Swing Trading Days to Weeks | John McNichol | 3-16-21 | Swing Setups and Spread Trade
good morning everyone john mcnichol here and welcome to swing trading days to weeks we'll do is we'll take a look at the market take a look at some swing setup says markets have made some new highs recently we got the fed this week stick around and find out more okay well it's good to see everyone live here bright and early this morning got tom shawna uh tertry fayez we got dom harold frank roger tm peter captain caveman dom harold or shod mark mike giles uh and everyone else we got sal here too and we got cameron helping out on the chat uh if there's any questions that i am unable to get to uh he's more than happy to help thanks wayne ricardo sandeep you can see my twitter handle on the screen at j mcnichol underscore tda if you wish to follow myself and other fine instructors such as cameron let's go and take care of disclosures we'll get right into it remember options not suitable for all investors spread straddles so the multi-leg option strategies often involve greater and more complex risk single leg option trades in order to demonstrate the function out of the platform we will be using actual symbols keep in mind td ameritrade does not make recommendations or determinability of any security or strategy or individual traders any investment decision you make in your self-directed account is solely your responsibility now you're encouraged to practice what you learn here today with tools such as the paper money application which is for educational purposes and successful virtual trading your one time period does not guarantee successful investment of actual funds during a later time periods market conditions change continuously as always all investing involves risks including the risk of loss now a stop loss order will not guarantee an execution at or near the activation price once activated they will compete or they compete with other income and market orders whilst webcast may discuss technical analysis other approaches including fundamental analysis may assert very different views always folks all investing involves risks risk of loss there we go let's go and take a look at the market open go ahead and go through uh some swing setups as uh this last week uh i did uh uh after some volatility in the previous week uh did show a successful swing starting uh i believe wednesday let's take a closer look at the thinkorswim platform up on the screen i got uh twitter handle over there on the right or sorry left as well as on the bottom of the screen uh looking at the s p 500 when we're observing this on tuesday uh the market uh had uh bounced uh off of in this case uh a 55-day moving average kind of more that intermediate trend uh setting a low the high of the low day and traders you know looking for prices to trade or close above the high of the low day i'll notice the market did kind of struggle to do that uh for a little bit um you know price action the very next day if we go back and look at this i believe this was that was a trace our steps here we got uh tuesday monday and friday thursday wednesday so here's tuesday this is monday here so this is from the previous yeah there you go there's a separation let's look at that so you know prices had uh bounced but struggled to get above that low day we did trade above it on the 8th and kind of faded back in that range wasn't until tuesday that we had gotten that bounce as price was trading and closing above the high the low day or that what we call the kaholt and we'll actually be utilizing some script today to identify other examples of that but one of the challenges as far as with that bounce was you know prices trading up to a resistance and prices actually faded off in that afternoon wasn't until wednesday when we had more of a breakout of that pattern and that pattern continued going into the week end of the week as well as this week and a successful swing as price action took out previous highs a successful swing on the s p uh by comparison if we look at the nasdaq nasdaq struggled a little bit more with that they had sold off more from the previous weeks we did get a similar bounce um however uh the nasdaq didn't quite break break out until i believe this was more on thursday lag in the broader market a little bit more there but breaking that downward trend and you know relatively uh have to take a closer look but notice that not only did it break out but when it did pull back it basically tested that breakout kind of forming that higher low technicians may refer to this as a kind of a small inverse head and shoulders uh it may not be as clear on seeing that when one looks at it on a daily chart what some active traders may do is you know take a look at an intraday chart along the lines of like an hourly and look for some of those transitions in this case on the hourly chart you can see a little more clearly that transition from lower lows to higher lows and basically breaking out and retesting that and we're seeing some follow through on the nasdaq here this morning the other indices such as the small caps rut discussed in the past on how the small caps had been relatively stronger they didn't actually close below this case 55-day moving average uh you can also see as far as the bounce the bounce did occur a little bit quicker than some of the indices and stronger follow-through as prices went ahead and broke out and again made a successful swing by taking out those pre eyes as we look at small caps uh this morning uh we're seeing um you know a little smaller consolidation over these last two sessions traders may refer look at this as more of a bull flag you have a sharp move small consolidation and looking for price to break out of this range uh wouldn't be out of the ordinary today to see uh you know a little bit lighter on some of the price movements uh the fed is uh announcing tomorrow go ahead and on the td ameritrade website one can go under research and ideas and go to calendar look at some of the uh current events taking on the economic front as we look at today um which uh maybe some contributing factors uh on the nasdaq um you know retail sales this number uh didn't verify this on on other sites here but it came out retail sales being off the consensus was about 0.6 percent so a little more of a negative surprise however you know sometimes bad news is good news uh that if we're seeing weakness on the economic front that may make the fed less likely to raise rates or try and slow things down which are some market concerns if i go to wednesday tomorrow noon is going to be the fomc rate decision probably the biggest news of the week and you can see some other things that may impact some individual stocks uh such as uh housing starts building starts now neil says you know what does an inverse head and shoulders actually suggest it's probably a great thing to point out here if we go to the education tab and go to stocks education and stocks we have a technical analysis course since we do focus a lot on technical analysis here uh under feature stock education you may see it here you may need a page through it there's technical analysis there if you scroll down on the stocks page you may see under media type links to our courses as well and under stocks technical analysis we can bring that up and a lot of discussion on patterns uh i do this every monday on technically speaking where we talk about uh breakout and reversal patterns that's also talked in the technical analysis course under technicians set the inverse head and shoulders is an example of a reversal price pattern and what is it reversing well reverse in a previous trend if you go through and take a look there's examples of bullish patterns and on that intraday chart actually that hourly looked a little more like a double bottom uh implies a potential reversal if prices break through that resistance which we were looking at on some of those indices here's the head and shoulders bottom otherwise referred to as an inverse head and shoulders you can see the real implication as you notice whenever i identify this pattern is previous price actions going down making lower lows a bullish reversal may start with price action making higher lows then the breakout would be higher highs higher highs and higher lows more of an uptrend and more of a bullish bias you can also see as far as with patterns that traders may measure the distance between that support and resistance and this is also helpful for swing traders on potentially setting a target based off of the previous range traders may target a similar move so thanks for asking that question there great references within the technical analysis course also cameron may every monday at 11 a.m eastern time teaches getting started with technical analysis as well all right so let's go ahead and continue our discussion and see what is going on with the russell there uh the dow djx also uh consolidating uh you know at those highs after a big day yesterday and some out performance there uh from the dow as they took out their swing relatively early on uh last week okay so as we look at the broad market we're seeing that you know many stocks have made already uh those bullish swings so what's the next setup next setup similar where we're looking on the russell is you know possibly looking for prices whether to consolidate whether that's a day a couple of days uh even if the prices pull back a little bit over the course of a couple of days we may look for potential for a bounce all right and if we go ahead and take a look uh over here on the left-hand side under sectors and sector action uh we can see what some of the players are uh energy materials let's see what we got here as far as the losers energy uh taking a bit of a hit today but this has also been one of the more outperforming areas of the market uh notice we can see price action again making higher highs and higher lows this is a little more uh typical of you know a flag and that pullback over a couple of sessions so possibly some profit taken here after a very strong swing to the upside and uh probably see something similar with the financials as well big performer and price is making higher highs and higher lows and we're seeing that a little bit of a pullback there over a couple of sessions even though these are sectors that are negative today you know they can be potentially providing some opportunities to look for that next bounce or that next leg up some cases it may only be like a one day pull back as we see here question mark is this going to be the same thing as we go into the fed there's going to be a little more of that likewise if we look at some of the leaders on the day and i noticed this in the pre-market uh between communication services and infotech uh a lot of those stocks uh up in the pre-market um if we go to the market watch tab i've showed you in the past on bringing up the market or mark percent change you can right click on any column header do customize start typing that mark percent change that'll show you some of the percentage changes based off the bid and ask in the pre-market whereas once the market opens that net change should be the same or similar these are going to be typically zero before the market opens see some of the leaders as far as the s p 500 more on the tech we're seeing chips micron applied materials western digital um starbucks in there we actually looked at starbucks yesterday may take a closer look at it again today if you look at some of the losers you can see a lot of them in the energy front like royal caribbean taking a little bit of a hit as well quick look at that one that's looking like on the trend so here here's royal caribbean this is a bit more of a a larger consolidation we can do is identify that support and resistance that could be a potential setup as well it's a little more of a triangle or a pennant now those you that may struggle with uh identifying you know highs and lows in the trend got a helpful little tool for you under the patterns tool we'll go to patterns do show patterns we'll do select patterns and we'll go under handle stick it's part of the candlestick tab then it is called williams fractal williams fractal and double click and add that and if you hit click on the question mark question mark will give you a little background what the indicator does may take a little bit to load up uh but essentially it's looking for handle reversals those candle reversals uh could be a good way of doing a little back testing but also helpful for identifying highs and lows well support and resistance you'll notice what it does it puts these little carrot points on some of these distinctive highs and lows that may be in the trend notice i can connect some of the dots here going off of these highs we can see some resistance and then you can go ahead and draw some support as well i was defined on the support side but you know kind of looking at you know where a lot of that price consolidates you can see that squeeze as far as falling resistance rising support and much like that inverse head and shoulders traders may measure the distance between that support and resistance and project out a potential target swing traders you know may at the very least look to take out a previous high which can be a target and measure in that previous move uh one way of doing that uh you know if i go to drawing tools and let's say we grab a box or rectangle i can go ahead and draw a rectangle over a good part of this pattern you know between support and resistance you know kind of go from the approximately around that widest part there just that a little bit there maybe a little conservative there and what we're doing is we're basically incorporating a previous move and also the passage of time that way if i kind of take this pattern i can right click activate it i can go ahead and slide that to that potential breakout point that can give me a potential target price target to shoot for now there's no guarantee that the price will trade to that level and hit it when we want uh but as far as in a breakout that's one way of doing that okay i'll look at some of the comments uh this comes up a bit uh you know over on the watch list this is a public list of the s p 500 sector uh if you wish to look at it you just simply click on the drop down for the watch list go to public and then you can go ahead and find s p 500 sector indices that's what i'm looking at now the one problem with this though you pull it up for the first time you're gonna see something like this and it's like john what the heck is that uh these indices do not have a um a descriptible name in the symbol so to basically know what you're looking at you'd have to add a column that says description uh and by right clicking doing customize on the column you can go ahead and bring up description and add that column and that is the description for that sector that's why i usually have like this so i can know what sector i'm looking at all right now so there's a potential setup right there uh we can uh possibly practice with but let's also talk about potential bounces and uh that's what i wanted to share with you uh you know on a watch list so as an example uh i have the nasdaq 100 list uh i have some productivity script which is all listed right here you can also learn more about these by going to my twitter feed and on my main tweet or the pin tweet has a description of these different columns in fact if i go there and click on that the one column or the cohold cah for close above high dbl for close below low these are some of the common trigger points for a potential entry or possibly an exit for a swing that's also what the fractal points will show in the past some of these reversals so here's an example of a kaholt price trading lower making a low and then price trading or closing above the high of the low day whereas a close below price making a high then price trading down and going below the low of a high day that typically may coincide with a swing high which can be a target all right now if we go ahead and take a look uh add a few things here let's see and hopefully we answer your questions as far as on that public list and then again what this script does and you can see an explanation of it close above high the low day attempts to identify the last that's above the high of low days and it'll show up green it's also going to include harami patterns harambe patterns are referred to as inside days that's when price is inside that previous day that's usually a sign of a pause however brief and that could possibly be setting up for a follow-through bounce uh if it's more of a a bearish reversal coming off the highs then it will show up in red all right so with that in mind uh let's go ahead and apply that the instructions for actually adding this there's the actual code and the instructions are right here if you follow these instructions you should not go wrong if you're following on the recorded you can pause that take a screenshot and follow those steps all right let's go ahead and uh as an example uh i'm looking at a list of the nasdaq 100 and you can see that there's a whole bunch of these that are showing up on green today which makes sense with the nasdaq being up let's take a look at a couple of them and see how they're standing out so here's netflix netflix has been struggling uh one thing to consider is when you are looking at bounces uh what is the existing trend doing and you know here in netflix uh prices had broken down a bit got some resistance make the argument the trend is more going down making lower highs and lower lows uh price did after consolidating here kind of a bit of a one-day pullback here prices have traded above the high that low day so we have a bit of a bounce uh but this swing or this wave you know maybe going against the tides so to speak so swing traders are typically you know going to look for more upward trends if you're bullish now the first indicator i have uh on this list actually does incorporate those moving averages that scripts here as well uh also on uh the on the twitter account uh if you take a look at the recorded session yesterday or technically speaking i actually go over this i won't be going over it today during this session but you can go ahead and look at uh the technically speaking for yesterday for reversal and breakouts where i go over this script and uh this is implying that these trends are a little more negative but for instance here's microsoft you know microsoft it's trend must be a little more bullish and kind of similar to what we had with the nasdaq uh we can see is making kind of those lower lows but then potentially making higher lows now there's not a fractal here right now there may be a fractal that'll appear tomorrow uh these williams fractals are not meant to be real-time but can be a bit of an aid to identify that support and resistance as we speak uh looks like i did get a fill on dollar tree from our breakout class from yesterday we'll take a look at that next but here's microsoft and kind of pushing up on that resistance so some traders may put in an order called a buy stop in an attempt to capture the price as it trades higher in fact that's what we did with dollar tree let me take a look at that dltr so here's dollar tree uh kind of similar situation as our explained with previous stocks we have some resistance uh prices had been going lower but potentially looking for that bullish reversal as prices break above that resistance and hopefully the trend develops to the upside if i zoom in on this you can see what the setup is similar to what i was explaining with you on some of these uh flags where you have a sharp move in price and we're seeing that consolidation whether price is pulling back in this case going a little bit sideways so in yesterday's breakout class uh we had looked at this high and basically said okay well if the price goes about 20 cents above that high to trigger an entry now the pros of doing that uh is if there's a long range day kind of like one of these days or like one of these days you know one is able to capture the move this is something similar that we did with nordstrom's uh last monday on the breakout class enter in an order as the price breaks out of that level uh that's the good part of being able to enter intraday the drawback though is sometimes it could look something like this where you enter as the price breaks out and it actually fades so some traders may wait to enter going into the end of the day uh versus early on your results may vary but consider that okay so going back to uh dollar tree you know if one wanted to do an example you know of an entry and this is kind of similar uh to what we got right here now on yesterday's class i did an example with a stock um let's say on this one i'll do an example with an option and what i'm going to do is i'm going to do an example of a spread trade something i teach on thursdays on the diagonal and a vertical long vertical class uh what a trader may do is buy one option on a current or close to where the current price is and then sell another option you know that may be within that target range that we're looking at and this target level is basically based off of this previous move you know going from high to low and projecting that level up okay and if we go to starbucks starbucks actually gapped at the opening was looking at this one for some potential here as well now sometimes on the swing trading side when there's a gap uh traders may wait for the price to see if it actually pulls back uh versus trying to chase it if i zoom in on a little bit and we did have a kahold yesterday as the price pulled back you know here is the high we had a one day pullback price made a low here is the high of the low day so if one entered into this yesterday going into the close uh good on you because now you're able to capture part of that gap now we're we're not going to chase uh the example in this class but you can see how what we're looking for as far as these kaholts those signify those bounces all right so let's go back and look at dollar tree dltr and uh for this example uh what i'll do is again we'll do a what's called a long call vertical just that i'm gonna go to the trade tab and uh already got some examples in here uh we'll do an example going out about 30 days i'm going to go to this april option there's that 31 days out we're going to look at a strike that is close to the current price so here's 110 109 83 but that would put us at about 110. this option would cost about 355. but one of the nice things with the spread is we also get an opportunity to sell an option in this case it could be that next strike the 115 or if one was even more strongly bullish possibly the 120. but if we were to buy this option and sell the other one that's going to reduce the cost of the trade i'm going to go ahead and right click on this and i'm going to do buy vertical buy vertical and notice instead of paying fifty five cents uh we're paying about a buck eighty seven and well actually there's a little bit of a spread here maybe a little closer to two bucks we'll see if we can get it filled for you know let's say about a a buck ninety uh buck 95 and this spread total is five dollars the nice thing about with a vertical spread is the most that could be gained or lost is contained within that five dollar so since we're paying a buck 95 the most we can lose on this is what we pay for the spread a defined risk the gain is also defined because that's a five dollar spread so whatever's left is the possible gain in this case that would be about three dollars i believe three dollars and five cents in fact if i click on confirm and send we can see the maximum loss which is what we pay for the maximum gain which is what's left of that spread notice when you total the gain and the loss that equates out to being five dollars per share or in this case 500 spread nice thing about the trade 2 is uh it's a little more forgiving unlike a long option where the price has to move dramatically in this case the price doesn't have to move huge uh for the trade to be profitable it just has to trade just a little bit above let's say around 112 for it to be profitable right now the stock's at 110.
that's only about a little about 250 away next thing you do since it's defined gain or define risk i can position size accordingly so if i wanted to risk let's say no more than 500 dollars in this trade that means i can go ahead and do two contracts let's go ahead and do that go and edit that i do two contracts you confirm and send or basically risk in 590 potentially make 610. now this maximum gain would be realized if dollar tree is trading above at or above 115 near that expiration now if dollar tree takes off and makes a even stronger move we may be able to capture a good portion of this game early on in fact one of the guidelines i teach is if we're able to capture about closer to 50 percent of that maximum gain is to consider scaling out maybe selling a contract or closing out the position uh and then just go ahead and look for another setup so quick way i'm going to go ahead and send this and let's see if we get that bill let me just double check on the price i think we should be able to get that filled your results may vary i'm going to do a confirm and send and send you want to learn more about this strategy feel free to join me on thursday we did two contracts for our example if i did three that would have technically put me above the 500 we've been closer to 600 and you can see that right there that we're tracking now we have a position on that all right and if there is a strong move uh in uh in dollar tree i keep hitting that order there i think if it kind of trades more in the upper half of this we may be able to capture about half of that gain relatively shortly we'll continue to manage that in an upcoming session very good let's see you know what other uh types of uh bounces that we have here uh and we looked at microsoft so you know micro microsoft pushing higher you know there's google i'll just kind of show you when one looks at the bounce you know again these are all showing in green you know what is it saying well it's basically saying that price is trading above the high of a recent low day that's not necessarily an entry one needs to consider where's that support and resistance and you know there's a few stocks particularly in in the nasdaq you know that still may be consolidating here's with google kind of connecting the dots here we're seeing more of the triangle even though there's a bounce some traders may enter into that uh anticipating that prices may trade through and capture that momentum other traders may wait for the price to trade higher now verona asks a good question about uh our uh our previous trade i'd go ahead and bring that back up again uh which is on dollar tree uh she asked the question uh what about uh assignment or exercise so what we did in our example we went ahead and we bought or went long around a 110 and we sold or were short a 115. so i'll do s c for short call do lc for long call now the idea is to close out this spread uh before expiration and seeing as it that our long call is already technically in the money if you held this uh then that long call potentially would be automatically exercised which means you would potentially have some stock okay notice the short call is currently out of the money uh the ideal situation is the price trades higher and trades through that spread and what happens is uh if it's held through expiration uh this one is automatically exercised this one is automatically assigned they cancel each other out and you have the max gain what happens with spreads though is if prices do fall in between now that short call spread can be or short call can be assigned at any time it's not likely to happen particularly if it's out of the money if it trades all the way through and it happens that's okay too because it can be offset by the other option that's the defined risk but with this type of spread usually what's the case that one would have to deal with is if the price expires in between the short option expires worthless don't have to worry about the assignment but you are automatically exercised and have the stock which you may not wish to do well what you do is you basically close out this position before expiration hopefully that helped out veronica all right and let's see a couple of these others kind of more on the chip side you know applied materials you know after pulling back over about a couple of days we can see price again trading above the high the low day trying to see if i can find some examples of harami's uh for you this would be kind of similar to one when prices inside that previous day the script will also show the same thing but from a bullish perspective you know looking for generally more bullish stocks that are whether breaking through resistance or bouncing i'll see if i can find an example of a bearish one not not seeing any red on the nasdaq today let me go ahead and bring up say just a public list of any increment stocks they will go to penny increment some traders may look at you know public lists like penny increment because these are potentially more widely traded stocks and uh it take a little bit for some of these to load up i think i got a few reds in here notice here some red ones now when you see some of this red this implies that price may be pulling back from a high um and if it's on an uptrending stock that can actually be a potentially good setup that's kind of similar what we're looking for starting for a little bit of a pullback if you join me last week uh you know we actually shared you a screener you know that looks for stocks utilizing a stochastic go back and look at that one you know to look for these pullbacks so here's wells fargo as i mentioned financials and energy are pulling back a little bit these are still good trends so what one may be doing going into the fed tomorrow is looking at these pullbacks and if price trades or closes above the high the low day that would be a bounce and another potential entry uh let's see some other ones uh here that some it looks like a lot more on the financials here's prudential okay uh previous swing up price pulling back again another flag set up and part of that would be whether at the end of the day or looking at our post fed tomorrow does price trade above the high of the low day all right i know some people may be typing in symbols in the chat uh keep in mind as a matter of compliance uh i do not uh take recommendations for individual symbols as it would imply uh support for that you know some other stocks on the energy front here's su i think this is suncor i think they're in the tar sands there you know notice again strong trend price pulling back over a couple of days could potentially be setting up similar but we saw at the end of february okay so these are you know various setups uh that we've been able to find utilizing uh our productivity tools on the platform uh what a swing trader is looking for from a bullish perspective is good overall trend and then you know looking for some of these small consolidations now in some of our examples uh you know like a dollar tree or or a starbucks you know they may have been consolidating for a little bit a few days and then looking for prices to trade above that range other patterns may have been consolidating you know for several weeks and forming kind of more of a rectangle or a triangle we can go ahead and look for those potential breaks as well uh so once again uh for those of you if you join late all these productivity scripts i'll always have them on my scratch pad with the codes here adjust that a little bit there not duplicating the one we talked about today was the cohold close above the high the low day basically looking for those bounces and this script will identify some of the pullbacks when prices close below that could be the setup and then also in prices close above the high the load day which could be a trigger to enter into the swing we did a practice trade on on dollar tree dollar tree utilizing the spread if you join me yesterday in the breakout class uh we did an example of utilizing the stock you can go back and look at that on enter in order next week uh we'll spend more time focusing on different types of orders to enter into the trade we just did a simple spread today looking forward that you can join us next week on that again if you want to add these uh there's the codes the first one is for the moving average which helps with trend the second one helps with identifying those bounces and if you go to the follow me on twitter and go to the pin tweet go ahead and follow these steps on add in those columns all right you see in some of my recordings i'll go through some of those steps as well so i would encourage you to practice what you learn here today folks we went ahead and looked at the market open we kind of did kind of the macro and saw that we had a successful swing in the market uh now as we go into the fed you know we are seeing some tech stocks some stocks were consolidating over a few days make those pops breaking out of smaller flags or larger patterns some traders may wait to see what the outcome of the fed is and see if that continues aiding in the bullish momentum or if that will signify more of a pullback that we've seen in some previous weeks but thanks for your support if you like this video make sure you click like so other people are able to follow along and be informed on some of our hopefully great education we have here at td ameritrade go ahead practice with some of those scripts see if you can find some swing setups on your own and remember in order to demonstrate the functionality of the platform we did have to use actual symbols keep in mind td ameritrade does not make recommendations or determine suitability of any security or strategy for individual traders any investment decision you make in your self-directed account is solely your responsibility thanks for the kind word shanna for a great session hey and if you thought once again if this is a great session please click like i'd love to see you there there's also a place for comments as well love to hear from you as well so take care everyone thanks to camera for helping out on the chat and we'll talk to you again real soon bye now you
2021-03-19 08:34
