Bull & Bear Swing Setup | Swing Trading Days to Weeks
good afternoon everyone john mcnichol and welcome to swing trading days to weeks we'll go ahead and we'll take a look at some swing trade setups do some practice trades and we'll wrap up by talking about a trail and stop example so stick around all right hey it's great to see those you that are live with us today uh such as wayne krishna vj rocky we got mike el diego giles vj bill david ricardo wayne and we got mr james boyd helping out on the chat any questions i am unable to get to he's more than happy to help uh do welcome those you listening to the archive session as well you can see my twitter handle on the screen at j mcnichol underscore tda if you wish to follow myself along with other fine instructors such as james boyd i learn more about ourselves along with the markets too let's take our disclosures folks we'll get right into our discussion today a busy day contents intended for educational information purposes only non-investment advice or a recommendation of any security strategy or account type options not suitable for all investors as a special risk inherent to options trading may expose investors potentially rapid and substantial losses carefully read the appreciated copy of characteristics and risk of standardized options keep in mind as far as the risks with weekly options as far as time frame as well as you're encouraged to practice what you learn here today with such as the paper money software all of the uh trades that we're doing are on a demo practice account uh you're encouraged to practice what you learn here today with tools such as paper money software which is for educational purposes and successful virtual trading during one time period does not guarantee successful investment of actual funds during later time periods market conditions change continuously as always folks all investing involves risks including the risk of loss as we may discuss technical analysis other approaches including fundamental analysis may serve very different views and a stop loss order will not guarantee an execution at or near the activation price once activated they compete with other income and market orders there's brief background for those you that if you're fairly new uh like james many other instructors we've been around the block a bit uh within this organization in various forums along beyond that and here's our agenda as i mentioned do some swing trade setups practice trade and we'll round things off with trailing stops uh now go into uh the thinkorswim platform uh looking at the s p 500 which started off we still have an hour left but notice prices attempting to come off of those lows uh seems to be a recurring theme on sell-offs as far as the dips some dips uh smaller some dips a bit deeper but question mark is this going to be another positive higher low potentially looking for those higher highs well there's only one way uh to find out which is to wait and see uh or possibly uh look for trade setups that may possibly take advantage of that bounce the nasdaq still kind of in that range again kind of off those lows looking at the dow djx the dow potentially looking at a higher low and finally with the russell we'll look at our ut and as we look at the russell as well uh going a bit deeper still kind of hanging around the low range of its uh trading range kind of indicating how the bias on the russell uh has been a little more to the bearish side as of late uh but nevertheless attempting uh to make a higher low so we'll see uh pointing over on the left uh there's my twitter handle there by the way also if you enjoy what you're learning here today consider clicking like so other people are able to see that and uh myself along with james teach a mini webcast on the trader talks channel so feel free to click subscribe and turn on those notifications so you can be informed of other sessions you know and uh just a quick glance at the sectors and we'll get right into uh our first set up there uh just sorting by the industries consumer discretionary leading the way down with disappointing retail sales report along that also being impacted by some of the retail earnings material stocks industrials pretty broad with only the healthcare sector being positive and consumer staples real estate utilities you know james talks about this quite a bit as well kind of more your defensive uh areas of the market still being hit but not as much as some of the more discretionary areas all right let's go ahead and take a look at uh a first potential uh trade setup here i think it was looking at uh stx uh this is i believe uh seagate technology you can see some characteristics of a potential reversal this is something that we talk about uh in uh breakout and reversal patterns on technically speaking uh every wednesday at 12 p.m eastern time we can see the characteristics of price going to the downside and going up potentially forming a higher low so there's your shoulder head shoulder which is typified of a inverse head and shoulders prices did break through the neckline and a common application principles of technical analysis taught in our technical analysis course is that broken resistance may act as new support zoom in a little bit better we can see kind of characteristics of the strategy we talked about last week kind of the flag or bull flag a sharp move up seeing a retracement pull back over a few days there's a little bit of a deeper of a pullback on that day but notice again the price potentially with the doji uh possibly holding kind of that previous high range what traders may look to is look for a bounce or a hold price trading or closing above the high of the low day now we can actually put in what we call a buy stop which can trigger an order if the price trades above the high of the low day and that's what we'll do as an example now this is something that can be placed after the market close today and set it up for tomorrow for illustrative purposes i am going to place it uh right now um making the assumption that today's high would be the high of the day and look for the price action tomorrow or possibly a succeeding day trade above that area okay so uh to do that uh let's plan this out uh those you joined us last week you know talking about will where could we put a potential stop uh if this is to be the low day we can reference that low that low is 88.99 and go ahead and set that a percentage below that low so if we take that 88.99 we'll go up to the gadgets here let's switch a gadget to a calculator and again make sure you got that right number 88.99
and then multiply that by a certain percentage uh for instance we've done an example of 0.99 that would be 1 percent below that low that would come out to be in 88 10. so i'm going to go ahead and plot that on the chart here right click and if you want you can right click on that line and you can go ahead and type in that specific price we'll make this red just to represent a potential stop and you can also label the chart i think i had it turned off but you can right click edit and you can actually show the price you know whether on the left or the right so that can help you as far as uh with the order and constructing that so 88 10. another way of doing a stop uh is possibly utilizing an indicator such as atr average true range if i go to the studies and let's say we go to edit studies we can go ahead and look up atr average to range if you want to learn what the indicators do just click the question mark that will take you to a brief description and if you continue down you can click on more details that will take you to the learning center and basically what it does is it attempts to identify the average range of that price over a particular period of time with our example the default setting if i double click on it to add that is 14 periods i'll leave that 14 periods on there and i'll go ahead and click apply and uh one way of utilizing this indicator amongst many is looking at that atr value and we currently have an atr value uh of two dollars and 37 cents now if it's a fraction of a cent we can possibly round that up so let's say two dollars and 38 cents uh if we take that atr or a factor of that so one atr is 238 we can basically utilize this dollar amount to set a stop off the current price so let's say calculate that see what that comes out to be if we were to take a look at our calculator and look at 89.85
minus 2.38 cents that would be 47. now notice in this case uh that's actually uh i'll do a duplicate 80 87 47 let me go ahead and mark that and so question is you know okay why do we have potentially a wider stop here well when one sets a stop with a a fixed percentage in this case this was a fixed percentage of one percent below the low uh this was based off of more of a dynamic uh indicator the atr which basically if the price action's more volatile that atr would be higher in this case upwards of two dollars and eighty cents uh if the volatility is lower the price ranges are smaller uh then that dollar range may be smaller in this case 237 so what what's the uh helpful application of that is uh utilizing indicators that may incorporate volatility uh may give you more flexibility to have a wider stop on stocks that are more volatile and therefore have a tighter stop on stocks that may be less volatile so a little dynamic something to potentially practice with and if one has that indicator on the chart we may be able to use that on an ongoing basis to adjust a stop uh kind of do a manual trail and stop so to speak that will highlight towards the end of the session okay so with that we got two options there that we can do now as far as the price target we can go ahead and let me stretch this down a little bit here since we already looked at that atr notice the more indicators you have on the chart you know that could compress the price action there if we're to go ahead and look at a potential target one we can you know look at the previous pattern whether it's this inverse head and shoulders we're looking at the shoulders and project a target this pattern is you know relatively smaller around the end of june to mid-june that's about uh looks like a little under two months that kind of pushes it more in the weeks uh time horizon versus necessarily just a few days once looking at it just over a few days you know they may look at you know the previous swing you know from a moving average or uh above a previous high so what i'll do here is i'll just go ahead and do a question mark or correction drawing tools we'll go ahead and grab a rectangle and i'll go and i'll draw this over the pattern now we do more of this tomorrow again in the breakout and reversal patterns we measure the distance between support and resistance and then right click to activate that tool and then move the box over to the right that way we can see where the potential target would be based off the previous move and also potentially time frame let's do an example of a stock trade on this also go ahead and do a horizontal line to mark approximately up around the top side there looks like that's around 97 and change or 98 and change it looks like and so we have the potential exits to the downside potential exit to the upside and let's look at that potential entry uh if we look at it based off the high of the low day the high of that low day which is right up here as we highlighted that bar is 91 15. let's say a trigger about 20 cents above that area so we'll go here uh 20 cents above that area 9115 uh would be uh 91 35 okay 91.35 so i'm just going to go ahead and plot another line on there to represent that entry close to that 91.35 all right so we got that constructed so now we have an example of planning a trade trading a plan by the way notice i came back here multiple times to kind of change it because i wanted to show the price on the left i change it temporarily to do something else but let's say this is the way i prefer to do it on an ongoing basis well you can make any of those changes come down there and select save as default and click ok and basically every horizontal line would be gold with uh the numbers on the right okay so you play around with that any way you'd like all right let's go ahead and do our practice trade since we all have the information on the chart uh between the entry the stop and the trigger and uh i'm slightly color blind there so trying to see that price level within between the that's 91.35 there we go so i'll do
is i'm just going to right click on the chart we'll do a buy custom with oco bracket and since we're looking to enter the stock but not right now not until the price trades above the high the low day uh there's no use to do a limit order when you specify a limit order uh that is going to be a price that is at or below the market we're actually looking to enter above the market so a good way of looking at this is when one's thinking about a better price better price limit worst price stop uh probably easy to recognize uh when you have your sell orders in there uh where in the case of the limit order the limit order is going to be reflective of a target price at your desired price that's the better price to sell whereas the stop is going to be set below an entry point in this case of bullish trade that's a worse price hence stop well we can use that same logic on a buy order if one's buying at a limit that's that price or better lower in the case of a bullish trade uh or in the case of a stop uh that is a higher or a worse price okay so we'll do is we're going to change this limit to a stop limit i'm going to make this gtc although if you did this after hours you can leave that as day it will be in effect just for tomorrow but i'll do gtc so it'll be in effect for tomorrow and then we'll focus on the trigger price or the stop as we mentioned i believe that was 91.35 91.35 right above the high of the low day by about 20 cents in this example once it hits 9135 that's going to trigger an order what type of order it will then trigger a limit order hopefully at a marketable price so it would get filled and in this case we can make that limit uh maybe a little bit above uh that trigger and maybe it account for some slippage i'll do uh 20 cents above that so unless there is a gap uh if intraday the price hits at 91.35 it's instantly going to trigger or should trigger pretty shortly a limit order to buy it at 91.55 or better and if the market is at 91.35 it will fill at 91.35 or somewhere close to that
wherever the marketable order is so we have the entries set let's go and look at the sell orders now we want the sell orders to have a gtc good till cancel to let those orders continue to work for the limit we set our target price which is 98.77 and the example of the stop we will use the atr for this example i believe that was 97.47 so we'll go ahead and we'll plug that in 97.47
i'm going to hit enter we'll hit confirm and send this is where we can double check make sure the order is as specified we have a a stop order triggered at 91.35 and to buy it at 91.55 or better target on the limit 98.77 well wait i got something that's something let's double check some here oh i know something wrong the stop wrong price uh that should be 87.47
let's go ahead and correct that that's why we uh measure twice cut once all right made that mistake a little too many times so 87 47. that's why it's a confirm and send not send send there we go hit that so we can double check that again there we go 87.47 the amount of equity that's locked up you know stock trade keep that in mind as far as position sizing you know we'll do a hundred shares as an example that's a relatively small amount of this account i mean if one was doing an allocation of let's say five percent um you know one may be able to invest upwards of twenty thousand uh in this case since it's kind of an initial reversal uh this is kind of possibly maybe half of the maximum position based off of a five percent allocation uh if the trend continues to develop one can add to that as we do in the uh breakdown reversal class so i'm gonna go ahead and click send on this and there we go notice the order did not fill it's working and basically uh it's set up as a gtc but for instance tomorrow if we do see the price go 20 cents above there that would trigger that entry now what if the price continues pulling back well the price continues pulling back one may look to reset the order to trade above the high of that lower day as long as the trend is whether up or sideways in this case on the inverse head and shoulders you know making a higher low or holding the previous shoulder can be attempt for an entry okay there we go so let's go ahead and saw in the chat there as far as on the calculations there let's just double check make sure i had that right like i said 8747 which is i believe what we had uh used and that was based off of the 2 atr about 238 subtracted by uh 89 25 so that's about two dollars and change that should push us in that 84 uh 47 okay and different techniques on set and stops the main reason for setting a stop is keeping it outside the regular daily trading range and making the assumption that that low would potentially hold okay all right so we got that first trade in hopefully you learned something new today or at least reinforcing what you may be learning with swing trades let's go ahead and take a look at another example this one let's see if it's still setting up that way uh and last week we did an example of a bullish and bearish trade let's see if we can potentially do the same thing here so here's a pioneer natural resources you know more on the energy front this is a pattern discussed last week in breakdown reversals a ryzen wedge which is a potentially a bearish continuation pattern uh notice price action did break uh below that resistance you know we are seeing a little more of the spinning top so a little more indecision uh not as decisively breaking down as for example pulte homes phm with a ryzen wedge as well breaking down below that support okay now potentially as far as a continuation what some traders may do is measure a previous move and kind of project that similar move down a tool i've used in the past for these wedges you can come up here to the drawing tools and under drawings go ahead and select not the fibonacci retracement which is a tool that we've used for looking for bounces but a fibonacci extension fibonacci extension i'm going to click on that and in the extension we're going to draw in the direction start off in the direction of the trend from a previous move going from the high to the low left click and this is uh basically three points so we get point a point b and then you draw back up to the high of this pattern in this case the wedge click again and then basically what it does is that hundred mark uh would be a similar move to what we had just measured so just another way of utilizing fibonacci uh that would be taking out a previous low now you know when it comes to bearish trades uh you know it's it's common to do you know more of a defined risk trade uh a strategy i teach uh on thursdays a a long vertical uh is uh one way of having a defined risk trade maybe a little more directional to the downside and looking to potentially capture some of that game to do that we can go ahead and go to the trade tab go out a certain number of days let's say as an example um we can go out 30 days if we want to go a little further out we can potentially do that as well however once looking at weekly options consider uh the spreads the smaller the spreads the better like to see those spreads no more than 10 percent of the ask price smaller br the spreads point towards that liquidity and let's say we do go out uh about 45 days and what we can do is uh select a strike that may be at the slightly in the money the one we buy into money may increase the probability of a profitable trade or at least a lower break even uh not a guarantee obviously and then we can select a strike where we believe the price to be trading below uh less directional uh you know we may just you know look a little bit below here's the 51 area you know previous lows at around 50.
um you know let's say as an example uh one may be looking at it trading you know let's say around the 51 to 50 area so let's go back on to that and so let's say as an example uh we buy the 54 so that'd be 3.40 debit however i'm going to minimize this and then we're going to sell let's say that 51. so i'm going to hold the ctrl key hit sell now we reduce the trade and this is a dollar and fifty three cent debit uh for a three dollar why that means there's about another dollar fifty uh to potentially profit on that we can learn that by clicking the confirm and send and we can go ahead and see uh our risk define risk 153 per contract define gain which is the maximum gain 147. that maximum gain would be realized if we're trading at or below 51. uh 40 some days from now however uh we can do some profit management that if we're able to capture about a percentage of that maximum gain let's say 50 percent some traders may target 30 percent as soon as it does that lock in again or scale out of the trade and move on to something else notice there are some commissions there nice thing about this too with that defined risk we can position sizes to the risk we want uh let's say i wanted to risk 500 into trade we can do looks like three contracts so i'm gonna go ahead and edit we're gonna do three contracts confirm and send there's my defined risk there's my defined gain now this is the interesting thing with this trade based of us going a little more into money uh and not necessarily having a far out of the money uh strike is the break even notice break even here is 52-52 uh we're already at 52-54 uh theoretically if this price is below this level at expiration it would be a profitable trade obviously minus any commissions okay so let's go ahead and send this through and we'll manage this and between this class and in the long verticals and diagonals we do talk about profit management for that so let's go ahead and send that out didn't get filled right away sometimes it takes a few moments i'm usually a little impatient when i'm teaching a class because sometimes i forget uh notice there's about a 20 cent spread i'm just going to adjust this just a little bit your results may vary and looks like it's a little bit sticky there just trying to improve on the price up there we go all right just that be a little more patient john all right so we went and we got that filled we'll go ahead and continue managing that one all right so let's go ahead and go back so we've talked to examples of both a a bullish as well as a bearish swing setup really it's a matter of direction and bias we've also done a practice trade one with the stock and one with a defined risk spread utilizing a long put spread to trade bearishly uh on a another trade now if we um go back to the platform and let's double check a couple things here and let's see if i do have uh another spread i don't think i have a a different spread actually i do have a spirit so here here's an existing uh long put vertical uh on spotify uh we actually did this i believe last week was it last week yeah it was last week in this class uh if we go ahead and take a look at spot spot you can see the characteristics of you know more of a a bearish uh swing this was kind of more of that bear flag sharp move down was looking for the price to be not only rolling over but taking out those lows and notice we've seen those lows being taken out now potentially the full target would be a little bit lower however a consideration is you know managing winners managing gains when you've had a favorable move in in the case of a short-term trade uh 50 or half the move or taking out a low you know one can consider possibly adjusting closer to a break even all right now if i go ahead and look at this trade let's see if we've hit a potential uh profit target so if i go right click and view trades i went ahead and bought uh 19 and sold 720 uh about 19 sold 720 so this was a uh a 10 and 80 cent debit doing that right or 11 and uh 80 cent debit okay so uh with that the spread is a thirty dollar wide so there is some more potential gain uh with that trade another way of viewing this uh on the platform if you come up to the top here uh there is a gear you you can modify uh these columns here and i'm going to actually it's the second gear and there's a p l percent and what it does is it calculates based off of the debit that you had put up and what percentage return on that debit and if i click ok you can see we're at about 27 percent now if we were targeting 30 may look at you know possibly closing that out uh 50 is kind of more of the ideal target uh that i shouldn't say ideal but the one that we've been utilizing as an example so we'll continue managing that now let's go ahead and talk about trailing stops and we'll uh we'll finish off on this now we'll talk more about trail and stops next week as well just want to kind of get a little into it for this session with the other example that we had from last week so let's go ahead and bring that up and can be a frustrating aspect for swing traders and that's dr horton i believe dhi was the other practice swing trade that we did and as we look at this notice you can see the classic setup of a bull flag that we had position there and uh we had entered this again on the 10th as price trading above the high the low day looking to capture that swing and notice this actually was a successful swing when prices take out a previous high that is a successful swing okay however if you don't close it out and it pulls back as we did with the new home sales or a lot of the building reports those gains can quickly come away okay question is is there a way to mitigate this and there is and that's where that trail and stop well two things one a and i failed to do this is adjusting at least to a break even uh when we made have to move or that previous high i have a lot of trades practice trades i do on top everything in real life here sometimes it's kind of hard to manage all of them again illustrative purposes two is once we have that favorable move could also institute a trail and stop so if the price keeps going higher it'll go ahead and trail it if it rolls over as it did today it'll stop it out and that's what we had used the parabolic sar if you look back in the archive i do have some previous sessions on it we're going to talk more about this in detail next week but if i go ahead and actually add that indicator the parabolic sar in the settings that i tweaked it to is as the price goes higher we can have a stop that trails that and then this morning when the price had opened up lower uh the parabolic sar reverses and theoretically uh if i had a trail and stop based off the parabolic sar uh the exit would have been earlier in the session versus potentially getting stopped out now now we actually our original stop is still holding so maybe lucky and dodge a bullet and possibly get a bounce here now as far as instituting that style of stop i can take the existing stop that's on the chart or just go to the open orders and adjust it from there but if you have the orders on the chart makes it a little easier i can right click and i can do cancel and replace order and again we do more of these next week but i want to give you a precursor to it we actually come over here we're going to change this to just a market order and it'll be gtc but then we need to come inside here where there's a gear that appears and we can utilize a conditional order based off of a study indicator and right here where we type in the symbol we just click on it symbol comes up we go to method the mark last price that's good uh that's if we're going to utilize a stock price but we're not going to use the stock price we're going to use the study so we're going to come down here to study and then select edit and you can use any indicator you want you can use a moving average if you want uh to trail a stop i'm not going to do in this case i'm going to hit delete to clear that out where it says no conditions defined and then i'm going to go ahead and click add a condition and then i'm basically going to come up to the top here and say if the price it will go off of close which is essentially the last price so price or close is less than you hit less than some traders may put equal to you can play around with that uh less than and go to the condition and go ahead and find the study called parabolic sar you can actually look it up p-a-r parabolic sar and as far as this setting i'm gonna have to go back and uh bring it up on the chart here uh i do have a little tweak as far as on this indicator and if you wanna write down uh the values it's a 0.1 and a 0.3 the top value is a 0.1 the bottom value
is a 0.3 did that as a test to basically adjust based off the time frame that we're looking at so 0.1.3 if one's utilizing this as far as a trail and stop for an example you'd have to modify those parameters so i'm going to go ahead and go back to this order click on that gear we're going to go back into that study to edit that and then you can come here where it says edit on that condition and we're going to make that a point one and i believe this was a point three okay and we'll go ahead and we'll click save and okay now i'm gonna go ahead and click save and then i'm going to put confirm and send and send this through and since it's already below there we're probably going to see this trigger but just so you can see that it potentially works right so i'm going to click send and notice what happened it instantly filled why because we said that if the price was below that atr it would fill now if i had this in yesterday it probably would have done it earlier in a day and possibly retain at least some of the value on the trade so that's when we're going to take a deeper dive next weekend so we talked about the atr on setting possibly initial stop and that's something that could be manually adjusted daily if you wish or if one's looking for something more automatic possibly use the technique we're doing with the parabolic sar now a theme that i've used for trailing stops is not necessarily to institute a trail and stop until after a favorable move whereas if one gets a little too tight with stops initially may kick themself out of the trade a little early now i did notice there is a survey that came out if you can go ahead and post that again james i really appreciate that i really would love to get your feedback some of you may already been filling it out as you go hopefully you enjoyed what you learned here today and would love to see your comments go ahead and take a look at them hopefully it's been a great experience for you and for those who listen to the archive session you can vote as well you can go ahead and click like letting us know that you enjoyed this presentation and it also gives an opportunity for other traders to see some of the same content as well those of you that are here live too you can vote twice by going back and clicking like too and there's also a place to comment below uh we encourage to practice what you learn here today folks as we went through both a bullish and a bearish setup got some practice trades in uh uh one on a stock trade with a stop keep in mind stops are not guaranteed to fill that particular price uh once activated they compete with other market orders we also did a defined risk trade on the bearish side using a long put vertical and showed you an existing one as well and we also started talking about trailing stops we'll continue going into next week one with an atr on setting an initial stop which incorporates this some of the stock's volatility and a parabolic sar which can incorporate a trail and stop while also taking in volatility as well so remember folks in order to demonstrate the functionality of the platform we did have to use actual symbols keep in mind td ameritrade does not make recommendations or determines suitability of any security or strategy for individual traders any investment decision you make in your self-directed account is solely your responsibility so uh please folks make sure you click on the survey i think i can go ahead and post that again if you missed it it's only a few questions and takes a just a moment or two i appreciate that like to thank james for helping out on the chat today we'll let you go ahead and enjoy the rest your day hey those are that are interested in options i will be continuing with the option strategies workshop uh later on this evening at 7 pm eastern time we're going to talk about covered calls if you wish to join us that's a live only event you can go ahead and go to the live events on the td ameritrade website uh or the in-person events and go ahead and do that for those that happen to be here uh if you haven't registered or wish to register i'm gonna post that in the chat as well awesome dennis thanks for the kind words everyone have a wonderful day we'll talk to you again real soon bye now you
2021-08-26 04:32
