Active Trading Strategies | Pat Mullaly, CMT | 2-16-21 | Using Breakouts and Bull Flags On Entry

Active Trading Strategies | Pat Mullaly, CMT | 2-16-21 | Using Breakouts and Bull Flags On Entry

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really a lot of mourning going on out there but it's a lot of a lot of snow everybody's okay to this webcast uh this is active trading strategies i'm pat maloney and in the chat room we're joined by barb armstrong another td ameritrade education coach you can follow me at pima lolly underscore tda and you can definitely follow barb at b armstrong underscore tda all right we're going to talk about some breakouts some flags we'll also take a quick look at the market we'll discuss mostly these entries on bull flags and and breakouts and what if they are the same to before we jump into that though remember everything we're doing here is for educational purposes only not for recommendations uh we're going to use actual symbols today but that is no uh guarantee there's no guarantee there's no recommendation from td ameritrade about the suitability or the or the security or the strategy um and the investment decisions you make in your self-directed account solely your responsibility past performance of any security strategy does not guarantee future results any stop losses we talk about do not guarantee execution at or near the activation price all investing involves risk including the risk of loss zero commissions on u.s exchanges at stocks etfs and option trades but option trades do carry a 65 option contract fee so uh let's get out there and talk about uh is it a breakout is it a bull flag is it both we're going to take a look at some stocks and look for some example trades today and we'll start off with taking a look at the market the market is fractionally higher by three hundredths of a percent it's been back and forth back and forth as we see price uh on the spx uh right at the top of its channel now uh we talked about this a little bit last week in one of the webcasts a break to the upside here uh makes this uh become a very important area uh meaning that what was once resistance becomes support if we have that grind higher that that suddenly it just starts uh steepening the uh steepening the trend and then we're going to be uh you know ever watchful we don't know how far it'll go but it oftentimes will have some kind of uh strong push uh oftentimes a strong push to the upside if we go back in time to look at the type of uh on a weekly chart here that type of action we can see that back here in 2018 or 2017 excuse me where price suddenly broke out and rallied strong to the upside at the same time uh it uh did similar things back in here right before the uh sell-off in uh last uh a year ago march year ago february as a matter of fact today is the 16th this top last year was on the 19th so we're about a one year almost one year anniversary of the top of the uh market before uh before covet hit okay let's um pop out there this first let's take a look at the market watch tab here uh the uh things that are moving today uh should not be a surprise and and what we can do with our active trading ideas is to come in and find uh you know what's what are the strongest areas this happens to be the russell 2000 a big chunk of why why the russell's holding up better than most other than nasdaq right now is financials financials are strong in the russell 2000 if we go to the s p 500 and we look for the financials that's mostly green as well in the s p uh 500. now the nasdaq not known for its uh uh financials so uh you won't necessarily find out find those but you might find some form of financial technology like paypal and a few of those others uh in the nasdaq so when people say there's no financials in nasdaq there are some things so let's go back to the chart and let's take a look at some things that happen to be moving so we know financials and materials we come over here to our watch list energy financials uh industrials materials those are the strong ones as we look forward into um what might be you know thought of as a buoying effect to the uh to the overall markets however i'm looking at when resorts for our first uh example uh today and that is uh and not a a a financial it's not a material it's not an industrial but it is possibly a a reopening type trade and what we want to talk about is the breakout vers breakout and bull flag type action that we often see so that's right here so this happens to be the uh the structure if you will of the uh of the trade that we're going to put on but we're going to look for breakouts and bull flags those types of things and when we examine when uh a little bit a little bit closer into win let's zoom in on this and let's look at where it's been because every time we make any kind of decision we need to know where it's been so i'm going to draw this line across here and i'm going to uh make that a dashed line to take off some of the uh some of the action out there and uh when i say take off some of the action meaning that well is it a breakout so we see we're we're breaking out we are breaking above this resistance level up in here we talked about the possibility of that last week breaking uh above there and that might be an area to enter in on a trade so let's um now what we'll do is i'm just going to kind of strip this of the techno the the information up here so you can so we can draw and you can see uh see these things a little bit better because i just showed you the the resistance level that was trading right along here so resistance level but underneath that we have this really strong bullish flag where price over the last uh six days has drift drifted straight sideways and then breaking to the upside today so um people become we become somewhat afraid of uh breakouts because breakouts have a tendency to pull back that this is a breakout after a flag so do you call this a bull flag or do you call this a breakout and uh when we when we think about this it's both right so we have this bull flag we have this break out we can make we can define him in a measured uh possible technical measured movement that we look at with the bull flag which would take us a certain to a certain distance higher so i'm going to right click on that and i'm going to duplicate that trend line and uh we'll put that up in here put it at the breakout and that takes us up to around uh 136 on just a you know just kind of an eyeball drawing here if we look at the very lows here right around 99 look at these highs up in here right around uh 19 that's about a 20 dollar fl a flagpole and what we mean by flagpole if you're new to this new to this idea of measuring how from a technical aspect how far things can run well there's a couple of ways we can do it we can look at the depth of the uh flagpole we can look at the distance uh of the base pattern that this was in and this becomes an important uh idea as well when we think about a base pattern because right in here price sat for a long time drifting sideways and then it broke down and then they came in and bought and supported that and pushed that right back up so and then what do we see along this this uh bull uh the flag pole is a somewhat of a change suddenly we see really strong push to the upside if we look at the volumes down in here the volumes have drifted uh drifted a little bit higher here let me expand that up to the upside i forgot to pull that back so we're seeing volume start to pick up some we can see buyers are coming in and now we're breaking back to the upside today and as we speak it's it's starting to come off of its uh come off of its recent pullback we'll see if that lasts in the uh in the market the market is just kind of back and forth from uh when i say the market the s p 500 back and forth from positive to negative positive and negative and it may pull back so you know you may some people may uh uh consider that in their in their investing if they don't want to step out in front of a market they may be weak but if this is something that people are going to be going after the market is going to be have a certain weight on it but it may not have a a a huge weight on it so let's look at making this trade so if we if we've got about a twenty dollar flag so let me again let me explain what the bull flag is and a bull flag has if you think about a flag it's it's got a pole and then it has the flag at the top of the pole right and the flag usually is a little bit wavy on the downside well sometimes flags are uh very s uh or the wind is very strong in other words in this case as a analogy the the the the willingness to sell or the buying is strong and so we get this flag pole that's fairly steep we get this flag in this stiff wind and that's this area right in here so we're starting to break out we're going to look for a 20 pop to the upside here now this being an active trading type of an idea let me uh let's go back let's zoom out here and uh let's look at the uh the entry we're going to buy on a limit we we established this really last week and if there's anything that you can do the one of the more important things that you can do is know what you're going to do when you're going to do it have things on your watch list how they get on your watch list basically is you know from a couple different areas you could use the sector rotation like we were looking at uh technical or excuse me energy materials industrials those things were starting to have been strong recently and we may see some follow through we'll look at some other stocks that are going to follow along in that area here shortly but if we want to buy this if we think that things are going to be the vaccine's going to kick in and and the the the virus is going to eventually go away and all these stocks that have been down trodden so if we we go out here and we look at a say a three-year weekly chart we can see that this has been beaten up pretty good down to the downside so it may have some pretty good upside to go and that's what we're going to kind of base part of this uh decision on is number one the bull flag so for a short term trade we're expecting this to run about 20 from where it is right now uh we have a place that we can put in at as a stop which is going to be uh right below the flag in here so right below the flag is going to put us at about 110 so if you look at my uh annotations over here we're going to buy it right now on on a buy limit we're going to put a stop loss remember stop loss is not guaranteed at 110 it could gap below that we could be taken out at a less uh a less palatable place and we're gonna we're gonna buy a certain amount of shares but we're going to you know oftentimes majority of the time i talk about buying impartials buying in in scaling in buying a little bit and then buying a little bit more here on this swing trade type of idea we're going to put on the full position but we are going to take off half the position at 130. we're going to close out half the position at 130 in the last half of the position at 140. and by doing that i want you to

think through this for a second we talk about stop losses okay our stop loss is not guaranteed if it runs back up if or if it runs and it gets to around 130 we've got two choices what are those choices we can take our stop loss and we can move it higher so let's say that we had a a stop loss and let me draw a line for the stop or just use this line we have in here activate this well you say we've got our stop loss at 1 10 right in that area well if it gets up to 130 well we could say well let's move our stop loss to 120 about 120 where we got in okay so i'm going to move that up to the second dotted line here now our stop loss is there but there's still no guarantee it could still gap down right but if we sell half i want you to think about what's happening here if we sell half it's very similar to you're going to lock in some of your gain but it's also very similar to pulling your stop loss up to where you uh where you entered in on that trade so uh is still you could still lose some but we're at least locking in some profits and if it falls back down to where we entered then there should be about a break even trade and so we're we're cutting our risk as price rises we're taking some risk off the table instead of having at 130 instead of having 20 worth of risk now we have 10 dollars worth of risk if it gets to 140 we're going to go ahead and exit out of that trade so think about your stop loss in two ways let's take some off the table let's move our stop to the upside and now we are are limiting our loss hopefully limiting our loss to a heck of a lot less now it's buying stock and buying stock has unlimited risk down to zero in case something crazy goes on with win and it goes uh with uh win resorts and it drops to zero overnight right but hopefully that won't won't happen now we're going to we have if we if we buy at 120 and it gets to 140. we're going to have a uh in theory uh risk of one getting out at 110 uh uh getting out for a loss at 110 getting out at 140 for a target to the upside so a risk of about one a reward for about two if we held on to everything but so not quite but we at least have a direction that we can define and then lower our risk as we move higher if we have a portfolio risk that's what pr means right here so if we have a portfolio risk we're willing to lose a thousand dollars in our portfolio and we have a ten dollar stop loss or trade risk we're willing to risk ten dollars on this trade to the downside then we can divide the portfolio risk by the stop loss or the trade risk and it says we can buy a hundred shares so that's what we're going to do right now with a target uh to sell half at 130 so we're just going to sell set up right now just to sell half let me uh clean this off here and right click and we will uh we're going to not do that we're going to right click and we're going to buy custom with oco bracket now we're going to buy right now so i'm going to uncheck this we're going to buy it 121.88 okay we're going to have a stop loss of 100 if it gets to 1 110. so i'm going to put the stop loss in first if it drops to 110 good till cancel then we're out of 100 shares okay but if it runs to our first target of 130 we're going to only sell half so i'm going to put in 50 in there selling half if it gets to 130 if it doesn't and drops really hard we're out for a uh for the original loss of a thousand dollars around a thousand dollars at 110. now we're going to buy again we're going to buy on the limit order here right around 21.88 or better and we shall send that off right click and i seem to be frozen hmm see if that works doesn't work um while this is while i'm waiting for whatever's happening here to unlock let's try this again here see if that'll unlock it not unlocking it uh there's a question in here can you use a trailing stop based on a percentage yes you can uh remember though that a trailing stop is going to move things up if it drops uh intraday pretty hard and then rallies back up you're going to be taken out of that a lot of people get perplexed by that so some people will look at the end of the day and decide uh that they should move their stop stop loss up at the end of the day or exit at the end of the day yes i am selling 100 at 110 i'm going to sell 50 if we if it rallies to 130 in case take half of our uh trade off of that if it goes to 140 once that happens we have to go in and reset everything and put in the other stop uh selling another 50 at uh at uh the next level up now this can be done all manually right now we can't seem to do anything because this does not want to uh play well with me here i'm going to exit out of this and come back in my apologies see how long that takes while that's hot well that's happening i'll try to answer some questions over in here here we go all right let's see if that trade is still in there it is not let's try this again the more we talk the more it moves up the more we have to wait the more it moves up this is terrible uh and so we will set our our stop-loss again are our buy our sell limit order good till cancel at 130. now it's going to be a limit

order uh a a sell limit order above the market at 130 or better meaning at 130 or higher we're going to sell 100 if it drops to 110 and hopefully this will will work for us and confirm and send double check everything a hundred shares selling 50 at 130 and we'll send that send that off we are in on that trade and we will see how that uh how that uh progresses here i'm gonna pull up the education tab apparently nope okay all right let's move on to another one think about this one here this is uh alliance data systems we can see this is very similar again we have a rally up to old resistance but we have this bull flag uh kind of this bull flag type of action going on here let me get a better drawing tone pop down here and grab a price level so we can look at that and we can look at this now if we start to dissect this a couple of interesting things uh were happening along in here i want and we'll talk more about this type of action on friday as well when we look at when we're looking at price but we had a peak over in here price fell down into here volume as it as it came back in uh really was you know kind of advancing a little bit and then it rallied back up and we saw a little bit of volume come back in but as it fell in here really saw one last push uh to the downside on volume but the thing we really want to key on out of this whole this whole structure this whole price volume structure if i get my mouse back here this whole thing in here is we want to key on this area it shook some of their last of the weak positions out in other words there were weak holders in here that sold they uh they sold more up in here they sold a little more in here and then price uh rallied now when we saw this rally this flag that we're looking at here this whole run right in here what do you see what do you see that's uh that's telling you that things might have changed as something changed in the uh in the in in the bias possible change in the bias on this trade which would make this bull flag maybe a little more uh palatable and that is these long range bars right in here okay so big long range push to the upside and and then a nice gap to the upside today volume is uh already outperforming friday's volume so maybe by the end of the day there's a lot of trading left going today maybe it'll exceed the 50 percent uh of average volume so but here we're still going to use the same idea and it's a breakout and a bull flag at the same time right now there's no guarantees obviously and these are just example trades but the idea is that we're trying to look for those tracks in the sand and we're trying to look for levels if we can find the levels that make sense because in and of itself by itself this is a bull flag but when we start to incorporate all these other things along the structure that make sense the double bottom we have in here how that double bottom was was formed how the shakeout happened towards the on the right side of the double bottom and then we have long range range expansion days then a gap up today perhaps that's a a good sign so we know we have support all the way down in here so long-term investors may look to exit out down below here looking for this you know trend traders short-term traders may look to exit once it drifts below uh the low of the flag here so when we look at the flag pole we've got flag pole flag and now pushing back to the upside so we're going to expect our or our our next level is going to be the distance of this flag pole we're going to add that to our break here to the upside and that's going to be our target now you can do however you want you can buy in partials you can you can buy the whole thing and sell half that's just the the example we're doing here today there's a lot of uh people that may use that method or use thirds so we're going to use a stop loss at 44. oops this uh got messed up here so we use a stop loss uh we're trading at 87. we've got a flagpole here so ignore this over in here we'll we'll replace that in a second uh we've got a flagpole and if we measure it from low to high here is approximately twenty dollars so twenty dollars uh if we look at where it's trading at now eighty seven um the uh the stop can come below all the way below this moving average if you wish or just below the flag we'll put our stop loss at 7 at 77 so i'm going to come over here edit this it's a good thing to think about doing this to put your trades on your uh there's two things uh put your trades on your your ideas on your uh tr on your chart and uh at the same time put them in the trading journal that we now have uh that i'll show you it's in it's in barbs trading a smaller account uh uh webcast on the education webcast tab so i'll show you how to get there and i know barb will uh so we're going to look for 77 we're going to look for this to trade to almost a hundred dollars so we're going to look at this uh to take half our position uh at um uh we're looking for twenty dollar run excuse me so 107 dollars gonna take half our position at uh 97 and the last half at 107. now oftentimes when something breaks a hundred dollars it may run to 110 so uh just let's watch that our trade risk is going to be again um ten dollars and that means that we can buy a hundred shares of a stock so we'll just do the same thing right click so 100 shares the stock is ten dollars into a thousand and we're going to right click uh go to buy custom we're going to buy it right now on a limit so uncheck that make sure we're at eighty seven dollars not buying it at a hundred and something uh we're going to trade out of this at a negative 50 when it reaches 97 dollars and we'll make that good till cancel why because we don't want it going away at the end of the day if it drops to 77 we want to close out the whole position now this takes some close monitoring or you can adjust your you can go in we and i am not doing it today in the in the f in the respective time uh to put in other trades to layer out of it at higher prices but that you got to be very careful with that not to end up being short somewhere we're going to make this good till cancel and see if this will send so we'll buy now hit confirm and send 100 shares going to sell 50 shares at 97. we'll raise our stop loss at that point and then uh put in another cell to get out at 107 for the last 50 shares so we're in on that one and that's why i uh overlapped a couple of trades so there's that there so uh let's see uh now here's energy uh so we've had earnings come out and you can see there's a lot of similarities to everything i'm looking at now why would we why would we care about similarities we care about similarities because we want consistency we want to be able to to do things that are repeatable over time and a lot that you're going to find with me is the these structures in here and that is let me highlight this these structures and on these site on the sideways action uh this is where we see a lot of pent up demand a lot of tension coming in so when we see these breakouts but they they're also uh there's also a bull flag associated with that these bull flags and the stiff wind you can see that actually it broke out back in here right well it broke out over in here but it failed right there was no bull flag on the breakout if you wait if you see the breakout and you really want to wait for the bull flag well sometimes that flag is is very sideways action that's okay uh sometimes it isn't sometimes it pulls in back into the structure maybe it does something like this finds some uh find some support say oh let's draw a line across in here find some support down in this area and then starts to run again right one of the things i want you to look for in the this structure if that happens if it pulls back in down in here is i want you to make sure you understand where the 50 area is on this flag that becomes an important area there's an old old saying that says flags fly at half mast uh so in other words they pull back in uh about halfway sometimes before they take off if it breaks below 50 of that flag it's probably no longer valid certainly very strong in here right now so let's make the a uh a trade on uh conoco phillips what do we know about conoco phillips well it's an engine it's in the energy sector we know the energy sector has been building we can see here along the structure of this runs up pulls back keeps falling back into here sometimes on big volume but it just can't produce any lower price once it can't produce any lower price then we start to look for the higher lows over in here so we have a higher high a higher low and then today right now we have another higher high on the breakout bull flag and so we're going to make this trade here as well all along in here we see down in here really strong volume i know i have other things on here i haven't mentioned and that we're just looking at price and volume right now price uh being the main uh the main driver if you want to use momentum indicators like we use so often in here rsi on this is very strong above 67 above 65 oftentimes is thought of as areas of strong excuse me uh trending tendencies right click and we're gonna buy custom i'm just looking at you guys got barb really busy in there all right so how many shares are we going to buy on this uh we're going to buy uh we're going to put our stop at 44.50

we've got a flagpole here uh that is uh let's see here uh we're gonna a flagpole that's a little better than a ten dollar wide flag it's trading at uh uh 48 right now the low uh the low side of this flag here is right around 39 uh so we've got a flagpole it's about ten dollars we get about a two to one reward to risk we're going to get in at 44 we're going to get out uh we're going to look for about uh an uh a ten dollar run we're going to get here 44 we're going to have a i mean we're going to get here at 48 we're going to have a stop at 44. 44 50 to be precise we're going to take half at 52 and the other half at 56. so we have this reward to risk ratio of about two to one or one risk to to reward which means that if you only write forty percent of the time in theory you will have uh you will have a profitable uh outcome in your portfolio if you if you all your trades come out to uh uh a uh two to one reward to risk and you're right only forty percent of the time always remember reward to risk is one thing but without the probability understanding how often you're right how often you're wrong it's a it's it's almost worthless so we have trade risk of four dollars so that means we're going to have a stop loss if we'll just put it at 44.50 where i had put it originally uh before we started today so let's pop in here we're just going to use the chart come over here oco bracket unlock it so we can get in where we want to get in right now how many shares are we going to buy this is a less of a we're going to buy 250 shares because it's not a hundred dollar stock we don't have a ten dollar stop loss we have a four dollar stop loss not guaranteed remember so we're going to buy 250 shares so we pop this back up load in 250 and then we're going to sell 125 when it gets to our target price of um 52 that's our upside target we'll make that good till cancel and then we're going to have a stop loss of all 250 if in case it goes against us immediately let me ask you a question how often does it go against you immediately or if you have a loss on a trade is it is it immediate is it fairly quickly after you put the trade on or is it uh much later if it's much later then you're doing something wrong meaning that it's just not doing anything going sideways and on an active trading strategy and active trading portfolio that means you're tying up possible money that could be going into other trades or it's run really strong and you let it get away from you neither of those are good the last one you have a good gain and you turn it into a loser that's not a that's not a good thing now that doesn't that doesn't mean that sometimes you might see the gap that takes you out and that's just going to happen so those things are going to happen you just have to uh you know get used to them and that's another reason why we might want to take profits on the way up so we have a limit order of 48.63 getting in right now

uh we're going to take half our profit 125 shares at 52. and uh good till cancel we'll stop out of all 250 shares at um at 44.50 hit confirm and send double check everything and then we shall send this off all right now we're in there on that trade so let's kind of take a look at this uh taking half here now if we wanted to take this just a little bit further out in time here put on a two-year chart or our other stop is around 56 dollars right getting out of 452 coming in at 56 when we see i'm going to ask you a question 56 dollars out in time right about there notice how that coincides with where what i'm going to zoom back in here well zoom too much here let's move this this away where price gapped down if you look back to last year at this time that's where the selling began where do people sell they sell where they sold before and that is the kind of the the um idea behind what we're doing right now because they sold in in recent times they sold here right they sold here they sold here they sold here uh they're not doing that so much we see that there there may be a change in the structure as this flag starts to take off so maybe those short sellers if there are any left are getting squeezed out of this or in any event there's demand coming in that seems to be overcoming the idea about supply where sellers coming in and so we're making that trade based off of uh the possibility of this continuing higher think about who's on the other side of this trade right now it could just be more buyers when i say more buyers more shares being demanded versus more shares coming online over here more shares came online so this didn't this this uh possible flag that was building up in here did not did not come break out to back to the upside it continued lower but it couldn't quite make it back down to the old lows over and here so we saw and we'll talk more about this on friday we saw more demand coming in here than we did back in here so looking at that it seems like the cards might be in that favor we have good momentum as well all right um back out of this move on mosaic this is in materials um and you can see a similar idea this is that stair step though so let me quickly put these in um and so long consolidation rallied up very similar to what we uh are looking for today rallied up bull flag stayed sideways now we're drifting sideways again breaking out a little bit late on the breakout on this bull flag but notice how when it got up in here it pulled back to the halfway mark and then took off again so this is another one we're out of time but this is another one uh that uh you you might want to consider uh just looking at anything in the materials sector uh might be a uh something to consider out there especially if it has to do with commodities because the commodities might be uh benefiting from higher interest rates oddly enough and a cheaper dollar uh and that may continue for a while so here we have a stop at 27.50 let's just put this one on very quickly 27.50 we're going to get in right now stop loss not guaranteed 27.50

we're going to buy 333 shares come over here by custom unlock it uh you're going to buy right in here right now we're going to put in our stop of 333 shares at a stop loss of 27.50 so we're going to highlight that 27.5 good till cancel we're going to buy 333 shares at the limit today right now but we're going to sell instead instead of selling all 333 what are we going to do we're going to sell half of that so half of that's going to be 100 and what is that i know this but i get offer clamped here yeah dude 166. we're going to sell half of that on a good toe cancel order and uh just double check everything materials strong energy strong reopening trade possibly strong 166 shares at a uh oops we messed up right because we want to sell half at a target and that target is 35. so we're going to change our target our limit by limit to 35. you get going too fast

you're gonna you and that's why the the double check is here write everything down put it on your charts double check it and then put it in the uh put it in the journal uh we're gonna send this boom and we'll see if we get filled now real quickly coming up next in the education tab webcast we have something here we go coming up next is technically speaking with connie hill trading stocks and options for that journal we talked about i want you to come in here and i want you to just go to bar find barb armstrong right here and click on that and scroll down and right here trading a smaller account and you're going to see this trading a journal just click on that and it'll load up as a as a excel spreadsheet i'm sorry i overextended my time um if you like what you saw today please give us a thumbs up go down there and click on that share it if you think somebody could benefit from this and make it easy on yourself subscribe subscribe subscribe to the trader talks platform so that you can find all of our great webcasts there is a survey if you would please fill out that survey just takes a few seconds and put your comments in we love to hear from you it helps us uh build uh build and do other things some of the comments we've received before was can you look at this like volume and those types of things and we've certainly done that with that everybody have a fantastic rest of your day breakouts or bull flags sometimes they're both look at the underlying underlying volume underlying price how did it get there does it make sense is it in the right industry group is it in the right sector and then be consistent right is it repeatable everybody is responsible for everything that they've done in their own self-directed account and this was all for educational purposes only everybody have a fantastic weekend and our rest of your day and the rest of your week if i don't see you

2021-02-21 23:01

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