Trailing Stops with Indicators | Swing Trading Days to Weeks

good afternoon everyone john mcnichol here and welcome to swing trading days to weeks our topic today is going to be trailing stops on existing positions and maybe give a few tips on entering new practice trades on utilizing a trailing stop technique so stick around all right hey it's great to see those of you live with us today such as vijay krishna tony charles we got neil dread mike mike m robert and quite a few others uh harry frank todd ray rocky erica mr michael keeley is helping out on the chat today folks uh if you have any questions i am unable to get to he'll be more than happy to help you can see my twitter handle on the screen if you wish to follow myself along with other fine instructors such as michael his twitter handle is his first initial last name uh at m keely k-e-a-l-y i think i got that right underscore tda and i'll be happy to share that in the chat a special shout out to those you listening to the archive session as well i do appreciate you viewing the recording uh as well as uh clicking like uh on the videos and those of you that are live here as well you can do the same if you enjoy what you learned here today make sure you click like there's also a place to comment below as well let's take care of disclosures folks we'll get right into it content is intended for educational information purposes not investment advice or recommendation of any security strategy or account type options not suitable for all investors special risk inherent options trading may expose investors potentially rapid and substantial losses and keep in mind you're encouraged to practice what you learn here today such as the paper money software a paper money software application is for educational purposes and successful virtual trading during one time period does not guarantee successful investing of actual funds during a later time period as market conditions change continuously notice the risk whether one is long or short options and likewise transaction costs or important factors should be considered when evaluating a trade in order to demonstrate the functionality of the platform we will be looking at actual symbols however 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 as well as this note here since we're talking a little bit about those a stop loss order will not guarantee an execution engineer and activation price once activated they compete with other income and market orders uh there's a brief bio uh for those of you that may be unfamiliar with me uh i myself like michael and a few other instructors we've been around with td ameritrade education for well over a decade going on two decades in some cases uh and you can see the focus uh pretty much across the board on different instruments and strategies you can see my likes when i have a chance to do it however in a lot of these cases i'm usually doing it on behalf of the united states military uh with the utah army national guard thanks wayne for the shout out it's actually sergeant major uh as a senior enlisted like to say we work for a living and uh we are the sound of caution uh for our command and officers there so it's great great command team relationship all right let's go ahead and get into our agenda folks uh we're gonna talk about and this is a topic we've talked about uh in the past uh utilizing an indicator as an example parabolic sar for trail and stops i wanted to cover it again because uh some trader students may be a little confused on it uh we'll also talk you know some other ways of utilizing trailing stops a simple way uh you know an indicator that a lot of you may be more familiar with such as a moving average and another one uh kind of reaffirming another one we've talked about in the past such as atr uh this one is a little more of an example of manually adjusting a stop uh to trail price okay so there's you know quite a few uh ways of uh you know utilizing stops so want to make sure that you understand that and uh you know as we look at some examples today uh and i'm i'm the first one to tell you with a lot of these practice trades that i do for demonstrative purposes is outside many more trades that an individual trader may do because once you can't manage positions effectively you're probably trading too much or have too many positions but utilizing different tools that may automate some of that decision process whether it's utilizing price alerts or once you know you have a favorable move in a short-term trade uh some traders may implement a trail and stop that may adjust things automatically and we'll see some examples today uh that you know uh if implemented uh be a potential benefit okay so let's go ahead and do that uh we'll go ahead and go to thinkorswim platform and particularly if anyone was bearish over the last previous week we can see how quickly those things can change uh how a downward swing uh you know and the atypical seems to be more typical uh recently where we have a very strong v on the s p uh that essentially trade uh went up into new highs uh even a uh a laggard such as the russell which we've talked about uh in the past uh you know did trade down to support you know kind of expected had a a good bounce on friday and notice uh trading back up in that range i think about a five percent move uh on the russell and we got things such as durable goods we have some other numbers as far as inflationary jobs labor uh as well as the jackson hole meeting and speech rounding out and speech on friday so we'll see if that's going to be more fuel for the bull fire or if some water is going to be tossed onto it so stay tuned and likewise as far as volatility if we glance at that volatility didn't drop as much today as we made highs and you know we can see that you know there are some higher lows on volatility kind of illustrating you know that there is still uh some risk and uh in the market you know whether that translates into more volatility going into the end of the week or you know more good news and that volatility continue to drop okay and you know vj said or maybe uh when you're in paper money uh you can have too many positions you know now that's a that's a good point you know i mean if i go ahead and bring up just uh all these practice positions from you know all the various uh webcasts uh workshops uh they do and doing you know very many different types of strategies okay being a soldier and starting off as a marine uh there's a saying train as you fight okay and if you can treat paper money probably should go full screen on this since i'm making i think i'm making an important point is uh when you're utilizing tools such as paper money uh train as you fight train as you trade uh build up you know kind of that uh you know that repetition uh that routine uh on how you would actually trade you know treat that seriously on paper money uh from everything as we teach such as money management uh you know as far as you know how you're getting in how you're getting out uh and you know if we have there's nothing wrong with practice oh there's no such thing as practicing too much but remember ultimately it's trying to build up uh positive positive uh habits right and so you know if you have so many trades that you can't manage in paper money you know that may translate potentially uh into real training um and so that's a whole part of utilizing tools such as paper money to get into those good habits now as we said disclaimer there's no guarantee that positive results on paper money would translate on the real-time world you know there's different psychological factors that can occur but make sure you keep that in mind all right great point bj thanks for bringing that up and there you go thanks ricardo for sharing as well so um let's go ahead and make sure we understand as far as with the parabolic sar on how we've been utilizing on that now that's a study if we go to the edit studies on the platform you can go and just start typing it in pa or par parabolic sar when you click on the question mark for that that will take you to the learning center uh if you didn't know what sar stands for that's stop in reverse technical indicator for studying and analyzing trending markets uh and you know understand how the indicator works and that can help us translate it on how potentially it can be helpful possibly with a trail and stop for instance when the price is in an uptrend uh the sar appears below the price and converges towards it so if you have a trend going up that parabolic sar essentially would trail the price as long as it's going up and as that swing gets stronger it may get closer and closer to price and from the aspect of swing trading when there's a candle reversal or a pullback that could be possibly an opportune time for closing out that days to week trade that relatively smaller move okay now as we uh scroll down a little bit on this okay if the price crosses the parabolic the indicator switches and the values would be on the other side of the price so with that same example you know when we have possibly a trail with the parabolic when there's a candle reversal then the parabolic would follow above it okay and in this case that would probably be an exit for a swing trade or if it was a downtrending stock that could possibly be a trail for a bearish trade and hence it switches back and forth why it's called a stop in reverse which make a note that can present some problems if prices are going more sideways it's what we call whip sawing where you may see a a trail above or correction trail below trail above trail below you know you can have a tendency of seven having whip saws which is important to identify an existing trend no indicators perfect okay uh let's see and you can see kind of how the rest of it is uh documented there now if we go ahead and add that indicator as i explained in the past there are some default settings here and these are ones that could be manipulated whether based off of time frame or what style of trading that you're doing this default may be more conducive to a trend we've modified this by going to the gear and the settings that i've utilized i'm not saying these are perfect numbers but ones that seem to be a little more conducive to a swing trading aspect we're looking at on a daily chart we utilize an acceleration factor of a 0.1 and acceleration limit of a 0.3 and that will change the dynamics of the plot on that chart so i'll go and i'll click ok here and i'll click apply so you know if we go ahead and bring up a stock let's say you know something like apple okay this is a classic example of uh whip sauce and when you think whip saws think price patterns i talked about this early today on one of our affiliates but notice how this parabolic sar keeps going back and forth whips on it's because we have more of a consolidation a sideways move called a triangle this is actually one of the important points uh when i've talked about the parabolic sar and generally speaking possibly trail and stops in general is consider using them once already in a trade and that trade may have already had a favorable move uh likewise by using a fixed indicator uh like a parabolic sar or even a short-term moving average if the price is going more a little more sideways may have a tendency for that whip saw initial stops generally may be a little further apart okay to at least give some room for the price to have that favorable move and then once that favorable move occurs then the consideration is possibly instituting that trailing stop okay so notice in in this case you know if let's say someone was to do a trade on apple traders may be looking for price to be breaking out above 150. this could be a topic tomorrow for technically speaking uh reversal and breakouts as this would be a common setup that we may look for uh look for the price to actually break out uh measure the distance between support and resistance this is a 10 point move and you'll possibly set that as a target which in this case would be 160.

that's kind of in line with some analysts 12-month targets so keep in mind that could take some time to do that that may not necessarily be days to weeks although if there was a breakout on volume prices could accelerate relatively quickly okay and then you know an initial stop you know may be set based off of a fixed percentage below uh that breakout let's say three percent and then once there's a favorable move then possibly use something like the parabolic which would trail that price okay now we'll talk about atr uh in a little bit there that could also be another way of utilizing and setting up an initial stop but let's look at an example going on over to uh some of the positions i'll focus on you know some of the ones that may have already had some favorable moves such as oracle we've got western boot alliance so let's take a look at a couple of those [Music] okay now here's oracle now notice is the parabolic trail in above or is it trailing below okay notice it's trailing above now notice this stock is actually going a bit more sideways so notice again kind of the whipsaw characteristics of a sar putting in a trail and stop based off of the sar right now wouldn't work because the tsar is above the price if we're looking to trail a bullish trade the sar needs to be below it so wouldn't consider doing a trail and stop on a parabolic star unless oracle breaks out again and then starts trailing and then possibly institute it okay uh same thing let's look at western boots see if that had changed now notice unlike oracle uh western boots you know after bottoming out start to make some higher highs and higher lows notice another bullish bounce at cohold typically when there's a hold probably expect at least the indicators on these settings the 0.1.3 would probably reverse to trail underneath and let's say at this point um you know been in this position for for a bit uh you know it has lagged you know if the price goes ahead and goes higher may want to stay with the trade or try and capture that next swing if the price breaks down then look to close out the position so since the parabolic is trailing here what i could do is i can go to this position western boot i'll right click on it create close and order to sell the stock now what we'll do is since this is going to be a condition order notice when i put my cursor on the order you'll see the little gear up here over on the right that's where we can put in different conditions since this is going to be conditioned off of an indicator i'm going to go ahead and just change this to a market gtc now keep in keep make note uh a market orders a market order it's whatever the market price is at that time uh there could be slippage there could be gaps um you know and anything can occur with that so keep that in mind now if i go and click on the little gear it's going to bring up a pop-up and some of you may already be familiar where you can do conditions based off of the underlying stock price you know greater than equal to less than or equal to this is a way of potentially setting a a stop or an exit you can put multiple conditions if you want okay what i'm going to do is we're only going to put one condition and that's going to be based off of a study we go to study and then we go in we select edit so once we're there now by default there may be a moving average that pops up we'll talk about moving averages in a little bit but i'm going to go ahead and delete that so no conditions are defined and then we're going to go ahead and select add conditions i'll click add conditions and just think about what you're trying to accomplish this wizard can be relatively easy as long as you define on what you're looking to do and since we're looking at a trail in parabolic basically if the price is below that parabolic whether the price actually touches it or if there's a candle reversal the next period price naturally would be below the parabolic so that's all we're looking to do so we just go ahead and we say price we'll utilize the close that's essentially the last price intraday and then we're going to say you can say is less than is what i typically been doing some traders may have it hits the mark equal to as well you can do that i'm just going to say is less than and then we're going to go to the condition and it's going to be based off of the study so basically price close is less than and then we select the indicator which again in this case was a parabolic sar now very important here is make sure the settings are the settings that you want if these were the default settings again the example i was utilizing for our illustrate purposes was a a dot one and a dot three we click save now another important factor some traders may look at different time frames they may be looking at a weekly chart or an hourly chart now for the illustrated purposes i've been utilizing have been on daily charts okay if one wants to use other time frames you can change that but you also need to you know check it out make sure it works same thing with this if it works for you that's where you practice with tools such as paper money but if you did want to change if you want to change and look at a weekly chart one bring up a weekly chart on the chart and two the indicator would be tied to that interval so very important okay so we're just doing off of a daily with the factors that we're displaying on the chart i'm going to click ok and notice now it says study true so when i click save and do a confirm and send you can see the conditions are right here under order conditions it's going to sell a market gtc if this condition applies which is the close is less than the parabolic sar with these settings on a daily chart okay uh go ahead and i'll click send and there we go now there is a question uh and a good question you know what's a good setting uh for longer trades longer investments well this is where uh you have to put your thinking cap on and maybe do a little practice uh and observe when you change some of these parameters on the chart so for instance uh you know the settings i have on here right now notice are kind of more focused on the swings okay whether downward swings or upward swings so we made it more sensitive if i go to a weekly chart [Music] no it says w okay these are the same settings on a weekly chart so one if you're trading more weekly swings looks like it does a similar characteristic okay uh if you wanted to widen it out not necessarily you know focus on the swings but the overall trend go ahead and change the settings uh go to the studies edit studies if we want let's look at the default setting as a starting point i'll just add that default setting let me remove this one temporarily click ok all right and notice notes in the default settings you know that may be conducive to an overall trend okay so play around the settings uh make note of those settings and go feel free to go ahead and practice that hopefully you found that helpful and again rg for our example uh in this uh this session and as far as with this class the settings that we utilize for a daily swing chart for our example is looking at a 0.1 and a 0.3 that's what's on the chart right now from a daily interval okay now uh if we went ahead and took a look uh at some other positions and you know uh kind of an after action report not necessarily desired outcome but show you on how helpful this could potentially be on whether bullish or bearish trades so if you recall we did a uh a long put vertical last week on spotify or at least a previous week targeting it to trade down to 210 well it was below 210. now it's right in the spread right now and we're taking a hit on that trade was that potentially preventable possibly we go ahead and go to the chart and bring up spot notice here if i had instituted a trail and stop to the downside on spotify probably would have been kicked out of the spread as soon as it made that kahold because notice it reversed okay and price is now above the parabolic so one can use a trail on the downside how that would work just to illustrate is i can right click now this is an example on a bearish trade and again cat's out of the bag on this one but just to show you how that works is we do a cell i can do the same thing make this a market gtc go to the gear bring that up and keep in mind for a bearish trail the sar needs to be trailing above the price okay if it's already below the price it's going to instantly close you out anyway okay so it's the opposite now if i go ahead and go to symbol we'll make study edit again we'll clear out the conditions add the condition and this is going to be the same setup except it'll be close is greater than so if you're looking to trail a bearish trade once there is a reversal to the upside but the price is greater than this r that's going to trigger a potential exit okay and see if i can find that there looks like i hit the wrong one make sure we hit the drop down for study there we go and again these were similar settings we did a 0.1

and a 0.3 again these are examples of settings that line up or attempt to line up with a swing and then we go ahead and click save [Music] okay and then save now if i did it confirm and send right here says if close is greater than parabolic sar [Music] it'll go ahead and sell at the market so the question is if i place this trade right now do you think it'll instantly fill or will attempt to fill i'll take a look is the price greater than the parabolic star answer is yes right started about three days ago so if i had implemented this uh let's say on i think that was on friday nope that was on thursday i believe okay what would happen is around the open or near the open uh this spread would have been closed out and probably would have been at a game okay uh this just shows you on how quickly things can reverse particularly if you are in a bearish trade lately as the dips have been purchased okay now looking at the questions um emil says shouldn't price close be less than the sar for the cell well remember again oh there goes my mouse bear with well i disconnect the mouse ran away from me that was about a first so talking about uh in the example uh that we were looking at is keep in mind folks is this example was for a bearish trade okay so remember it's going to be separate from a bullish one so in the case of a bullish trail and stop the parabolic sar needs to be below the price so we're looking to stop the trigger if price goes below if you're in a bearish trade then the parabolic sar should be trailing above the price and therefore stop you out when the price goes above okay again the reason why this may not be implemented on an initial trade is because of as i mentioned the tendency for whipsaws where in this case if you did this anticipating a breakout on apple you'd be jigged out of the trade okay so looking for more of a favorable move and then consider instituting that and so you know for instance in the case of spotify i've used examples that you know if price has made a favorable move maybe close to half the move notice here it did make half the move this is just an example of poor exit management okay is not following up and possibly tighten up on that swing and we can see how one can pay for that it's not necessarily in the entry it's in the exit okay so hopefully you learned something uh new to that on a parabolic sar and again for those who may be fairly new it may take a little practice in some cases may be a little confusing at times when we see things whip back and forth but the more important the more important application here is the parabolic should be trailing uh the price in the direction that you're trading if it's not it's not going to be helpful for a trail and stop unless it does shift into your favor okay so hopefully that's a big takeaway also keep in mind the examples we've been utilizing were for daily charts if you look at different time frames one we need to go ahead and observe if that meets your needs as far as based off of the trailing aspects or time period as well as the interval whether you're looking at hourly charts weekly charts things like that now let's go ahead and take a look at another example that may be easier possibly utilizing moving averages so let me go ahead and take a look at a another example here and uh you know right now i have mosaic on here now notice here's a parabolic sar now i have some moving averages on there some traders may want to use a moving average to trail a stop okay now keep in mind moving averages can also be susceptible to whip saws if the price action is going sideways so keep that in mind uh let's see if i got something that may be a little more trending at the moment let's get cvs here a lot of these stocks have came off of their lows but still kind of consolidating here a walmart i think maybe one here let's bring up walmart wmt okay so here's here's walmart that had a uh a reasonable move uh to the upside let me make sure i'm looking at this one right too yeah we got uh we got 100 shares i actually have a covered call but we'll ignore the covered call uh focus on 100 shares actually that's looks like where we got uh most of our gain on there wish i gained on the stock as well so notice the price has kind of consolidated a little bit now the parabolic star is trailing underneath it so if we did want to institute a trail and stop we can do that and if the price does break down it'll stop out if it keeps going higher it can go ahead and trail but notice we do have some moving averages here too i have a five period there's a 13 period looks like it did touch it earlier today another common swing average if i go ahead and right click on the average and edit the five period eighth period which is another fibonacci number some traders may look at something like that make sure i got that right you know we got an a period okay now if we did the eight period as a trail and stop it would trigger right now we're below that but let's say for illustrator purposes i want to set it based off of this 13. again as an example this is a 13 period exponential moving average so if i want to go ahead and set an order on that i already have an existing stop on here so i'm going to right click on this and cancel and replace order [Music] i'm going to go ahead and make this a market gtc like we did our last example and i'm going to come here to the gear bring up the settings and then what we'll do is again another condition walmart the underlying will select study and then edit [Music] and notice there's a simple moving average now this is a moving average but it's not a simple moving average if you want to use simple you can just go ahead and edit that but i'm actually going to delete that since our example was an exponential so i'm going to go ahead and click add condition and i'm just going to go here and say price close is less than now some people may say cross above cross below you can play around with that but ultimately price is price i'm just going to keep it simple and say if price is less than the moving average then i'm going to go close it out so i'll go ahead select condition select study exponential moving average is you can type in exp or just mov but moving average exponential is what we're selecting make sure you put in the right period in this case i'm putting a 13 for our example and then go ahead and click save we'll click ok notice it says study true we'll click save and then when we do confirm and send we can confirm that this is what you would want to this is what you intend to do or what we intend to do for this example uh looking to sell 100 shares of walmart based off of this order condition if the close and if this is intraday it would be the price typically crossing below that okay uh is less than the moving average at 13 on a daily chart it'll go ahead and close it at the market now what some traders can do and a for this would be more of a daily uh occurrence you you can submit it and not to submit it until a certain time [Applause] when you go in and click on that but it would require you to reset it on a daily basis you'd have to do a cancel and replace and resubmit the order if you only want it to be submitted at a certain time let's say before the close all right or again if you're looking at it more longer term you can compensate those settings if you're looking at a weekly chart you can go ahead and edit that condition and you know look at a chart first and if you want to change that to another interval like a weekly chart or if you're looking at intraday charts you can do the same thing okay so a lot of flexibility here again we're focusing on daily charts we'll click ok save confirm and send and there we go we'll go and we'll send that out okay and so if the price goes ahead and goes below that 13 period then the stock would be closed out at a market price let's go ahead and double check look at the questions once again hopefully you're learning something new today or enhancing on something you may already know with trailing stops just kind of demonstrates the amazing power and flexibility of the thinkorswim platform to utilize indicators uh as a way of exiting and if one wanted to can use them to enter into trades as well our topic has been more on a trail and stop and again the application we've attempt to use in this class is to institute them once one already has a profitable move whether based off the parabolic sar or just based off a price action and uh once you've reached maybe a percentage of that target to consider doing that and that's helped to minimize some of the whipsaws that may occur okay uh let's see um and uh michael appreciate you helping out on the chat aham says how many indicators is too many uh it's kind of like the same answer to how many trades are too many uh what can you manage and in the case of indicators is decision management indicators should help you make a decision if those indicators do not or there's too many of them that provide conflicting information then usually that is no good you'll notice in in my case and i think this is fairly common you know there's one as far as some moving averages i have a combination yes there's three averages but they all serve one purpose uh trend and uh identifying patterns uh we have a macd for momentum i have a relative strength to compare against a broader market that's three indicators okay uh volume you know i kind of have that you know maybe on or off at times uh but uh you know usually getting more than about three or four indicators it's probably not going to be a very enhanced uh technique there okay and uh i think we've gotten through everything else awesome uh let's with the uh the time we have left so we talked about two examples of utilizing trailing stops one being the parabolic sar uh the other one being a moving average possibly a simpler one uh for uh those of you to practice with okay the last one and for some of you may be a refresher is utilizing the atr average true range now one of the benefits of an indicator such as the parabolic sar and the atr is they incorporate that recent price action if there's wider price action that usually means more volatility the stops themselves would be wider likewise the volatility is relatively lower those stops may be relatively smaller so it compensates for that volatility versus just having a default one percent below this or three percent below that uh more volatile stocks may need potentially to have a wider stop so to that end let's go and go to the platform and under the indicators go into studies edit studies we got atr average true range i also discuss atr in the futures class on monday futures isn't necessarily for everyone but technical insights can be applied to any market if we click on average true range it attempts to calculate the average true price based off of a previous period in this case 14 periods is the default basically about half a calendar cycle if i go ahead and add that i'm going to and remove the histogram apply that just so i got a little more room i'm also going to remove relative strength just we can focus on that atr and you know let's say i wanted to put in a stop uh on walmart right now based off the atr well if you put my cursor on it the value is showing at two dollars and four cents so one way of doing is subtracting off the current price two dollars and four cents so if i go ahead and look at the current price we're at 149 uh 19 that would be about 147.15 so let's go ahead and mark this

on the chart about 147.15 give or take a few cents and then notice you know that range by taking one value now some traders may do a multiple of that if they're a longer term maybe one and a half times or even two times some some in longer term investors may look at three times uh the daily range can utilize that as a potential stop now keep in mind stops are not guaranteed to fill if i set a stop based off of that price once triggered it's going to compete against with other income and orders market orders but notice that that kind of gets us outside of that daily range okay and likewise if the price goes higher one can manually recalculate that stop based off the current atr and the current price and raise that stop manually on a day-to-day basis now one benefit of adjusting stops manually on a day-to-day basis is it potentially limits some of that intraday touches where may kick you out of the trade whereas adjusting the stop after the close if it stays above that would basically limit some of that potential intraday whipping around okay cohen i do appreciate uh that you think this is amazing class uh feel free to click like uh if uh if you agree with cohen or even if you don't if you just like it um you know that's good enough for me to appreciate it all right uh let's see um one other one oh by the way i'd be remiss in not mentioning not a desired outcome but the other practice trade we had last week was stx it got stopped out today i don't know if you want to congratulate me on picking the worst performance stock on the s p 500 today uh what are the probabilities of of doing that particularly when the market went higher we had a nice bounce on the swing now this one you know things happen notice the parabolic sar really didn't develop here we didn't even have half of a move to that but we did have a stop below there it did stop out today and just showing you how things work okay all right i think we got things pretty much wrapped up folks on covering down on these different stops this is a topic that will not go away we'll continue talking about these things uh on a week to week basis as we look at profit management hopefully you're learning that by trying to automate some processes when you make a decision may be helpful in managing those traits so we encourage you to do some practice with some of your paper money practice trades maybe institute a trail and stop based off of a moving average or if you want to challenge with the parabolic sar go ahead and do that as well even the atr could be a way of manually creating those prices and it doesn't require you using the indicator you just basically do a stop uh based off of that price calculation so this is what we covered here today folks parabolics are for trailing stops and some other examples with moving averages and atr i do appreciate if you enjoyed this segment today 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 have a great day everyone we'll talk to you again real soon bye now you

2021-08-26 03:02

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