Short Term Bullish Or Bearish Trades With High Technical Probabilities | Active Trading Strategies

Short Term Bullish Or Bearish Trades With High Technical Probabilities | Active Trading Strategies

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is there a higher probability technically to take trades what about overbought oversold often misunderstood often overused we're going to use that today to try to track down a little bit of higher probability possible entries on several stocks whether they're going up or whether they're going down so stick around good afternoon everyone and welcome to active trading strategies my name is pat malli and i am joined of course by all of you i want to say hello to all of you i'll get to that in a minute but you can follow me on twitter at p malawi underscore tda uh the market is in a little bit of a pullback mode ahead of some of the economic news tomorrow the inflation news on the cpi uh we're going to look at some things though outside of that and maybe things that are setting up or are ready to uh possibly buy or sell uh using the rsi so stick around for that and let's get right into it we're doing this for educational purposes only not recommendations options are not suitable for all investors there are risks that are inherent to options uh strategies uh and trading short options can be assigned at any time up until expiration regardless of the in the money amount and in the money option has a higher risk of being assigned early the paper money virtual trading application you want to sign short option positions early which is different from a very different from a real trading account we are going to discuss technical analysis here but there are other approaches that includes fundamental analysis that can assert very different views uh all investing involves risk including the risk of loss past performance meaning security or strategy does not guarantee future results you're responsible for the decisions you make in your self-directed account a trailing stop or stop loss order will not guarantee an execution at or near the activation price all right the agenda real quick review of the market we've got a some things to discuss and that is uh we're going to define these short term uh a short term rsi this is a a method that's been around for a while but we're going to add a few things to that make sure we are in in the right direction the right mode the right conditions uh before we consider uh a potential entry or a potential exit and then of course we'll follow that up with a paper money trade all right let's pop out there and get rolling here of course um what we want to do is start with the marker but before what we really want to do what i really want to do is of course say hello to everybody in the chat should be vj peter uh frank alfred uh see kathy uh theaters uh lawrence wayne george texas doug uh doug k is in the room uh joe jim grace is is here today scott rick burns uh and uh everybody else in the archives if you are brand new welcome if you could just type in if you're new just say type in the word new to the webcast and one of the reasons i bring that up is there's a lot of very smart people in there bring up a lot of interesting thoughts and comments that you might want to consider and finally barb is in the room to assist in the chat and you say barb who's barb if you're new well that's barb armstrong most people know who barb is here in the land of the td ameritrade coaches she's another td ameritrade education coach and she is there to assist with all of your questions uh all right let's let's uh let's get rolling here uh and i'm going to start with the s p 500 the spx and that is up again no real change from yesterday or the day before the day before that or the day before that we are up against some resistance here right now you'll have to excuse me for just one second my apologies for that uh yeah so we're up against resistance and just kind of running in place in the s p as we wait for the inflation numbers to come out tomorrow the cpi i think a lot of people are holding their breath perhaps based off of that because a hot cpi number meaning is the inflation strong is the inflation weak that is going to be something people are going to be uh pretty uh pretty concerned with all right so we've got some new new folks then excellent um margarite uh margarita and uh uh sarong i'm gonna leave it at that and uh mary uh charis another peter oh that's a that's peter saying hello to barb and wayne saying hello baru well we'll welcome all the uh all the new folks uh as well so again like i said there's a lot of smart people in in the chats they're gonna they're gonna put out some ideas some thoughts you might consider those uh especially if they're for somewhat foreign to you let's learn what that means over time which means that if there is a survey in the chat if a survey shows up in the chats if you are new you can fill that survey out just a couple of questions and tell us what you want to see in the webcast all right so we're going to dispense with the uh breadth information now that breadth information this this stuff down here we're going to talk about tomorrow in the market and sector analysis webcast that i do at the same time where we look at there was a a question about the business cycle in the chats we will discuss that tomorrow tomorrow is going to probably hopefully be somewhat of an important day based off of the cpi and that's going to have maybe an effect on what we see in the market and sector analysis when we talk about the business cycle so real quick i'm going to see if i can find that uh comment in here and it came from um sorry uh are the stock trends following indices and are the indices in the correct uh business cycle we are going to discuss all of that tomorrow uh real quickly here let's take a look at the ndx the nasdaq 100 you can see pulling back down from its downtrend line a little bit sharper pullback today than what we see with the s p and the russell 2000 small caps uh been the strongest relative and today pop this sidebar open over here uh the weakest uh as far as percent change uh today today goes so all right that is that now on to our discussion today and this is going to be again like i said it's going to be a revolve around short-term rsi but there's going to be other things that we're going to we're going to want to think about in here and that is going to be you know all of the things that set us up ahead of making those decisions and because we don't just because we're looking at an indicator uh as uh as part of the process it is a process and that process is i'm going to edit this hopefully it doesn't get too mired down in the price charts so we're going to define short-term changes in the trend short term changes in the trend and that means that a a trend is the path of least resistance and we're going to look at how price moves so if it's if the trend is the path of least resistance and price moves in waves up down and sideways well that means the trend is going to have a long-term trend a short an intermediate term trend and a short-term trend is that long-term what is the long-term trend doing what is the short-term trend doing that's where we're going to have a focus is going to be on that short-term trend in the context of the longer-term trend and we'll get to the considerations here uh momentarily and then of course we're support and resistance possible areas areas of exit entries or exits signs of strength or weakness and that's going to be kind of the basics of of the technical analysis analysis when we put it in priorities but you also got to remember as well that there's momentum and that's where the rsi comes into play here now i'm going to edit this i'm going to make this a question mark to get that or an icon excuse me to get that out of the way there and then the next thing we want to do is consider are considerations and hopefully there won't be won't be too terribly long here oops and i'm going to have to make this just a little bit bigger we're going to pop up here to the chart settings gear come in the time frames and i want to make that 250. and this is just so you can see the writing on the chart here and so what are the considerations when we're thinking about all of this now before we jump into these considerations i want you to to recognize that the top pane here is price now inside of price we have some indicators moving averages and then the middle pane is going to be relative uh the relative strength and then the bottom pane is going to be the rsi relative strength index we're going to get into what we're doing with that here momentarily so the considerations for any many uh technician traders technical traders they're going to look at the long-term moving average is it sloping up is it sloping down right or you know or sideways and so that's going to be the first one of the first consideration what is the trend okay where is price in relation to that long-term trend and we're going to be using the 150-day moving average today uh and uh just for this you know for this uh you can use the 200 whatever you determine is best for you uh i'm just happy to be using the 150-day moving average and so if you're looking at the long-term trend then the next question is uh if price where is price in relation to that long-term moving average if it's above then we're then the idea is that there's a bullish bias on the on the stock and you'll notice that when it's when price is above the 150-day moving average and it and it approaches the 550-day moving average or the 200 whatever you're using uh it could even be a 63-day moving average if you or 100 whatever you want price has a tendency to push back to the upside now that's going to be our first consideration but how you know how overdone is it on the downside where is support and resistance so the next thing we ask is price at trend is it price at a trend line that's what that means price at trend is price at the trend line or is it a horizontal support or resistance so those are the the main price considerations when we're looking at this upper pane in here where is price where is it in relationship to support and resistance both horizontal and diagonal trend the dynamic diagonal trend versus the static horizontal trend now the rsi typically when we look at an rsi we look at a uh just we look at a default rsi of 14. you can see you can see that if i can get an arrow you can see that right over here this is a 14 period rsi and this just happens to be a weekly chart of mcdonald's so that's a 14 that's the default uh when we when we pop in here now i'm going to close this down to uh i'm you know what i'm going to leave that up just for a little while i'm going to kind of slide it over just a little bit here oh and i guess i did make it too big let's see if i can squish this down there we go uh and then the the last but not least is the middle pane in here the middle lower pane down i should say here a second from the bottom is the relative strength if relative strength is bearish or trending down uh that is going to be uh somewhat of a negative but we are using the manipulated uh relative strength where if it's above this zero line if it's above this zero line we're going to consider that bullish you can just use a regular relative strength if it's up trending it's bullish if it's down trending it's bearish we use the zero line to give us more of a positive or negative look at relative at relative strength all right so that's that so what are we looking at what's the long-term moving average is it sloping up or down where is price in relationship to that long-term trend in this case the 150 days it above if it is it's bullish if it's below it's bearish uh where is a price in relationship to support and resistance is it touching support or resistance or is it above or below support or resistance and then is the uh where is the uh rsi2 we want to be i guess i didn't explain that very well either rsi the two we're going to get to that here in a second down below i'll show you how to do this uh the bearish if if price is below the trend so it's a bearish trend then we're going to look for the rsi to be above 90. and with that what we're going to do is we're going to look to take bearish type trades if we're in a bullish trend what's a bullish trend what we consider a bullish trend price above that long-term moving average so if price is above the bullish trend we're going to look at an rsi below 10. why because we're looking at swings when i say we're looking at swings we're looking at these kinds of movements right we're looking for uh price to rally find support rally and you know looking forward to get into an uptrend so this is really more along the lines of what we're looking for as things start as things start to trend this is really more of a consolidation period in here all right so hopefully that's somewhat explanatory um and so that's the rsi and then the last thing are we in a uptrending relative strength above the zero line if not we're bearish uh that's going to be considered weak and downtrending okay so now let's do this and i'm going to change this to an icon now remember you can always come back these are archived and you can always come back and watch these in the archives once once watch the recording in the archives once they're once they're recorded okay then we have volume which we always use the volume is is going to be part of the process here but it's not as big of a process as the momentum with the rsi and the relative strength and the tr and the trend in this particular in this particular instance so how do we get this rsi to the rsi2 because that's going to be a major factor in here we're going to have to manipulate the rsi so where do we find the rsi we're going to find it right up here in the beaker in the in the flask it's really a flask uh and we're going to click on that flask when we come over here we're going to type in rsi and when we do that we're just going to highlight rsi add selected that throws that over here and you'll notice that there's a difference between the two here this is a rsi2 this is an rsi14 so we need to manipulate this 14 and what we're going to do we're going to do three different things in here you'll see it says 14 70 and 30. okay we're going to change that 14 to a 2 and that's going to make this a very fast rsi it's a very fast calculation and then remember in the in the conditions that we're looking for the considerations we want over bought not to be at 70. we want overbought to

be at 90. this is going to be for some a uh a quite the uh excursion away from what we typically see and then oversold at 10 now you can make that 95 you can make this five if you want the idea is we're looking for really oversold areas and then you can come down in here and make these thicker if you'd like and that's all i did here and then you would just click ok and you'll see now it they match and then you would hit uh apply and then it puts it on the chart for you i'm gonna get rid of one of those and leave the other now so what did we say what let's walk through the process with mcdonald's here is what kind of a trend is mcdonald's in well it's really in kind of a consolidation right but we have these higher highs and higher lows in here so we have a series of higher lows we can see that from here we have price back above the 150 day moving average we have the short term trend pulling back in this case i have a 20 period moving average but let's do one other thing before we get to the rsi i'm going to put in a horizontal support line over in here and so we know we're in the support zone this kind of this ascending triangle where we had rejection rejection rejection until finally it pushed through on earnings on it on some pretty high volume better volume than we'd seen in almost a month and a half two months and then it rallied up and it's since pulled back on lower volume that's what we want to see in an uptrending an uptrending stock when when price pulls back and then it pulled back into support and today kind of giving getting some kind of a balance when we look at the relative strength index whoops let me change this back here now i better not i'm going to get myself caught in something because i want to come back to the to the text that we had here before we leave today and so everything is pointing bullishly now this is where the rsi comes in this is where about the only time you know if you've been with me for a while you know that we don't really pay we don't look at oversold or overbought as buy or sell signals we look at overbought oftentimes in a trending stock as a buy signal if it's breaking out but here we've we've made the oscillator we've made this indicator so that it's very fast and what i want you to recognize is that when it gets over sold and so let's look at this uptrend where we touched the uh 150 day where we came just below the to the 20 day where we come down to the to the 50 day and i want you to recognize some of the things that occurred in here now what i'm going to do here to make this more detailed is i'm going to come down here i'm going to click on the little drawing set the quick drawing set i'm going to come up here this thing looks like a clock with a line and that's a time level that's going to give me a vertical line and i'm going to click on these every time that we saw price get into or the rsi get dipped down and so this first bunch is going to be the cautionary tale that you need to understand and why it's important that we're looking at support and resistance because that's where we're going to expect some kind of a bounce we're not always going to get a bounce but when we reach down into in this case down to the 150-day moving average we had a strong bounce so nothing's 100 but the uh buying you know buying in the uptrend uh even back in here did not was not a horrible you know when you consider that about a a 240 dollar stock it only dropped about three dollars or so before it it had a it had a bounce so it wasn't horrible right it didn't drop below the 150-day moving average and then if we look at this area over and here didn't quite make it to the 150-day but it bounced and had a pretty good run so we look for these oversold areas we determine where the possibly the more important support and resistance areas are and we're going to look for those to bounce now here when we look at mcdonald's all the way back in here dad had really so my question to you if we're below the 150-day moving average and this is over sold what's our opportunity there well the opportunity is not bullish right because it's below the 150-day moving average and even though there was a really strong run to the upside here uh the idea would be wait till it gets back above strongly above the 150-day moving average not somewhat above because notice as well that when price was all the way down here the relative strength index had dropped below the zero line even though this was oversold you can expect to bounce and sometimes those bounces are pretty strong there's a lot of those out there right now uh that are below their 150-day moving average but if somebody uh you know if you bought it obviously you're going to feel really good about it but that not is that repeatable right well you look over here you might say well of course it's repeatable look at that right there but notice every time it ran into that ran into that 150-day moving average something else occurred and that's going to be the flip side of this trade so remember that part of this idea is and i've lost my text here there it is part of this idea is that there's a bearish side so a bearish trend is when the rsi is above 90 but the price is below the 150-day moving average so let's go back and look at the some of the opportunities that would there that might have been gained by looking at price price rallying up into the 150 and you'll notice that 1 50 day moving average fairly flat and you'll notice that those were opportunities in here to maybe take short-term trades in the opposite direction of the of the short-term trend because it's below the 150-day moving average now it was also above price was also above uh or the relative strength was also above uh the zero line so these are pretty precarious in here but now when we think about all the other things put together do we have more stuff in our favor these trades over here this one and this one on the upside or the downside not everything was in your favor now it's okay if you don't think you need all of the things in your favor only time will tell if that's going to work out for you but right now we have higher highs and higher lows prices above the 150 day moving average the relative strength is above the zero line it's starting to turn back up we have a short term trade coming down to support higher highs and higher lows and then we have this over oversold look down below down below 10 if i put my cursor over this uh it was it's all the way down to five in a lot of people's minds that is a really high probability of a short-term bounce but also in the direction of the higher highs and higher lows and above in the direction of the relative strength as well so with that let's go ahead and do a trade on this a term trade now a couple of things you could sit can consider here is we have a bullish run a pullback it's bouncing up from uh support and so we're going to look at doing some kind of uh uh we're going to look at how we can do some kind of a bullish trade so i'm looking at some questions so vijay says why the 150 if it's because we took uh an average of the hundred in the 200 no uh this is just the 150-day moving average is something that a lot of technicians use we don't highlight it very much because most of the time you hear everybody talking about the 200 day not many people talk about the 100 day you hear me you've heard me for a long time talk about the 100 day well the 150-day moving average is something that a lot of people have used for decades and so it's just another form something for you to learn about and to consider there's no there's nothing necessarily magic about it other than it is a longer term it's it's not as long as a 200 day it's not as short as 100 day right so you think about moving averages so there's short term moving averages intermediate term moving averages and long term so a short term moving average is going to be the 20 day like we have here with this 20-day exponential and then the 50-day is going to be an intermediate so the 20-day is right on the edge of uh short-term to intermediate then when you get into the 30s and the 50s those are in immediate term moving averages and when you get to 100 you're on the outside of intermediate closing in on on on longer longer term remember uh those those time frames and then of course the 200 days considered really long term so yeah it's it's kind of in between i don't know that that's any magic any magic thing you can change this to a 200 obviously change it to a 200 if you want and you can use just a regular uh relative strength if you want nothing says that you have to use the 150 as a matter of fact in this particular in this particular trade that we're doing here a lot back in the day this this idea has been around for a long time back in the day the 200 day was what they used uh and one more question from let's see if you want to see a short time frame which one would be better uh indicator so short term time frame i would look at a 20 period moving average or a 10 period you'll notice that price has a tendency to follow certain moving averages happens to be following the 20 day and then the next question is why a 30 day or a 20 day ema exponential moving average turns quicker with price it turns faster with price because there's more weight on the front end okay all right more weight on the front end so that's going to turn those faster and so a lot of people utilize the that idea with the 20 day you can also use the hull moving averages which is even a maybe even a better way to look at look at things but in any event using this kind of idea whether it's a 200-day let's just put the 200-day up here and see what happens so i'm going to right-click on the line i'm going to come up and put in 200 hit enter apply okay you don't see there's there's not a lot of difference matter of fact it's actually sloping a little bit a little bit stronger uh to the upside here but don't run around looking for things that are going to just tell you you're okay right use one thing and kind of stick to it all right so we're going to make trade but we're going to make a trade based off of price falling into well below 10 to around 5. that gives us a higher technical probability of a bounce we also have a higher technical probability of a bounce because why price is at support prices at support and we have the uh relative strength moving to the upside now we're in mcdonald's a discretionary stock nothing says this has to is 100 we're going to right click here we're going to come down and buy custom with a stop we're going to use a stop loss and we're going to use a stop loss that says hey this shouldn't be here and so you can use the 200-day moving average we'll just use the 150 change that back to 150 hit apply hit okay and so if price drops below 250 then we're going to look to exit out of this trade the idea behind this is well let me back up this is not a trend trade this is a short-term trade we're going to look to exit out when price drops below yesterday's low okay yesterday's low you can use today's low we'll just use yesterday's lower you can use the 20 period moving average uh our i've got a 30 period in here my bad sorry uh well let's just stick with that gotta change that so we'll just stick with this 30 period moving average and then uh uh once we get below 254 which is uh uh a dollar below where the uh 30 period moving average is we're going to exit out now you can take it you can have a target of 265. so if we get in at 260 and get out at uh 254 and and and uh take a five dollar gain that's about a that's a less than a one to one reward to risk so some people may look for this to extend extend beyond that and continue uh this uptrend a couple different ways you can do that uh we're going to we're going to put this on though with the idea that it is going to run from 249 to 265 so basically 10 dollars from here so we're going to look for uh about a 270 exit point now a couple of ways you can do that so let's do let's go back over here to uh we're going to right click on here on the chart now when you right click on the chart now that everything is going to be set up correctly so we're going to have an exit at 270 we're going to to take profits and stop loss at 2 250 uh to excuse me 254 to take uh losses however uh remember nothing uh stop losses don't uh guaran no guarantee of execution at the activation price so i'm going to put in a bracket here so we have an upside target as well as a downside stop loss but we're not going to get in right now we're going to wait till price moves above yesterday's high here and yesterday's high is 260 260 91 with a target of 270. so

what we'll do is we'll unlock our lock here and look at 260 91 which is not too terribly far away from where we are and i'm going to change this to a buy stop so i'm going to change that first by stop 260. 0.91 and that's going to or excuse me 261 we'll go we'll go 10 cents let nine cents above yesterday's high sorry that's just for this example uh we're going to make this good till cancel the reason we're making this good till cancel is we're going to buy a certain amount of shares of mcdonald's above where the market is right now so we need a buy stop that's going to trigger or excuse me that will uh hopefully we'll get in at 261 but remember this is a buy stop so there's no guarantee that that will execute at that 261 it could be higher shouldn't be lower could be higher and then we're going to exit out on a stop loss just the opposite of what we just did at 254 on the downside 254 on the downside and we're going to change that good till cancel oh i'm sorry that's the limit we're gonna that's our that's our target i'm all over the place today my apologies so we're gonna get out if it hits our target of 270 my bad uh 270. so if price rallies up to 270 in theory this will trigger at a limit at 270 or better okay once it reaches up into that area that'll be good till cancel now if it drops on our stop loss this is the third leg of this of this trade here we're going to exit out at 254. exit out at 254 and that will in theory on a good till cancel take us out at 254 but remember no guarantee of that execution at that price so uh and then we're going to send this off in the interest of time we'll send this off hit confirm and send and that'll sit there until this triggers right if it doesn't oh well it just goes down and we can just close this trade out now here's another one let's take a look at the kind of the opposite side of this and that is look at pool you can look at pool now when we go through the process what do we see we see stocks in a downtrend lower lows lower highs it's below downsloping uh 150-day moving average it's breaking back down uh today after earnings and its rally was up going up on very small volume very weak relative strength and then we had this number price rallied up into where up until we hit resistance up until resistance area started to pull back well that's when the rsi got above 90 as a matter of fact it went all the way to 97. so the theory is that that's a high

probability chance that there'll be some relaxation back in the direction of the original trend and all the markers are saying are saying weakness downtrend low volume rally weak relative strength rsi very quick to the downside so here you know we're going to come over and we'll see if pool has options and they have options and so we're going to use an option uh we're going to use a option that expires in 38 days and this is a 368 dollar pool construction stock so we're going to come over here boy the bid ask spreads are very very wide on this so we may walk away from this one we look at volume and open interest and you'll see here the open interest fairly high but that's why we're getting these really big uh bid ask spreads so this is one as far as options that go you would probably consider reconsider buying an option because of that bit aspect that's three dollars difference if this dropped uh you know uh ten dollars you have a three dollar bid ask spread going in and coming out that you're going to have to deal with so that one is off the off the charts or off the off the record let's look at under armour under armour kind of in the same situation perhaps building a uh a base pattern let's look at uaa instead of ua uh low volume very weak on the relative strength same idea here and uh let's see what keep your fingers crossed on options on under armour and uh this is a nine dollar stock so these are not going to be uh too costly but you can see that bid ask bread is fairly uh fairly tight so uh when you look at this expectations would be for it to drop from you know where it is now nine dollars down to you know somewhere around eight maybe continue the downtrend uh even further to the downside so what we're going to do is we're just going to buy a uh an option a 10 option that's already in the money if we look at the delta on this delta is a a measure of probability of being in the money a proxy for probabilities and remember probabilities are theoretical in nature not guaranteed 68 delta so we're buying around a 17 del or 70 delta we'll left click on that the idea is that we expect price to continue its downtrend and we're just going to you can send that off now looking at the chart it's below yesterday's low and that would be buying a put on a close below the low of the highest day in the series so this day was higher than this day the next day was higher than the previous day so on and so forth and so we have this up trending look expecting some kind of uh check back down uh to the downside with just a very looking for a very quick move uh to the downside here and we will go ahead and confirm and send that off all right so in this case bearish bias versus bullish bias of uh of uh certain stocks out there we can look at um let's look at uh analog devices as earnings coming out but beyond that if where is this if somebody were to want to buy this looking for this to pull back hold this support we are we're looking at this rsi buried below uh 10 right now today it's at around eight sitting at support relative strength above the zero line uh volume on the pullback these last few days sideways and down relatively weak volume on the rally somewhere in here there we go volume on the rally through the breakout fairly strong uh and then subsiding as we got up into the upper reaches that pull back here so in this case somebody might wait they've got the they've got uh the signal or the uh the setup here somebody may wait they can you can go ahead and do it right in here some people may wait for some confirmation and that move back to the upside there but don't forget you do have earnings out there uh in a couple weeks so with that that is the idea of using a short-term rsi in the direction of the long-term trend with strong relative strength to get in after an extreme and extreme short-term move to the downside using the rsi higher probability as we saw your job of course is to not just take what i say as gospel you need to go through practice check it out do some research with it you know just go through the charts look at it make sure you've got all those things in alignment uptrend for bullishness our relative strength higher than the you know in and up trend looking at price above the long-term moving averages and looking at that short-term rsi to be oversold in bullishness the opposite of all that for bearishness there is a survey in the chat so please click on that survey and again if you're new there's just a couple questions tell us we're more we really want to see your comments about what you would like to see going forward that's where a lot of this a lot of these ideas come from in here this actually came from a a request in the in the surveys a few weeks back so we don't ignore these with that uh coming up next is uh swing trading with john mcnichol so please stick around for that and i want to thank barb and all of you in the uh in the chats really appreciate that and uh if you could please remember to if you're new click on that that little box right there if you click on that little box you'll it'll help you it'll subscribe you to trader talk which you can find all of the great uh all the great webcasts that the td ameritrade education coaches provide for you through youtube so we'd really appreciate that if you like what you saw today give us a thumbs up and share this with somebody you think can benefit from it and we would really appreciate that with that uh please remember that this is for educational purposes only and wrong button this is educational purposes only not recommendations and you're responsible for the decisions that you make in your self-directed account take care everyone thanks for joining us all you new people we really appreciate it see you later

2022-08-12 02:27

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