Defining The Path Of Least Resistance For Swing Trading | Active Trading Strategies

a little bit bearish uh maybe a little bit bullish things going up things going down should we call it a comeback or just an opportunity to sell we'll talk about that stick around good afternoon good morning good evening depending on where you are in the big blue marble that we're on floating around out there this is active training strategies i am pamela and i am joined in the chat by my good friend for a couple of decades as typically everybody but john even a little bit longer john mcnichols in the room excuse me sorry as you can tell i'm not quite over whatever it is i've had but john may nichols in the room known each other for a long long time we call him the sergeant major uh but uh john's there to answer any of your questions he's also uh the the fellow that does swing trading breakouts uh bounces and breakouts so uh as well as futures on monday morning so uh remember i'll i'll pull up some of his stuff here momentarily but in any event he's gonna answer all of your questions that you may have in the chats uh we're going to discuss a couple of you know going long going short that type of a thing today and you can follow both john and i on twitter at pima lolly underscore tda and j mcnichol that's m c capital n i c h o l uh underscore tda so let's get rolling out there to do that i got to click here and this contents intended for educational purposes only not for recommendation options not suitable for all investors special risks are inherent to options trading that can because they can expose you to potentially rapid losses all short options can be assigned at any time up till expiration regardless of the in the money amount and then the money option has a higher risk of being assigned early now that's uh excludes european options i shouldn't have said all options but short options can be assigned at any time however the paper money virtual trading application will not assign short option positions early which is going to be very different from your real trading account uh all investing involves risk including the risk of loss any trailing stop loss or stop loss order will not guarantee execution at or near the activation price past performance does not guarantee future results that means that any investment decision that you make in yourself directed account is solely your responsibility all right the agenda today quick market review quick market review and then we're going to define technical strategies technical strategies along with uh looking at perhaps some option trades for uh downside and possibly for the upside probably both and that's going to turn into those sample paper money trades that we're looking at right there so let's go on and get out there and get rolling here quick market review uh looking at the sidebar over here nasdaq probably for some folks ready for a bounce now it is at some support like everything else we'll talk about the s p in particular uh as a as our quick uh look uh the comp the nasdaq comp that's all of the few thousand nasdaq stocks that's the large ones the small ones uh up one point nine seven percent followed in third place really second if you don't count the comp the nasdaq composite s p up by one point almost one point five percent uh followed by the russell only up but it is up uh uh 0.64 so six tenths of a percent all right so with that i'm going to go ahead and well before we do any of that the uh the sectors that are in play here consumer discretionary top spot information technology second place that goes along with the nasdaq 100 consumer staples third place healthcare uh fourth so we still see that we have uh the defensive name still hovering around up near the up near the highs one day it does not make a trend change john mcnichol can tell you that all right so we do have this uh support that is coming into play down in here let's back out of this real quick here i've only got a six-month chart on here put on a two-year chart so we can kind of get an idea of where we might be so underneath still underneath these september lows the january lows but not penetrating the 24th of uh february lows in here the breadth uh up down volume here 64 percent of the stocks that are the trades of stocks on the new york stock exchange are happening on the uptick that means if you're going to trade stocks somebody's going to be buying it somebody's going to be selling it so that's happening on the uptech 63 of that mcclellan oscillator the advancers and decliners still in that kind of that complex uh situation uh where we're hovering down uh at or below the zero area in here so we're not really seeing much bullish bias again on the on the uh mcclellan oscillator on the new york stock exchange the net advancers over the net decliners all right with that what are we going to discuss well we're going to talk about looking at bullish and bearish style trades right now if you were to take into account the overall market well the overall market is in this short term downtrend as we can see there by the uh the dashed downtrend line right here it's underneath its 20 period moving average that's that yellow dashed line now some people are going to look at that as the be all that ends all for their decisions in uh picking what type of a stock maybe perhaps with the uh s p and the nasdaq in downtrends that maybe the path of least resistance is down but not necessarily all the time so we'll look at doing a combination of uh some selling some shorting some uh bearish type trades not necessarily shorting we're going to use put options for uh those uh those trades on the downside call options on the upside remember options are not suitable for everybody so let's get out there and first take a look at urban outfitters now i have similar to what we were just looking at with the s p 500 let's look at this the uh panes the that we have on here the upper pane is price candlesticks and the 20 period exponential moving average an exponential moving average just turns quicker with the with the price and we can see that is uh pointing down along of course with the the trend of urban outfitters if we were to draw a trend line now what we're going to talk about is a couple things today on a few of these and that is going to be uh the the the volumes associated with some of the moves so we've had this pretty strong move after earnings volume rallied into earnings pulling off uh down with the on the rally on smaller on smaller volume down in here so we've got the smaller volume price rallies up into the 200-day moving average i mean excuse me the 20-day moving average still underneath the uh the downtrend line now that being said looking at this 20 period moving average it doesn't urban outfitters doesn't necessarily obey respect whatever you're going to call it the 20-day moving average but right now it's faltering here at the 20 day that's a little bit different than what we've seen in the last month month and a half so it could be getting ready perhaps for a revisit a revisit to these lows if we're seeing okay now this is where volume comes in if we look right here with the the bounce above the oversold area didn't quite make it into oversold in the end of january but we're seeing this increased volume so this could be an indication that maybe the downside is getting a little bit wrung out rung out and then we get more volume another spike in volume uh on the uh on the uh these are this earnings action down in here a little bit of a spike in volume there so we get this uh whoops get this strength in volume i'm going to explain where we're going with this here in a second the strength and volume on these downward pushes so at some point that's that may actually mean that we have a little bit of capitulation but how do stocks bottom uh sometimes sometimes they they v bottom out of there what do we mean by that they they come into a low and then bam straight back up sometimes that does happen a lot of times though it'll roll over and revisit the lows and then maybe run back up revisit the lows and just kind of drift sideways until we get that accumulation of buyers coming in looking for some kind of value in any event we're going to go with the path of least resistance the path of least resistance is going to be excuse me on uh right now on the downside so was trading right now at 25 67 25 67 right here uh there could it could drift all the way down into the uh 23 area giving us uh somewhere around a two dollar a possible two dollar drop it's a 25 obviously 25.26 dollar stock we have uh as far as the momentum goes what we have here is uh on this downward push the inability to get above sixty so what do we know about uh rsi and bearish bias bearish bias on the rsi has a tendency to stay below 60 and drop into the 20 percent zone whoops if i can get this to stick here into the 20 zone i got 30 on here but 20 is below that that's about typically uh oftentimes as far as it goes but what we're seeing here with the downtrend is the inability for again for uh not only urban outfitters to push above the 20-day exponential but also momentum is failing on the on the uh up shot here strong a few strong up days failing to get above uh 40 percent now that doesn't mean that we don't have some kind of a possible divergence in here where we have price drifting lower and the rsi drifting higher so we have a little bit of a bullish divergence in this downtrend which kind of goes along with the possible theory that perhaps that we'll have a a revisit to the lows not necessarily an undercut of those undercut of those lows what would be more bullish uh to watch out in time try to visualize these uh these pushes lower what would be more bullish or bullish would be it push below the old lows over here and as well as the rsi staying higher and giving us a a kind of a triple threat triple threat uh divergence divergence but in any event we're going to look for the path of least resistance because remember bearish divergences bullish divergences and a strong trend oftentimes just mean a bit of a pause in that directional bias of the trend not necessarily an end to the trend so that's important to understand that so volume uh small on the way up large on the way down momentum weakening failure at the 20 period exponential moving average so we're going to look for a continuation to the downside the way we're going to do that is with a defined kind of a defined risk trade now when we use options options in theory the most that you can lose on your option is what you pay for that so always remember that that no matter if you put some kind of a stop loss which is not guaranteed to activate it to activate at the price that you've that you've set just remember that so the thing is if you do something like that and price moves against you you are going to still have the ability to lose all of your investment so be very careful with your position sizing there now with that let's pop over here to the trade tab in the trade tab we'll put in urban outfitters now we're going to go long we're going to go long puts for those that you of you that are new to options for those that are you new to options no i'm going to go long put so what does that mean it means that we're going to buy something but we're going to look for some for price to drop and look for price to drop we're going to buy something but look for price to drop now there are other ways of doing this which i would suggest that you get with john mcnichol with his uh with some of his vertical classes and some of the things that he can do with his verticals and diagonals as a matter of fact let me pull that up uh right here webcast what i'm gonna do is upcoming webcast and then i'm gonna come over here and put in john mcnichol and in here now where do we find this of course we find this on uh td ameritrade education tab and then under webcast you can see here john is uh today right after we're done here he has the swing trading class that i mentioned so that will also be a a great way to uh to shore up what we're going to talk about today and then of course tomorrow technically speaking breakouts and if you want to get a little bit more into the uh more complex type of option trading than long verticals and diagonals but get with john and you won't you won't be remiss if you do that you might be if you don't all right so with that let's pop back out uh that's okay tm you're here as long as you're here that's all i care about uh tm saying is a little bit late you know what i haven't said hello to everybody and uh i'm uh my apologies there uh but hello sandeep vj juanita sarah rake uh rayquest tony keaton uh z-r-a-t-i-69 i'm gonna start spelling because i can't read uh chris uh scott george in texas uh as well as walter and saul and mary and i think i said samd lamar chuck kyle uh dan and glenn and peter and wiley and rk everybody else that's in the uh archives uh listening to the recordings thank you so what we're gonna do is real quick back here we're going to look for price to possibly continue to the downside finding weakness at certain types of resistance areas we could even draw a line across these lows over in here and find that there's been some resistance coming in there as well so back over here to the trade tab we're going to go out in time so if you're going to buy something if you're going to buy something you're going long that option so we're going to go long puts over here puts are on the right side of the trade tab under the options string puts are on the right side under the option string we're going to go along if there's an old saying if you're going to go long go long remember you have things that options have things that stocks don't have options have a time decay options have time decay and what that means is that on the on the put side over here the uh theta you can see this coming in right here the theta that's your time decay so the longer the shorter time you go the larger this is the faster those options decay the faster those options decay the faster they have to move in your direction stocks don't move straight up or straight down there's usually a pause back and forth up down and sideways so it might be a better if some for some people think it it's a better idea to go longer if you're going to go long so the saying is if you're going to go long go a long amount of time you do whatever you want to do but don't cheap yourself out don't say well these are cheaper and get cost itis just buy an option that's cheap because you may find yourself uh or even out of the money too far out of the money you may find yourself fighting that decay and uh not enough uh uh price action to in your direction so what we'll do here is uh stocks trading at 25.60 the uh 25 put has a delta of 41 slightly out of the money uh there is a 20 uh 25 cent spread on those so we've got a about 25 30 cent spread now we're going fairly directional on this or we're going to go directional on this so uh you uh you have to and it is an option you have to remember that 30 cents on something three to a three dollar option is going to be 10 so please remember that so we're going to go with the 47 delta uh slightly in the money by uh uh 40 cents why 26 subtracted from 20 or 20 yeah from 2560 gives us 40 cents in the money so we're gonna uh go ahead and left click on the ask that'll load that up now you can try to squeeze in out another uh so many cents perhaps but we'll just go with where it is right now and uh and buy this option now how much risk do we have in this if it cost us three dollars and 20 cents we're going to do this right now a couple of ways you can do this we're going to do it right now on a limit order but it's going to cost three dollars and 20 cents that should be your total risk right uh provided that prices don't start moving so fast uh that you try to get out and your bid ask spread takes you for more than what it should be so be very careful of that but here it is or in theory uh the max profit to the downside to zero good luck uh that probably won't happen but your max loss is gonna be three dollars and twenty cents and so this is a put we're expecting price to drop on that so we'll go ahead and click send on that and boom we are filled on that trade now one of the things you could have done and one of the things whoops that you will uh oftentimes get from a lot of john's a lot of john's a webcast is let me zoom in on this now today we are kablowed and john's john uh has developed some scripts you see i i also use those scripts and i pass those out to you uh what that means is this price if price closed right now price would be below yesterday's low yesterday being the high day in a series in a series of candlesticks to the upside counter to the downtrend so we have this counter trend reaction just a normal reaction to the upside uh and uh possible uh continued selling to the downside it is below yesterday's low that's called a close below the the the low of the high day now we haven't closed it's intraday we're putting this on for educational purposes only but we're going to look for price to drop into uh into this zone down in here you can set targets lots of different things you can do we're going to let this we're going to let this go and see what happens uh remember that when we put this on we risked three dollars and 20 cents that means we don't have uh the uh to worry about a stop we're gonna risk 320 if price goes wildly against this then that's the most in theory that you can lose okay uh if uh it goes our way then we will have to make decisions on when to close that out and uh that when we come if we come to that scenario we'll deal with that out there in the future let's move on to the next one which is aal now this is very similar in structure after a fashion the path of least resistance to the downside this one is a little bit more in alignment with what we often talk about with capitulation and that is straight down big volume after uh after an up after a downtrend so when we put the downtrend line on this going from uh actually matter of fact let's let's walk this through a little bit uh a little bit further out in time let's put on a quickly put on a two-year chart so you can kind of see uh some of this uh some of this action where price uh has drifted to whoops get a price level down into this old breakout zone old consolidation that's where prices drifted to now how did it get there a nice strong uptrend up in here so uptrended then we drifted sideways now in this sideways action something we look look at often is this area this this whole sideways action what do we see suddenly is we see price with the inability to get back through that old the old uh uh resistance support midpoint right and so what occurs is we get this downtrend a failed rally up into the midpoint once not only once but twice so what happens here is it built another little uh uh staging pattern if you will for a possible break to the uh to the downside and that would be where it went up to the to the midpoint and failed we broke down failed on the rally back up so this whole zone in here starting starting from the high of starting from the the supply area the resistance starting from here and then we saw the trend start to speed up to the downside and then ultimately possible capitulation so if that's capitulation somebody might say well if that's the if this is it if this is the bottom uh why would you why would you sell short why would you buy a put because oftentimes there's that back and forth so let's talk about that briefly before we go into anything else when when we see uh this price action strong sell-off volume ramping up quite often what often happens there is remember just like when we talked about the up down volume the conviction indicator there's two people making trades you know every time a trade goes off here somebody's buying right and this volume down in here says there's a lot of turnover meaning there's a lot of volume a lot of buying a lot of selling going on so somebody says maybe saying that hey this is value down in here that's where people bought before way back when uh when it was accumulating back in um uh back uh over here in 2020 uh coming off of the uh uh pandemic lows so people bought in this area in here perhaps they'll step up and buy again now that's number one number two this could just be a a test and i mean what i mean by that is let me write the word test in here so this could be a test meaning that whoever's buying on the way down they may start to sell up in here and they may start to sell just to test the waters why because that may put some downward pressure on it as it puts downward pressure on it what they'll watch for is demand coming in demand overcoming whatever supply that's been put out on the market and so the expectations by some looking at past capitulations is just like we looked at on urban outfitters a a reset and maybe some accumulation before it gets going now that doesn't mean it has to happen we haven't closed below the low of the high day but we do have a uh some kind of an idea here when we look at the rest of the picture and the rest of the picture says failure at the 20-day exponential moving average we have the uh bearish bias meaning uh rsi below 60 struggling although over oversold down in here rallying back up that means that there could be a a a roll over here at the 50 line as it's done before it could be up here at the 60 line but we look for a retest down here at the bottom and not looking for confirmation uh of necessarily of a close below the low of the high day if you are going to look for that confirmation what you'll do is you'll wait somebody may wait and what are they going to wait for they're going to wait to see what happens tomorrow and maybe go ahead and get by puts on a push below uh today's low tomorrow if that doesn't occur then they may look for a a failed rally coming up above there and then pushing back below as well we're going to put this trade on uh without confirmation something that if you're going to do that that's uh that's up to you but it's just i'm just doing this for educational purposes only looking at a possible test but remember we're going to do this with uh just an option that is going to an option that is we're going to risk the whole option that's going to give us and we're going to go out in time so we're going to give ourselves by buying time on that option time for this to go against us and then come back in right if we buy enough time the theta won't be as a as a negative of one has a negative effect as it would if you bought a short amount of time so we'll pop over here to the trade tab put aal in perhaps looks like i'm locking up here i'm having an issue let's see if i can get this handled there we go all right so we've got 45 days 66 days 94 days out we're going to the stocks trading at 15 18. uh that means right at the money is going to be 15 or uh 16 slightly in the money this one will gonna go uh we'll stick with these slightly in the money and buy this put option for six at the 16 strike for 258 expecting price to drop from around 15 down into the 12 area so uh and expect that to possibly happen fairly quick so the question might be holy smokes wait a minute if you expect it to happen quick why are you buying so much time because it might not happen quick right but if it does move fast enough uh things will uh things should possibly work out for us now you can go out of the money uh slightly if we did that go back to the 15 strike two dollars if it dropped three fairly rapidly that option could become worth uh a a fair amount so let's do that let's say go back to the chart and let's do a little more testing and so let's say that this takes you know a few weeks to drop into this area here maybe three weeks okay so what we do is go back to the trade tab and i'm going to come up here to the layout up here click on layout and then i'm going to go to theo price and mark come over here reset the whole thing and we're going to put in a stock price adjustment here we're going to say well what if the stock drops three dollars and it takes uh three weeks you know out into april 5th let's say april 5th going to april 5th what would the option uh the the 15 strike be worth well if we paid two dollars for it it'd be worth 342 or 2 dollars plus an extra dollar 50 on top of that if it happens faster if it happens faster so let's go out two weeks get lucky right go out two weeks not going to change that much right and so you can see the effect that time decay is going to have on it now if it does drop we may get a pump in volatility so we'll buy the 15 strike we'll just go a little bit out of the money for purposes of education and hit and if we buy one we're only going to lose 200 let's ramp this up a little bit risk about 400 by buying two hit confirm and send and then let it go remember that we're going to risk the whole the whole options premium that way we don't have to deal with uh putting in uh stop losses and that types of those types of things so we'll put that one on with the time we have remaining now let's look at some of the other things so this is going to be the flip side everything over here we're going to turn upside down uh on uh and and look at going long either going long call options or or buying the stock so this is cbs cbs health corporation looking at the chart what do we have we have a fairly strong uptrend price consolidating a strong pop to the upside today volume right now still underneath the 50 period uh moving average of volume but looking like by the end of the day it may eclipse that we have another hour and 30 minutes to go in the trading day so we might see some pretty strong volume you can see yesterday penetrating the 20-day exponential moving average on a long a a long tail candlestick at um really kind of in this uptrend but i don't i don't in this situation here i don't put a lot of weight on a candlestick in a in a in a lot of chop a lot of sideways action in here because we see uh we see dojis we see uh uh harami's bullish and bearish harambees we see all kinds of stuff right but now we have something now we have a nice long range pop to the upside on top of a on top of a gap so it gapped and ran today we have uh the rsi for uh for all intents and purposes really getting a little bit bullish somewhat neutral unable over the last um for the longest time unable to penetrate the 40 percent area the 40 area now here is the thing i'm going to go well kind of a deep you may not understand this has to do with time factor momentum and what that means is the the longer uh the longer that uh the rsi we're gonna find 80 up in here the longer the rsi stays above 40 percent and you get a couple of pops to the upside the higher the probability now it's probability so it's not it it's theoretical in nature but the higher the probability is that there's uh possibly more upside momentum uh to that and this has been from a uh from a standpoint of oversold we have seen this going whoops i'm gonna have to go lower here let's do it this way or higher this has been 155 trading days or so uh without seeing the rs guy go below 40. so that's given us a an indication

that there might be a continuation to the upside and that's the whole idea about about momentum we have a volume receding on the pullback right and so we have whoops i haven't done that in ages so we have excuse me we have volume picking up on the rally after the breakout over in here i'll get a little bit of uh maybe buying uh climax popping down and we'll look for this to continue up up into resistance and then maybe pull back again so right now we're just going to go along we'll go if we're going to go along again this is long a call option along the call option type in the right letters here long call option which means we look for a long amount of time we'll pick 94 days once more uh the the guidelines a lot of people will use is somewhere between 50 and 100 and 250 days when you buy options so here we're going to go kind of split the difference there uh we're not buying puts i got myself confused there for a second and the stock's trading at 100 and almost 107 dollars so the in the money option is 105 in the in the money by a dollar 68 so we're going to go ahead and buy that we have a 15 cent bid ask spread so we won't be affected too terribly much by that expecting price to continue on in this in this uptrend continuing on with the momentum we have a volume thrust in here and we have the fake out shakeout if you will back over here meaning that we had price uh penetrate the previous low rally out of there and we have these long range candle sticks to the upside a possibly a change a long-range change possibly a change in in uh character of this bit of a kind of a possible short-term cup kind of a pattern possibly developing in here all right we're going to hit the ask and this is going to be 700 worth of risk outside of the risk that we've taken on those other two put options now let me explain something put options uh versus call options shorting versus buying um people people selling short can oftentimes get pretty squeamish and when when price gets to support they may close those trades out pretty quick versus somebody buying they may not be so quick to close out uh their long positions on an uptrend uh and that might be for various reasons out there so think about if you're doing shorting buying puts when it gets to support be very aware of where your price action is we're going to go ahead and send this off and we will watch that going out in time so with that that takes us i think we've got accomplished what we're looking uh for today uh come back over here to the charts take a look at what the market is doing and uh the market's still hanging in there up uh about where it was when we started uh so still doing uh still doing well the nasdaq still uh holding up about the same spot uh so nothing's radically changed uh which we can you may see in that last hour today so watch that but again a reaction up to the upside wouldn't be out of the question necessarily but as we continue to see price hold support but we have looked at taking some downside uh uh trades some upside trades and with that uh don't forget john's coming up next with swing trading so stick around for that and uh if you like what you saw today please um give us a thumbs up on uh whoops a thumbs up on uh on the old uh youtube i'm struggling here you can probably tell so define define your technicals uh know where what that momentum is like what is the path of least resistance the path of least resistance may have a higher probability of continuing in that direction but then watch those watch those increases in volume especially around areas where past buying or selling occurred and we looked at all of those things on the on the the short trades that we did we looked at it on the long trades we'll see how that works out we made those sample uh paper money trades now please as always if you can click on that click on that uh triangle tv screen whatever that is subscribe to the trader talks channel that way you can capture all and quickly all of john's great uh uh stuff that he does all his webcasts and all of the td ameritrade education coaches webcasts it pushes those uh webcasts up the youtube channel so you can find them easier we would really appreciate that that helps us as well thank you very much remember that everything we're doing here is for educational purposes only not for recommendations any decision that you make in your self-directed account solely your responsibility thank you very much everyone and we'll talk to you soon [Music]

2022-03-19 04:44

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