Bearish Breakouts | Swing Trading (Days to Weeks)

good day everyone john mcnichol here and welcome to swing trading days to weeks well we've had a bit of back and forth today the fourth is to the downside so we're going to focus on some bearish swing trade examples utilizing some defined risk so stick around [Music] okay hey it's great to see those you that are live with us today uh we got vijay lamar robert soul joseph lucy tracy and everyone else certainly a pleasure to see you and a special shout out to those of you that are listening to the archive session as well do appreciate you joining us uh each and every week for this swing trading class so whether live or recorded i'd like to thank barbara armstrong for covering down on the session last week as i had a little family issues with uh one of our with hey older dog uh he's pulling through okay i do appreciate the well wishes on twitter there let's go ahead and take care of disclosures folks we'll get right into our discussion here today contents intended for educational information purposes only uh not investment advice or recommendation of any security strategy or account type options not suitable for all investors as well as spread straddles other multi-lake options strategies often involve greater more complex risk than single-leg option trades also commissions transaction fees or important factors should be considered when evaluating any trade and let's go ahead and take a look at uh the paper money software application you're encouraged to practice what you learn here today with tools such as paper money it is for education purposes only and successful virtual trading during one time period does not guarantee success of actual funds during a later time period as mark conditions change continuously now we will be covering on some options here today uh make note there uh on long calls as well as put option positions places the entire cost of the option at risk likewise on short options they can be assigned at any time regardless of the end of money amount up until expiration there and we'll talk about some trade management techniques with both of those in order to demonstrate the function out of the platform we will be looking at actual symbols keeping in mind td ameritrade does not make recommendations or determinability of any security or strategy for individual investors individual traders any investment decision you make in your self-directed account is solely your responsibility now while this webcast may discuss technical analysis other approaches include fundamental analysis may serve very different views and a stop-loss order will not guarantee an execution at or near an activation price once activated they compete with other income and market orders there's a bio there for those that are interested i along with many of my peers here at td ameritrade coaching and education uh we've uh covered quite a bit of ground in the markets as well as in the educational space and uh you can see my schedule on twitter as well as on the education tab and if you follow me on twitter at jmcnickel underscore tda and here's our agenda we'll review current market conditions we'll go ahead and discuss on what uh an example uh and we'll do a few of them uh for bear swing examples uh we recognize that you know markets are still volatile going back and forth uh but we'll uh focus a little more on the bearish setup here today and then considering on how markets uh swinging back and forth in some cases violently for as well as against uh having an idea of a defined risk for each and every trade can be helpful at least knowing what those potential worst possible outcomes are before you place the trade all right so let's go ahead and get right into it there i did notice as well we do have a survey for today's session obviously we just got started but if you do click on that link keep it off to the side uh fill it out at the end of the session uh we'll remind you as well i do appreciate the feedback for those who listen in the archive session if you enjoy what you learned here today consider clicking like that's why that way everyone else will have an opportunity to see some of this content as well all right let's go ahead and bring up the platform there as we transition over starting off uh with the broader market uh s p uh down about a half a percent after being up earlier in the session had an initial pop with the cpi uh although hot uh came in about uh two tenths of a point i believe under expectations uh some traders at the time speculating that uh inflation may be peaking yields did drop back a little bit but i believe uh through the latter part of the session have came off of those lows so yields are still a concern there and you know from a a shorter term to intermediate time frame you know traders are question mark looking to see where is that support going to come in uh looks like with an hour left uh we're still pushing towards the lows so no sign of a support there traders may be looking back uh at some of the previous lows and ranges for the market uh we the bullish case is that inverse head and shoulders we've been talking about this pattern uh for some time we'll continue talking about that uh in our breakdown reversals class tomorrow uh seeing if we do end up getting a bounce off the shoulder or not but so far we're seeing prices move to the downside uh looking at the nasdaq ndx nasdaq as well trading near the lows after being up earlier in the session again kind of looking at the shoulder here question mark if that area is going to hold or are we going to see a test of some of those previous lows before all said and done from a directional standpoint we can see how that can pose some challenges as far as the trend you know what we're seeing more of a sideways range how albeit a a pretty wide sideways range that has been working out since the break of the more recent downtrend looking at the small caps with the russell rut and the small caps uh is even more of a firmer sign uh of more of a double triple uh quadruple bottom more of a rectangular formation and uh you know we can see that price action today very interesting candle some traders may refer to this as a uh an inverted hammer i think there's another doji term for it when occurs at support you know whether this is going to be a support follow on tomorrow we'll see but certainly pushing closer to some of those previous lows and as we go ahead and take a look at volatility vix volatility uh pretty much flat on the day uh but we can see at least over the last five six sessions uh generally has been to the upside and whether candle aficionados kind of read into it kind of the opposite of what we saw on the russell in this case kind of more of a hanging man as far as with volatility whether that pretends that volatility may drift down which may translate into markets rising uh we'll see what happens tomorrow morning with that okay uh looking at uh some of the sector action over here on the left i see a lot of the gains pretty much have turned into losses as we go into that last hour with only energy which has been a clear win in sector for some time as well as utilities holding on to some gains and uh going down as far as the losers financials i believe jp morgan is coming out with earnings so earnings season is kicking off as uh traders and investors will be keeping an eye open actually i believe it's wednesday is that wednesday after close actually tomorrow before market opens we'll see jp morgan see what they have to say not only for their earnings but also their outlook which markets are going to be keeping an eye on notice uh today's price action prices are kind of like a kablowed price is trading below the low of the high day this would actually be an example of a bear flag set up to the downside however some traders as far as speculating uh may wait to see what the outcome of an earnings event is uh as that can impact the momentum of any trade all right and uh you know just as a matter of sentiment before we move on uh relatively speaking when one looks at the performance of sectors over the last week and going back to the last month i can see where the strength is with the outlier of energy staples utilities health care real estate the flows have been going more into defensive areas of the market as we look over the last month 21 days staples utilities healthcare uh outliers again being materials you know the commodity uh space with materials and energy and we have seen a little lift on consumer discretionary as with supply chain some areas having uh greater demand possibly looking on the travel hospitality areas uh benefiting for some potential spending there we'll see how that plays out all right um and as we speak i want to get our setups in since we're still seeing things degrade here on the market and so to that end let's go ahead and talk an example of a bear swing setup so what we're going to do is look something similar what we saw with jpmorgan prices that may be breaking below a support area or maybe trading up and hitting a resistance area i think in most of our examples these are going to be more breakouts to the downside with a break below support now from some of the examples uh that i was looking through predominantly uh was looking at the public watch list on the weeklies on some of the more widely traded stocks it's not a recommendation of one list over another but uh if you're you know looking for examples of stocks that are potentially more widely traded that are optional uh and that also have possibly more selection for those options that could be a decent starting point and i was looking for stocks uh that had a little more of a a bearish bounce uh as well as with the trend being down uh now we're not going to take a deep dive on this one today but those you that have followed with me in the past and we do have some productivity script it's also explained on my twitter feed on my pin tweet looking at moving averages that may be more in the negative side and likewise as far as supporting kind of more of a bearish bounce looking for prices that may be turning over uh below the low of a previous stay okay and from that standpoint as was going through part of the list there one that came up let's look at carvana see i think i had it on here cvna uh notice as far as the trends possibly down as well as prices turning over let's go and take a look now the script's not a recommendation to buy or sell any security uh it's not uh uh also uh guaranteed as far as accuracy or as far as time but uh what's showing is potentially some technical moves and in this case you know we have more of a downtrending stock and the aspect of swing trading is you know trade the swings that go with the trend if you have a downtrend you'll notice the upward swings have a tendency of possibly being a little shorter lived although we had a very strong counter swing here a few weeks back what's happening right now as we look at the price action we're seeing price breaking below a support area now it hasn't taken out the lowest low but as far as the support range was kind of looking at where price was generally gravitating to the majority of that time in this case around the 105 mark and we're seeing that price break down uh now as far as targeting a a swing some traders may go and you know look at the previous moves to the downside and project a similar move another way of doing it is based off the price pattern itself something that we talk about in our breakout and reversals class which will be tomorrow at 11 a.m a correction uh that would be at uh 12 p.m or yeah 12 noon uh eastern time as i'm doing the time in my in my mind uh you know here we can see a range and this is a a pretty big range here uh from around 105 up to around 148 you know that's about a 43 point move that could be significant uh some traders may be looking at more of the smaller move kind of in between you know in that case you know potentially this last swing was about a 20 point swing another tool that you can apply here is the patterns tool that we've illustrated in the past if i come up here to the top and click on patterns and we'll do select patterns you'll see it appear on mine already but for you to add it go to select patterns and once under select patterns go to candlestick and look for williams fractal williams fractal is a tool and you can always click on the little question mark next to it that basically is looking for candle reversal patterns and these are typical possible triggers for swing trades whether swing entries or swing exits and it'll go ahead and plot that fractal well we'll leave the default setting there this one i mentioned kind of that mid-range here is like the last swing on that stock here and if we were to go ahead and just take a drawing tool such as a diagonal line and go from the high down to that lower that support essentially resistance to support we can go ahead and activate that line by right clicking on it and then project out where a potential target may be in this case shown at around the 75 level okay now if we were to do an example of a bearish trade looks like closer around 76 you know let's say uh the idea is we're looking to potentially profit from the downward move uh possibly down around that 76 75 level over a certain period of time we have an idea as far as price move and an idea over a period of time we can use an option spread that focuses on that time frame as well as focuses on that price while having a defined risk in doing the trade that risk being what we pay for that spread uh so to that end if we go ahead and we look you know this pattern uh that was formed you know this pattern was formed over the last month or so okay about five to six weeks so one can do a spread that possibly goes out to that time period if we're looking at a relatively short period as far as this swing you know that swing may happen over the course of the next you know 15 to 20 days now keep in mind uh you know time can work for you time can go against you uh just because one may think well you know it'll take about 10 15 days uh one may wish to possibly go further out to compensate for some additional time or if the price over the nearer term goes against you in this case to the upside is factoring in enough time to possibly allow the price to fluctuate and whether go to a profitable trade or at least limit losses closer to expiration so i did notice in the chat and and i know uh someone was gracious to share that thank you vega the question was asked as far as moving averages i'm kind of a fibonacci freak uh so we have a 55-day exponential moving average representing that trend not too far off from the 50-day and as far as a swing we got a five-period moving average and kind of uh half the monthly average in the case of the 13. so 5 13 55 exponential

seems to be some what would be the right term um you know as far as looking at things from different time frames and as far as patterns uh this uh is looking at things for more of a quarterly basis i think this one is more of a two-week period or half month and i know my pension ship is awful and then the five period being over the last week okay all right so with that let's go ahead and go to the trade tab we're going to go ahead and look at an expiration for this and uh let's focus on some of the standard expirations uh 38 days kind of falls within that realm uh going out to 20 may uh there are shorter term shorter dated options here however consideration here is looking at liquidity sometimes these weekly options may have larger spreads ideally we'd like to see the spread being no more than about 10 percent of that ask price the smaller the better in this case that would be about uh a buck 10 and this just kind of falls just within uh that realm in fact uh actually a little under that looks like it's about a 90 cent spread so still a little wide but within some of those parameters there if we go ahead and look at this 38 days notice how some of these spreads are a bit tighter which point in towards more liquidity now that's not always going to be the case but let's say as an example we go ahead and look at an option that's a little more in the money some traders may look at this as kind of a stock replacement strategy uh in this case on the downside and if i went ahead and let's say looked at the 115 that would be about a 60 delta now if i click buy we'd be paying 21.70 times the multiplier which is typically going to be about 100 for equity options there could be some outliers there but typically it's going to be a multiplier of 100. if i do confirm and send on this we're tying up about 2100 in equity on the trade now significantly less versus taking a a stock position or whether on the long or short side so we have a defined risk here however we can go and reduce that some more we already talked about time by factoring in and going long or basically buying a put going out to 20 may long puts are bearish these would be profitable potentially profitable if the price drops significantly within a period of time but we talked about where we may expect the price to uh trade down to and we're looking at some of those levels and you know around the 76 level uh came in mind if we're looking at about half of that move you know that'd be somewhere around the 90 area around 105 to 76 that's about 30 bucks 90 would be about somewhere in between so if we go ahead and let's say we look at somewhere around that 90 which is right about here i'm going to hold the control key we're going to sell this option so by buying a more expensive option in this case the 115 and selling the 90 where we believe the price may be trading down to as an example uh notice we reduced the cost of that trade right now we're looking at uh 13.50 now maybe close to 14. and so we're paying less for the trade but there's a trade-off as we go ahead and we look at the confirm and send uh the trade-off is we do have a defined risk 1355. uh the gain is going to be capped uh based off of it trading at or below 90. the

maximum gain would be realized if we're trading at or below ninety dollars at that 20 may expiration now there's a little bit of a pro here as well is we do have a break even the break even is slightly above where the price is right now now earlier in the day when volatility was probably a little bit lower we actually did have a higher break even but i don't have the choice of time on when to place the trade in this class so we are paying a little bit more than we would have been earlier in the session however uh still a reasonable return on risk that's i think looks like that's a tune of about 90 return on risk taking the gain uh divided by that maximum loss and there's your commissions there i'm going to go ahead and send this one through we'll do one contract and we'll see if that one gets filled may have been moving a little bit quicker as i was talking through that uh let's see if i can go ahead and bring that up uh let's go ahead and add that here we'll move this to the nope hasn't gotten filled let's go to our working orders i'm going to right click on our working orders we'll do a cancel and replace it looks like we're kind of in between the spread here looks like markets are moving a little bit quicker here all right we went in we got a fill there let's go ahead and bring this up there we go move this to our swing trading group here and let's get that going there all right so there's our first practice trade there as we're chasing it just a little bit now notice there is a column here that says p l percent uh what you can do here is come over to the gear on the platform and go ahead and select percent or actually it's p slash l percent p l percent we can use this to get an idea of where our potential profit may be and kind of keep that in mind as far as with trade management you can go ahead and just double click on it it'll add it to the list you can go ahead and left click and drag move it wherever you want in that list okay and we since we already have it there already we'll leave that there we'll click ok and then one of the goals for this strategy is if we're able to capture about 50 percent of that maximum gain or 50 percent of what we had put at risk we can use that as a guide to possibly close out the trade all right if we were to uh run out of time and uh times part of it as well if we don't reach our target within a certain period of time uh we probably ought to be looking in that last week to expiration uh to possibly uh close out the spread and to go ahead and sell it and that may be at a gain or maybe at a loss as an example those you that joined us in the past let's go to account statement here i was around mid march we actually had done two spreads one was a a long put spread and this was on a f i believe that's uh what's that abercrombie and fitch there we're on the 16th we went ahead and we did a 2.20 spread now as you look at this this was with a 14 april expiration we bought the 32 and we sold the 26. and basically that's the driver going from the long to the short strike is looking at that short strike that's essentially what our target is now unfortunately if we go ahead and look at the chart a f this was back uh it was around the 16th we're looking for this to be trading lower uh it did not but it didn't necessarily go very high it just kind of went more sideways here and so didn't necessarily shoot up strongly nor went down however it was interesting even with the passage of time if you had just bought a put time decay would have eroded a lot of that trade in the case of the spread it is mitigated to a point where it gives you a little more time and to that end as we go back and look at that example i closed it on 4 7 which notice that was about a week before expiration and was able to get a dollar and 70 cent credit so this was only about a loss of about 50 cents uh per times the multiplier of a hundred times four so what 50 cents times uh 400 that would be what 200 okay so that was a 200 loss on the trade however it was not a maximum loss we mitigated those losses as we went into that expiration so with that that was the result there now uh another example we've done and another option that some traders may look at may be uh looking at a uh a call spread and i'm trying to think this may actually may have been a bullish spread that i did uh two weeks back here let's see if i can bring that up uh bear with me for a moment i thought i had that on tip of my tongue here that was federal express but apparently it was not uh oh american express is the other express uh axp uh this was an example of a short call vertical uh this is another defined bearish spread however this results in a credit and the idea is to uh sell that above a resistance point with the expectation is that the price would trade lower we did that at the same time on march 15th a dollar 45 credit which means the risk since it was as a five dollar wide would result in a potential loss of three dollars and 55 cents i got that right okay and that would be times 300 so we were risking about a thousand dollars uh on this trade and ended up making uh on this practice trade a maximum gain of about close to five hundred dollars buck 45 times 300 okay because as we go ahead and we look at on american express axp we had the desired outcome we had a spread that was above resistance then the price went ahead and traded in this case swung to the downside okay uh and you know looking at some of the comments here let's go ahead and bring that up anthony says the sideways markets are difficult to trade they they can be if one is very directional that's one of the attractions as far as with some of these spreads that we've discussed in the past not only just in this class but on thursdays uh long verticals and diagonals that we talk about these spreads as well that's at uh 3 p.m eastern time nope it's in the morning it's at 11 a.m eastern time but in these markets uh you know having more of a limited risk define risk strategy uh having a smaller target uh one may be able to possibly get through some of those fluctuations there's no guarantee of a positive outcome but at least one knows or defined risk prior to placing the trade whereas with stocks it could be tying up more equity over the shorter term remember these are shorter term trades and likewise stops are not guaranteed to fill at a particular price once triggered they compete with other income and market orders but at least with our spreads we know where that defined risk is okay and we've shown you some of those possible outcomes let's see if we can go ahead and do another example and let me double check on some of our questions here and it doesn't look like we have anyone helping out on the chat today i'm not sure if there was an issue there but there is that survey i'm going to go ahead and push that survey out again and i'll make sure i get that out a couple of times we're not done yet but certainly if you haven't clicked on that link i would appreciate again some feedback there low thanks for feedback there as well and i think we've got everything addressed thus far okay let's go and take a look at another example let's transition back here to the platform and a couple other ones here looking at prior and bear with me for a moment looking at microsoft and uh you know microsoft uh really didn't get much of a bounce after dropping significantly uh the previous day uh is continuing down on the downside some traders may look to possibly test those lows now we are a little closer to earnings here it's one of the reason why i brought it up uh if one is not looking to speculate going into earnings one may have a limited time uh for to be potentially be profitable with that trait or if they're wrong uh not enough time to get back from that loss okay uh let's go ahead and take a look uh another one was looking at was was it eatsy if i pronounce that right or etsy this is a stock uh we can see you know does the trend support more of the bearish side we have a downtrend in this case below the 55 day moving average we can also see a common pattern notice that 55 day moving average acting as resistance and we have a rise in support so we have a triangular pattern this price actually broke out of the triangular pattern to the downside implying a continuation of the downward trend and then notice today's price action uh looking at you know previous lows as far as support uh has broken below that area there too now there is an earnings event coming here uh may 4th uh again you know is that enough time you know some traders may look for a spread or a defined risk trade to possibly capitalize on the price move prior to that event let's see if we can do that uh we'll go back i may have constructed one of these previously if you didn't already know uh you can actually practice and uh and save uh practice trades or actual trades on on the real-time platform looks like i didn't have it there i'll show you how to do that uh if we go ahead and we take a look at give me a second here uh that's one second here let's go ahead and six may it's 24 days out this is on the weekly side now 20 if we go and look at that period of time 6 may that kind of falls just after that earnings event now we can still potentially hit a profit target prior to that event uh but let's go ahead and see if we can construct something here we'll do the same principle we'll go ahead and take a look a little more into money here we have uh or if we go around a 60 delta that would be a 123.

then we go in and we take a look to see what price we may target now notice here on the weekly charts or the weekly options we do have more selection as far as some strike prices and that's one of the benefits on the weekly options however we do want to make sure the spreads are reasonably smaller we want to look at a target based off of this triangle we'll go ahead and we'll select a rectangle so i went to my drawing tool selected a rectangle i'm going to highlight over this triangle period so now we're factoring in both price and time between resistance and support i'm going to activate this drawing by right clicking on it we're going to move that down and sometimes it's a little bit harder to do we kind of run out of some screen here when i'm got the screen blown up and doesn't like it there let me try this another way we'll activate it and see if we can move that down doesn't want to do it i may need to do is kind of move here on the price action to get more space right click activate and there we go so now we projected based off potential price as well as time on where those levels may be notice around the mid part here looks like it's somewhere at around the 89 dollar level so let's say as an example we were targeting that it may be able to make that move down to this area prior to that expiration or prior to the earnings event i should say as well as expiration uh let's go back on that one there did we create that long option nope so i'm going to do is we're going to go ahead and buy the 60 strike now another way of doing this too is you can actually right click on the option that we're going to buy and do a buy vertical so this is a long put vertical and by default it's going to go to the very next strike 121 and i think when we're looking at it we're looking at around that 90 level so let's see if we can go ahead and bring that up so there's 90. let's just double check that on the chart yeah i think we're well yeah about 90. we'll bring that up notice again as far as with this spread uh defined risk times that 100 in this case so risking about 1334 would be the maximum loss our maximum gain would be realized uh if we're at that 90 level prior to expiration and in our case prior to earnings uh although we're probably not gonna hit that maximum gain until uh after earnings but if we're able to capture about fifty percent of that which would be about nine hundred dollars that would be uh some profit management consider now the other thing to keep in mind is as we look at this there is a break even in this case it's 108. the price does need to move down a bit for it to be profitable so it's not as a higher probability does need to move about four dollars for this spread to be profitable at expiration so that's consideration i'm going to go ahead and we'll send this one through it looks like we got to fill on that one and we'll go back to the monitor tab look at our current positions and we'll go ahead and we'll to keep an eye on these going into next week as far as managing them for a gain or a loss if we're not reaching our profit target as an example then the consideration is keeping an eye on these days and once we get inside that 10-day window less than 10 days if we have not reached a profit target that's where we need to consider about closing out these spreads and that may be at somewhat of a gain it could potentially be at someone at the loss think of both examples we talked about as far as with abercrombie and fitch as well as with our american express examples there okay uh likewise what are some other risks here well keep in mind you do have a long option here and if you do not take any action and in expiration these options are in the money those long options that would result in an exercise which would be putting that stock you would be put stock at 115 here you would be put stock at 122. if one does not wish to be put

the stock you need to close it out and that's simple to do you can just right click on the position create close in order to sell that spread and that's what we'll do as we go ahead and manage some of these practice trades let's go ahead and take a look see if we've accomplished on what we intended to do here today we'll double check on some of your questions vijay thanks a lot have a great day enjoy your rest your afternoon there vj uh mark says what is the best time frame for swing setups well in the context and you can kind of get a glimpse of that from as i'm pushing out the survey again as a matter of time frame this class kind of focuses on days to weeks now swing trading in principle is nothing more than in case of a bullish swing trading from a support to resistance or in a bearish trade from resistance to support you know basically trading different levels assuming the stock makes a similar move to what it did previously now that can be applied to daily charts it could be applied to weekly charts on a longer term it can be applied to intra-day those that join me in other classes such as the futures class not a recommendation or endorsement but you know we'll look at intraday time periods for some of the same patterns that we're illustrating here today all right so the emphasis on this class has been more in the days to weeks some of those trades may go out as little as a few days some of them may be going outwards closer to a couple weeks usually less than a month all right so there's not necessarily a best time frame and as we know in this market uh we've seen things fluctuate dramatically week to week hence the importance of having a defined risk trade or considering a defined risk trade when one has a bias and from a standpoint of days to weeks options or one area that gives us the ability to being able to do that now what i would encourage you to do is take a look at some stocks that may be in your watch list in case of a bearish one prices that may be breaking below support or it's in a downtrend and bouncing off resistance and consider doing a defined wrist spread our example today was a long put vertical where we're looking to capture a move to the downside not necessarily a very strong move but somewhat of a move to the downside and we're mitigating the impacts of risk by having defined risk trade as well as some of the time decay that hurts individual long options we're mitigating some of those risks all right well folks let's go and let you go for today uh and remember in order to demonstrate the function out of the platform we did have to use actual symbols keep in mind td ameritrade does not make recommendations or determinability of any security or strategy for individual traders any investment decision you make in your self-directed account is solely your responsibility so once again thank you so much for being with us i'm pushing out that survey one more time if you can go ahead and fill that out those of you that are listening to the archive session uh as well as those that are with us live as well consider clicking like that lets me know you enjoyed the session there's also a comment below there as well um and speaking of uh comments if you look there's a subscribe link here for trader talks uh if you want to be informed of some of our other upcoming sessions go ahead and click on that subscribe link and you can turn on notifications being formed there uh i just saw the last question there from mark he says what averages and indicators again we're looking at an example of a 55 period exponential a 13 period exponential and a 5 period exponential if you go ahead and go to my twitter feed and look at my pin tweet at jmcnickel underscore tda you can see that address at the bottom of the screen you'll get more information there as well okay robert thank you so much everyone have a wonderful day looking forward to talking with you again real soon bye now [Music] you

2022-04-14 10:27

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