Getting Started with Technical Analysis | Developing Your Investing Plan | 4-29-19
Good. Morning, and welcome back everyone, my name is Cameron May it's, 11 o'clock Eastern, Standard Time on a Monday morning that means it's time to get back into our ongoing series, of discussions, and are getting started with technical, analysis, series and today, is lesson eight in our series of eight so it's the capstone event I'm looking very much forward to it we're gonna be focusing on developing, your investing. Plans so giving 25 or 30 minutes together to that. Effort, so we're gonna try to get the most out of today's discussion we're, going to set a specific agenda in just a moment very, first thing we need to do though is welcome, back all of you returning veterans who have joined me throughout this series of eight. Lessons, thanks. For joining me each week if you happen to miss any, of these discussions, of course they're archived, you can go back and check those archives you can catch up but. You're invited to remain even, if this is your very first time I still. Think that will work to get the most out of it that we can, so. Let's. Get to it hello there Chuck and Thomas Scott Diane, Bobbi Sebastian. And rich. Good. Morning to all of you thanks for getting. Me in your schedule, let's. First consider the risks associated with our investing, this is some important, information reminders. Options. Are not suitable for all investors spread. Straddles and other multi-layered options strategies, can entail substantial, transaction, costs past, performance, of any security of strategies not guarantee future results or success, all, investing, involves risk any. Investing, decision you make and your self-directed account, is solely your responsibility we, are going to be using real examples, in today's discussion please, don't take that as a recommendation or endorsement of the securities or strategies discussed and, the, usage of a stop board is not a guarantee you'll buy or sell at a specific price and finally here's, an overview of the Greek's these definitions could, carry. Some significant, importance for those of you who use options, in your trading but, let's go right to it let's. Set, well. Let's get some context, of where we are so we've gone through eight, lessons, and as. You can see we are on less than eight this is the culminating, lesson, where. We're attempting to bring it all together and we're, going to do that by constructing, or, demonstrating. A sample. Investing, plan so developing, your investing, plan is the topic for today, here's, how we're going to do. Today, you'll learn to identify, potential. Processes. And considerations. When, compiling technical, tools and techniques into a standardized, investing. Plan so within the administration, of your own self-directed. Portfolio, you'll, very likely if, you, if, you use this process. Develop. A number of investing, plans for the different segments, of your portfolio, so what we'll do today is give. You an example of what one might might look like and we're. Going to, do. That in, real time apply, these principles, and techniques by building, a sample, investing, plan all. Right hey looks like we also have Gordon and John Isaiah. Welcome. All of you is great looks like we have a pretty good crowd today that's. Very nice to see let me take another peek over here to my side screen, yep, very, good all, right. But. Let's, talk about the common, components, these are potential, components, of an investing, plan when you're starting to map out your. Approach to the administration. Of a slice of your portfolio. Let's say it's stock investing, that's gonna be the focus for today. What. Might that plan, look like what might be the typical components well, first and first of all what.
You May want to do is give some focus, some meaning, to, that plan and that's what we call an objective, this is the why you, are doing things we're. Gonna be talking about why. You, have that plan. When. Or what kind of, things. You might invest, in when. You might buy them how, many of that thing, you might buy and when and when you might sell those okay but, an objective, is where. You where you define the specific purpose for your plan I realize that it might be might, might be seemed to be, whether you're investing in stocks or bonds or funds. Or whatever the, purpose is to make money right, that's that might be a little, too vague to be serviceable. Instead. Maybe. Your plan says this. Is I have. This plan to, help administer. My. Stock investing, over an intermediate, timeframe on, short-term pull backs something. Like that gifts, give specific, purpose to the plan but, once. You've identified the, objective. Of the plan. Then. You can move into defining what. You're going to invest in when you're gonna do that how, much you're going to invest in how and when you might sell, so, next up, we. Have what are called watchlist, criteria. This these. Are the characteristics. That define for, you what's important, for you in what. You're about to invest in so let's say you're creating. A stock investing, plan your, watchlist, criteria, will define for you what kind. Of stocks you might buy next. Up you have your entry rules for when to buy money. Management rules for how much to buy exit. Rules for when to sell and then, routines, for, revisiting. Your plan so. That the, mere fact that you have a plan in place may, not mean that you have you've. Reached, the end of the rainbow so to speak, you. May, determine through. The, application, of the plan that there may be refinements. Required in that plan most plans, require. Some. Ongoing, maintenance and, some refinement. Some revisiting. But, it's only with, the. Attempted. Application, some real, experience. With that plan where you can, start to recognize, maybe, the shortcomings, of a plan maybe some gaps that need to be filled. Hello. Hari good. Morning to you too so. That's. The the. Idea, of a plan let's, go look at a specific. Example we're, gonna start with the with a sample, plan for. Bold, flies okay, so. A bull, flag sample, investing, plan beginning, with the objectives, for that plan if you're not familiar with both flags you, may want to go back and revisit last, week's discussion now. I was out of the. Office last week so John McNichol filled in for me but in. Lesson, seven we always talked about price patterns, and bull flags are one specific, what we call a price pattern, and. I will, typically, cover bull flags in my, lesson plans, because. In. My observation and again this is primarily, anecdotal, but I think you'll notice as you start to recognize but. Look for price patterns, in your charts, you. May begin to notice that bull Flags seem to be about them most common.
Price. Pattern, that crops up, so. Let's say we're building a plan, in. Our efforts to optimize, these bull flag patterns, all. Right what, might be what might be the purpose of that plan well here's an objective, to. Learn how to trade short-term. Rallies in an, intermediate, term uptrend, using. Both like price patterns now both flags. Can. Conceptually be applied to longer-term trends. And very, short-term trends, but, let's just say that we've, decided to use that for the administration, of maybe a shorter, term to intermediate, term, approach. To stock investing, within that portion of our portfolio. As. We do this though even though we've defined that as our purpose, for this plan the objective, for, this bull Flags plan just, remember there's no guarantee, that an uptrend will continue even if you see a nice bull flag setup, it's not a guarantee, of success on that trade stock. Might decide to move in the opposite direction despite, your, best analysis. And your best efforts, all. Right but there's our objective. For our plan. Let's. Define, what. Kinds. Of stocks we. Might be looking for in. In. Our efforts to use. The bull flags all. Right so here are watchlist, criteria, this is a sample, portion, of that part, of the plan one. Way to identify stocks, with potential, bull flag patterns, is to use charts and a, scanner now we've used scanners, in previous lessons we're not going to revisit that but. I will show you maybe a quick way that you might look for some stocks that are potential, bull, flag candidates. But. Use charts and a scanner to find stocks exhibiting, upward momentum and, liquidity, so there are two points. Of emphasis in the, in this sample watchlist. Upward. Momentum and liquidity. Now, obviously for your own plan you might decide to add some other elements, they might be fundamental, they might be technical, but. Let's. Get more specific with. Momentum, and liquidity, upward. Momentum can, be can, be identified, with an intermediate uptrend, using. A one-year daily chart where. The stocks price is creating higher highs and, Loes, once. Again if you're not familiar with that concept of, higher, highs and higher lows we, covered that in an earlier lesson it was in lesson two so, you might want to go back and watch that that. Lesson on trend identification. Alright. But we're gonna be looking for within our plan, one. Your daily chart higher. Highs and higher lows and among. Those we're. Gonna look for stocks, that have a minimum, average daily volume of, 250,000. Shares traded, per day and. For. Stocks that trade no less than $10, per share now. This this, may lead us to stocks that tend to have enough, liquidity to, reduce the risk of slippage. Now that means that. Where. It may increase increase, the the. Transactional. Costs, of a trade if you're dealing with illiquid, securities. For. One purpose or another but. There. Are the two things that we're gonna be able to looking for in a watchlist okay momentum, and. Liquidity. I'm. Not going to go and recreate a screen like we did in earlier sessions however, let's. Go to our thinkorswim, platform and. Let's, look for stocks that generally, speaking, have. Least. Liquidity, and they're in there ten dollars per share or higher where. Can we find those, kinds of securities very quickly, well. Thinkorswim actually, maintains, it's. A number of different public. Watch lists that they create. They maintain and then they publish. Those. So. That you can access them, on the platform and. I'm gonna find those right here under watch lists so if I go to watch list I can find thinkorswim public, watch lists now. Right now we have, one that, we've used in other classes is called penny increment, options. I'm. Gonna click on that and go, down to the public.
Watch Lists those, are the ones that thinkorswim creates, and I'm. Going to go to in, alphabetical, order the one titled, S&P. 500. This is the 500. Companies. Composing. Comprising, the S&P 500 index. So I'm going to select, that and. Then. I've also sorted, these in descending. Order of price. So. We're addressing the. Price issue. By doing that $10. Or higher and. Because. There S&P 500, component companies are generally going to have more. Than 250,000. Shares trading, on an average daily basis there could certainly be exceptions. But. Let's just work our way down so, here at the top we have Amazon, we have alphabet. Most. Of us know that is Google and so. On but those are going to be somewhat higher priced securities how. About we zoom on down let's, go down to the maybe the the. Low. Triple, digits maybe, the high double digits and then. We can start to look through these securities, now. Before. This, session launched. I did, a quick scan I just, punched. Down through these just to find some that, appeared to have higher highs and higher lows that. Appeared to have. That. Were above $10, per share and that, may be good examples of bull, flags all. Right so now let's move on to. When. To buy these things, okay. So going back to our slide deck. Here. Are some entry. Considerations. What we'll call these so these are example, entry, signals, when. Buying. A stock that's, exhibiting, a bull flag so. When considering a position on a security, using a bull flag pattern, support. Bounces, and resistance, breaks are common, entry, signals again. If you need to revisit that you might want to go back and watch John's lesson, lesson, seven from last week or if, you roll the clock back further, I believe it would be around, it. Would actually be the first week of March where, I last, taught. A lesson on price. Patterns. If. You really want a summary, of what, bull flags are and how they might be identified, but, I'll show you examples, that. I, identified. This morning but. We're going to look for two. Potential, entries bounces. And. Breakouts. Now. Here's. Kind of another anecdotal. Observation. With. Bull flags and maybe some of you veterans, can back, me up on this but. When you're using both flags as you. Look at one bull flag to another I think what you'll notice. Is that the. Bounces. And breakouts tend to happen pretty. Much on the same day a lot, of the time you'll. Get a bounce that. Gets you a close above the high of the low day and at, the same time it breaks out of that bull flag pattern, so, whether you identify it as a bounce or breakout or just a hybrid of both that, may be a potential, entry signal for this sample plan but. To specifically, define a bounce just to revisit that concept, of support bounce is a common entry signal that can be identified by close above the high of the low day so.
When You see a bull flag starting. With a run up a flagpole. A pull. Black nut pullback there's, our flag the, lowest, day of that. Pullback we identify, as the low. Day and then, the entry comes on a close above, the high of that, low day so. If you see the highest price of that day was like 50 bucks we. Get a subsequent day, where. The closing price is higher than that that's a potential bounce entry, a. Resistance. Break is another, common entry signal that can be identified by the price closing, above resistance drawn, along the top of the pattern so. Let's go look at examples. Of those those are very specific entry. Signals, let's. Go see if we have some examples, so. Within thinkorswim coming. From our watch list of S&P 500, companies let's. Pop over here to our charts, and, how. About we start with Citigroup. With. Citigroup you can see let, me zoom in on this most recent. Price, activity, because. This is a typical, technical. Requirement, of a bull flag we, need to have higher highs and higher, lows and you can see going, back to March. Here's. A low. Up, to a high. Pulling. Down to a higher, low and. Then. We have advanced, to new highs. Now. This. Most recent. Advanced might. Be defined as a flagpole, you, can see it might, have let me go this way because that'll my left is your right anyway. We. Have the price. Rising. Up to a peak from. A recent low and that acceleration, of, the upward trend may, be defined as the. Flagpole. And. Then. We have a pullback, against. That. Upward. Trend there's. The flag portion, of this pattern. Right. So let's see if we have one at one at least one of these entry signals in recent. Days. There's. Our flag we. Pull back here's. Our load a. Right. Here, you, can see that white candle, is the day that stuck its little tail down the farthest within. The flag portion, of that, pattern and, then. We got a closing, price, and. This was on Friday, Friday's. Close was above the highest point of that. Low day so that is a close. Above the high the low date or a bounce entry, signal it, also broke. Above, that resistance, line so, you'll notice on the same day we got the, bounce we. Also have a breakout with, each of these concepts, both flags trend, identification. Mounts, breakout. All, of these things if these are not familiar terms, you may want to go back and revisit. Earlier. Lessons, in this series of discussions, because it's all been covered in depth now. If you're feeling very confident, with, the application, of these sorts of concepts, you want to move up to another level I definitely, suggest that you check out. Pat. Majalis webcast. On Fridays, and that's called, advanced. Charting, techniques. He. Teaches a class let's. See that one runs. At. Two o'clock Eastern, Standard Time on Fridays so, you may want to check that out okay. But there's an example of a. Bull flag pattern with a bounce and a breakout, and the. Way the markets have been behaving recently. With. The. SP achieving, all-time. Highs just, today I think, as you dig in to S&P component, companies you're, gonna see a lot of these sorts of behaviors so it's not going to be particularly difficult it didn't prove to be this morning to. Find some examples of these, sorts of entry signals you, know if we look at some others like TSS. Here's. A recent let me zoom in again you'll notice we've, been coming up since December. So. If i zoom in on this most recent, move here's. Quite an extended flagpole, actually, let me switch my drawing tool I didn't intend to draw an oval. But. Here's a flagpole. With. The flag developing, really over just the course of a couple of days we, could include this red candle day but it really seems to be about like here, is. The. Flag and, then. We, have that red. Candle. Day didn't, close above the high of, this. Low day. So. Our real bounce. Came. On this day. Prices. That had actually floated, outside, of, the, resistance, level but. Really got the it looks like the entry, signal just again on Friday. Maybe. One or two more examples XY, al, yep. There's another Friday example, where, we've been making higher and higher highs and higher lows for, quite a while you see rolling up pulling, back running, up pulling back running. Up pulling back and then. Here's our most recent oh boy. Switch.
My Tool again. There's, a flag on. A. Flagpole. That. Flagpole pulling. Back into. A flag and there's a bounce and a, breakout so, this might take a little bit of repetition to train your eyes even, as you've difficulty. Finding a, plan. It, may take some time where you apply over and over again just, so that you start to recognize these sorts of patterns, and you start to spot your own entry and exit signals might. Be a good thing to pull up a paper, money account today look, through the S&P 500 companies, see, if you can find some stocks that. That. Seem to have that flag pattern. So. O'Connor. Says can you guys do a webcast on, think script and back. Test strategies, yes you might want to check out Ken. Roses class on scripting. Yes. Connor we actually teach a class every. Week I can't remember exactly when, that is it's not springing to mind we actually teach more than 40, webcasts. It's. Actually, 5:30. Eastern Standard, Time on Tuesdays that's. When Ken teaches his. Class and it's specifically, called scripting. Studies, on thinkorswim. So. You might pop in there maybe even chatted in suggest back-testing. As a specific. Topic and he might cover that in an upcoming session, all. Right but let's go back to our slide. Deck so, we now know what we're buying you know why we're buying what we're buying when to buy let's talk about how much to buy. That. Is money management. So. Position. Sizing which is literally the size of the position that you're about to take it's how many shares you're about to buy and, defining. Your potential losses can, help you manage risk and. As. As. An example maybe, you decide that you're gonna risk not, more than half a percent to maybe 1% of. Your, total, portfolio value, on a. Specific, investment. So, let's. Say you had, $100,000. Account that, may work out to be between 500 and $1,000, of risk, per. Investment, now don't don't, conflate, or confuse, the. Word risk with, investment. Let. Me ask you a question if I invest, $10,000. In a stock how much is at risk, theoretically. It's, the full 10,000 but do I have to accept, that as the. As. Just. Constituting. Business not, necessarily a. Trader. Who's invested, ten thousand dollars in a stock may decide you know what my. Plan is going to be if that, stock, starts to fall in value and. Maybe the total value of my investments, not only nine thousand, dollars so I've had an unrealized, loss to loss of a thousand, dollars maybe, I'll exit right then so, what they're doing at least mentally at that point isn't. Implementing. Something called a stop. That. Is a, plan, to get out of the trade is going poorly. Now. Stop is not a guarantee, that you'll, sell at a specific price however how. Much is the risk in that scenario assuming. That's a plan and then you execute that plan well, the risk has been reduced in that case theoretically, at least from. $10,000. Invested, to, one thousand dollars of risk, so. You'll. Have to define for yourself if that's going to be your approach how much you're willing to risk of your portfolio, but. What I might point, out is that. Whether. You're using half percent or one percent or some other number, it. May be a good idea to be at least consistent, on, that so. Rather, than saying I'm going to risk you know half, a percent on this stock and one percent on that stock as our, example that, may. Seem like a pretty subtle difference, but in reality you're, doubling, the risk from one stock to another half a percent versus one percent is actually doubling, that risk.
And That, may lead to miss. Behaviors and risk management of that of either. Of those trades it, might cause you to ignore the one that. Has a lower risk and to, over focus on the other which. Might cause you to -. It. Might cause you get a little bit panicky, about the one that you've now feel too much pressure with, or. It might even cause the opposite, behavior and, cause. You to make excuses. For the larger, position. But. Kerry does this apply to options, consumer - conceptually, yes risk management, but just remember that money. Management. Can. Helped. Us potentially, standardize. Your investment, and remove. Some of those, emotions. That can be attached. To larger. Positions, or the, negligence, that can be attendant. To smaller positions, in, any case how, might this be applied to a stock position, here well. Maybe we have a plan. For. When, we're going to exit on the downside, so let's talk about our. Exit. Considerations. In a bull flag sample, plan, so. Planning, potential, exits before actually entering a trade can help mitigate emotions. Like fear and, greed. Setting. An initial stop market order below or 1% below the low of the lowest day that's. A lot of those, within. The pattern can help maintain a desirable, risk to return ratio keep. In mind the stock market order will not guarantee an execution, a specific, price. Some. Technicians will use the flagpole to also, create what we call price targets, so then you wind up with a plan for. Both ends of the trait if things are going poorly and, if things are going well, so. Let's look at that on a chart and, maybe I'll use, still. Another example so we've looked at Citigroup. TSS X Y o how about Ln C. So. Here's a stock. That's. Been making higher highs and higher lows. There's. A flagpole. Flag. With a bounce slash breakout. And. According. To our plan where when we put our example stop we. Might look at the lowest day. Within, this flag. Right. There and, place. A stop 1% below that below so, as I look at that day, the, lowest price was sixty four dollars and sixty six cents. 1%. Below that is getting about 65, cents, below, so that would put us right at about. Sixty, four dollars. Would. Be our stop and now, we have a plan in place to, manage. Theoretically. At least the. Low side of the trade or a trade, not going. According, to plan but. Also, we. Might look for a. Target, let me right click here, and. I'm. Going to duplicate. Our flagpole, and, again this is a pretty common technique, with flag poles and. I'm gonna position that duplicate, you, know what I didn't decided not to believe me let's try that again let's, duplicate. Duplicate. Colleague, tools not cooperating. Anyway. That's. Interesting, they. Remove that drawing but, in any case if we have a stock that went from a low down around sixty one sixty to. A high around. Sixty. Seven fifteen, that's about a five dollar 50 cent, increase. In, price, so. We may decide. Five. Dollars and fifty cents from this low. Upward. Establishes. A target so if our low is around sixty. Four and a half that. Might give us a target around seventy, dollars so now we have a plan in place for, both sides of the trade, cell. If we drop to 64, cell. If we rise, to 70. So. That is what. To buy when, to buy how, much to buy when. To sell there's. One thing left because we might think well now we have a complete plan. Well. What if that plan isn't working this may be time, to establish. A set of potential, routines. Okay. And you, might have daily routines weekly, routines monthly, routines, what. Might be done on a daily basis well check.
On Your current positions, for. Potential exit signals, check. Your watch list for potential, entry signals and maybe. Even keep a journal, of how your trades are going on a weekly, basis especially with a journal in place you. Can go back and. Look. For new, candidates. If that if your plan seems to be working, might, continue to implement that on a quarterly, basis, maybe, look at potential, refinements. To that plan this. Is where you, can add that polish you're. Getting comfortable with the plan you know your plan but. Now you're you're making, those ongoing, or five months to, try, to bring some polish to that plan, anyway. That's a sample, routine. But I think you can envision how how that might be implemented and this, has just been an example really overall. Of how a plan, might be structured. But, now we've seen the example, elements, of a plan. What. You might do at this point is go out and start to build your own plan if you need some help with this again we actually have a written course, and within. That course is exactly. This, sort of plan so if you'd like to see the bull flag plans written, out specifically. You can go to your stocks. Technical. Analysis, course to. Revisit, that ok, everybody. That. Actually brings us to a conclusion for. Our. Session. Today but, also that's lesson eight in our series of lessons so we're gonna be starting again lesson. One next week an introduction. To technical analysis. So if you're just catching the tail end of this series don't. Despair you you can catch. Me as we start over again next week. But. For now I'm gonna set you loose everybody. Thanks for joining me today if you, would do me a favor let me push out a survey. There. We go you, probably probably. Come become, comfortable, filling out those surveys if you haven't done those before it's a very quick survey very helpful uh so if you could fill that out that would be great coming. Up next we can take a little bit of a break and then circle, back and we're gonna hear from, what. We're gonna we're. Going to have this splash, and, on Mondays, there's, an ETF focus, the splash is taught by Patton, Mullaly, so. If ETFs play of role. In your portfolio, you, might want to check that that. Session. Out. But. That'll, do it class. Thanks for joining me today I will, I'm looking forward to talking with you again next week. Regarding. It well just starting, with an introduction, to technical analysis. Remember, that risks are real, we. Did use real examples, as I promised in today's discussion it's not a recommendation or endorsement, of specific, security or strategy, and the, usage of a stop is not a guarantee they will buy or sell at a specific price. All, right everybody. I will see you in a week go, enjoy the splash and. Between. Now and next, week I want to wish you the very best of luck happy. Investing bye bye.
2019-05-02 21:49
