MTG Trading Glossary

Example: During a 10-week cup and handle formation, decreasing volume during the base formation followed by increasing volume near the right side of the pattern indicates institutional accumulation is taking place.

Example: After breaking out from a 12-week base pattern, a stock enters Stage 2 advancement, rising 30% over the next 8 weeks while finding support at its rising 20-day EMA during pullbacks.

Example: A trader sets an alert for when XYZ stock crosses above $75.50, which is the resistance level of a flat base pattern they've been monitoring.

Example: If the bid-ask spread for ABC stock is $50.25-$50.30, a market buy order would execute at $50.30 (the ask price).

Example: A stock trades in a tight 12% range for 8 weeks following a 30% advance, with volume gradually decreasing throughout the consolidation, forming a classic base pattern.

Example: After forming a 10-week cup with handle pattern between $45 and $50, XYZ stock breaks above $50 on volume 80% higher than average, triggering a buy signal.

Example: The S&P 500 falling 25% from its all-time high over a 6-month period represents a bear market. During this Stage 4 decline, the MTG approach suggests minimizing trading activity and focusing on capital preservation.

Example: If the bid-ask spread for ABC stock is $50.25-$50.30, a market sell order would execute at $50.25 (the bid price).

Example: After trading between $45 and $50 for 10 weeks, XYZ stock moves above $50 on 75% higher-than-average volume, confirming a valid breakout according to MTG criteria.

Example: The S&P 500 rising 35% over 18 months with higher highs and higher lows represents a bull market. During this Stage 2 advancement, the MTG approach focuses on buying breakouts and pullbacks to moving averages.

Example: After identifying a cup and handle pattern with resistance at $85.50, a trader sets their buy point at $85.75 to confirm the breakout has occurred with enough momentum to overcome potential selling pressure.

Example: A bullish engulfing candlestick pattern forming near the 20-day EMA during a Stage 2 uptrend might provide a potential entry signal in the MTG approach.

Example: A cup and handle pattern forming after a 30% advance, showing decreasing volume during the cup formation and increasing volume as the stock exits the handle, represents a high-probability setup in the MTG approach.

Example: After advancing 40% over three months, a stock trades sideways in a 10% range for six weeks with gradually decreasing volume, suggesting a healthy consolidation that may lead to further gains.

Example: During a strong Stage 2 uptrend, a stock pulls back 12% over two weeks to its rising 50-day moving average on decreasing volume, representing a potential buying opportunity according to MTG principles.

Example: A stock forms a rounded bottom (the cup) over 12 weeks, followed by a short downward drift (the handle) lasting 2 weeks. Volume decreases during the cup formation and then increases as the stock breaks out above the handle, signaling a high-probability entry point.

Example: A day trader might buy a stock at the market open and sell it before the close, while a swing trader following the MTG approach would hold positions for several days to weeks to capture larger price movements.

Example: A stock breaks down below its 50-day moving average on heavy volume, then continues to make lower lows and lower highs while its moving averages turn down. Following MTG principles, traders would avoid this stock until it forms a new base and enters Stage 1 accumulation.

Example: After a 60% advance, a stock begins trading sideways with increased volatility and above-average volume on down days. This pattern of institutional selling is recognized as distribution in the MTG approach, signaling a potential shift from Stage 2 to Stage 3.

Example: A stock makes new price highs, but volume decreases with each successive high—this volume divergence might signal weakening momentum and a potential trend change according to MTG analysis.

Example: If your trading account grows from $10,000 to $12,000, then declines to $10,800, you've experienced a 10% drawdown from the peak value. The MTG risk management approach emphasizes limiting drawdowns to preserve capital for future opportunities.

Example: A trader sticks to their predetermined stop loss despite their emotional attachment to a losing position, demonstrating the emotional discipline emphasized in the MTG approach.

Example: After identifying a proper flat base pattern with resistance at $45, a trader sets their entry point at $45.25 to ensure the breakout has enough momentum to overcome potential selling pressure.

Example: Before entering a trade, a trader following the MTG approach decides to set a stop loss at 7% below their entry price and to take partial profits when the stock gains 15%, with a trailing stop for the remaining position.

Example: During a Stage 2 uptrend, a stock pulls back to its rising 20-day EMA and finds support, providing a potential entry point according to the MTG pullback strategy. The 8-day EMA crossing above the 20-day EMA can also signal a change in trend or a continuation of the existing trend.

Example: A stock breaks above the resistance level of a base pattern on low volume, moves up 2%, then quickly reverses and falls back into the base. The MTG methodology would identify this as a potential false breakout due to the lack of volume confirmation.

Example: After breaking out 7% above a flat base, a stock pulls back 4% to its rising 20-day EMA on decreasing volume, creating a first pullback entry opportunity with a tighter stop loss than the initial breakout would have required.

Example: After a sharp 15% advance (the flagpole), a stock consolidates in a tight, slightly downward-sloping range for 7 trading days (the flag) on decreasing volume. A breakout above the flag's upper resistance with increased volume signals a potential continuation of the uptrend.

Example: After advancing 30%, a stock trades sideways in a tight 8% range for 5 weeks with decreasing volume, forming a classic flat base according to MTG criteria. A breakout above this tight range on increased volume would signal a potential entry point.

Example: A stock closes at $50 but opens the next day at $53 due to positive news, creating a 6% gap up. In the MTG approach, a gap up on strong volume above a base's resistance level can be a powerful breakout signal, while gaps within a base might indicate potential volatility.

Example: After a losing trade, instead of becoming discouraged, a trader with a growth mindset analyzes what went wrong, makes adjustments to their strategy, and approaches the next opportunity with improved knowledge and skills.

Example: A technology company consistently growing earnings at 30% annually while its sector grows at 10% would be considered a growth stock. These stocks often display the relative strength and base patterns that the MTG approach looks for.

Example: After forming a rounded cup pattern between $40 and $50 over 10 weeks, a stock forms a small 3-week handle that drifts down about 7% on decreasing volume, setting up for a potential breakout above $50.

Example: After a strong uptrend, a stock forms a pattern with a higher high (the head) between two lower highs (the shoulders). A break below the "neckline" connecting the lows between these peaks suggests a potential reversal from Stage 2 advancement to Stage 3 distribution.

Example: After a sharp 50% advance in just 3 weeks, a stock consolidates in a tight 10-15% range for 3-5 weeks near its highs with decreasing volume. A breakout above this consolidation on increased volume can lead to another significant advance according to MTG analysis.

Example: In the MTG approach, the 8-day and 20-day EMAs are primary indicators used to identify trends and potential support/resistance levels, while maintaining focus on the core price and volume action.

Example: When a stock shows increasing volume during an advance but decreasing volume during consolidation periods, it suggests institutional accumulation according to MTG analysis. These big players must build positions gradually to avoid driving up the price too quickly.

Example: A stock that trades 500,000 shares daily with a tight bid-ask spread offers sufficient liquidity for most trading purposes, allowing traders to enter and exit positions with minimal slippage.

Example: A trader's living trading plan includes their preferred setup types, position sizing rules, risk management guidelines, and psychological reminders. They review and update this document regularly based on their trading results and changing market conditions.

Example: A stock showing higher highs and higher lows, with price above rising moving averages, demonstrates a bullish market structure that aligns with Stage 2 advancement in the MTG approach.

Example: During a Stage 2 uptrend, a stock that pulls back to its rising 20-day EMA and bounces higher on increased volume presents a potential entry point according to the MTG approach. Similarly, the 50-day SMA often provides support during larger pullbacks in a strong uptrend.

Example: Some traders might use the MACD as a supplementary indicator alongside the primary MTG tools of price action, volume, and moving averages to confirm trend changes or momentum shifts.

Example: While the MTG approach primarily relies on price action, volume, and moving averages, some traders might use the Relative Strength Index (RSI) as a supplementary tool to identify potential reversal points within the context of the overall trend.

Example: A stock that has risen 25% in just 7 trading days without consolidation and is extended well above its 20-day EMA might be considered overbought. The MTG approach would suggest waiting for a healthy pullback or consolidation before entering.

Example: During a Stage 2 uptrend, a stock that has pulled back 15% on decreasing volume to touch its rising 50-day SMA might be considered oversold. However, the MTG approach emphasizes waiting for confirmation of support (such as a reversal candlestick with increased volume) before entering.

Example: A trader recognizes a cup and handle formation developing over 12 weeks, with the appropriate volume characteristics at each stage of the pattern's development, allowing them to prepare for a potential breakout entry.

Example: After advancing 20% in two weeks, a stock consolidates in a symmetrical triangle pattern for 5 trading days on decreasing volume. A breakout above the upper trendline on increased volume signals a potential continuation of the uptrend.

Example: A trader with a $50,000 account using the MTG approach might limit risk to 1% per trade. For a stock with a planned stop loss 5% below the entry price, they would calculate a position size of 10 shares (($50,000 × 0.01) ÷ ($100 × 0.05) = 10 shares), risking $500 on a $1,000 position.

Example: Instead of trading based on earnings forecasts or economic predictions, an MTG trader observes that a stock is forming a bullish base pattern with proper volume characteristics, making decisions based on actual price movement rather than speculation.

Example: During a Stage 2 uptrend, a stock pulls back 7% over five days on decreasing volume to touch its rising 20-day EMA. The pullback ends with a bullish reversal candlestick on increased volume, providing a lower-risk entry point than buying at the previous high.

Example: During a 10-week base formation, a stock's weekly trading range gradually narrows from 8% to 3%, suggesting decreasing volatility and potential energy buildup before a breakout.

Example: During a market correction where the S&P 500 falls 7%, Stock ABC only declines 2% and maintains its position above key moving averages. This relative strength suggests institutional support and makes ABC a potential leader when the market rebounds, according to MTG principles.

Example: A stock repeatedly touches $75 over several weeks but fails to close above this level, establishing $75 as a resistance level. A future move above $75 on strong volume would represent a breakout through resistance and a potential buy signal in the MTG approach.

Example: After advancing from $50 to $60, a stock pulls back to $57.50, retracing 25% of its prior advance. This shallow retracement to the rising 20-day EMA on decreasing volume presents a potential entry opportunity according to MTG principles.

Example: An MTG trader limits risk to 1% of account value per trade, uses technical levels for stop placement, diversifies across multiple positions, and maintains a significant cash position during uncertain market conditions to preserve capital for future opportunities.

Example: A trader identifies a stock breaking out of a cup and handle pattern with a buy point at $50. With a stop loss at $47 (6% risk) and a price target of $62 based on the pattern's height (24% reward), the risk/reward ratio is 4:1, making it an attractive setup according to MTG principles.

Example: Instead of selling an entire position when a stock reaches a 20% profit, an MTG trader might sell one-third at 20%, another third at 30%, and let the final third run with a trailing stop to capture potential larger gains while securing some profit.

Example: During a Stage 2 uptrend, a stock's 50-day SMA acts as support during larger pullbacks, providing potential entry points. The 200-day SMA often serves as a major support/resistance level and helps define the longer-term trend direction.

Example: After a 35% decline, a stock forms a 14-week base pattern with decreasing volume and tightening price action (Stage 1 accumulation). Upon breakout, it begins an uptrend with higher highs and higher lows (Stage 2 advancement). The MTG approach emphasizes focusing trading activity primarily during Stage 2 conditions.

Example: After buying a stock breaking out from a cup and handle pattern at $50, an MTG trader sets a stop loss at $47, just below the handle's low. This limits potential loss to 6% while allowing for normal volatility within the pattern.

Example: During a Stage 2 uptrend, a stock pulls back to its rising 20-day EMA, which has served as support during previous pullbacks. A bounce off this level on increasing volume provides a potential entry opportunity according to MTG principles.

Example: An MTG swing trader identifies a stock breaking out from a proper base pattern, enters the position with appropriate position sizing, and holds for 3-4 weeks as the stock advances 25%, capturing a significant portion of a larger trend movement without the stress and time commitment of day trading.

Example: Instead of analyzing company fundamentals or economic data, an MTG trader studies price charts to identify patterns, support/resistance levels, and volume characteristics that suggest potential trading opportunities.

Example: An MTG trader might use weekly charts to identify the overall trend direction, daily charts for specific entry and exit points, and hourly charts for fine-tuning execution, ensuring alignment across multiple time frames.

Example: After a stock advances 15% from the entry point, an MTG trader might move their stop loss to just below the 20-day EMA, then continue raising this stop as the moving average rises, protecting profits while giving the trend room to continue.

Example: Instead of making trading decisions based on economic forecasts or earnings predictions, an MTG trader focuses on observable price action, such as a stock breaking out above resistance on strong volume, regardless of their personal opinion about the company or market direction.

Example: A stock making higher highs and higher lows, with price above rising moving averages, is in an uptrend according to MTG analysis. This Stage 2 advancement provides favorable conditions for swing trading with the trend.

Example: By drawing a line connecting the lows of a Stage 2 uptrend, an MTG trader can identify potential support areas for future pullbacks. Similarly, a break of a well-established trend line might signal a potential trend change requiring adjustment to the trading strategy.

Example: For a highly volatile stock that typically moves 3-4% daily, an MTG trader might use wider stops and smaller position sizes compared to a less volatile stock, adjusting their risk management approach to accommodate the increased price fluctuations.

Example: When a stock breaks above a base pattern on volume that's 50% higher than its 50-day average volume, it suggests strong institutional buying and increases the probability of a successful breakout according to MTG analysis.

Example: A stock breaking out above resistance on volume 75% higher than average suggests institutional participation and increases the likelihood of a successful breakout. Conversely, a breakout on below-average volume might be more likely to fail, as it lacks institutional support.

Example: An MTG trader maintains a tiered watchlist with "A" candidates showing proper base patterns nearing breakout points, "B" candidates forming earlier-stage bases, and "C" candidates displaying relative strength but not yet forming actionable patterns.

Example: During a Stage 2 uptrend, a stock might form a bullish falling wedge pattern during a pullback, with price making lower highs and lower lows but in a narrowing range. A breakout above the upper trend line could signal a continuation of the uptrend.

Example: An MTG trader might use weekly charts to identify the overall trend direction and major support/resistance levels, then use daily charts for specific entry and exit points. The 10-week moving average is a particularly important reference point on weekly charts in the MTG approach.