. Which is the reason I went long on 5 Calls.
This is a Candlestick Chart on Nvidia. The chart covered about a 10 month period using daily candlesticks (1 candlestick per day).
On the chart you will see 2 straight light blue lines which are in a wedge pattern. These are Trend Lines. You will also see 3 Moving Average Lines. A red line which is hugging the candlesticks, this is the 8 Day MA. A dark blue line which is the 50 Day MA. And a white line which is the 200 Day MA.
First let’s take a look at the Wedge Pattern.
Wedge Pattern
Passage from Investors Underground
Wedge patterns are trend reversal patterns. They are composed of the support and resistance trend lines that move in the same direction as the channel gets narrower, until one of the trend lines get broken and reverse the immediate trend on heavy volume. These reversals can be quite violent due to the complacent nature of the participants who expect the trend to continue. Trend lines are the best way to spot the narrowing of the channel, which is the first key sign that the reversal may be forming.
Below is another passage I copied from a site called TradingView.
The Wedge pattern can either be a continuation pattern or a reversal pattern, depending on the type of wedge and the preceding trend. There are 2 types of wedges indicating price is in consolidation. The first is rising wedges where price is contained by 2 ascending trend lines that converge because the lower trend line is steeper than the upper trend line. In other words: the lows are climbing faster than the highs. These wedges tend to break downwards. The second (which is where I feel our wedge falls) is Falling wedges where price is contained by 2 descending trend lines that converge because the upper trend line is steeper than the lower trend line. In other words: the highs are falling faster than the lows. These wedges tend to break upwards.
With our 2 Trend Lines we have an upper line where it tilts downward. The peaks of the candlesticks, as they move to the right, are hitting lower highs. And the lower Trend Line that tilts slightly higher where the candlesticks are hitting higher lows. I think our wedge is closely described by “The Second” wedge definition above, a Falling Wedge. After looking at about 30 Falling Wedge charts tonight that look just like the wedge in our chart, I’m convinced that NVDA will have a break upward.
The 2 Trend Lines are not quite converging yet in our chart. I feel the breakout will be in the next day or 2, but it might take a little longer for the 2 lines to converge.
Another reason why I feel the breakout will be sooner than later is because of the 3 Moving Average (MA) lines. It might be hard to see in this graph because of the colors I use, but the 3 MA Lines converged today. If you have an account you can set up the chart on your program and check it out on a full screen. Or, if you click on the chart it will be a full screen picture.
Here is a sentence I copied from a site called Incredible Charts.
Go long as the fast Moving Average crosses to above the middle Moving Average (and the middle Moving Average is above the slow Moving Average).
The fast MA in our chart is the 8 Day MA. The middle in the 50 Day MA and the slow is the 200 Day MA.
I may have jumped the gun with the buying of the 5 Calls but I feel the stock will break to the north. I probably should have waited until Thursday to see if the red line, the 8 Day MA breaks out of the convergence above the 50 Day MA. If that happens, the blue line (50 Day MA) will break above the white line, the 200 Day MA. This would be more confirmation.
The bottom line: If NVDA has a big day on Thursday I think it can be off to the races north. Remember, a simple tweet can throw a monkey wrench into my entire theory.
Also understand I do not recommend this trade to anyone. I’m just explaining my theory and why I entered the trade. I try to teach you how to find your own trades, not mimic mine.
Let’s see what Thursday brings.
By the way, as I write the futures are lower for the Thursday open lol.
Steve
The Options Coach