Swing Trading Days to Weeks | John McNichol | 4-6-21 | Trailing Stops with Parabolic SAR

good morning everyone john mcnichol here and welcome to swing trading days to weeks hope everyone's having a wonderful day uh our topic today we're going to take a look at the opening of the market uh utilize trail in stops and look for additional trade setups so stick around all right hey do appreciate those that are live with us today such as ricardo david peter uh takeda mark michael mike see casey tony ron wayne and let's see what else we got going on here we got jack and katsun brian timothy demetrius shanna thanks for being with us we got mr cameron may helping out on the chat good to have him back cameron welcome cameron to help out on the chat uh if you have any questions for those of you that are new to technical analysis uh he does have a getting started with technical analysis every monday at 11 a.m eastern time part of our getting started series pretty much same time every day you're welcome to join him there you can see my twitter handle on the screen at j mcnichol underscore tda if you wish to follow me and other fine instructors such as cameron uh let's take care of her disclosures and we'll get into our discussion today options not suitable for all investors spread straddles other multi-leg option strategies often involve greater and substantia can entail substantial transaction costs also may involve greater more complex risk than single leg option trades now in order to demonstrate the functionality of the platform we will be using actual symbols keep in mind td ameritrade does not make recommendations or terms suitability of any security or strategy for individual traders any investment decision you make in your self-directed account is solely your responsibility now you're encouraged to practice what you learned today with tools such as the paper money software which is for educational purposes and successful virtual trading during 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 and a stop loss order will not guarantee an execution at or near an activation price once activated they will compete against other incoming market orders all right and here's our agenda we'll take a look at the market open after some record closes yesterday we'll see what we got going on uh we'll discuss and utilize a trail and stop uh with the parabolic sar let's go ahead and make that on the spot correction there a little quick typing before we got started today so there's no confusion uh and we'll see what we got as far as any additional swing setups there let's go ahead and bring up the platform and if you're new to this webcast uh put a shout out there and a certain hearty welcome to you keep in mind that a lot of this discussion may be a little more on the intermediate in some cases advanced depending on your background there that's why we do have the getting started series nice thing is these sessions are recorded so you have the ability to go back and review them as often as you'd like all right looking at the market open uh on the uh on the s p 500 uh off a little bit you know kind of uh essentially flat this is usually fairly common uh when if there is such a thing as common in this market anymore uh with uh with after some long-range days as we did have yesterday uh with the holiday not trading on friday and a follow through on some of the economic reports markets made a new high yesterday and we're opening up inside the range of the previous day that's kind of common to see at least a little bit of consolidation whether it's a one day couple hours and prices push higher or if there's a little more consolidation as we've seen in the past and we've discussed this during last week's swing trading class kind of a flagging action uh after a sharp move where you may see candles which are more indecision those spinning tops or harami's or i should say doji's spinning tops or dojis these are smaller candles with small or no bodies which indicate at least a pause in that price action in this case that pause was at previous resistance on the s p at that 3980 start some seeing intraday poke on there on wednesday and gap and follow through on thursday as well as with monday some that we teach in the breakout in reversal class you know traders may measure the previous range between support and resistance and target a similar move and in this case the market is about halfway to that area and uh looking at the chat uh louis welcome hopefully you learned something new is along with luis here we got a lewis and luis awesome and also for those of you that continue to join us each and every week do appreciate that all right so that's what we got going on with the s p 500 uh looking at the dow dao as well making a new high you know its breakout at previous highs did slightly lag the s p although we started seeing a bounce as price is making a low looking for prices to trade above the high of the low day again kind of another flag in action after a sharp move up in price kind of that small consolidation and seeing that pop and again the dow is inside that range all right we got rcr uh hml uh if i pronounce that right chamow thanks for being here uh looking at the nasdaq uh which uh had lagged a bit uh we also discussed this last week in the breakout and reversal class uh price action was squeezing in uh on the nasdaq uh going into early mid last week as price action had squeezed gotten tighter and tighter firm forming a triangle relatively weaker compared to the s p and the nasdaq previous highs are back here so traders looking for you know those growth stocks to break one way or the other you know impact a treasury yields and the like uh and as we got into uh thursday i believe started seeing that momentum shift back into growth uh as the infrastructure plan was released and that momentum continued i believe that's wednesday thursday friday nasdaq just tremendously gapping up and closing in on where they were back in february and gonna pull this out and then finally uh so you know certainly in in the case of you know three of these major market indices we know we've seen uh strong swings and you can even see based off of the triangle pattern you know that previous move uh has already played out in a relatively short period of time and then finally the russell looking at rut uh small caps you know have lagged as well they had gapped and faded yesterday looks like they're trying to turn up again today they are actually showing positive it's a more positive move on the small caps possibly with some support as we look at the sectors over on the left and we'll kind of sort by there usual suspects on pushing the small caps up strong performance and energy uh we got financials uh slightly positive small caps are very much weighted in energy and financials there's some discretionary in there as well we got industrials uh eking out some gains so energy kind of showing a little bit of recovery after dropping down yesterday uh crude prices you know one may look at the futures market crude did take a drop yesterday but it has been trading in a relatively tight range in the 58 to about 62 area there so bulls and bears may be looking for some direction either way that can impact some of those energy stocks that traders may be looking at for some potential swings now looking at some of the comments uh let's see neil says why is dj x relative strength so low when the index is recording a new high good question so let's take a look at dj x here you'll notice uh on the charts uh the examples that i've been utilizing we have a combination of moving averages such as a 55 a 13 and a 5. i'm kind of a fibonacci freak these basically look at different time cycles between a quarterly about a half of a month and a weekly cycle we got the macd looking at momentum on the bottom and we have relative strength now this is not to be confused with rsi relative strength is comparing the dow against the s p 500 s p 500 being example of the benchmark so i'm looking at a chart of a three month chart of the dow compared against the s p what is this relative strength line means well if the line is rising that means the dow is gain and strength or stronger than the s p a lot of industrial stocks had a very big move in the month of february notice the relative strength is flattened out that would be more of a market perform why is that well consider that uh some of those industrial stocks have slowed down in some of their momentum even though they went higher uh not necessarily as strongly higher as the s p and then kind of backing off a little bit here recently over the last week uh and that you know is at the expense that you know s p has a lot of gross stocks similar to the nasdaq and hence that their move up is stronger so hopefully that made sense okay and uh uh we got conscious is a guida is a fibonacci freak as well welcome to the party all right so that's what we got going on with the market and with some of the different sectors we showed you last week as well uh on a recurring you know if one goes to the market watch page looks at a basket of stocks some of the percentage changers and you can add a column for marked percentage change if you're looking at this pre-market some of the leaders on the s p we got twitter let's take a quick look at twitter there we're gonna see uh similar situations uh compared to some of the broader indices so here's twitter uh price making a potentially a higher low kind of lagging the the nasdaq a bit this is kind of a similar pattern we saw with the nasdaq as far as trend uh you know price going down making lower highs and lower lows now swing traders are typically looking to trade with the trend um so in this case you know if it is more of a downward trend may look to trade the downward swings the upward swings are more counter moves and may be a bit more uh less impactful and can also possibly get you caught in a downward draft with that trend uh now twitter did looks like found some support around that 55-day moving average so this could be a sign of a reversal as traders may look for crossovers this is kind of more what we teach in the breakout and reversal class on mondays and if one was looking at this as a sign of a reversal as it is breaking above some of these previous highs you know that could be potential for a new swing although some swing traders may wait for the swing or the trend to turn up more and to be supported by that but at the very least looks like on uh twitter trying to catch up with the rest of the nasdaq as we're seeing a break of that diagonal there and we may take a another look at that uh let's see what else some of the energy stocks popping up on there as well uh let's see apache you also get some of the reopening trades like alaska alk there's another energy with oxy there's wind resorts so you kind of see you know the drivers as far as with some of the energy stocks at the uh at the opening here but also seeing some of the transports in there as well let's take a quick look at a few of these okay so here's marathon oil you know break in that previous downward move and we've seen a break of that downward trend and uh this is an example of a pennant we go ahead and squeeze that in kind of a small triangle and what a swing trader may be looking for is looking for a break outside of that pattern and possibly capture another swing now this is a relatively cheaper stock but if one's bullish and looking for a break or pop they look for that as an example let's look at apa you know apache even though it's up a little more weaker when we're looking at the trend you know looking at some of those highs more of a rectangle pattern and kind of similar to the twitter example the trend is more in a correction as that price action has been coming lower we've broken that down trend however for a bullish reversal traders may look for a break higher whereas bears may look for a break lower all right so hopefully you can find this exercise being useful here uh let's look at a couple of the airlines so it looks like on the airlines pretty much just follow through on already a previous swing notice here here's like another example of that little flag or pennant that we're looking at on the previous example uh in this case delta already potentially working towards a successful swing there's a previous high already above the closing range of of those previous highs let's look at alk and looks like on the airlines kind of the alaskan air kind of the same thing already reaching kind of that swing high before we talk about parabolic uh let's uh let's just double check see if any of the losers here today looks like a few on the payment front for some reason also ebay's down a little bit we're going to take a look at ebay as far as examples of a stop here in a moment if one's uh focusing on nasdaq stocks you can go to a public list and look at the nasdaq 100 and you can see some of the same stocks we looked at looks like a trip on the chinese travel company there uh as you can see adr up there seeing uh some of the chips as well let's take a quick look at some of those all right there's tripp um you can see a previous candle reversal as prices bounced and kind of more of a consolidation at the moment kind of consolidating at that resistance maybe seeing a breakout here traders may look to look for an entry and target a previous high that would be an example of a swing trade maybe roll back on that uh let's see then micron amt i think some of these have already made some moves kind of similar to the airlines uh you know already trading up to some of those previous highs uh kind of a follow-through setup is if we do see kind of a consolidation similar what we saw with the indices kind of like a flag in action and looking for another break higher or if prices do break higher looking for a re-test of some of those areas all right okay so that's kind of a run through on the market there uh you know certainly a lot of this can be done in the pre-market particularly looking at that marked percentage change to see what may be potentially breaking out or bouncing uh let's go ahead and we'll go to the monitor tab and uh let's see here i want to talk a little bit about uh trail and stop so here's a couple of positions uh that we've uh some of these we've done in the class some of these may have been from some of my other webcasts uh last week we did a a long call vertical uh on uh ch robinson this was a little bit of a laggard on the uh transportation front that was starting to move i think jb hunt had already made a bit of a move there let's bring that up jbht you know jb hunt was already kind of breaking out so we looked at one of the other piers which is chrw and this one was breaking out of a candle pattern but you can see that it actually blew back into that pattern uh hence this is uh one of the reasons why you know spread trades can be a bit forgiven uh where some of the directional trades uh particularly if you have a tighter stop uh may be stopped out uh c.h robinson kind of blew back in the pattern bounced the following day really didn't get much follow-through on the market although uh is trying to go positive to today our objective for this example is that the stock just trades a little bit higher i believe uh if we go back and look at that trade actually we were actually looking at being a bit more bullish on this looking forward to trade up to the 105 area now we gave it quite a few days to do that 45 days so we're still kind of sitting on it as you can see not as much of a an impact you know as far as price against us there and we'll see how that moves now a couple of these other trades are doing relatively well and hence our subject on um you know looking at trailing stops or adjusting for profit now let's let's go ahead and start off with ebay since i mentioned one seems to be taking the biggest hit today uh i'm gonna bring it up on the chart bring up ebay now you know trailing stops can be uh a bit uh you know controversial or you know everyone has opinions you know as far as setting uh stops um now one of the attacks that we've take here with this class is if you know one has a an initial stop you know maybe a percentage below a previous low and then that stop would basically be static until a certain event happens let's say if the price makes half its move uh then one may possibly adjust that stop manually uh to a break even point you know kind of close to their entry uh or if you know the price uh you know is just shy of their target they may go ahead and you know raise that stop uh below the low of the day you know kind of more of a manual adjustment now you know some traders may want to make it more dynamic where the stop trails or follows as that price goes higher now that consideration may be let's say if you don't have an upside target to use the trail and stop as a way of profit management the price keeps going higher the stop rises with it price comes down you're stopped out and hopefully still have a gain with that so with that in uh in reference here uh we'll we'll do this with ebay and we're going to utilize an indicator called the parabolic sar those of you that follow me may have seen this used in the past i'm going to go ahead and bring up the study and then we'll also show you on how to bring that up yourself because we did uh adjust this a bit now before we talk about the adjustments you can see the the parabolic r actually puts these little dot plots that follow the price up and you'll notice as the swing gets stronger or goes higher notice how that parabolic sar gets tighter and tighter that was kind of the way it was devised now notice when the price goes down you may see the parabolic follow above price and that's why it's called a stop in reverse because it's always activated whether up or down now the challenge on doing a parabolic sar initially uh is in a lot of cases when the price bounce your parabolics still may be above the price and hence it wouldn't be effective until the price actually goes higher and then starts plotting so i haven't utilized a parabolic sar as an initial stop uh initial stop possibly being you know again like one percent below the low of the day or maybe using another indicator such as the atr now again these adjustments have been made to kind of compensate for more of a shorter term or a swing trade if you go ahead and you add the parabolic sar with the default settings you'll probably see them being relatively wider which could be fine for a trend trade i'm going to go to the beaker which brings up all my indicators and then here are the settings for that if i go ahead and add it again just so you can see a contrast i'm just going over to studies type in parabolic sar notice those of you that are new to the indicator if you click on the question mark you can get a background on what the indicator does and you can follow through and go to the learning center to learn more again i went ahead and added it again these are the default settings here and if i click apply and ok you know you can notice uh you know in this example the lower one is the default settings and notice that i tighten it up a bit to create one that may be more representative of that shorter term now when this uh you know indicator was originally created i believe by wells wilder uh the idea was if one was in a position continuously uh the idea is they would stick with the upward move when the para pollock follows below they would be short when the parabolic is above so long short long short long short long okay now question is is that a profitable strategy one would have to go ahead and practice that on yourself however the tendency is one would be whipped out on these counter moves and one of the ideas is to be discretionary and apply it with the existing trends okay we're utilizing this uh as a technical indicator to adjust and automatically adjust the stops which is the next thing i'm going to share with you here i'm going to go ahead and remove uh the default settings now to change the settings to what we have here which is a dot 1.3 you can click on the gear once you click on the gear you have the acceleration factor and the acceleration limit and again i haven't done exa you know extensive testing on this but as far as my visual uh of looking at different swings this seems to be a reasonable setting to capture and attempt to capture most of a given swing and it gets you know relatively tighter you know after those several days so we got a 0.1

and a 0.3 so we got that change there now this is important to make note and remember because we need these settings when we create a stop order so i'm going to go ahead and we'll leave that on the chart maybe coming close to triggering that looks like it's right on the moving average there so i'm going to do is i'm going to go to our position now notice uh you know unlike some positions up here there are not existing cell orders so we don't have an existing cell order or stop order on these example positions so i'm going to do is i'm going to right click on ebay i'm going to create a closing order to sell then we're going to change this to a stop order now to do this this is actually going to be a conditional order tied to a study so we're not going to use the typical exchange orders such as limit or stop in fact we're going to make this a market and we're going to make it a gtc for good till cancel that way that this order will remain working now notice when i did that there's an error here that says market order must be time and force day time and force which is true however if you put on a condition which is not shown right here but right over here under the little gear text box here if you put your cursor there there's a gear i'm going to click on that and that's going to go ahead and bring up the conditional orders for thinkorswim and there's quite a few things you can do where you can set orders tied to the price of the underlying stock and we've done this in the case of doing option trades you know you can get in or out of an option based off of what the stock price is doing another thing you can do as you can see down at the bottom there is a link for study so what i'm going to do is i'm going to change that to study and there may be some default studies that come up but we're going to go ahead and edit this and that should have popped up there we go and this is going to bring up where you can add uh an indicator to buy or sell a stock and this could be helpful for you know other cases if you're looking to enter into a stock based off of a technical indicator so we're going to go ahead and actually remove the existing conditions here by deleting make sure this is clear and we're going to click add condition okay add condition and here is where you can go ahead and you know bring up values studies anything like that so what i'm going to do is i'm going to go ahead and say price so we're looking to accomplish now i'm going to say close which is basically essentially would be the current price and i'm going to say is less than or somewhat people may say less than or equal to if it actually touches it but let's say i can say is less than and then come up here under study go to study and go ahead and select parabolic sar okay so parabolic sar and then here were the factors which needs to be changed and i believe we had this as a 0.1 and we had this one as a 0.3 make sure we got only one period in there there we go we're going to go ahead and click save and then click ok that's one this is one area where we can double check what we're looking for we're basically looking to sell the stock at market if the close is less than the parabolic sar i'm going to click ok and click save and then when we hit confirm and send this is our last chance to double check what we're looking to do and basically sell 500 shares of ebay if the close is less than the parabolic sar based off of that factor so i'm going to go ahead and click send there we go i'm not sure if this will potentially happen during the session uh it will happen today but currently that parabolic is that the five day moving average so what should happen is if the price was to go down today and be below that level then ebay would sell and that's kind of consistent with the potential exit for a swing trade is when price goes below or closes below the low of a high day making that candle reversal now if ebay holds there'll be a plot for the sar tomorrow if the price stays above it it'll continue if the price keeps going higher the sar would adjust higher until the price comes down and meets that so that is the purpose and application of the parabolic sar in this example okay and again those are the settings that we're utilizing for that uh also uh you know keep in mind and this kind of ties in you know with other types of trades so you know here's here's microsoft now this is i think i also got it on dollar that's another spread so here's microsoft so microsoft here this is an option so if you know one is swing trading options uh they can utilize a trail and stop on the option as well tied to the stock or tied to an indicator on the stock so i'm going to bring up msft for microsoft you know microsoft's made a successful swing now now notice on this parabolic since it was a pretty strong move you know it'll take a little time for that uh parabolic sar to possibly tighten up with the price currently it's down at this level now if i was to go ahead and do the same thing with this one we can do that i can go to the option right click create a closing order again on the indicators this would be a market gtc we go to the gear to add that indicator that will remove that market date time and force error and basically we're saying that the underlying stock based off of the atr we can go ahead and add that same condition and go ahead and go to price close is less than and then go ahead to the study and you can go ahead and search for that again parabolic sar and if there's you know another indicator that you have that you like that you want to utilize you know some traders may use a moving average you know you can use a five-day moving average for a trail and stop if you want or an eight period you know there's different indicators that one can use uh reason why we're using the parabolic as an example it's a little more dynamic it's a little wider at first and gets tighter as the swing gets stronger and you know that's kind of possibly ideal for trying to maximize the capture of a swing so we got .1.3 you can't adjust or offset it by number of bars but one bar is fine for here we're going to go ahead and click save okay and then we'll click again you can double check and read through it here but you also have it on to confirm and send just to make sure you're doing it correct and we'll click save once i do the confirm and send that's our last chance to double check it and again if the close is less than that parabolic sar it would trigger an exit let me go ahead and take a look at some of the questions here as i know there's a few and thanks for mr cameron may for helping out i saw a question in there where it was asked can you have either a date or a condition is triggered so we've done this based off of a condition if at any time the price goes below that indicator then it would trigger that market order now there are settings that one can go ahead uh in that type of order and so you know right now notice we got sell orders here we can click on those or you can right actually click on those and then once you have it open you should be able to right click on it and you can do a cancel and replace if you want to view that order a little more closely you can choose when to submit the order however if you choose to submit it at a particular time for instance some traders may want to focus going if that happens closer to the close versus during the day um i haven't been able to figure out a way of keeping it dynamic we'll only focus on that last half hour uh but you can do a basically one and out you can submit it for you know the current market or the current day at a particular time like later in the day you can also set it to cancel at a particular time but you'd have to reset the order we're just keeping it simple that we're just putting into play and once that condition's met it'll go ahead and do that again you can change that for any type of period now you know this indicator we're applying this to a daily chart you know if one is uh doing things intra-day you know they can apply that same indicator to you know hourly charts if they want but it doesn't look at a particular time period uh you know for instance 10 periods or 14 periods it's just focusing on the price if the price is lower based off of that factor the parabolic is going to follow above if the price is rising the parabolic is going to follow with it and kate says does tightening of the parabolic sar imply reversal of trend well it doesn't imply reversal of trend it may imply potentially getting close to at least a pullback or some type of consolidation i wouldn't read too much into it because remember they are different settings and different sensitivities but in our application the idea is to capture a swing as that swing goes higher that stop would be tightening and that's kind of a common application is to tighten up stops after you've had a major move and not perfect but certainly a way to kind of customize some of the things that you one may do all right bill says how do you equate that setting to loss amount for the stop loss order so keep in mind we're not utilizing the parabolic sar as an initial stop we are adding or canceling an existing stop to add the parabolic sar to maintain a profitable trade we're not utilizing this as an initial stop why because if you go ahead and take a look usually on the setup your parabolic sar is above the price which is not helpful looking for it to be below now once you're in the trade you can potentially assess some of that risk based off of that level one of the ways that we've done as far as setting initial stops is setting one percent below the low day if you want to use an indicator that may be a little more automated then one way of doing that is atr we'll talk more about atr next week on setting an initial stop but just kind of a teaser for you i click on atr and here's the default period for an atr i'm going to remove relative strength just to remove some of the clutter what we may end up doing is utilizing a percentage of this atr to set a stop whether one atr or one and a half times that atr and utilize that to set an initial stop and then once the price makes a favorable move then possibly shift that to a parabolic sar and trail it and yes this is the point this is a trail and stop uh that we are utilizing build in this regard we're just doing it a different way uh the parabolic sar is a bit more dynamic uh if i went here and we'll probably have to finish up on this note great discussion on stops by the way hopefully you found this educational and we'll focus on more on our entries next week utilizing some of those stops let's say i go ahead to [Music] here i got win here without a stop i can go ahead and right click create a closing order and i can use a trail and stop here but what are my choices if i go to a trail and stop here yes i can make that a gtc i can do it by a dollar amount i can do it by certain steps which i haven't really utilized this as much as an example i can do it by a percentage but these are going to be a fixed dollar amount and a fixed percentage it's not dynamic as i illustrated with you as far as on the parabolic sar which actually gets tighter here it's going to be just a straight follow the price based off of where that current price is and different stocks are going to have different volatilities and so it's kind of hard to pinpoint kind of the right percentage or the right dollar amount that's the nice thing about the parabolic sar it doesn't matter what stock i'm looking at there's wind there's tesla okay it is going to compensate for that price action and for that volatility so much more dynamic on being able to do that now it's not an endorsement of one strategy over another i am constantly asked about trail trailing stops there's an infatuation with that so i'm trying to satisfy uh that infatuation by sharing with you practical ways of setting uh trailing stops and one of the practical ways and in principle that we're applying is set a hard uh initial stop as an example uh for an entry trade we'll focus on that next week and we'll utilize atr that once in the trade if one wants to trail it think about what points that one would consider doing that you know a swing trader wants to give price at least a little room to breathe and then once it makes a move consider that profit management whether adjusted manually or a little more dynamically with the example we talked today with the parabolic sar which actually will automatically tighten up as that price uh swing reaches more of its potential okay so we encourage you to practice what you learned here today you can do this on the paper money platform we didn't have as much of a chance to uh go through uh enter in a new trade today but i think the uh discussion on uh setting stops or adjusting those stops pretty important uh in the pre-market on the market open we did went through a few examples you may want to take a closer look at and see if you can practice some of those swings but we will follow up with that next week and we'll apply some initial stops utilizing atr so looking forward you join us there next week uh i'd like to thank cameron for helping out on the chat and also thank you for joining us each and every week remember in order to demonstrate the functionality of the platform we had to use actual symbols keep in mind t ameritrade does not make recommendations or determine oh guess what folks we have a survey don't go anywhere alert alert there is a survey i missed that from the beginning uh unless it came out later please go and click on that survey and provide some feedback also another opportunity if you like what you learn here today go ahead and click like and share on youtube so other people are able to learn more about trail and stops and the parabolic sar so fill out the survey provide some feedback looking forward to it and again in order to demonstrate the function add the platform we had to use actual symbols keeping in mind td ameritrade does not make recommendations or term suitability of any security or strategy for individual traders any investment decision you make in your self-directed account is solely your responsibility so take everyone have a wonderful day coming up next uh trading the trend i believe uh trading uh managing stock portfolio with options with mr james boyd so stay tuned you

2021-04-09 03:35

Other news