Bull and Bear Swings plus ATR Trailing Stops | Swing Trading Days to Weeks
good afternoon everyone john mcnichol here and welcome to swing trading days to weeks we're going to do is uh each and every week we look at swing setups both bullish and bearish do some practice trades and try to uh enhance some of the capabilities of the thinkorswim platform so stick around all right hey it's great to see those that are live with us today such as vj krishna sebastian bill pierre tony el diego we got wayne todd david and everyone else do appreciate you joining us live each and every week we got mr michael keeley help it out on the chat any questions i am unable to get to uh he's more than happy to help thanks for joining us michael and for those you listening in the archive session do appreciate it as well uh everyone if you do enjoy what you learn here today make sure you consider clicking like so that way not only yourselves but other people may have access to hopefully this wonderful content here at td ameritrade education you can see my twitter handle on the screen at jmcnickel underscore tda if you wish to follow myself along with other fine instructors such as mike keeley he'll share that on the chat and his is his first initial last name uh at m-k-e-a-l-y uh at or underscore tda i think i got that right let's take air disclosures flukes we'll get right into it content is intended for educational information purposes only not an investment advice well let's let's not go too fast there not investment advice or a recommendation of any security strategy or account type options not suitable for all investors please look at the previous added copy of characteristics and risks of standardized options as well as spread straddles other multi-leg options strategies often involve greater more complex risk than single leg option trades you're encouraged to practice what you'll learn here today with tools such as the paper money software keep in mind that application 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 make sure we understand the risks of both long as well as short options when it comes to the position uh being entirely at risk and with short options as far as assignment your practice trades uh do not uh assign a short position early so that's different from a real account and transaction costs important factors should be considered when evaluating any trade now 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 brief bio for those that may be new to me if you are new to this webcast let us know if you are new and we'd like to give you a hearty welcome as this class focuses on short-term trades over the course of days to weeks utilizing some of the intraday movements of the stock in question as far as looking at various different price patterns and that is our agenda bowling bear swing setups we'll do practice trades and uh we talked about trailing stops with studies last week that's a great session to follow up with uh but we'll follow up on a couple of ones that we did from the previous week and possibly add on to that discussion with another indicator that you know traders may find useful if they're looking to implement trailing stops on an existing position let's go and bring up the thinkersome platform you know quick glance at the market uh you know kind of mix you can see on the sector action over here on the left communication services real estate discretionary uh up a little bit uh with uh materials industrials information technology uh being some of the losers so uh pretty much a mixed day after making a highs yesterday on the s p uh seeing a little more indecision a harami inside day now for short-term swing traders they may find this as an opportunity whether it's a one day pullback or possibly over a couple of days as long as prices are making higher highs and higher lows that would support that bullish bias notice previously we had like a one day pull back kind of a small bull flag question is are we setting up for another example of that and as far as uh a potential swing as long as the low stays above a previous low we're still looking at an uptrend ideally we'd like to see those bounces to occur above a previous high demonstrate some of that momentum so we can see what we have here with the s p look at the nasdaq same deal uh does that came pretty close to making another intraday high notice we're inside that previous day some traders may call that a hangman again whether we see a little more of a consolidation kind of form in another flag or something more significant you know if we see more of a a larger down day that would signify more of a pullback looking at dj x notice the dow a little more consolidation kind of whipping back and forth where we had a long range day that a downside long range day to the upside and then kind of settling in essentially within that range so a lot of inside days where traders may be looking for those breaks one way or the other outside of that range we talk about breakouts and reversals tomorrow and technically speaking you can join me for that class at uh i believe that would be at noon eastern time then finally with the russell uh which we've highlighted in the past after uh finding once again that range-bound support a very strong movement overall even breaking out of the range higher range from the latter part of july and august and potentially flag in and finding that broken resistance acting as new support so even though the market not overly has been positive today we can see prices haven't all necessarily broken down and that's an important consideration from a market perspective uh from a swing trader perspective that uh the market's still uh intact from a bullish perspective now that doesn't mean that all stocks uh are necessarily demonstrating that as we'll take a look at both some bullish and bearish setups today let's go and start off with a a bullish example now this one's an example of a breakout ccj this is camco more on the materials if you go to the analyze tab and under fundamentals usually get a bit of a background on the company i'm not sure if whether it's not providing it or just needs to be refreshed and we see price breaking out above some previous high some traders may refer to this as more of a bottom in formation kind of like a w or double bottom now some traders may take advantage of the breakout others may if they see a breakout may look although this doesn't always happen looking for the price to pull back and re-test you know that would be a a similar situation as an example with the russell where we see a breakout and kind of a consolidation however that's not always going to be the case would encourage you to practice both bullish as well as bearish strategies or i should say breakout as well as bounce strategies so i'm going to go ahead and bring up ccj and we'll do an example uh of a breakout now as far as setting an initial stop traders may set a percentage below that breakout point uh whether a dollar percentage amount uh on breakouts and we've used some examples of you know let's say three percent below that uh resistance but we also showed you some other ways of uh an initial stop such as the atr if i go to studies edit studies and bring up atr for average true range we'll go and we'll add that indicator we'll leave the default settings there click apply and okay and what atr does or attempts to do is identify kind of the average trade-in range on a day-to-day basis right now we're seeing a value of 62 cents which kind of implies on average the range of the stock on a day-to-day basis at least over the last 14 periods is around 62 cents now we can use that or a a multiple of that to potentially set a stop let's say if i did want to do it based off of the breakout point we can go ahead and take that resistance which is at around 18 around 1850. we'll go to the calculator here 18.5 now let's do this kind of two ways one eighteen and a half times point nine seven uh that would be a stop of seventeen ninety four that would be three percent below that breakout point so i'm just going to go and mark that 1794. then we'll make that red and then uh another way is utilizing this atr or a multiple of that you know let's say if i did one atr below that breakout point again we're looking at 18.5 minus 0.6 i'll just round it to the nearest whole number there and we'll round up that'd be 63 cents that'd be 1787. notice that's pretty
close to that three percent meaning you know the volatility uh from a standard three percent seems to fit with this example now stocks that are more volatile uh probably expect the stock to be a bit wider okay so now keep in mind if we utilize a stop at this trigger price there's no guarantee it'll be filled at that price a stop once it hits that price will compete against other orders okay now if we go ahead and place this order some traders may also go ahead and identify potential swing target we can go ahead and measure the distance between this supporting resistance one way is taking a drawing tool such as a rectangle and kind of highlight that whole area compensating for price and time and go and right click on that activate the drawing we can push that up to the breakout point and a potential target based off of a previous move could be upwards around closer to that 20 and a half now notice there's a bit of confluence there with previous uh price action okay now we can also you know be you know running into some resistance right there as well but we're going to look at this as far as potential swing up to that area now with that information on the chart we can go ahead and right click on the chart do a buy custom with oco bracket now position sizing important should be considered when evaluating a trade is a matter of risk let's go ahead and just uh make sure we got this visualized here i'm going to remove almost looks like it's superimposed there so there's an idea as far as potential stop there's an idea as far as potential target and as far as our entry you know pretty close to where the current price is right now about you know 18 57 and change theoretically when we look at the difference between that entry price and that stop some traders may position size that as far as you know risk per share so we'll go to the calculator and do uh 18 we'll just do 1860 minus 17.87 that's 73 cents okay so that's the trade risk theoretical assuming that we get stopped out now there could be some slippage on that so factor that in uh let's say if one wanted to risk five hundred dollars on the trade and that should be considered as far as a percentage of the account uh again define risk as best you can and a risk that you are comfortable with taking for instance if this was a fifty thousand dollar account uh that the five hundred dollars would be one percent okay so we'll take that uh portfolio risk here and divide it by the trade risk of 73 cents so 500 divided by point that would come up to be in 684 shares now keep in mind how much capital is going to be tied up in that trade 684 times the share price okay i'm kind of rounding here a little bit 684 times the share price of 18.59 that's tying up twelve thousand dollars in equity now if that was a fifty thousand dollar account uh one would be locking up closer to about twenty five percent of the account uh that may be a little too on the high side some traders as far as an allocation may be thinking about as an example five to ten percent so in this example based off of a fifty thousand dollar account uh five to ten thousand five to ten percent i would be only investing in around twenty five hundred uh to uh five thousand dollars so if i use the five thousand dollars as a reference that will reduce our size here let's take 5000 divided by 1860. and what we're focusing on folks is what we have control over we don't have control over outcomes don't have control if the price goes ahead and hits the target don't have control if the price drops or falls somewhere in the middle we do have control over how much we're willing to risk on the trade whether it's position sizing on a stock or as we've done with options define risk there as well so let's go ahead and i'll enter this example we already have that and for those of you that missed it the first time again i can right click on the chart do a buy custom with oco bracket kind of lock to the current limit order let's go and minimize this a little bit here and remember on the sell orders we'll make this gtc for good till cancel so those orders will continue to work limit's going to be the targeted price in this case 2046. and then the stop we had set at 1787 utilizing the atr we'll put in 1787 hit enter we'll do confirm and send as we look at this uh we could see uh how much whoop that's 100 shares i'm going to go ahead and change that those 100 shares would be tying up about 1800.
i think i looked at ours it was about closer about uh i'll just do 250. we'll make sure those sell orders match usually there's a little uh chain link here you can click on they'll make them the same make sure the sell order matches the buy order we'll hit confirm and send and then knows as a matter of allocation based off of fifty thousand dollar account that example is less than ten percent and theoretical as far as a trade risk uh you know that would be about 75 cents uh multiplied by 250 so probably close to about 200 okay so it's things we have control over right so let's go ahead and we'll send this through we got that filled we'll see how that plays out and so we went ahead and we got uh done through one example of a breakout trade based off of a price pattern if you like those pattern trades make sure you join me tomorrow for technically speaking at noon for breakdown reversals we'll do some other trades as well but i did notice there is a survey that is in the chat if you go ahead and click on that survey push it aside would love to get your feedback there only takes a few moments you can fill that out at the end of the session for those of you that are listening to the archive section session you can vote as well by clicking like on the video and for those of you that are here live after you fill out the survey or before you can also click like give others the opportunity to see that now what we're going to do is we'll take a look at a bearish example and then we'll finish things off by talking more about some of those trailing stops there so let's go ahead and bring that up and we'll make sure michael pushes out that survey a few times for those that are live with us i'm gonna go ahead and bring up um target here and uh we go and take a look at target target's a stock that's had a a very overall strong run i notice they started breaking below their overall up channel and we can see price action at a violate in this case a 55 day moving average price had a pretty strong bounce as dip buyers uh traditionally have been stepping in after sell-offs in a lot of cases of that 50-day average but not much follow-through in fact kind of this distribution day here these long-range days can act as resistance prices kind of rolled back over again again try to get another bounce potentially a higher low now this can also be a higher low but notice that we did see price trade below the low of a high day so kind of an example of a little more of a bearish flag characteristic here now just kind of show you some other setups there and then we'll pick out one of these in fact i'll be uh make this democratic on which one you want to do that was target another one's carmax kmx this one a little more uh pronounced where we have again kind of more of the top and pattern price breaking down below some of the averages seeing negative crossovers sharp move down and then retrace back up broken resist uh broken support acting as new resistance and we're seeing price break down below the low of a high day more of a bearish bounce or what's called a kabload that's the inverse of the hold which is the close above the high the low day so we got another example of what traders would refer to as a bear flag another one in the same space carvan carvana cvna actually broke below support but kind of came back above it there but some that some traders may be keeping an eye see if those prices break down and uh let's see and i fortunately i i i may be a little biased here anyone who actually looks at my twitter feed and sees the things that i typically post um it's a traditional typically traditional meat uh but here we got beyond meat uh relatively weaker i was looking to see if this was rolling over or breaking down you know the trend is still supporting to the downside was looking to see if it would be breaking below that support kind of more of a descending triangle this one we may have to follow up a little more in our breakdown reversals class and let's see i robot ribt you know another stock as far as with the trend being down sharp move down retraced up price trading below the low of the high day again it could blow there there is some some traders may look at some potential price support here that may need to break down but you can kind of get an idea of the bearish bias now we had to vote for carmax uh let's bring up one more and then uh we'll take uh what everyone else is seeing here here's wayfair stock that's had more of a downward channel midpoint kind of around that area there and you know after kind of retracing a bit again potentially breaking down all right so we're tied between carmax and irobot we need some tiebreakers there folks uh don't be shy we got a few on the chat there's no wrong answer here this is all about practice and in good clean fun and if they're let's go ahead and take a look at carmax here we're going to do is we'll do an example uh of a now there's a couple of ways that we've approached a bearish trade uh on the swing class one we can do a a long put okay basically buy a put price trades lower and we expect the price to trade lower faster than it decays we've also done long put verticals where we bought one option and sold another option kind of where our targeted price was now i teach about these things on thursday at 11 a.m eastern time um but let's go ahead and take a look on the trade tab and as far as number of days out uh you know consideration is how long one expects to be in the trade since we are looking at this days to weeks uh we want to be well above 30 days we got 45 here probably would like to see closer to 50 days but we don't have as much of a selection here if one wanted you could go out to january even though you may have no intention of holding the option that long but let's uh let's start off with the 45 and then we'll go ahead and we'll take a look at an option a little more of a stock replacement maybe an option that's a little more in the money we will be tying up a little more equity but certainly less than the underlying stock now that's also a call side we're looking at the put side so let's switch gears you can see a preferential bias there sometimes creeping in so here's on the put side those options added a little more into money and you can see from a price standpoint very similar but about a tenth of the equity being locked up into trade so one of the attractions as far as with options is less capital tied up con is is approaching it that that entire premium is also at risk so consider position sizing accordingly a lot of times we position size these to a maximum loss some traders may position size it to a fifty percent loss so if you're willing to risk about five hundred dollars you know that option may be suitable there because half of that would be 450 um whereas this you may end up being a little bit more okay let's say i go ahead and i'm going to right click on this and i'm going to do a a buy custom [Music] i'm going to do a buy custom with with an oco bracket but we are going to modify this a bit let's go ahead and take a look uh on the chart here and determine our potential targets now what we can do is basically measure the previous move or the previous swing down you know possibly when it broke down below support so going from a resistance down to a support we'll right click on that line duplicate it whoops did not mean to do that right click we'll duplicate that drawing and then go to the high of the potential new downswing which is right here so kind of the top of this flag retracement we scroll down that would be the potential target and we can go ahead and mark that that'd be around 117.63 as far as a stop we can utilize may possibly as atr the same way uh this case the atr is uh two dollars and eighty cents now some traders may do it based off the entry price uh they may do it based off of the uh the supporter resistance if we do it based off the supported resistance uh we are giving ourselves a little wider range if we did one eight atr that would be 280. if i do that above the high this day uh that would be 128.20 plus 280 i believe that would be uh 131.
okay so i'm going to go ahead and mark that that would be 131. i'm just going to put 131.05 for an example keep in mind this is a bearish trade that's why the risk is to the upside let me go ahead and remove one of these previous ones here now another technique on a very short term trade on a bounce is possibly set to stop one percent above that high let's see what the difference is there uh with a high of 128.20
and then in this case since it's a bearish trade and we want one percent above we're going to take that high we're going to multiply it by 1.01 that's 101 of the price that would be 129.48 now notice that would be a closer stop and in in some cases as far as traders uh very active traders may if they're going to fail fail fast so they may end up having a tighter stop now the only difference here between these yes there is about a buck 50 difference and with the wider stop we're just forced to buy less shares as far as position sizing there's pros and cons wider stop maybe less of a tendency of being shaken out of the trade whereas a tighter stop uh could be a fail fast and you're encouraged to practice different techniques here folks okay but i'll go off of that example and so here we can see an example of where the potential stop is as well as a target and we can use a conditional order for this now if we're going to tie it to the underlying stock a consideration is you know liquid stocks liquid options because there could be more slippage i'm going to make both of these sell orders market gtc now if i wanted to i can actually put both cell conditions on one cell order which we've done but i'm actually going to do this a little bit uh differently here uh just kind of show very similar to an oco one cancels other i'm gonna click on the gear that will appear over to the right it doesn't appear until you put your cursor on there and we can go ahead and put in our condition so let's say on this example we can go ahead and put the target price which let me back out of this for a second we're looking at 117 63 as that target so that would be a desired outcome so on this pop-up we can go to symbol select mark which is current price we can say uh less than or equal to and that would be the 117.
i think i already kind of forgot about the cents there probably should write it down i can go ahead and change it if i want click save looks like it was 63 so close enough and notice when i add that condition that gear will remain let me know that there's a condition there i can go to this other one and uh this one here i can go ahead and put in the mark greater than or equal to and then go ahead and put the price that was above it and i think on this one we said it was what 1 13105 click save now when i hit confirm and send this is where we can go ahead and double check that order so right now it's default to 101 contract now remember options have a multiplier of one hundred so if we're paying nine dollars and ten cents that's nine dollars and ten cents times one hundred hence the maximum loss is what we pay for that option so we can position size that accordingly you know if i wanted to risk you know let's say a thousand dollars i can do one contract if i want to do 2 000 that would be two contracts now if i plan on closing out if i lose 50 percent of that premium you know maybe it'll do one or two contracts okay so consider that uh notice that the conditions are here that once this is bought it will sell the option at the market price if the stock goes at or below 117.84 that would be the target or if it goes ahead and goes at or above 131 it'll go ahead and sell out the market and cancel the other order so let's go ahead and we'll send this one through looks like we got to fill on that and as far as you know double checking the orders you can come back here to you know the working orders and you can see you know here's our bracket order for ccj camco and then there's our bracket order going there for uh carmax and knows it says waiting for condition you'd have to go ahead and actually click on the gear over on the far right if you wish to see that information okay all right so so far we've gotten two practice trades in we got a uh practice bullish trade on the swing side we got a practice bearish trade uh on the swing side we defined risk as far as position sizing and also utilizing a stop loss in some cases keep in mind those stops are not guaranteed to fill at a specific price once triggered they will compete with other income and market orders now what i'd like to do is uh spend a little time on the trailing stops now we talked about trailing stops last week and if you are new or did not see that session i will go ahead and actually put it up up here for your view and pleasure you'll see a link appear and you can click on that and view that we talked about utilizing different studies such as a moving average as a trail and stop that would follow the price as it goes up we also utilize the parabolic sar parabolic stop and reverse now there's another one that i've rediscovered that is a study called an atr trailing stop now up until this point we've utilized atrs to create an initial stop and then possibly manually adjust it going forward here i'll show you a way on practicing with an atr trailing stop and seeing how that may work for certain swing trades now there's no recommendation of one indicator over another the parabolic sar that we've talked about by nature does tighten up as that swing gets stronger and that may be very adaptable to swing traders where the atr may be a little more static but if one wants a wider stop may find some benefit so with that and let's say i'll go ahead with this carmax example and let's add that indicator i'm going to come up to studies we're going to go to studies edit studies and then we're going to type in atr and there's atr trail and stop now if you want to learn more about an indicator just go ahead and click on that question mark and you can see the information pop up here if you keep going go to more details that will launch the learning center which is a very underutilized portion of the platform i'm going to add this indicator and a couple of things to keep in mind the default settings is looking at a 5 period now we were utilizing a 14 period so 5 period much shorter and then the next number is the multiple in this case it's defaulting to a three and a half now for trend traders you know a two with three uh multiples like that may be more suitable for uh trend traders now remember we're days to weeks so just like in the parabolic sar we may end up tweaking that a little bit so for instance if i apply this you can see notice how that atr kind of follows on the upside when the prices are going down and when the trend is generally rising it should be following under price now this is a very important uh point if one's utilizing this for a stop particularly when one enters the trade if you're doing a bearish trade it needs to be running above the price otherwise it's not going to be suitable if you're doing a bullish trade it needs to be following below the price otherwise not suitable that's why in a lot of cases when i've talked about examples of putting in a trail and stop is to consider putting in the trail and stop after a favorable move uh you know let's say the stock makes in this case half of its move then possibly consider doing a trailing stop now i'm going to go ahead and tweak this a little bit for the swing i can put my cursor right on that let's say we edit the trail and stop if i wanted to kind of be consistent with and this is just a test i can make that period 14 period kind of smooth it out a little bit the atr factor you know we started off with one now let me apply that and see what that looks like now notice how it gets very much closer to that price maybe in some place cases too close and something again to practice with let's go ahead if i right click on it we'll edit that again let's say i make it one and a half 1.5 we'll click apply and there we go now notice here on the parabolic sar on how strangely that line's pretty close with that lower stop that we had talked about okay so some traders may use different indicators to maybe come to a consensus on you know where a a reasonable stop may be for that okay now one of the reasons why i did that order and i split this order the way that i did as far as with conditional order the one that had the higher threshold let me go ahead and right click and we'll do this as a test i'm going to right click cancel replace order this is the i'm not changing the other cell order which is still in place but i'm going to change the one as far as with this initial stop of 131 there i'm going to go ahead and change this to a study this is kind of what we did last week we'll select edit and once we do that we'll remove any existing conditions there by hitting delete i'll click add condition and this is kind of similar what we did with the parabolic sar uh we go ahead under condition and we select price and we'll select the close basically the current price now this is a little bit tricky consider what type of trade you're doing is it bullish or is it bearish if you're doing a bullish trade then we're looking for the uh less than since we're doing a bearish trade the stop is on the upside we're looking for the greater than so i'm going to click on is greater than and i'm going to come here find study and then look for that atr you can start typing it atr trial and stop now it's very important uh that you make the settings the settings that you want and as we had changed that on the other side i believed i used a 14 and i used a 1.5
okay now again we're just utilizing this as a test i still stand by in theory on looking for more of a favorable move before utilizing trail and stops because this could be a fail fast pretty quick we'll see what the results are next week for it i'm going to go ahead and click save okay we'll click save there and then when i do it confirm and send you can see what we changed essentially the upside risk is to create an atr trailing stop based off of a 14 period one and a half times and if the price ends up being greater whether by touching it or it reverses the following day then that should trigger in order to close out the position okay uh let's see here um i'm going to go ahead and click send notice it canceled the other one and that'll be working so the way that this should work is if the price reverses and hits that area it should create a market order and sell that option or and it may happen and not trigger but it may happen the next period if the atr appears below the price it'll do the same thing that's why i utilize the greater than in this case if the price is above it it's greater than if the price touches goes above it it's greater than all right now there was actually uh so that's a practice and that's a new thing that we've done we'll see how that works next week let me show you real quick the results from the adjustments we did last week on the moving average as a trail and stop as well as the parabolic sar as a trailing stop uh one was on walmart if you recall wmt we went ahead and basically had set it based off of the 13 period moving average uh that you know let's say one was happy with their target if the trend broke down wanted to be out of the trade okay uh this triggered on walmart we can go to monitor tab account statement don't fail on me now we'll type in walmart this is where you can see some of your previous trades we have to go into all of it looks like we may be having a little bit of an error here today since i just had that little error let's try that one more time and looks like it's not going to work for me what i was trying to do is show you the trades from this past week but we'll have to go by site uh basically here on walmart when the price went ahead and touched it this would have been on the 24th basically it closed out position right in here okay and certainly that was favorable as the price continued going down the other one was i think was cvs and now we're actually still in this trade and that's a positive actually may actually may have been walgreens wba i think they both yeah it's walgreens uh here's walgreens here walgreens actually held its previous low and moved higher now we use the parabolic sar on this one so let me just go ahead and remove we'll go to studies edit studies i'm going to remove that atr trailing stop and bring up the parabolic one in fact i already have that saved at least i thought i did bear with me that must be in my studies here got too many studies uh hmm very interesting should be up there is right on the bottom so here's the parabolic sar is actually still trading below so if the price keeps going higher it'll continue to trail if it breaks down or the parabolic appears above it'll close out the trade so we're capturing upswing on western boots so we're still in this swing and we'll see if that parabolic star triggers next week all right folks we are out of time we covered a lot of ground today as we were able to get both a bull and a bearish swing set up practice trade one on a stock one on an option utilizing conditional orders we also expanded our knowledge on trail and stops by utilizing uh an atr for today and also building what we learned last week with uh the parabolic sar uh and the moving averages we'd encourage the practice which you learned here today folks but remember in order to demonstrate the functionality of the platform we did have to use actual symbols keeping in mind td ameritrade does not make recommendations or term suitability of any security or strategy through the use of our tools any investment decision you make in your self-directed account is solely your responsibility fill out the survey folks click like appreciate your time as always we'll talk to you again real soon bye now you
2021-09-06 06:42
