Building A Position Based on Trend Changes | Active Trading Strategies
it's july 6th we're going to talk about adding to positions in bull flags after breakouts from base patterns stick [Music] around good afternoon good evening good morning everyone welcome back from holiday weekend i hope everybody was safe had fun ate too much and are ready to to get rolling again my name is pat malali and this is active trading strategies you can follow me on twitter at pmilali underscore tda and in the chats we have barb armstrong which you can follow barb she's another td ameritrade coach education coach and you can follow barb at b armstrong underscore tda all right so today we're going to look at to something we talked about on friday in the in the webcast on friday's uh advanced uh charting techniques and that's base patterns but we're going to add to some positions that we that we put on a little bit uh ago uh that have broken out that we're in base patterns are now breaking straw possibly to the upside before we do any of that remember this is for educational purposes only not recommendations or investment advice of any security strategy or account type options are not suitable and for all investors there are risks that are here inherent to option tradings that could uh expose you or investors too rapidly uh to potentially rapid excuse me and potential losses short options be you have to be very aware that short options can be assigned at any time up to expiration that's between the time you put that trade on till expiration regardless of the in the money amount or even the out the money amount out of the money amount you'd be surprised and in the money option course may have a higher risk of being assigned early pay-per-trade paper trade which we look at all the time every week every day is a virtual trading application but it will not assign a short option position early which is going to be very different from your real money account so if you haven't started trading with real money yet and you're not noticing you're getting assigned know that that is a possibility and and learn first to understand when you should probably possibly close those positions out all right uh oh this uh this webcam up there it is this webcast let's see if i can get there this webcast uh discusses technical analysis and other approaches including fundamental analysis may assert different views remember all investing involves risk including the risk of loss a trailing stop or a stop loss order will not guarantee execution at the near uh at or near the activation price once activated they become a market order which means they're in competing with other market orders out there in a fast-moving market and you may get filled at a a place that uh lower than you had or higher depending on what you're doing than you had expected past performance mini security does not guarantee uh future results we're going to use actual symbols td ameritrade is not making any kind of recommendation about the suitability of the security or the strategy in any investment decision you make in your self-directed account solely your responsibility base pattern bull flags we're going to talk about that we're going to add to some positions while we talk about that and those will be some sample trades we'll also put on if we have time possibly a new position so let's get out there and get rolling here let's uh to warm everybody up a base pattern what's a base pattern for anybody new to technical analysis a base pattern is uh after um uh stock runs we're just going to call this on the bullish side runs to the upside and then pulls back and drifts sideways consolidate so base pattern could be a cons called a consolidation they can come in many forms of triangles rectangles double bottoms the all different types of things then on the other side for the downside they're still going to be either at the bottom of a downtrend or at the distribution area after a tr after a stock has run its course but the same idea and we see price drifting sideways now this is apple aapl when we talk about base patterns we talk about uh again different types of geometric patterns that might be taking place so if i draw an uptrend line this is this black line or you can use this excuse me 200-day moving average to show you the longer term trend but this is an uh is in an uptrend higher highs and higher lows now trying to eke out a high above the previous highs uh back here in back here in january so we built this base this consolidation consolidation has been met with some buying pushing price to the upside right now moving into an area of um that was a whoops sorry that was not only resistance back in january but all the way back here in september so you can see these consolidation periods can take quite a long time that's not necessarily a bad thing that is just part and parcel of what may be occurring in the in this whole time frame here we've seen these higher lows continue to take uh to take shape so this is a long rectangular passion pat long rectangular consolidation uh pattern uh that we have in here or excuse me triangular pattern in here so we know we've passed the middle uh portion of this now we're finding some resistance at places that met resistance previously now that being said we don't really have a flag but this is the idea behind base patterns that they drift sideways we're going to continue to look at these because we're going to look at trades that we um that we put on before and look to add to those positions now the question becomes for a lot of folks as they listen to i might see some things out there is the market due for any kind of a pullback well your guess is as good as mine but we do have some indicators in breadth in the world of breadth indicators advanced decline those types of things that are showing less less breadth meaning less participants less participants in the individual sectors in the indexes themselves meaning that they're which we'll talk about tomorrow in the markets and sector analysis uh webcast we'll do uh tomorrow wednesday at two o'clock eastern time looking at uh strengths and weaknesses that we might find in the market but yeah if you're if you're a little bit worried don't want to add to the position that's okay but then don't beat yourself up if things take off to the upside now when we talked about adding to positions and base patterns or we talked about base patterns on friday we we defined what they were we talked about volume we talked about areas of momentum well this is a peloton peloton interactive uh and this was one of the stocks that was uh one of the uh we might call them uh pandemic stocks everybody stay at home stocks they were buying peloton exercise equipment and the stock uh enjoyed quite the run so let's uh let's put this on a two year one one day chart and you can see inside of these inside of this action there is some consolidation areas so these consolidation areas happen and that means that there may be some opportunity uh afforded us as these consolidations occur now this was a strong uptrend and it had you know four or five consolidations along the way and then culminated in a uh what we call a climactic buying situation here and then one more rally on the in the uh december time frame and then it consolidated that all not all consolidations are going to be bullish right it consolidated here in another triangular fashion let's draw a line under here so a descending triangle double top a lot of different things you might call this when we say double top a top here and a top there and then it drifted sideways it'll finally broke down now it's trying to consolidate and perhaps get some get some bid underneath it to push it to the upside now on certain information that we've looked at on uh on this and many other stocks we went out and purchased you can see here 48 shares of peloton right here on this long range day to the upside now why is that important because when we look for when we look for changes in in bias and bullish or bearish bias a lot of bearishness here bullishness bullishness bullishness drifting sideways is this drifted sideways recently and this is one we that somebody may decide they want to add to a position is this drifted sideways we saw the volume really drift lower and then start to pick up so we had the volume smile nobody it wasn't apparent there was a lot of supply or selling onto the market here then as we watch this rally on the 22nd here uh we've got an average price of 1 16.87 you can see that up here and it rallied up and now it's pulled back now what we want to do what somebody might do is number one we're still in this base pattern we bought early in the base pattern and we talked about that on friday in advanced charting techniques about entering in three different areas two of them early one of them near the and at the breakout point and that's what we're looking at right now so let's um get rid of some of these lines here so we know we are at old resistance make this less cluttered we are above the 20-period exponential moving average and we're above the 200-day moving average so we're seeing some changes in the long-term uh look of the trend in other words the long-term trend what has been up it's still up it was starting to flatten and now it's back above the 200-day moving average i think perhaps if we're thinking about price and thinking about adding to this position that we have whoops that we have wow that we have 48 shares on we might look at this bull flag or this area over in here these last five days on a fairly controlled uh drift back to the downside so fairly constructive meaning it's pulling back i'll put the little uh channel line in there and it's it's pulling back but it's pulling back as it pulls back low volume we saw what what's telling us that there might be a little bit of bullish bias nothing's 100 percent is that when it rallied it rallied on large volume when it pulled back the range of the days were small and it's small volume now that could change at any time it could change by the end of the day and it could drop really hard for whatever reason so this might be given giving us an indication uh that there might be some bullishness now also what we might call a ball flag which is just another pattern right it runs up it pulls back down and we've seen that before in here inside of the pattern and that would be right here rallied up on large larger volume pulled back on smaller volume doesn't mean it has to continue to do that just be aware that there's always risk involved here so what we're going to do is we're going to add to the position if something occurs and that it means we're going to add to the position if price moves above the high of the low day but i'm not going to be able to do that am i see if i can get that in there we go i just wanted to get all this writing and this is going to be how we add to the position because we have 48 shares right now that we that we own we've got this bull flag but we want to perhaps wait to see if there's more momentum setting up so we're going to go in at a close above the high of the low day that's what that acronym kaholt stands for close above the high the low day what does that mean well the low day is the lowest day in a certain pattern right in this case the bull flag if uh if price pulls down each day you might see or every few days you might see another lower low and until that stops we're going to con consider the momentum to be short-term down so right now we have uh an intermediate term uptrend getting close to that and a short-term flag downtrend so we're going to buy 24 shares because we're going to pyramid in on this what do we mean by pyramid a pyramid is we buy the bulk of our shares or excuse me uh half of our shares on the first buy and then we buy half of that on the next buy and then we complete the the last tranche on the third on this third position so we're going to buy 24 shares we're going to enter on a buy stop which means kaholt close above the high of the low day now that buy stop is above the market at 125.10 so if it moves above yesterday's or friday's high of 124.98 we're just going to add 12
cents to that and say if it closes uh at 125.10 that in this uh in this sample trade we want to be putting this trade on now this is going to be a market order it turns it's a stop order and that turns into a market order so that doesn't mean you're going to get filled where you want to get filled we might say 125 10 and if it gaps up to 128 or higher or whatever anywhere then we could we'll stand uh the very likely possibility of being uh buying this stock at a much higher price so recognize that we're gonna put a stop loss 10 below but we're adding to this position so then we're going to have 72 shares and those 72 shares need to be sold all at once and we're going to have a stop price of 115. so um now this what i'm about to say here you need to take notes on this because we're going to put a trade on and we're going to now have 72 shares if i if i move my stop losses to 1 to 115 to sell 72 shares this stop loss can't be in there anymore if we take this stop loss out right now we don't get filled then that stop loss won't be there to to give us whatever possible protection that might you might be there remember it's downside stops our market orders just like upside buy stops downside sell stops are market orders and they're not guaranteed to fill either at that at your expected price so with that let's come out here and uh all we're going to do is right click come down and say buy custom with stop we're changing some things because we're adding to this position um oops we're gonna buy uh 24 shares i'm going to click the little firecracker thing here the chain link and that links the 24 shares to sell now this says buy and this says limit if we want to buy at a at a higher price we need to change that to a market order and that's the that's the important the important thing so that market order is going to be at 125 0.10 on peloton we need to change it to a stop order sorry not a market order the stop order does turn into a market order and then we need to change our uh a couple of things we can't leave this at 24 right we did click on this link here but if you forget that you're trying to sell all 24 shares or all 72 shares then you need to change this because you're adding to that position you have more exposure you need to change that 40 the the stop to 72 shares and then put in your stop loss of 1 15 which should be about uh 24 about 10 lower than where you entered in on this trade so um a lot of people will wait to put the stop in once they're once they're in the trade that would be probably a little uh more judicious this is for education that's why i'm just doing the whole thing here so everybody can see how this all works we'll hit good till cancel and good till cancel and then i'm going to come up here and i'm going to exit out of these uh cancel those orders there whoops shoot and uh then hit confirm and send so we can double check everything and we have 24 shares we're adding to the existing 48 we're going to sell 72 at 115. these are good to cancel there's no guarantees remember on those stop orders so we're just going to wait to see if price can bounce up off this 200-day moving average with with some oomph behind it all right let's look at another one here here's um this is very similar a little bit deeper draw down this is um 3d systems we bought this one uh back here on may 18th rallied up hit resistance pulled back so a couple of places that you could have added to this one or one other place you could have added to this one besides here is right here right so you could this is your basic bullish flag it's following and holding that 20 period moving average or you could have added as it broke through the top of that the the old resistance we had resistance here we had resistance all along in here and finally broke through with strong volume somebody could have added at the end of that day it didn't go didn't go very far but you could have added either intraday as it started to break through that line or you could give it time to pull back like we've done here no harm no foul on ddd now we have 75 shares on this what we're going to do here is we're going to add 33 shares we've got a stop way down here for 75 shares which is this is going to take us up to 108 shares so we're going to put a five dollar stop loss on this and we're going to have again wait for it to move above a certain price so if we look at the uh close above the high of the low day well we have a low day a low day and so yes or friday would be the low day in this series of price in the series of price action as price drifted has drifted down to the 20 period moving average you'll notice that if we take a look at volume volume this whole area going sideways and pulling back down not a lot of love in there if we look at uh momentum with the rsi got some issues there that's why we may want to see some movement back to the upside now you might say there's some there's here is a caveat for some folks and that caveat is the caveat is that this high of this day here is uh 39.90 stocks trading at 35.78
right so basically 36. do you want to wait for a four dollar move you know which is a 10 move off of where it is now somewhere in that area or do you want to use today as the low day if it can close above today's high either today or tomorrow or whenever would you be willing to consider that a possibility the reason we say that is is that we don't we're not letting a 10 percent run take uh take place first that's just going to run into resistance meaning this area over in here right so if we can put this on as it breaks above today's high which would be right now 3762 some people that might be you know say get in at 38 or something like that might be a little more palatable if it does start to move up we'll see the we should see the rsi start to follow that along so let's take a look here we've got a buy stop at 38 which is just above today's high again it's a buy stop so it's a market order won't you know if it doesn't if it doesn't get filled that's because it's dropping right that's because it's dropping that's for some people that's good it may not fill uh at all which if it's dropping you don't want to buy extra but if it does gap up remember that you could be getting in at a lot higher price stop loss of five dollars so we're gonna we're gonna add 33 shares to this trade and we're going to put our stop loss in at a hundred uh uh sell a total of 108 shares at a stop price of 33 provided it doesn't uh it doesn't gap well below that on the mark and fill us at the market well below that i'm just going to go ahead and click on that right there and get rid of that right now i'm going to right click come down to buy custom with stop and all we're going to do we already have 100 or 70 shares or whatever it was 75 shares um and so we're going to add 33 to buy we're going to put in 108 to sell remember we've already got a position on this that's why the sell is so much more now it's a buy limit we got to change that to a buy stop and uh once it's in at a buy stop we're going to put that get in price at 38 or wherever you just determine is where you want to get in and then we're going to put our stop loss down at 33 33 no guarantees getting filled because of the nature of the market order make them both good till cancel uh make sure if this is a limit order it's going to get filled right away so if you don't if you want wait for momentum to start to pick to the upside then you need to have this say bye bye stop order click and send anywhere you just sit in weights uh now here's a new one but let's talk about this this is one uh as far as the base pattern goes on this it's uh having a nice flag so we're gonna we're gonna get to this area we're gonna talk about this you know the last seven eight days in here here in a second because what occurring right now how did it get here why is that and why are the last eight days important uh when we when we're looking at this overall chart and so why do you guys what do you think that the last eight days are important what do you care should somebody want to you know per contract uh should somebody want to put that stock to you and that can happen at any time between the time you put the trade on but we also put it on for uh one thing and that is uh for another thing and that is to yeah to keep an eye on what's going on here so in effect this appears to be a new trade but in reality it is um in reality it is uh an addition i say edition because you are obliged to buy a hundred shares of jks because we have a short put sitting down in here should somebody determine so you can't just go out there and pull on a full position or or a half a position because you've already got 100 shares right so just remember that so what we're going to do here though is let's parse this out and take a look at what we have here if we come over here it's above the 200-day moving average just want you to note that because i'm going to take that off and well above its 20-period exponential moving average but let's look at some things that were occurring that were occurring and things that are are possibly changing so if we draw this line where we had that dotted line we can see that was an area of concern in the past it bounced up from that zone right uh i can get that there we go bounced up from this zone right here fell through it rallied back up to it banged around it several times showing rejection and then here now along the way along the way we have this pattern and this pattern could be for some considered and it's a multi-month pattern so that's a good thing uh could be considered an inverted head and shoulders maybe may you know it's just a pattern that people look at and say looks like it could be the bottoming part process could be taking place so as we got here in watching it before all of this happened over in here we could have made some possible assumptions and that is as price rallied volume picked up this price sold down volume drifted lower as price rallied volume picked back up so when we look at that that could be a an indication of an indication of bullish bias to the upside so we've seen a total change now this box is here i remember asked the question uh if we have this action over the last eight days what's that telling us well when we compare all the price action going way back we've not seen any strong moves to the upside uh since the big since the big breakout back in september okay so that doesn't mean this is guaranteed to run like it did in september there's no guarantee now this has already broken above the low days high because we have this bullish looking flag today being the fourth day it dropped made a low and lower low friday a lower low and then today's another lower low but we're showing strength we're already at 50 percent of the moving average of volume right now with another uh hour and a half to go rsi is bouncing up from the 60 level which is showing us support and indicator support and relative strength compared to the rest of the market is outperforming since uh since the middle of may so we're seeing strength outperformance and then a constructive pullback volume drifting lower on the pullback volume picking up as it rallied so with that somebody might look to put a trade on now remember we've got in this case if this was your portfolio you've got a short put in there you don't want to just dive right in and put on a full position unless of course you close that other one out right we could close it out right now for what we pay what we it would cost us what we took in his credit keeps going up then that credit's going to go in into uh into the position the total positions uh that we have involved in this trade so what we're going to do here is we're going to enter on a buy limit right now uh well it was 53.82 it's moved up higher since i was looking at this earlier we're going to have a 10 point stop loss now in this case we're going to buy limit because we're going to buy right now and so in theory you're at if we go on at 5402 at that price or better or better means lower and i'm going to put a stop loss 10 below and that is going to be a regular stop loss market order which isn't guaranteed to fill at that price so we're going to buy in this case 100 shares because we have ten dollars worth of risk and uh so that's going to put us down here at 44 on our exit back down into this below the 20 period moving average below that below the support of and resistance old resistance becomes new support all right so let's put this on by custom with stop and this will have um a hundred shares that's the way i set this up and uh we're going to buy it right now at 54 we're going to move this stop 54 on a limit we're going to move the stop to 44. gives us a 10 difference between where we're saying we're right and where we're gonna where somebody might say that they're wrong and we'll put this good till cancel in theory it should fill right about where it is right now and that's it all right so there we go we are in on that on that position so to nope didn't want to do that to recap or start to recap let's see what we've got here now the markets uh i just wanted to check the market markets trying to move up towards the you know gives get some back after uh giving back everything that we gained on friday so uh peloton market is trading or the the stop the buy stops above the market nothing's happened yet and we have strength ddd same thing hasn't moved up we have strength if it continues to drop then we're then we're out we're going to have to go in and manipulate the stop loss on that one and uh the new the new trade jks we're in with a stop loss selling everything just below at 44. now if we go on and look at apple
apple if what if what would you think what where would have been a better place to buy apple if there's a better place by apple is this a good place to buy apple it's anybody's it's your decision a lot of people might think this is just as good a place as any especially if they're longer term in their in their decision making apple had this base and then it ran up had a little flag and then it ran higher it's at resistance perhaps this pulls back and creates a flag but we have all of this base information uh to to go on to give us some idea about what the uh the market is actually thinking about apple so if we if we look at this one from scratch we can say we have a higher low i mean we have a low a higher low higher lows all in here and boom so what's changed with apple well apple has been able to breach this middle point now why is this middle point on apple important and why is that something we might want to watch going forward it's because it was an area of rejection it was an area of rejection strong long-range bars to the upside volume wasn't really giving us much too much to go on but when we look at this last run in here we've had some volumes that have penetrated the 60 or excuse me the 50 moving average of volume it's since slowed until uh friday and today volumes pick back up with some selling coming back in so somebody looking at this in a base pattern might say well if this starts to if we see a rejection here again then perhaps it pulls back down into support and then we can look to buy as it starts to break to the upside so that's a visualization visualize what you are going to do where you're going to do it what are you seeing and how much are you going to do that with that being said let's pop over here to the scan tab and see if i can run a scan here real quick and see what pops up well we have jks we just put a trade on that here's a ring doorbell we used to be bring you know the doorbell guys uh and in it so that's going to be software we've got some industrials we've got a lot of consumer discretionary in here we've got a lot of uh um semiconductor in the way of solar energy so on and so forth let's take a look at um ring and see if there's anything there okay so this could possibly be building somewhat of a base pattern it's pretty jagged it's had a lot of not not some people might say there's been a lot of technical damage because of what we see here but this action right in here might be an indication that the the sellers generally exhausted themselves now oftentimes we get that that run but this whole if we look at what's going on here volume extreme i shouldn't say extreme volume but a pretty large amount of volume and then we oftentimes will get met with some kind of a rally and this dropped off and we compare that this volume over here to this volume here and to the price action the difference in the price action is the rebound the rebound occurred on strong upward upward pushes if somebody thought that this was they were they were willing to get in under the 200-day moving average ring might be a consideration another one that was in there was chwy and we can see here ah this is not quite as uh radical of movement as we saw with with ring and so this one might be building a base if we take a look at uh at what occurred in here similar structure strong sell-off strong sell-off volume increasing less volume on this last sell-off than what we saw um well what we saw here anyway uh less volume on this uh on this sell-off than you know what we would might have thought so i want you to think about that in that if if there's not a huge amount of selling to see volume picking up on the upside which we have seen over the last couple of months back above the 50 period moving average that could very possibly be an indication not a guarantee of course an indication of bullish bias and we've had it more of a sustained push to the upside as well so more of a bullish bias one of the things you can always do i would suggest you do is look at the three-year chart three-year weekly and then start looking at uh support and resistance areas we'll draw a trend line obviously the downtrend has been broken up trend is beginning uptrend is sitting at a resistance area let's put that in right there so there's not a lot of upside so with this run strong volume on the weekly basis somebody might look at this i'm going to sneak in with a small position on this bullish flag right bouncing above the 200-day moving average they may wait for it to get to resistance and pull back in this case if somebody were to look at this and say all right i've got a break and this is i want you to consider this it's up uh almo or three and a half percent or so for the day it's at recent swing high not necessarily the greatest for a lot of swing traders a lot of swing traders don't consider that the greatest place to enter because there was rejection there before so you somebody might wait for this to continue to run find some reason to pull back and then say we've got higher highs higher lows higher highs higher lows and look for this to break out of the base pattern and then pull back similar to what we had we've done earlier today but this one didn't afford us the entry the early the earlier entry because we're already past some of those areas in that area the the main area being this low right in here which would be a pullback a rally and that would have gotten us in a little bit early now it's a little bit extended seeing some signs of strength but that's all we have right now sign of strength we need to see a low volume pullback and then a rally from there all right with that uh that's going to do it for the first day of this trading uh the third trading day of uh the month of july so we'll see how things how things fare the market uh is you know took back everything it gave it took back everything it gave on friday but you know hey it comes and it goes it it moves up it moves down and move sideways so coming up next we have john mcnichol on if you want some more on swing trading uh days to weeks that's john mcnichol it's intermediate in in its educational frame so please join john if there was a survey please fill out the survey uh and uh give us your your comments your we really use those comments we helps us decide you know where we need to fix things and as well as new things that are upcoming and and of course we always like to hear the uh the good things you say too but you put it all in there um with that uh if you like what you saw please uh give us a thumbs up on youtube and uh subscribe to the channel if you think somebody can benefit from this please share this with them as well so base pattern bull flags so they they happen inside the base pattern you can enter early in on those bull flags and you can start your position you can start to build a position if you feel that that things are bullish if you're seeing bullish in demand seemingly bullish demand then look for these bull flags buy low sell high buy in the pullbacks if you're not a dip buyer then you wait for the breakouts and then you can add to those positions once you once you see that what you were your assumptions were start to continue to take place then you can add to those positions you wait too long to add to the positions then you probably take too much risk sample trades and we did those everybody have a great uh rest of your day content here is intended for in for information on educational purposes only you're responsible for your decisions made in your self-directed account and we will talk to you soon folks take care
2021-07-10 09:11
