Technically Speaking: Trading the Trend | James Boyd | 3-25-21 | Defining Risk Versus Emotion?
[Music] hello and welcome to technically speaking trading the trend weeks to months my name is james boyd we welcome you here today we always call actually thursday trend thursday as we talk about short-term and long-term trends we'd like to welcome scott lisa wayne jill frank paul mark meal yoku tom harold t guiles and many others let's go ahead and get started now again talk about trading their trend weeks to months so this is going to kind of allow really longer term price fluctuation to happen which can actually mean more fluctuation in the profit and loss of the position now we'll talk about that in just a moment now as we're getting started remember you can also follow uh myself or mike falette on uh twitter you can go to twitter.com just type in mike falette and also you can go to my handle for example uh jboyd underscore tda either way you search for names or use handles you'll see those in in twitter now just real quick as we're getting started want to give us a quick reminder we're going to demonstrate the function of the platform want to also give a reminder that also as we talk about options here if we do if we have questions on those remember that options are not suitable for all investors especially risk inherited trading options also remember that we're going to be using the paid money account for educational purposes just because someone successfully trades during one time period doesn't necessarily mean they can win the heisman trophy later you know what i mean sometimes what happens in paper doesn't necessarily might translate to real or vice versa know that market conditions change and also last but not least remember the option greeks delta gamma vague and theta now we're going to talk a lot about today about market posture where's that potential money rotating to uh why are some of the areas maybe going down like they are and then we're going to talk about existing positions management of those but we're going to heavily talk about new positions and we're going to really bring up that fibonacci tool as we discuss that here today and really be looking for the relative strength now just real quick as we get started here i want to actually go ahead and i'm going to bring up here if you don't mind i'm going to go ahead and actually bring up just the i'm going to start with down now if we actually bring up for example the dow and i'm gonna pull this up let me zoom this in quite aggressively you're gonna kind of see and we'll we'll talk about all the three main ones outside the russell but here's the dow right what i have done is i've drawn using fibonacci and i've really gone down to where we were down the low on three four and really if you take a look at this on three five okay now what you're going to notice is on three five that's where we actually saw the crossover that's where we saw rapid price ascension it went up you should know by now that when the price is above both moving averages we got that green shade there's really at that current time point in time there's more buyers and sellers it feels different it kind of feels like wow how long can this trend keep going trends though are not just going up checking accounts are not just deposits deposits deposits there's also withdrawals and those deposits and withdrawals over time create a trend and lately we've been seeing a little exhaling of the price action and we actually did see some turning there and we actually seen about the last four days where the price has been below so here here here and here now look at for example let's kind of bring this up so when we actually see this we're looking at this could this still be a potential bull flag could it still be a bull flag i mean if we're using fibonacci and the price rallies and then it pulls back technically where does the investor really want the price to actually pull back to or stay above well if it was our birthday which is not okay that's next month but if it was our birthday we'd say james don't fall down below the 23. third area second area might be let's say the 38 and if we said look if it's going to be probably a bull flag the investor would probably say needs to at least stay up above the 50 okay if you go down by more than the 50 of the rally there's a greater likelihood that it can revert all the way back up to where it started today's price action really went down to about that 319 and change and you're seeing that it's getting down to that right now now if we look at this on the doubt is it diverging do we see macd diverging yet yes or no it's not diverging yet we still see the macd on the bottom where it's actually the macd is actually the the decline is steepening day over day we're actually seeing the macd actually go down to a a shallower level okay or i should say a deeper level relative to the previous day we don't see any divergence yet so this is an early area where investors might start to let's say uh try to maybe consider some entries and or actually maybe consider what that is maybe looking for some stocks that are showing those relative strengths we'll pull those up in just a moment nasdaq itself okay rallied up really to that uh moving average the 10 period and you're actually going to kind of see that today's price action if we were to close here we'd still be closing at a 10-day low so when you take a look at this we're seeing still some softness now you go back about the last 10 days or so there's been a lot of neutral price action on the nasdaq over the last 10 days now this should kind of kind of give a question are is the investor just doing all bullish strategies like long calls long synthetics long stock maybe when the investor starts to see different types of trends they might actually say you know what i might do trends that are not so dependent upon direction okay that might be a good question and last but not least before we switch here is when we look at the volatility now when i woke up this morning that was one of the first things i looked at when we take a look at volatility we're seeing on this bottom side here okay remember we we say this but i i just want to make sure we get this whenever that volatility is low and we've been saying this for about two weeks now when the volatility is low stocks are at highs and or resistance okay you know i was going to say that right now when the volatility is low if those moving averages if they start to cross and if both of those lines go green you can see a rise in the volatility which means prices probably pull back but you already knew that well if that were to happen again okay now what did we learn from the last time and the time before that and the time before that and the time before that so if we take a look at this that what we would learn from that is we're kind of seeing that same type of setup right here that's why on tuesday we talked about exiting and adjusting stops because whenever we actually get this condition and whether we get a moving average that crossed which happened two days ago and then we also start to see a little divergence and both those moving averages going up the investor would probably be saying you know what i might be doing more protection type strategies relative strength is going to be less because there's less examples of relative strength and there also might be maybe potentially a bearish trade okay based upon what we're seeing in the market now are there any questions with this now can i ask you a quick question before i want to kind of see if we have any questions when the market pulled back and you saw volatility go up what did you do with with the portfolio did you just say james i just watched it fall down did you say hey james i i adjusted my stops hey james i uh practice cover calls protected puts collars well wonder if that condition were to happen again i mean over time we want to get better right if if that were to happen again what's the plan okay no i i don't have a plan i was kind of hoping someone would lay it out for me okay well as my football coach said he goes if you don't have a plan you're you're gonna get laid out and he was right i did get laid out and i decided i would rather give the hit than take one same thing actually goes with trading investing you want to have a plan so when we actually talk about some of these stocks that you hear today with this volatility may be starting to poke its ugly head this actually might mean that stocks are just scratching and clawing to hold up above support okay now uh yeah so uh lakshmi says wait for the right time to attack okay sell puts so when we talk about selling puts which we're going to talk about we'll typically always do but we might actually be looking for the investor might be looking for stocks to really kind of complete that crescendo where they fall down to the horizontal support and they start to see a macd divergence i think investors underweight this okay that's actually something that i think a lot of investors just glaze over but when you see a bullish macd divergence the likelihood of reversal is quite high amanda says close my eyes love it i i think thank you for the honesty now remember what i always kind of say is that when the prices are actually falling down you want to actually do not be blindfolded okay don't say i can't see anything this is where you want to keep your eyes open now let me kind of talk about that real quick we're going to talk about a new example when the market actually falls the natural thing is to say i'm looking at my account balance and my goodness almighty i've given a lot back well let me give you a quick example the s p went down 3.3 percent not like i was paying attention but i was and this portfolio this i'm pointing just this example it was down 2.3 so when the market goes down and if this portfolio is bullish if it is and it is it's gonna go down with it now it's not going down as severe okay and that's the goal is when the market actually goes down that it outperforms the decline and then when the market actually goes up can it try to perform or outperform the market and if it does that that portfolio would actually have what's called a higher sharp ratio or a higher information ratio where the active return is greater than the active risk and that's what professionals do it's not the professionals don't have down weeks okay they do it just they don't want them as down as bad as the s p now let's go ahead and actually talk about a couple positions now i'm gonna bring up uh if you don't mind i'm gonna bring up in this case we're gonna go to the one of the stocks the last time we actually saw this market in this situation we actually pulled up a stock and it was called wm waste management now i want to go back and bring up this position we're going to take a look at this and i'm going to bring up uh it's in the margin account and what it was in this case was a hundred shares of stock now one of the things that can happen is when the market let's say is going down investors typically become fearful we know that we've seen diagrams we've seen warren buffett talk about when the people get greedy become you know fearful when other people are fearful become greedy so we've got to be careful that when the market goes down if an investor becomes fearful they actually miss potential opportunities that are closer to the support levels but why would you care well if those stocks are closer to support levels that means there's less potential risks still risk but less okay so i want to kind of show you just this position we're gonna do the same thing on this new example can anyone actually tell me what type of position this is 100 shares of stock and a long put what do we got 100 shares of stock long put what is it well 100 shares of stock and a long put that is a protective book okay now what i want to do is let's kind of pull up when was this position put on it was on 3 4. now i want to kind of give you this i'm giving this to you on purpose so on 3 4 let me kind of just put my cursor about right there so on 3 4 if we said why did the paper money get in that one three four that was a stock that was breaking above its diagonal resistance yeah if we said on three four why did it get in on that day well let's close above the high of the low day and we also see the moving average is green we see a green shade now this begs the question so why is the paper money account still in it well because it's following the moving averages we did actually see so on 3 4 there was the entry it goes up up up up and we see a little weakness right here here and that moving average line goes red now what you'll notice is the lagging period moving average the 20 it stayed green it did not both those moving averages not turn turn red and we're seeing now after a little pullback just for about a day you'll see it's still going up now in this case is i want to kind of show you on so that's what it looked like on 3-4 but what was the smp doing on three four well let's show you and this will actually go into our first example so here was the s p on three four now if you think about this there was a lot of investors that probably were just like just tell me when it starts to go back up but recognize this paper money portfolio wouldn't have been up the thousand dollars if i had a towel on his head does that make sense so when the prices go down let's think about like real estate right in my area real estate's really expensive if there was actually someone two or three houses down that said i'll sell you my house for uh 300 grand and let's say it's currently priced at 400 i i don't think i would be scared i'd be thinking kind of sweet i actually wanted to buy one okay my son's actually looking to buy a house and if we could find some deal well we like it but when prices go down people act like sometimes turtles putting their head in the shell instead of watching the support levels there's only one reason to actually be watching is when those prices fall down to support levels look for some opportunity so i want to kind of show you a trade that was done on 3-4 when the market was in the tank instead of actually just being fearful the paper money portfolio goes out and says you know what what are some of the stocks that have relative strength uh waste management goes long buys to put to actually cap the downside or to give a floor and takes advantage of a thousand dollars there so far we'll see what happens but now let's take that to now because who cares about before what about now i mean isn't that what it's about well let's actually go back just real quick to verizon sometimes when the markets actually go down there's some investors that say i like gross stocks i like tech stocks but all of a sudden people maybe change their mind i like tech stocks but now i like utilities i like growth stocks but maybe i just want to go back to income okay they change their mind okay now one of the stocks we're going to touch on just real quick and i think it's okay we we talked about the stock earlier before but we're going to bring this up and this is a tactic okay so when the investor actually sees the price actually fall down and creates a support at 54.40
and they start to see let's say uh one touch two touch three touch right at 57 guys and gals there's nothing wrong with maybe setting up what's called buy stop orders what are buy stop orders well buy stop orders are that if the stock goes up to a certain level buy the stock so that's one so when the volatility goes up some investors that have experience they shift from buying stocks at the market value and they actually say look i want to see the stock thrust that's the word of the day thrust its way to the upside the second thing they actually might do is they might say look i'm not going to buy the full position at a certain price i'm going to split up the entries because if the market is more volatile which is up and down well that means i'm probably going to be glad that i kept some extra ammunition we're talking about capital here okay to try to buy the stock and maybe a potential lesser value now let's show this so we see the stock kind of making a little diagonal support triple top right at 57 and change and what i'm going to do in this case is i'm going to kind of right click right on the line maybe right about 57 72 something right above resistance now i'm going to tell you in 20 years of talking about this there's people that there's there's people that know about it and there's people there's the other part which is people that actually know about it do it now if we take a look at this it's gonna change limit we're gonna change that limit to a stop day to a gtc so this is actually saying buy the stock if the stock were to get a let's say at or above at or above 57.72 so what's happening is it's trying to catch so if the stock were to go up about 37 more cents it's trying to buy the stock as it thrust to the upside now if this paper money portfolio said it could buy let's say i think about about i think 12 15 000 worth of stock which is paper money account that's fine for this account size the margin the biggest thing is they would only be doing a hundred shares first okay now this always begs the question why would you try to buy the stock if it's higher fair question right have you ever let's say look back on breakouts and said geez i wish i would have bought or there was an opportunity to buy here but there was never any order this order is trying to catch the breakout now if the stock doesn't go to 57.72 or higher it just doesn't buy the stock so step one is going to buy those shares and stock if the price gets at or above resistance the stop i'm going to use this kind of area where we kind of have this little crossover right there right about 55.68
and if we set a stop less two to three percent there it's really going to give about 54. okay zero zero okay so that's the first hundred shares next we're going to take on the next now again again this you know about it or you actually are practicing it that's totally different now my my father always said james if you if you know what you know why don't you have because if you knew it you would have done it and i hated it when my father said that and i knew if i really knew it i should have practiced it and the way that i actually proved that i know that i knew and understood i would have the results are on the way to get those results so in this case what you're now going to see is i'm going to go confirm and send paid money account is going to buy those shares there's the capital commission we know how the stock works the stop is only valid unless the stock is purchased okay now send that okay so the order's sitting there if that stock breaks above that line it's going to try to buy the stock in the market price next it's going to move up that price let's go to about 58 i'm gonna just kind of move it up about maybe one percent or so right click i'm gonna go back by custom with stop now one of the benefits of kind of the environment we're in in this case is we don't have stock commissions like like the explicit cost of a commission okay on a stock trade the paid money account is going to go right back to for example 50 54 so historically investors retail investors they they would typically say i'm not going to spread up the order like this because it's a commission to get in here commission to get in here etc well this is actually just kind of splicing or separating the orders and just trying to make sure that the stock is really breaking the resistance okay now if both of these orders were to fill if they were kind of move those orders you're now going to see they're separated okay so if it goes here buy a hundred if it goes here buy a hundred this is what we mean by scaling in and when when markets become volatile people tend to put too much in one entry and the whole point is when you see more volatility it's okay to kind of try to build an inventory of the position over different you might want to break it up into halves or thirds or quarters because you don't have the commission on the stock trade does that make sense now these are things that we've learned over time okay these are things that i think you should consider and you know sometimes when we have volatility going up someone puts their whole position in on one day the stock doesn't go the intended direction and the investor feels like a loser well you might want to consider splicing up the entries okay the investor might say james i'm going to do the opposite of what this is showing here i'm going to buy half if it were to break out but i'm maybe going to buy the other half if it were to pull back to this area of support and that's another way to look at that that's what we did with ba but i'm not bringing that up now okay now if we take a look at this okay are there any questions and it looks like mike has actually got those okay now okay okay it looks like we're good there mike has those i appreciate that let me know if there's any questions there so now we actually see is the uh the buy stop orders remember on that the the dividend is coming up here on the uh right there on the eighth remember the ex dividend date very important date that's the first day of trades without okay the claim to the dividend that ex-dividend date i don't know for sure but if we fast forward that three months the last one was one 721 so if we said three months from then it might be april 7th so if this stock is actually going to make a move boy it would be nice if it made it sooner than later that way it gets in before okay the ex-dividend date so it's trying to catch a reversal and then also trying to maybe get like some icing on top of that potential trend now i'm going to go to for example this is actually something i think i want to kind of also touch upon that when you're in a period where for example there's a little volatility and there was a comment that was asked regarding from orlando and orlando asked the question historically could maybe the market watch could it maybe show me when let's say the moving averages crossed okay now i've kind of done some kind of poking into that and i i think we already have the answer to that but orlando was saying boy it sure would be nice if maybe on the market watch page if it could just tell me when there's getting like crosses like that or for example if it's getting crosses like this now obviously one of those is a bullish cross okay where went up the other one is bearish cross now on the market watch tab on the seasons column if you said i'd want to kind of see in a list of stocks and i agree with jerry on this is it's going to show you for example if in the list they show spring or for example if they show summer okay that is going to show you and i i've done some re-looking at this just to re-verify i did it last night you did it this morning but if and i'm talking to orlando if someone said i want to see on a list of stocks when does the stocks actually show me crossovers if you look in the column heading which i'll show you in just a sec if it showed a call in the column spring or summer you go look on the charts and it's highly likely they're showing you a crossover the opposite would for example be if we're seeing a negative cross down well it on the market watch which i'll show you just a sec but i want to show you visually what we're saying and then show you the tool orlando this is for you buddy but it would also say in this case fall and or it would say early winter okay and i i've done some checking on this and i i i'm telling you i think that's i don't think we have to re-create a tool when it's already showing that so let me kind of show you for example what this so if you said james i'd be interested in finding stocks where there's like a crossover like this well let's now we're kind of speculating that maybe is is it showing a spring or a summertime condition because these are very similar to each other where they're crossovers okay so let's pull up a chart now okay or the market watch and what i'm going to do is i'm going to bring up uh if you don't mind i'm going to go market watch and what i'm going to do is let me kind of just take a look here now i'm just going to make a list if you don't mind uh i'm gonna grab create a watch list and i'm just gonna you say uh i'll call it two i'm gonna just bring up oracle by itself now when i bring up oracle by itself i said to you before that if it's showing a moving average crossover i said to you before that it's probably showing a summer or a spring condition on a list of stocks maybe nasdaq related it's actually showing it's showing currently summer now remember if you say what is summer it's where the price is above the 10 and the 30 period moving average who cares well someone that's trying to ride the trend would want to know that okay or trying to enter okay so that's the difference is there so orlando i think more fully is we we need to use that column heading of seasons the seasons is going to show us the crossover okay so for example if i said to you which stocks might be showing for example like a moot a negative moving average crossover i just said that right it would be stocks that would actually be in a fall or an early winter condition those are probably negative crossovers but if actually someone said no no no james i like bullish crossovers okay all right all right well there's one stock in there that's showing a bullish crossover spring we'll pull up walmart's as a snack but there is a plethora a couple more stocks in the summer so these would be the ones that if someone said james i'm looking for a bullish crossover we bet that those would be the ones more showing the bullish crossover so orlando i think we kind of need to use those and just understand that's probably an overlap of what you're saying now let's look at walmart just real quick when we look at walmart we're going to go back is this really showing maybe something that's crossing over yeah you're seeing it's pinching right now and about the last two days it's been showing a uh a momentum of pushback to the upside now the comment came from scott is there okay and i want to go back to uh i want to go back to oracle because that's going to fit right in with what we talked about is when volatility goes up sometimes investors get a little nervous all right well let's talk about being nervous okay i mean now let's pull up oracle here and so what makes people nervous well the market might be more volatile in this stock sometimes what happens is some of these stocks will fall down to support earlier than others so here's a stock that was up falls down to support old resistance and now we're kind of starting to see across well we know and mike would verify this might tell me for wrong when does an investor have a greatest have the greatest chance of being stomped out they have the greatest chance of being stomped out on their positions when volatility expands so the investor might say i'm not going to set a stop but i'm going to use an option as a way to define the risk of the downside now if the investor were to say step number one i'm going to buy the stock the investor says they buy the stock right click on the graph go to buy let's say they buy 100 shares of stock okay they're buying the stock because they think it's gonna bounce back up now we're talking about trading the trend weeks to months okay so when we go back and really look at this train and say on the three year weekly chart is this been something here that's been showing an upward trend over time yeah it has we go back and take a little weekly chart it's a shorter term pullback in a longer term trend so the investor better get used to short term pullbacks which is going to be all negative but they're pulling back to long-term trends so that's where the investor has to kind of weigh does it matter what's happening in the short term or is a short term selling off the opportunity in the long term right that's what that's what we're talking about now the investor says i'm concerned about the downside well one of the things that can happen here is the investor could say look one of the biggest risks is right off the start because the investor is going to risk uh you know they're risking how much they're buying the stock for they they don't have any unrealized gains yet okay and so the investor might say you know what i'm gonna buy a put let's say for 20 to 40 days and i'm just trying to get the stock off the ground okay and if they try to get the stock off the ground and define the risk they might for example be willing to pay okay and i'm going to use in this case the 67 put okay so you might be different than maybe someone that has experience where they say someone's fearful and the other person's completely thrilled okay why well because they're actually looking at the numbers they're not just feeling they're not just contemplating how they feel they're numbers based logic based okay they're looking at the reward to risk if the investor came in and said okay i'm going to buy the put at 67. what does that really do well they buy the shares at 68.30 okay they buy the shares at 68.30 so let's write it down 68 30.
and they have a contractual right to sell those shares at 67. so if the investor just literally said man i got wiped out well they would lose from 68 30 down to 67 that would in this case really be how much would be about a dollar thirty but remember the puts not free okay the put costs something and that put in this case and it's a dollar 31 the put in this case really costs a dollar 03. now why does the investor care about what the put cost can anyone actually tell me that can anyone actually tell me for example why does the investor care what they're paying for the put now remember this is piggybacking on waste management the investor cares what they're paying for the put because the stock would need to go up by this amount or greater to be profitable at expiration at expiration if that dollar for goes to zero theoretically it's raising the average price of the stock theoretically okay so in this case if the stock were let's say close below 67 they would be in a max lost position of two dollars and 34 cents let me rewrite that over here so it's not cut off from the bottom 234. now how many of you would actually say that if if someone lost 234 they did not get killed and this this language of i got killed or i got worked over i don't understand it i don't even know what they're talking about because if they use options as a way to actually lock in the risk of the downside it's a it's a manageable risk or not now if you want to kind of think about how investors really think about this they actually look at the numbers it's not just looking at how many dollars and then comparing that to what they make in the week in their job but for example if you take a look at this if that stock were to close below 67 they'd be down 234 dollars the stock price for example is at 68.28 so in other words it'd be about 6800 800 to buy the shares of the stock so if they were if they lose 234 on an investment of 68 29 to buy a hundred shares of stock they would have been down or lost three point four percent on the capital to buy the shares i don't know if you say that that's getting killed or you know yeah i you know i lost all my confidence the person that says that they really don't have any experience okay losing 3.4 percent of what the investor
invested in is like almost what the stock moves in in about a one or two day period is that really losing a lot i don't think it is when we really run the numbers the people that say stuff like that don't run the numbers they're just looking at the dollars and they're not doing the dollars relative to the stock price let's get real here okay let's get real let's look at the numbers now when we actually take a look at this if the investor were to say okay why would someone do a married put okay now am i saying buy puts on everything when you get in no when i got married to my wife amber i didn't buy any married put i said look we're in an undefined risk where we we have unlimited upside and she believed it and so did i and i still do now for example if we look at the downside we are buying the put on the stock we already do this with a house a car you name it but it's defining that risk and it's just paying 104 the stock needs to go up by a dollar for to break even anything above a dollar four okay potential profit just like we actually saw with waste management now the average investor when the stock market falls they might just say i'm going to check back two weeks from now they miss the potential entries and then they say i feel like my timing's off i know because you're going by a motion that's what i'm trying to unravel here okay now if we take a look at this now we see is what's the commission for the stock zero 65 cents for actually the option if the investor wants that and is willing to do that they send the order so when people say that options are risky i think the riskiest part of the option is is when you buy an option the risk of the option is it's it's time based okay they run out of time okay but for the next 22 days this paper account doesn't have to be fearful of getting in it just needs in the next 22 days for the stock to go up and the nice thing about waste management james can the investor go in and take the pay money account bought those shares at 115 and it's at 126. could it go in and just say i want to sell and take that 911 sure but is it where's the game the gain is not on the put the put is lost why did the put lose well the put lost because the stock went further and further further further away from the long put well i feel like a loser because the put lost i like to win on everything well here's the deal you don't necessarily want the put to make money because if the put makes money it says that the stock went down but we'd already know that because a married put is a is a delta is a bullish delta trade so overall what does the investor net want the stock to do what do they want they want the stock to go up if the put loses money yes because that actually means the stock actually went up okay so think of that 140 as the cost of doing business yeah but i know investor he's always right 99 of the time he's right look congratulations maybe he's telling you the truth doubt it but in real life you have things where they just don't work out now the net of that trade if you take a look at that is it was positive it's just the protection didn't work but when the protection doesn't work that's okay it means that the asset didn't burn down to the ground okay so i think the thing is we need to kind of take this emotion and fear and just think about is there ways to strap on or use options to overlay those on stocks to kind of look at volatility as not something fearful but it's kind of something that you can kind of embrace and instead of actually saying geez it would have been nice if i would have gotten then if you would have said jesus or the investor considered and said maybe this volatility in the short term is my friend and i need to kind of set some proper expectations if the paper money count is bullish and the market goes down what's going to happen the paid money counts probably going to go down the goal though would be don't go down as bad as the overall market okay now when the market goes back up try to outperform and or uh mimic market returns of the s p 500 if that was your benchmark now so uh the comment from m curtis is how far are you going out of your protective puts okay so real quick on this before we shift typically when we talk about protected puts those puts are typically let's say 20 to 40 days however if the investor said you know what james on that trade on oracle maybe is there an earnings coming up and i don't see an earnings coming up so if maybe if we said let's say in the ballpark of 20 to 40 days but the earnings was coming up in 44 days could the investor maybe try to buy a put that might go a little bit farther than that i think that's a situational example okay so m curtis maybe if the maybe if the earnings was in 44 days and the investor could buy a put that would go let's say 48 or 50 days example given they're just trying to buy a put where they can define the risk or define the price level in which they can sell it now what's interesting about a put a long put this whoever buys the put has a right to sell those shares at any given time they do not have to wait to expiration they can call up the broker broker x exercise my right to sell those shares at the strike price and what's going to happen is it will short 100 shares at that strike price not kind of near there not it depends well maybe no they would sell those they would sell those shares at that strike price guys and guess that's what's so nice about those protective puts and i think this is what happens mike let me know if you're actually on the bandwagon here when the volatility of the vix is low the putts are cheaper typically so the investor might try to take advantage of that now let's go to the next one okay now the other one i want to kind of go to is i want to bring up uh so i just want to kind of make mention monday we did the example of actually home depot we did see actually these home builders here just well they have actually done very well okay so home depot's i don't even know what degree angle this is it's not 90 it's probably like a 75 degree angle but it's continue to actually hold the breakout and then squirt higher now when we actually take a look and say his twin its cousin lows we're also kind of seeing that same situation here too now it's kind of interesting when you look at let's say lows you kind of see a resistance here 178. you look at this area 178. and what's kind of a little interesting is you kind of see two little down days now what's interesting is these down days here and here they're trading inside the previous day's body so it's like a little consolidation and then today back to the upside bullish engulfing again now now the investor might say well james i already for example own a home depot maybe the stock position but remember the investor can change and this is where i think people and be honest with me just tell me if you say no james you're not talking to us because we are okay we're picking up what you're laying down but the and mike but the biggest actually thing is the investor does not always have to be so directional short put verticals lower directional trade more probability based short put probability based okay now if the ambassador said james i want to try to play this little rally here in what we're seeing now let's go back to we're talking about trading the trend weeks to months when we look at this trend now some ambassadors will say yeah but you're just looking at those daily charts no no no no no we're looking at that three-year weekly too you see on the three-year weekly you see on that chart too that it's not just a daily breakout you're also really breaking on a weekly chart as well now when we also go back to this and i want to kind of touch upon something that was asked and it's regarding to divergences okay so a divergence per the textbook is really saying that the price uh really is making a lower low but the oscillator is going in the opposite direction so price making the lower low and the oscillator like the macd is going up so price down oscillator up that's the definition but sometimes you can actually see kind of something similar where you can see price at the low point and the macd was down and we can see that there but then for example you see the price go down near that old support area maybe a little higher but for example in this case the mat d was not as low now that scratches our head and we say huh we go we don't go quite down as low as you did before or don't stay there as long and then we compare the macd compared to the other we're kind of seeing that the macd is when we look at these two right here this macd is not going down as deep and for as long why well because it's building momentum why well because it's trying to break resistance why does the investor care well the investor might be saying well james if it starts to break resistance you know this might be something that's trying to extend now rey actually says what settings do you recommend on the macd the reason so there's mainly in this case two main type of settings okay so one setting that it typically defaults to is an 8 17 9 and think of that as a medium setting now if you said james i'm a seahawks fan i like to be more timely i like to be a little bit more aggressive potentially now if we take a look at this the quicker setting now how would you know if it's quicker or is it a little slower well the smaller number of days here and here okay the setting that is used in this paper money account is a six thirteen nine so a lower number of days means it's more sensitive so now is that saying that someone else has to do that no just say that's what the payment account has if someone said james i am someone who likes more confirmation they might move that macd setting to the default 8 17 9. okay so i'm showing the 6 13 9 in this example all right good question now let's go back to actually lowe's real quick so when we actually look at lowe's real quick what we're going to do is going to go lows and we're going to go look at for example let's say some of these uh the options i want to see is there earnings coming up i see a dividend but they just had let's real quick verify are there earnings upcoming no so what you're gonna notice here and i want you to take a good look well and i want you to kind of do this over and over and over again i know i have but so here it is right here okay so here's the stock it's right here on earnings stock goes down and it's just nothing but red red red whipping whipping and the price is just being whipped down to support well so so here's the deal what's the point the point is of that whipping of price down might not last forever and sometimes those sellers those who might be looking to add to a position and or maybe get in well they might say i'm glad for the sellers because those sellers for example if they can actually knock it down to support and give a new setup to drink that up move okay might have not happened if it wasn't for the sellers swatting the price down to support okay so if you said what's one thing you got out of today you'd say i need to actually have a new set of glasses and a new appreciation that selling pressure can be a good thing okay and then it can actually set up new potential upside potential runs set potential twice and we've got to get away from this well you don't have to i'm just inviting you to when you kind of think about let's say bearish ambassadors people that bet on bearish stocks or bearish markets if you asked and said geez how well have they done over years man i think it'd be tough okay the market primarily sometimes feels a little rigged to go up because there's a lot of long-only funds or people that are in uh defined benefit uh pension plans or defined contribution plans where they can mainly just go along or buy and so sometimes it feels like the market can kind of just go up but that's kind of a function of what type of accounts people are in and what what what they can do and also what uh independent professionals can do as well with those accounts now when we actually go back to the trade tab what we're going to do is we're going to show an example of this let's say that paid money account wants to be a little bit more aggressive it wants to sell a put at 180 250 okay and what it's going to do in this case is it's going to widen out the spread here 180 250 and 177 and a half so could it have done the 182 and a half and the 180 yeah but it's just going to increase the number of contracts thus increasing the commission on the number of contracts now so we got five dollar spread dollar fifty credit we got 350 in this case in the paper money account 350 maximum loss remember whenever you see a trade where the pr max profit is less than the max loss you know it's a probability based trade and we see that for a trade it's a dollar fifty credit less 130. now if the paper money account said in this margin account that it could risk let's say 750 dollars it in this case would be doing not one contract but two contracts okay now if it does two contracts it does confirm and send and now it's selling two so it's position sizing really to the maximum loss okay so that's what it is max profit for the two contracts match law max loss for the two contracts 260 is for the two contracts because it's shorting and going long there now what it's going to do in this case is going to send now i'm out of my time here today but i want to kind of wrap up what we really discuss here today today we really tried to kind of break down i use really in this case waste management as an example of when the last time we actually saw the market go down on 3 4 the paper money account bought well thousand dollars later okay you have to understand that not every stock is going to bottom at the same time some stocks can lead in other words have relative strength we see some of that strength in utilities we see some of that strength in staples but we also see some of those uh some of that strength in some of these home uh home improvement stocks and discretionary type stocks trades we did here today were verizon and lowe's and oracle okay those were our three new trades here today i would like you to really kind of look at some of these recent pullbacks and learn what could actually help you emotionally withstand the sell-off and what might actually help you actually become more focused on being let's say identifying and looking for the bounce and that's something else we talked about today with moving average crossovers and also really using the the seasons column on the market watch tab okay also remember that today uh the comment from mark is are the scripts uh james uh for james are the 10 and 30 ema based on the daily chart yes so uh if you look on my market watch tab the 10 is for the daily chart yes okay there is also a uh a survey a quick five question survey you can just click on it quick five question survey about how you enjoyed today's class now today's class has been recorded and you might want to go back and watch certain portions or all of it and as you do that remember that you could really watch this presentation on your mobile device your ipad whatever you want to watch it on and so that's a great uh opportunity for you there to do now coming up we also have a long vertical and diagonal class coming right up at the top of the hour i want to thank you so much for your comments and your appreciation i want to also remind you that for example we demonstrated the function of the platform we use actual symbols we talk about strategy how to put orders in talk about the pros and cons of that and risk management boy when you sure understand position sizing and risk management the emotion can really come down doesn't it okay i know from mike and i in in our investing journey right we definitely look at the numbers and when you do that you can start thinking more logically than emotionally boy that can be helpful and i want to again thank you uh and mike for your comments your questions and your participation so stay tuned coming up right at the top of the hour for long verticals and diagonals and i wish you a great day mike and myself will be on twitter as we post educational content and also updates as well with that said i wish you a great day take care
2021-03-29 01:41
