Welcome back to the best trading indicators for beginners in 2021, part six and in this video we're talking about the standard deviation channel in this video, we're going to be using the custom standard deviation channel that has been created by boiler room trading. There's a link in the description that can take you to get the custom one, but if you watched our part one video in this series, then you will know how to make a free one on thinkorswim. Now i will tell you the free one does not have all the same features that the custom one does. So if, in the event you don't want to spend the money for the custom, one at least use the free one and after using the free one, if you come to the conclusion that it's a very useful tool for you, then i would highly suggest at that Point picking up the custom one that we've created at boilerroomtrading.com.

Now you can't get this system on any other platform right now, if you're on trading view, i apologize if you're on weeble, i apologize if you're on robin hood. Well, you shouldn't even be on there in the first place just kidding, but nonetheless there is no platform that you can get. This standard deviation on other than think or swim. So we are in the talks right now with weibull.

I've sent them some emails asking them. If they can get me in contact with anybody who can create this system on their software, so i will keep you posted about that and if i hear anything back from weeble, i will make sure to make a video about it, basically telling the whole world. So in this video, what we're going to do is break down how to use the standard deviation system effectively. I won't be able to go into all the details perfectly, but this should give you a shotgun blast on how to use this effectively each and every day.

So the first thing that i'm going to do here is i'm going to go to google and i'm going to pull you up a picture really quick. So you can understand this all right. So we're going to pull this picture up now, i'm not going to go into everything here, but pretty much you can see you have. These number here is 99.7 percent.

Okay and let's pull up this picture here. So this has three standard deviations all right, two standard deviations, one standard deviation, the line in the middle is called zero or the mean this is negative. One negative, two negative three. This is plus one plus two plus three and, as the standard deviation says, 99.7 of the data are within three standard deviations of the mean.

So again, this is the mean into three standard deviations on the negative side or the positive side. 99.7 of the time the data will exist within between those two data points, so knowing that let's go and label this chart for you all right, so this here is excuse me. This is plus four plus three plus two plus one zero mean this is this here is negative: 1 negative, 2 negative, 3 negative 4.. So that picture that i just showed you on, google is really the exact same thing that i have here on my chart.

It's just sideways, instead of vertical so again, you're literally looking at the same thing. This is just vertical and if i wanted to draw it out, for you even more remember how this had um, where did that uh? Where did that thing? Go yeah, it doesn't matter, but if you remember that picture, i just showed you on google. It looked something like this, where it showed you a bell curve right. Okay, so that's really what this is right, and this is the mean this is plus one plus two plus three okay.

This is negative one negative, two negative three, okay and um. If we do it like this, okay, 99.7 of the time and 99.7 percent of the time, the stock will stay above that blue line, or it's going to stay below that blue line. Okay, and that is the concept of the standard deviation. Is it helps you understand? The volatility of the market and just how far things can move all right.

So what i want you to understand here is looking at mrna. This isn't perfect, because this is a couple days past, but just know that on this day here the market was trading. On the blue line, so the data suggests that 99.7 percent of the time the markets are going to stay below the blue line or they're going to stay above the blue line. If it's on the bottom.

So now that you know that 99.7 of time markets should not exceed that blue line, you would know that if mrna was trading up at 500 bucks on the blue line, it's a terrible time to buy it and you most likely want to bet bearish. And that's exactly what we did so the other day. Looking at mrna the stock, that's just been crushing it on the coronavirus pandemic vaccine stuff was trading up to plus three deviations, okay, which suggests that the market is most likely getting ready to sell down. That's one example: now we can go, take a look at the stock bntx, so here's the stock, bntx right same thing, um the other day.

This was trading at the blue line since it's traded a couple days since then things have changed. Okay, that's another important thing to mention: the standard deviation, channel, consistently updates and it consistently changes. Some people say that's a bad thing. I'll tell you why it's a good thing: if the system did not consistent, if the system did not consistently update and change and be ongoing, then you yourselves would never continuously get updated, accurate pricing trend in the market, so you should really be thinking that this continuously Repaints because, as it repaints, it's continuously giving you the updated, accurate pricing trend of the market, all right so in a nutshell, the way that you really use this system is you're, never long, an equity or a stock when it's trading, the blue and you're, never short.

When a stock is trading down here on the blue you're, either short bias or a seller or you're, either long, biased, uh, yeah or a buyer - okay, that's what it comes down to now. If you want more information on standard deviation and some of the things behind it, then i highly encourage you to google it look at investopedia. Look at some other youtube videos, so you can get a little more information on it. I can't go over all of it with you all right now.

What i'm going to tell you are the two most important most important time frames to use: okay, when you're using the system you're going to work off a one-year day chart. This is what you're going to do every single day when you wake up in the market, and i can promise you that every single day in the market, your stock will most likely go to these levels. I'm telling you wait. Let me rephrase that, after you do this and put this on your chart and you use the one year, one day and 180 day four hour time frame, you will notice that each stock that you analyze for the day will guaranteed go to the prices that i Show you on this screen in just a second i'm going to show you how to find these levels and every single day your stocks will go to those levels and the more that you use this system, the better you're going to be at figuring, which way it's Going to move for the day and where it's going to go on the day, you'll be able to pick price targets, know how far something's going to move and that's going to put you in line with the market, so you're no longer guessing okay.

So, as we mentioned before, you're going to use the one year, one day, time frame, it's categorized as 1y 1d on thinkorswim you're, also going to use the 180 day four hour time frame. Now you might be like connor well. Why are we using those two time frames and this might get slightly complicated, but just know robo-advising companies are computerized algorithms that do automated investing the automated investing done by computers by a lot of these robo-advising companies is based off of something called mean variance. Optimization sounds crazy.

Right well mean variance. Optimization was founded, slash based around standard deviation, so the system that we're teaching you to trade around and is kind of based the system we're teaching to trade around is based off. Of this mean variance optimization, and that is what uh these robo-advising companies are using to do their investing okay, so standard deviation is used to create mean variance, optimization mean variance. Optimization is what robo-advising companies are using.

Robo-Advising companies. High-Frequency trading companies have a lot of money. Big money moves the market and most of these high frequency trading machines and robo advising companies do things sort of on a macro environment and they're analyzing with mean variance optimization on yearly perspectives. So the systems that these robo-advising companies are using to invest are investing based off the mean variance, optimizat, optimization on a yearly time frame.

That's why we're telling you to analyze the market on yearly time frames, because the yearly levels that you get from standard deviation are most likely in line with a lot of robo-advising and computerized algorithms. So we're trying to help you understand when to buy with the computers and what moves the market, not the retail environment. What we're telling you and here is everything: that's opposite of the retail investing world. Okay! So, in a nutshell, you never want to be long when you're up at the blue and you never want to be bearish when you're down on the blue and you're always going to want to wake up every single day and do your analysis on a one-year day Time frame and 180 day, four hour time frame and i'll show you exactly what it is you want to do.

So what we're going to do here is we're going to look at the stock uh we're going to look at actually we'll do amc, because everyone's geeked about amc, so today, just as sort of a pat on my own back today. Our recommendation long for amc was a target of 36.50. We ended up getting to a high of like 36.20. So what we did today on amc is, we came into the market and we're looking at the one-year one-day chart and we figured out where the statistical mean was.

The statistical mean was at a price of 36.47 and that's what we do. We go to a yearly time frame, we'll use the thinkorswim drawing tool right here. We go and find out where that price level is, and then we put our own price level over it and the reason we do that is because i am typically looking at stocks on a one minute chart. So as soon as i move this time frame to a one-minute chart, the one-year calculation will no longer exist.

So that's why i put the red line there on the chart so that when i switch to a one minute, i still know where the long term level is at all right now, let's go back look at 180 day time frame. The 180 day time frame would also give us this trend line that comes into play here. This dotted one. So the full analysis today was you probably wanted to be long, biased to market on amc.

Your first long target would be this line and when we can cross through and break that, you would then target somewhere up to this next red line. You will see we never got to the red line, but if i came in in the morning at eight in the morning before the market opened and said, you should probably watch the markets more long bias for amc, suggesting price targets of this. To this, is that not pretty phenomenal all right? So, let's repeat this a couple more times: let's look at facebook, so on facebook today this is what we would have mentioned. You do for facebook, so on facebook, we would have said to you that the support on the day is down here at a price point of uh 357.58 to 358.87.

So we would have mentioned today if you're going to dip by the market on facebook. Your long zone is right here. That's where you want to get long. You can see the market falls, so the first red line goes through it and then it basically stops at the bottom red line and then it bounces back up all right.

Let's go take a look at another stock, we'll look at baba for the day. So, on baba, this is probably what the recommendation would have been. So the recommendation on baba - oh wait. No baba was a bearish one.

Today, i don't think this is going to be a great example, but we'll see that's okay, so the recommendation today would have been bearish baba down to this half deviation price and if the market went down to this level, this is probably where you wanted to start. Considering baba as a long, biased trade, so as it goes down, you can see, baba starts to bounce. Let's go. Take a look at tesla, tesla's analysis today.

Was you wanted to be bearish on tesla down to these two price zones and you did not even want to consider being long tesla until it got to these two price zones. So you can see the market on tesla falls all the way to those price zones. So we get that by looking at the one-year day chart all right and you go to the earliest, like closest uh, longer term levels. So we did the 180 day here.

Okay, all right, so that's where we get those price levels. I was going really quick there. So let me rephrase each day you wake up in the market. With your standard deviation system, you look at the one year day chart and you look at a 180 day.

Four hour time frame and your objective is to see where the price action is so this is what you do every day you walk in you figure out where the next closest long term levels are okay. So in this instance today the closest long-term levels for tesla were here at 727.. Excuse me, that's kind of annoying i'm going to turn that off. So the next closest levels on tesla day, if you woke up, you were analyzing tesla right.

So you wake up and you're. Looking at this one minute charging like okay, let's figure out where tesla's going to go for the day, it's pre-market! So again you wake up. The market is right here: pre-market, okay, you're, like all right, where's tesla going to go. You would go to your daily chart.

First, okay figure out where your next closest levels are. So you got one here at 752.. You have one here down at 684. All right, then, you would go to the four hour triangle.

Where are my next closest level? They go okay, i got one here at 727 and i got one down here at 688, you're gon na mark off all of those levels. Again, the next closest deviations on the long term chart in relation to the price action you mark those levels. Those are going to be the levels that the stock goes to on the day, or at least attempts to get to it's not always perfect. But i can tell you each day: that's most likely where your stock is going to move all right so like today on tesla.

Why should we? Why did we recommend being bearish down to these levels as opposed being bullish up to these levels? Well, you will see that the market had already come up to that level hit. It could not break and started to pull away, so we already attempted to go here and break and fail so we're most likely going to revert back down to the next closest support. That's another very important lesson that i'm going to teach you all right whenever a stock tries to break through one of these deviation levels for the first time, it's normally not going to work. So this is what i say.

It's called the first attempt move whenever a stock decreases or increases into one of these longer term standard deviation levels you never try to get it to break through that level. A great example of that would be like on amc today, so amc was moving up on the daily chart to its statistical mean down to this price. Today, our recommendation was to watch amc long up to the 36.47 price, but nothing higher and the reason we say that is because on this day this would have been the first attempt of amc trying to break that trend line since the last time it was there. So again we went up, we didn't break it here we pulled back.

This would be the first attempt to get through that trend line since the last time was there. Typically, it's not going to work all right. We can look at multiple different stocks um, you know, but that's really it in a nutshell. Okay, that is primarily how the standard deviation system works.

If you need more clarification on that again, i highly encourage getting the custom standard deviation system and enrolling into the day trading course, because our day trading course goes over a lot. More information on the standard deviation there's a couple more things that we have to talk to you guys about regarding the custom deviation all right. The custom deviation implements these half deviations. These dotted white lines that you see are the halfway mark in between the solid lines.

Okay, so the solid lines are going to be your stronger resistances and stronger support levels. Okay, the half deviations are generally going to be levels that break more easily than the full deviations. Okay and the half deviation. Prices are typically going to be prices that the stock likes to revert to almost on a daily basis, all right.

So again, if we looked at the four hour chart here, you can see that this half deviation price today was at uh 34.83. We opened up on the day and we pushed up to that. Half deviation price okay. So really what i'm trying to clarify is the custom deviation system includes the half deviation marks.

You can also add those for free with how i showed you to set it up in the part 1 video you just have to make each deviation 0.5 um. For that. Let me explain this like i said this. Is it's a hard video to explain because there's so much detail, so i hope you guys are still following along.

If you are, you know, please hit the like button for me. It greatly helps these videos get out to more people. So, as we said earlier, the purple lines plus four - this is plus 3 all right and this line down here the white one is 0 and that's the mean so this here. If you wanted to create the half deviations for free on think or swim, you would have to input this one as 0.5 plus 0.5.

This one here would be plus 1.5. This would be plus 2.5 and this would be plus 3.5. Okay. So, in order to add a half deviations, essentially that's how it would work on thinkorswim system now something else that i have to explain to you.

So you fully understand kind of how this works is you know you can measure the markets right. So this is what i mean is this level, so the white line to the yellow line is the same exact price movement or price change uh as the next one. So from this white line to this yellow line is the same dollar value. Change as it is from this white line down to that yellow and this yellow down to that green is the same price change as this yellow up to this screen.

Okay, the markets move in deviations, so in reality, after you use how to work this or after you learn how to work this system, you could really just say: oh, you know, i think, the market's going to go for a move. To the mean you don't even have to say price anymore, you can say yeah, i think the markets are going to go to the zero line, or you can say. I think the markets are going to break the zero line and we're going to go for a plus one deviation, move and you don't even really have to think about how much is going to go up because really you're. Just looking for the next trend line up and that trend line is at 62 13..

So again, this level here is 62 13.. The middle line is 44.. You do the difference. That would be what's six, that's 10.

So that's almost 18 dollars. Okay, zero line here is 44.. The level below is 25. You do the math 44 to 25.9 is about 16, so each deviation from solid line to solid line is the exact same dollar value change, okay, um and then the last thing that we have to touch about on this system for right now is what we call The half candle retrace system - you see that there you see how the market moved to this uh, this dotted orange line and then it bounced.

So this is what we call the half candle retrace system. This is an automated script that will automatically plot the 50 retracement level of the previous day. So this day goes up. We pull back the next day, 50 percent of the previous day and then bounce up to our suggested long targets for the day.

It is very, very, very common that you will see stocks go to this level and reverse on the day, all right, very, very common, let's see if we can find any other stocks on the day that did such a thing. Uh tesla did not baba, did not how about mr roku roku did look at roku roku squeezed up to about the orange line and then back down uh. Let's keep popping through see if any any of the other ones did it. Um apple went way above it way down below it way back up.

So that's a bad example. Facebook went above it crashed below it's a terrible example um. What kl? Let's see? Here's a good example ko did it ko drop down to here bounce back up, uh verizon, let's check u v, z, man, thicker swim, let's go v, z, uh, so v z. You can see it went down to the half candle retreat system and back up so nonetheless, it's not a perfect system, but there is many very common occurrences around that half candle retrace system and that's just another benefit to getting the custom deviation level.

So i think we're going to end the video there i feel like. That is a great starting point for you guys on the standard deviation system. Actually, no, it's not. I have to say one more thing all right.

The reason you want to use the intraday standard deviation is because the intraday standard deviation will help you understand if a stock is overbought or oversold in the immediate. So, for example, the price target for verizon could have been down here today, but in the beginning of the day the intraday trend line or the three deviation level only comes to there. So in the immediate, you can't really suggest the market's going to make it to here, because the market's not supposed to go below the intraday three deviation level and since these levels repaint what ends up happening a lot of times is the market does want to go Here, but it can only go to here first and then it bounces and then later it goes there. Why? Because, as the day progresses, these intraday levels change.

So at 10 o'clock in the morning the market really only allowed for verizon to go down to here. But three hours later, this blue line ends up being down here and now the market can effectively move down to that price intraday, which then brings it closer to its long-term level. Now i hope, that's not confusing, but we are going to end it on that note. But if you're still confused on this, make sure that you tune in every single day, 8 a.m to 11 a.m.

Monday, through friday, we do live technical analysis every day for you guys in the market and if you are still having problems after watching these videos, if you tune into those live streams, you're going to see me repeat this analysis every single day, and you should start To pick up on it very soon, so i appreciate you guys tuning in and stay tuned for the next videos in this series.