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How to Find Stock Market Leaders - YouTube
Channel: TraderLion
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Hey everyone, how's it going?
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This is Richard from Traderlion in today's Tuesday
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tutorial will be talking about how to find true
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market leaders, which are stocks that could
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become the next Google, Tesla, Amazon or
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Netflix.
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So here's what we'll cover in today's video.
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First of all, what are true market leaders?
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We'll talk about Leadership Blueprints which
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are winning characteristics that you can identify
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using technical analysis.
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They'll talk about proper basic patterns,
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fundamentals and finally key takeaways.
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So first of all, what are market leaders?
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Basically these are stocks with the potential to
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double and triple within a year or a very short
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amount of time.
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And for the most part they're young and
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innovative companies under ten years old and
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many of them have recently IPOed.
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They also are going to be showing high relative
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strength which is a technical characteristic where
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they're going to outperform during market
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pullbacks and corrections and that's because
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they're often under significant accumulation by
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funds and very liquid.
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And to put everything together in one sentence,
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these are basically companies with a strong
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combination of price strength and fundamentals
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story.
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And here we've got a chart of Asana ticker
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symbol Asan which has been one of the TMLS of
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2021 breaking out of this base with excellent
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sales growth and it's gone on to basically triple
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from this base breakout.
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So moving on, let's talk about Leadership
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Blueprints, how we can use charts to identify
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these high potential stocks.
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So first of all, many of them are breaking out of
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early stage bases and these are basically basis
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early on in their uptrend.
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So they're IPO bases first and second stage
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bases.
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Once you get to the third, 4th, 5th consolidation
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within an uptrend, just the probabilities are a
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little bit against you that the stock can double
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and triple from that point.
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Also during their strong uptrends they often
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show respect for key moving averages such as
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the 23 EMA, the 50 simple and the ten week
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moving average.
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And here we've got a chart of zoom during its
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uptrend of last year.
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This is one of the TMLS of 2020 and you see a
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broke out of this longer term consolidation and
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then during its move about 400%, it never closed
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below the ten week moving average, this green
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line right here.
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So this is a moving average that is very key for
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TMLS.
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And if you look back in history, Apple, Taser, all
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these stocks respected this key moving average
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moving on, they also are going to show
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Leadership Blueprints such as high volume gap
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ups which we'll basically talk about later on in the
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video, as well as pocket pivots within their bases
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often before they break out.
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Also, they basically all share the characteristics of
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relative strength during market corrections and
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often the best runs as we'll mention later on the
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video occur after a very steep correction like we
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had in 2020 or something like 2008 where we
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had an extended bear market and then many
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stocks like Netflix and Apple made their true
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market leader runs coming out of that
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correction.
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So, moving on, let's talk about high volume gap
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ups in particular.
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Two market leaders often have these gap ups
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very early on in their uptrend, and this can be
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caused by catalysts such as earnings or news,
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which can spur new institutional buying interest.
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So here we've got a chart of UPST which had an
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earnings gap up on the right hand side of its
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base.
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And from here it's gone and basically doubled
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since instead of actually a high tight flag base
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here, and really shown a lot of power.
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So these gap ups on huge volume, ideally it's the
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greatest in over a year, maybe even the greatest
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ever, really show that institutions are involved
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because normal retail buyers can't create this
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type of volume.
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Here we've got ATML from 2020 apps which had
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multiple gap ups within strong uptrend as it went
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from sub $10 to basically $100.
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So these high volume gap ups always watch out
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for stocks that are gapping up on news on
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earnings, because that could start a very strong
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trend.
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Moving on to high relative strength.
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Basically, true market leaders reveal themselves
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during corrections and pullbacks by exhibiting
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relative strength and pulling back less than the
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market, holding key moving averages and just
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trying to fight the overall market downturn as
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much as possible.
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And a key thing to look out for is relative
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strength, new highs before price and Rs new
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highs is basically defined by using the relative
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strength line, which is this blue line up here,
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which maps the ratio of the stock's price to the
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SPX.
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So if the stock is outperforming the market, this
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line will be in an uptrend, and if it's
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underperforming, it'll be declining.
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And here we've got an example with DocuSign,
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which actually also started its run from an
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earnings gap up and then during the 2020
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correction was trying to fight the general
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downtrend.
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And when the market was losing its 200 day, you
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can see it held it this black line here, and the
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relative strength line was increasing during this
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correction.
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So pay special attention to stocks that have an
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increasing relative strength line during market
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pullbacks and corrections.
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And from this point on it went on to double and
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triple and have a really, really nice trend.
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So keep in mind, relative strength is extremely
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key.
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Next, let's cover proper basing patterns.
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So the strongest runs come out of constructive
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bases off an early stage, as I mentioned.
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And I think it's key to remember that the best
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runs and the longest trends occur coming out of
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corrections.
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And the longer the correction or the steeper the
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correction, the better.
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And that's why we had so many true market
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leaders in 2020.
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And early stage bases are best.
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And this is because institutions are still learning
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about the stock accumulating shares, building
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their positions when later on in their uptrends
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they might be kind of derisking some selling
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parts of their positions that they bought way
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lower.
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And also we will see a prior uptrend before that
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early stage base, suggesting that the stock is
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under accumulation and trending nicely.
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And finally we want to see relative strength up
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the right hand side of that base as the stock is
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making its way towards all time highs and going
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back to this prior uptrend.
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Obviously the exception here is IPO basis when a
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stock obviously doesn't have any prior history.
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And these can be extremely, extremely powerful
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as you can see from PLTR which went on to
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basically triple from the IPO base breakout.
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So always keep an eye on IPOs are showing
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strength, showing accumulation up the right
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hand side and relative strength versus the
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market.
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And moving on to fundamentals, this is also an
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extremely important piece of the puzzle and
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that's because no stock is going to double or
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triple or even go 400 500% without some type of
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catalyst or fundamental driver and a bunch of
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funds accumulating shares.
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So the things that I really care about are the
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classic cancel and fundamentals.
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Quarterly earnings growth, sales growth,
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margins strong as well, annual estimates, these
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are very important, you want to see these as
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high as possible and anything over 50% EPS
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growth per year is something that's extremely
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significant.
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Also I like to see increasing fund ownership.
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I don't have this tab open here with this
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screenshot of Tesla right before its strong move
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through 1000 last year, but I want to see an
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increasing trend in the number of funds and
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ideally some high quality funds with great track
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records accumulating shares as well.
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So in terms of fundamentals, you just want to
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see that the company is growing strongly and
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also in an industry and group that is doing well.
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And Tesla last year was part of the auto
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manufacturers group, ranked number two out of
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197, so it had that overall group strength behind
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it as well.
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And that just basically kind of adds the
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probabilities of it working and being a big
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winner.
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Also Tesla had the n in canslim a new or
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innovative product with the electric vehicles and
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sometimes TMLS just have that ending canslim.
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They don't have the amazing earnings or sales
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yet, but their story, their CEO is extremely
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compelling and funds nevertheless, even without
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the numbers start accumulating.
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So keep that in mind.
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You don't have to have amazing earnings or
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sales, it definitely helps, but if you just have a
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really strong story and great relative strength,
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that can be a true market leader as well.
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So here are some key takeaways focus on the
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highest quality stocks.
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TMLS often have a combination of strong
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technicals and fundamental drivers behind it,
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including that story.
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They are often young and early stage companies
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and often the strongest uptrends come out of
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corrections like 2020 and 2008.
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So with that, I hope you guys enjoyed this video if
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you did, go ahead and leave a like down below
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subscribe if you're new to the Traderlion channel,
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I'll see you guys in future videos.
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Thanks.
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