Swing Trading Days to Weeks | John McNichol | 4-13-21 | Breakouts with Defined Risk

good morning everyone john mcnichol here and welcome to swing trading days to weeks we'll go ahead and we'll take a look at the market open and discuss some swings set up so stick around all right hey good morning to those who are live with us today such as neil radio wayne woodsman tim see casey shawna bill michael michelle tim mike demetrius leslie ryan remy mark ricardo dennis and everyone else we have uh who we have helping out we got cameron may on the chat uh back from a day off there do appreciate him being back and helping us out on the chat here this morning you can see my twitter handle on the screen at j mcnichol underscore tda if you wish to follow myself along with other fine instructors such as cameron there let's take air disclosures we'll get right into it folks options not suitable for all investors spread straddles of the multi-leg option strategies often involve greater more complex risks than single leg option trades including multiple commissions now in order to demonstrate the functionality of the platform we will be looking at actual symbols keeping 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 uh transaction costs important factors should be considered considered when evaluating any trade and paper money application is for educational purposes only and successful virtual trading during one time period does not guarantee successful investment of actual funds during a later time period as market conditions change continuously as always all investing involves risks including the risk of loss now while this webcast may discuss technical analysis other approaches include fundamental analysis may assert very different views and a stop loss order will not guarantee an execution at or near an activation price once activated they compete with other incoming market orders all right and let's go and bring up our agenda we'll take a look at the market open now we've got some swing setup examples we'll do practice trade and we'll follow up on our discussion on trailing stops uh that we did last week with the parabolic sar you're welcome to go back and look at that archive it is available for you in the archive for these webcasts there so let's go ahead and bring up the thinkorswim platform uh looking at the market here this morning uh markets kind of uh flat um we are in the middle of earning season there was a little bit of a a scare there i believe the market did adjust a little bit although the dow still down um still down a bit from the halt of the johnson and johnson vaccine so we're seeing at least a pullback kind of a little more of a flag in action uh looking at the dow uh hasn't taken out uh at least uh the gains from uh earlier uh or actually late last week there spx kind of flat looking at the nasdaq nasdaq is positive up about half a percent this morning and looking at the russell the small caps small caps still kind of hang hanging around not getting any kind of momentum over the last few sessions still off uh from the lower high so we're seeing a bit of a divergence on you know some of the different major market indices as far as with bias uh things seem to be more firmly in the growth area there uh as we look at yields you know yields are pretty flat in the in the middle part of the range of uh where they've been for the last several weeks and so it doesn't seem to be too much of a concern uh at the moment as far as with uh yields there cpi came out uh i i was remiss in going back to take a look at it if everybody uh anybody wants to share if uh there's any kind of a surprise there i think one of the headlines i caught one of the main drivers is gasoline as far as on the cpi uh pushing uh prices up but it does not seem that the market is reacting overly uh negative uh nor positive on that move there looking at the sectors uh over on the left here as far as gainers and losers uh it probably won't be a surprise since the nasdaq is up about a half percent uh usual suspects in that arena is going to be information tech consumer discretionary communication services all positive as we look on the broader side more on the negative and that could be possibly an impact with that cpi uh thanks for sharing that cameron cameron looked at the tape there a little higher than anticipated 0.6 percent versus 0.5 percent so we can see that being impacted uh looking at areas such as financials industrials energy consumer staples uh all kind of leading down there now a special note on financials uh on the earnings front and i believe it starts tomorrow with banks like jp morgan and also wells fargo reporting a lot of speculation as far as with the markets that you know markets are priced for perfection may have heard that term um you know a lot of anticipation going into earnings we'll see if these companies are able to deliver and if that price momentum will continue to the upside uh looking at the market watch tab as far as with some of the movers on the s p 500 oh looks like we got a fill uh on akamai a breakout trade i was going to highlight that with you that's uh one we covered yesterday in the breakout and reversal webcast on technically speaking yesterday uh if we uh take a look at on the s p 500 uh some of the uh the gainers here we can see uh again more on the tech front seat etsy tesla we'll take a look at tesla here in a moment uh amd on the chip side ebay you can see quite a few down the line there uh pfizer and probably moderna uh getting a bit of a bounce uh with uh jnj being on the ropes there looking at some of the losers uh some concern uh possibly with the airlines as well uh if uh you know some concerns as far as with uh covet hot spots and if that may derail the reopening obviously a lot of discussion on that there's johnson and johnson there off about two percent um it's going to bring up the uh the dow let's see here there's down industrials uh crm salesforce let me take a look at that one that was one that was on some of the pattern radars there apple up as well microsoft still pushing higher we have an example of a trail and stop on microsoft that we discussed last week with the parabolics are we'll take a look at that one and uh look the rest of the dow components being down uh led by johnson and johnson on the financial side american express jpmorgan uh ibm as well too ibm's kind of a been wavering back and forth as well and then let's go ahead and bring up uh just shut down one other thing here and bring up the nasdaq and you can see some of the losers there looks like some of the losers are on the kind of on the retail side hospitality and if we go ahead and look at any of the gainers again more on the tech side more the work from home versus the uh the reopening there so a bit of a back and forth on there folks and uh if you look at the chat there hey let me know if you're new uh to this webcast here the emphasis of this class is uh typically on the shorter term days to weeks you know just one style of training amongst many that are taught here at td ameritrade education and make sure that you keep an eye open on the educational webcast for other content and if you kind of see our schedule here for today for instance james boyd coming up after me with using options as a stock investor a very well attended class if you go ahead and look at the webcast calendar if what i'm talking about is a little more advanced uh keep in mind uh we do have a whole getting started series including cameron may uh every monday talks about technical analysis and you can see getting started topics throughout the week that you're encouraged to attend and you can also see there's even more advanced webcasts that are available for you as well ryan great appreciate you being here peter second time so hopefully the first time was worth it and it was enough to come back thank you uh and we got the lamont and uh dye bowl there thank you so much from maryland we got uh maryland new jersey in the house awesome i'm a pennsylvania man myself originally from outside philadelphia lived down in utah for uh over 20 some years there's my twitter handle by the way folks as well if you wish to follow you may see some productivity tools on my chart or on the left-hand margin a lot of color boxes there if you come to twitter this is where you can learn on how you can add some of those and there's an explanation for these various script tools as well one of the common ones that we may reference is what we call the cohold close above the high the low day kind of a common set up if prices are pulling back let's taste suit to a support and makes a low day one of the triggers for a potential entry is looking for price to trade or close above the high of the low day uh that script i have in there for this attempts to find that or looks for a setup such as an inside day or harami which may imply a potential change in price direction okay so always get questions asked about that so want to headline that there as well you'll also notice on the left-hand margin the same uh script is also here on the left-hand margin for your use there again you can follow the instructions on twitter all right let's go ahead and take a look at a couple of stocks as far as with setups uh i'll start off with akam to kind of show you an example one technique that we've applied on a regular basis uh is what we would call a a buy stop you know essentially there's two types of uh common entries for a trade one would be a breakout in this case uh akamai breaking through resistance and then another example would be a bounce or what we would call a cohold when price pulls back in a trend here and you know maybe a couple of days in this case is only about a two day pullback uh once a low day is set looking for that price to trade or close above the high of the low day that's what we call it CAHOLD or basically a bounce there's another little bounce here as well and then you know bounces and breakouts are some of those common entries okay uh cameron thanks for uh sharing uh some of that stuff uh on the chat appreciate you and so uh akamai went ahead and basically intraday broke through uh this resistance um now you know there's pros and cons of entering in as soon as price breaks or bounces uh that the pro is if there's momentum behind it you know hopefully catch a long-range day like back here uh the con is you know uh prices can fade and blow back into that pattern so your results may vary with that if i go ahead and go to the uh let's see we'll go to the monitor tab this was the order that was filled and this is what we would call a a buy stop order it was a stop limit order that was gtc and basically uh in fact let's see here make sure i got that right uh basically it placed the order uh let me go ahead and actually create a duplicate order oh actually it did not do that correctly uh let's see yeah sometimes uh with the on a stop order when you try and create a duplicate it may create a limit because that's exactly what it triggered uh but the way the setup was was we had set a trigger price of 104 92. and if it touched that area it attempted to fill it at that price or better so a stop order which is commonly used to get out of a trade because the price goes down getting out at a worse price stops can actually be used to get into a trade as it goes the opposite way if one wishes to buy at a higher price okay um and so that was one technique that we had utilized there and we'll see if we can maybe do that again with another example for instance bringing up tesla tsla you know a lot of traders been looking at tesla as we have a resistance area some traders may refer to this as a you know kind of a w pattern or a double bottom as tesla has been struggling but we can see price went ahead and broke through resistance now you know one concern is you know there is an earnings event coming up some swing traders may uh you know not trade through may choose not to trade through earnings uh but if there's enough time uh to pass for a stock to possibly make its move uh that could be an example of possibly doing that i kind of highlighted uh basically a range of price this is what we teach in the breakdown and reversal patterns that a price that breaks out of a certain pattern uh may make a similar move and over the same distance of time uh with this example uh you know potentially tesla trading up to its previous range back in february now you know tesla is a more expensive stock uh you know one technique or one uh example trade uh that we've done is uh a spread trade um you know whether uh you know one may do like a short vertical or a put spread uh trade if they believe that the price will stay above a certain price uh that's something that a good friend ken rose teaches every wednesday at 3 p.m eastern time

another sense of this class is a little more directional is possibly do a call spread where we can buy an option kind of close to the current price and then sell another option a call uh where we believe the price may be trading up towards uh over the life of that spread okay um so what we can do is we can go to the trade tab and uh on this trade tab uh we got several expirations there now typically on the spreads uh we've looked at examples you know kind of in the uh you know the 20 to 50 day range uh now there is an earnings event again at the end of the month uh we could potentially look at a a shorter one but keep in mind uh that you know it could be a little binary on you know if the price uh trade is profitable or or not there since there's may not be as much time uh for the price to move in a favorable direction if we're wrong on that assumption but let's say as an example we can look at doing that let's bring up the right stock it did not link let's bring up tesla i know those options looked a little bit uh inexpensive but same difference uh if we look at expirations here now one can go a little further out and just potentially decide to close uh the trade prior to expiration if they wish so i'm going to go ahead and take a look at 17 days that'll push about two days past that expiration and if i go ahead and let's say we take a look at an option that is uh close to the underlying price and wow looks like that price moved up uh a little bit more quicker than i expected i was hoping to look at the 715 we're already at 7 24. all right that's okay uh let's say uh so we can add up here if we do the 725 i'm going to right click on that 725 and notice it says buy we can do a buy custom and we can actually uh select a actually try this again actually we're just going to go to buy and then we're going to select vertical click buy and then do vertical and what that's going to do it's going to buy the 725 that i selected and it's going to default to the next strike in this case 730 so that's only a five dollar move um the trade would potentially cost about 233 maybe a little bit more it's a little more bullish and we can go further out let's say we can do a 740. so if one expects that tesla may be trading above 740 before earnings then this would be a potential trade it's going to be a defined risk defined gain if i go ahead and look at that this trade would cost 688 per share certainly is probably a little bit more maybe closer to 70 we have to adjust that price i'm going to hit the confirm and send and you see where the potential loss is which is what we pay for the spread and what the gain is which would be [ __ ] a807 um this would be common you know for an at the money to a a little more out of the money spread to basically have a 100 or more return on risk uh trade is a little forgiven as our break even is at 731.93 which means that the price

just has to be about six dollars or less than that above where the current price is at that 30 april expiration for this trade to make money uh there are commissions on that uh so we're gonna go and do a practice trade on this uh again not ideal i wish the price didn't move as quickly may have had an opportunity to do the 715 and capture some of that move but we'll do this for illustrated purposes and we'll do one contract to define that risk position size to a maximum loss and i'll click send so we're gonna do one contract so you know if one determines they want to do more contracts you have to determine how much are you willing to lose on the trade we're not using a stop loss on this example uh we're position size into a maximum loss so if one was willing to let's say risk uh you know two thousand dollars on the next trade based off their position size they can take that 693 divided into 2000 you know that would probably be about three contracts if you have a very small account and are not willing to risk 693 then this would not be a good example as far as money management in that regard um some traders may may be willing to risk half of that but when it comes to spreads uh one may want to be a little cautious with that because uh the probability of being stopped out could be greatly increased so we're going to do that one contract for an example and we'll send that through notice it didn't get filled right away that's probably because the price is moving there if i go back to this example we can right-click cancel and replace order and my backing off on that at least given a few moments there looks like we did get filled so what some traders may do if you don't get filled you may be able to adjust the price closer to that natural price we got that practice trade in we'll go and continue following that um since there were a few questions on the chat there uh and appreciate that cameron for helping out uh on the questions there you know one of the scripts that uh cameron had shared on the chat or at least two of them uh one is a a moving average crossover so when some somebody asked well you know how you come up with some of these setups one of the examples is looking for stocks that are maybe having a moving average crossover uh if i scroll down a little bit here that's what this column is illustrating you know stocks that are referencing a combination of some moving averages uh looking for you know a positive bias as i go ahead and link this up and you know some of these with you know very strong trends uh would probably be candidates for uh some of the flag type setups you know where prices may pull back kind of an example here such as tjx where you have overall a trend developing as far as prices being above the moving averages price is pulling back over a couple of days this is what we would call a flag and then looking for that price to trade above the high as a low day now that's where this second column comes in uh which is showing potentially a cahold so for instance activision here uh example of a stock that may have a upward trend that may be bouncing so if i click on activision we can see that right here here's an example of a stock that kind of bottomed out similar to tesla there's been a common pattern on a lot of growth stocks lately we have a diagonal breakout notice here this combination of moving averages are starting to cross over signifying that potential reversal and as those averages are rising and prices are above it being in a stronger trend uh this would be an example of price another example of or an example of a CAHOLD as i zoom in on this here is the low day here is the high of the low day and today's price action is trading above the high the low day so there is a bounce and that would be a potential entry uh for someone who is looking to try and capture whether a trend or if they're looking for more of a shorter term move a swing and what one would do is go ahead and take a look uh at a previous move you know that could be you know another one of these tails or pull backs there going to low to high so from swing low to swing high i'll right click on that line it will activate it and i can move it and basically go from the low of that pattern basically the low day the next low day and then that would project out where a potential target would be and then you know one may see some confluence with that and possibly a previous resistance okay now another near target is you know looking at previous highs and so if the price was to continue trading above and make a new high uh then you know traders may consider adjusting if they have a stop uh closer to where their entry point was okay now for you to learn more about uh some of the uh the you know these scripts once again if you join late uh the twitter feed go ahead and take a look at you just uh look for john mcnichol or at j mcnichol underscore tda and it is on the pin tweet um i do have it again on the scratch pad on the thinkorswim but this gives you an explanation as far as what the scripts do also uh as far as the moving average crossovers if you go into the webcasts in the webcast area here go to archive you can search for webcasts based off of instructor and under john mcnichol or j mcnichol you can see some of the various sessions i teach such as breakout and reversals have a good friend scott durfy who is uh working with me and ray on the technical analysis workshop let me know if you're attending that technical analysis workshop we have that live in the evenings this week uh he helped me out with a webcast yesterday but if you scroll down and look at other technically speaking broadcasts that i have under john mcnichol back on march 15th is when i discussed about utilizing those moving averages for breakouts and breakout setups kind of similar to the akamai uh that had triggered and uh and then also to a degree as well uh with uh tesla and we can see a similar thing here with activision okay a couple other setups uh let's see was looking at some of the material stocks um mosaic breaking out of a triangle seeing kind of a little bit of a fade here some traders may you know look for more of a positive price action uh trading above uh qualcomm qcom this one's kind of interesting uh you know really for a tech stock not a lot going on uh earnings are coming up was looking to see if prices were you know able to kind of break out of this range now yeah one technique is you know putting in an order and doing a buy stop if prices were to break out of this range if one's not comfortable you know enter in an order or a gtc you can simply right click on the chart on any area that you wish to be alerted to go ahead and create an alert and you can go ahead and say breakout you know question mark and make sure it says add or above that price level and then hit create and then now this is set up to be alerted uh if the price trades up to that area and then one can re-evaluate and make a decision now if you're not familiar with those alerts you can come up to the setup here on the thinkorswim platform go to setup it's under application settings and there's a notifications tab and here you can determine which you want to be alerted on and you can set up emails go through a confirmation process you can also add phone numbers and enable those notifications all right uh let's see what else we got uh this is another one kind of a follow through from yesterday on breakdown reversals uh uh this is uh let's see biav the avi solutions they seem to be kind of more on the network uh testing and security side looks like analysts haven't been so hot on it again not a recommendation but looks like they're attempting to you know make a reversal breaking out of a a triangle there and again what traders may do is measure the distance you know in that pattern depending on that time frame and look for a similar move uh over that period there i think the other two we're looking at from the pre-market crm as you can see uh salesforce you know kind of similar to a lot of other nasdaq stocks had a reversal last week and looks like we're continuing on that here today again more expensive stock you know some traders may you know consider uh you know looking at a spread trade you know if they believe that the price may stay higher or trade higher not too bad there let's look at ibm now ibm fallen uh leaning into earnings and not sure if qualcomm may do the same thing there again it was another stock that was kind of consolidating wasn't able to quite break out there so a little weakness there and we'll see you know as earnings develop if there may be weakness in other areas of the market you know we may find some opportunity for some short-term uh bearish trades but overall the bias of the market has been uh much higher someone asked question you know where the parameters i have for the uh the iv scan uh let me go ahead and share that with you i actually discussed this more uh thursdays uh in the uh long verticals and diagonal class but here's a setup here i'm actually looking at penny increment options but you may have to set the watch list yourself such as looking at the s p uh or the nasdaq uh you know look at a basket of stocks there i'll go ahead and actually share this and uh simply what it's looking for is uh let me share it again sometimes i don't like the codes that come up on some of these here that's a little better there i'll place the code in the chat and we'll put it in the scratch pad for everyone else but it did not work give me just one moment here folks bear with me we're trying to alleviate not having a l or an i in there because it's hard to determine which is which i don't know why they do that i think i got it this time and you can use either of them but the second one may be more preferable i'll put this in the scratch pad what attempts to do is look for stocks that may have relatively lower volatility that may benefit option buyers and long spread trades which i typically discuss can also modify it if you want to look for high vol but uh it's basically looking for liquidity you know stocks priced over 30 average volume over a million shares looking for relatively low volatility and a technical indicator such as adx which is basically looking for stocks that are generally a little more sideways and that may proceed a breakout or for spread trades uh some some spread trades you know having a little more range bound is not necessarily a bad thing uh you can join me on thursdays uh at uh 3 p.m for long vertical and diagonals if you want to follow more uh but you'll see in you know the watch list i'll may peruse through that as well as look at um you know something such as the penny increment uh stock list which you know has a list of stocks that generally may be more widely traded no guarantee of that but maybe uh liquid as well okay so you know we showed you a few setups uh showed you an entry on there as well um let me see if there's a another example of a bounce going on today as a lot of stocks are just continuing uh some of their previous moves here and we may have to follow up on next week on a few of these but essentially what we're looking as far as a bounce would be a situation where we're seeing prices pulling back a little bit over a couple of days and looking to try and capture that a lot of our setups more recently have been more along the line of uh breakout trades now what i wanted to do finish up on is talk about trail and stops and uh those of you that joined us last week we did have a couple examples that we inputted a Trailing stop utilizing the parabolic sar you're welcome to go back and look at that from last week the examples that we did was uh on actually not trade history and go to order history here uh was on one was on microsoft and the other one was on ebay now the microsoft one is still in force uh the ebay one triggered so we'll take a look at that so going back to that uh the the parabolic sar that we had used was one that we had tweaked there it's not the default settings for those that are new you want to go back and look at that session from last week if i go to studies and edit the studies this is the setting that we had set for that parabolic sar and it can be adjusted here in this gear uh kind of configured it for more for a swing trade uh the the idea being that once a swing has been established is possibly to set a trailing stop once it's made a move and to allow the stock to go higher uh but once it pulls back to close out the trade and uh with our example on ebay that's what happened on the seventh go ahead and take a look at it you know this was the fifth uh we go to the next day which is the sixth and you know the price actually did touch uh but looks like it did not trigger at that point the algorithm is if the price is below uh the uh that indicator it should close out at the market that happened the next day as when price does pull back the sar would flip and then would guarantee that the price is below that level and it closed out at that point and then as we go forward now you know there was another bounce on ebay you can see an example that actually here price trading above the high the low day if one was bullish and looking for another swing they can possibly trade that as well then the other one was microsoft msft and you know microsoft's going higher and this is where you know the strength of a trailing stop can kind of come in you know uh some of the trades that we may have done where we have have an entry and then you know set a target price hits that price closes out the trade well what if there's still momentum behind that in the case of microsoft it trade up to a resistance but it didn't back off continued continued it's continuing today and so that's where having a trailing stop if you're willing to give back a little bit to risk to see if the price goes higher that's where that can be potentially helpful so that trail and stop is still in force uh with microsoft there and uh let's see here i'm gonna look at one more here and we'll wrap things up uh the other example i was looking at was a quirvo or corvo more expensive stock i was seeing if the options uh this may have been another example for a a spread trade but wasn't sure on how liquid these options are kind of larger spreads in between the bid and the ask but was kind of looking for that CAHOLD which this would be an example low day high the low day now price did trade above the high the low day but notice it's already failing so this would be one of the challenges if one was to enter a trade earlier in the day the pro is if it rallies up that's great but if it fades then you know one may potentially be stopped out sooner now what you can do is potentially practice to look for these setups in the afternoon in that last half hour of trading to see if that is situated and possibly do those practices there so eric says that did you set that trail and stop to do and it goes automatically yes if i go ahead and go back to this one here and again would encourage you to look at last week's session we'll tie both of them together next week as we'll do setups last week we talked about some exits here we talked about some entries we'll combine them both again next week for that swing trade let me go back to the order history here and go back to the fifth and we'll bring up uh let's see there's microsoft right there um i'm gonna right click only right click on the other one here and create a duplicate order it's part of the conditional orders feature on the platform you'll click over to this box which a gear will appear and you'll see the setup here where we basically utilized a study filter and basically looking for a close that's less than the parabolic sar utilizing these settings again i take it in depth on that on last week's session so make sure you go back and look at that as we wrap up folks uh let's take a quick look at the market market's still kind of hanging uh up there uh looks like uh s p you know pushing into those highs again another all-time high nasdaq all-time high dow just holding ground there being impacted by the dow and let's see if the russell joined the party and a russell is not um so definitely a growth party going on right now we'll see if earnings changes things tomorrow uh but looks like we're still seeing some weakness on the russell and uh probably being impacted by those financials uh being down a percent uh materials a lot of energy materials financials and those small caps there folks so hopefully you liked what you learned here today folks make sure you click like if you do i don't believe there's any surveys otherwise i'm sure cameron would have pushed that out so we went ahead and did our market open uh looked at some swing setup examples including entering uh while overviewing uh the breakout on akamai and also uh sharing with you a spread trade our example with tesla i also reviewed some of the trailing stops from last week and we'll go ahead and continue talking about those next week as we look for additional swing setups so appreciate you joining us here today thanks for cameron for helping out on the chat 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 cameron's told me there's no survey so make sure you click like practice what you learn here today and we'll see you same time next week so take care everybody bye now you

2021-04-15 11:33

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