Finding Swing Setups with thinkScript | Swing Trading Days to Weeks
good afternoon everyone john mcnichol and welcome to swing trading days to weeks our topic we'll go ahead and discuss on how one may be able to find some swing setups utilizing a few techniques we'll do a practice trade and then we'll also follow up on our discussion from last week on trail and stop so stick around all right hey it's great to see everyone live with us today hope everyone enjoyed their holiday weekend and their independence day uh we got lvj radio wayne franco tony tom bill robert yoko vijay ricardo rabanna and everyone else we have mr james boyd helping out on the chat uh do appreciate him being with us today uh and if there's any questions i am unable to get to he'll be happy to help i do appreciate those you listening to the recorded session as well uh if you can see in the lower right my twitter handle uh at j mcnichol underscore tda james who's on the chat at jboid underscore tda if you wish to follow ourselves learn a little more about us as well as the markets as well so i do appreciate that let's take care of our disclosures and we'll get right into it folks up content is intended for educational information purposes only no investment advice or recommendation of any security strategy or account type options not suitable for all investors well spread straddles and other multi-leg option strategies often involve greater more complex risk than single-leg option trades uh also consider commissions uh transaction costs should say when evaluating a trade and you're encouraged to practice what you learn here today with tools such as paper money software keep in mind that application is for educational purposes and successful virtual trading during one time period does not guarantee successful investment of actual funds during later time periods market conditions change continuously as you can see concerning options as far as the risk on a long call or put option position as well as the risk with short options and assignment and keep in mind while this webcast may discuss technical analysis other approaches including fundamental analysis may assert very different views and a stop loss order will not guarantee to fill or guarantee an execution at or near an activation price once activated they compete with other incoming market orders and for those of you that may be new uh there's a brief bio on myself there do like to do some hiking camping kayaking although uh the last time i've done a few of these it's been more on the military side not so much on the recreation and as far as kayaking uh would certainly like to find a little time to do that and find some water uh that uh is a little more than 50 percent of capacity there so we'll keep our fingers crossed all right let's take our agenda our agenda folks is finding some swing setups uh i've had some inquiries on uh some of the comment belows on the webcast as well as on some of the surveys uh where people would you know like to see you know how how do you find some of these setups here i usually try and do a lot of preparation beforehand as far as finding them as a matter of time uh but certainly uh giving you a few techniques on finding some of the swing setups we'll do practice trades and as i mentioned follow up to the trail and stop uh discussion from last week now a good starting point for this if we go to the thinkorswim platform those you that followed me in the past you can see some of the productivity tools uh over on the left hand side for those of you that may be new uh to some of these scripts would encourage you to take a look uh at my twitter feed i have a pin tweet i know james does something similar uh with some of the tools that he shares but if you go to the coach's profile and look at the very top tweet the pin tweet you'll see a background not only my schedule but explaining some of these multiple scripts here the common ones that i've utilized for this class as well as in the breakdown reversal webcast which is tomorrow is basically utilizing tools looking for kind of more of a bounce which we've commonly referred to as a call hold close above the high of the low day as well as looking for crossovers utilizing moving averages you'll notice there's actually a link to a webcast right here i'll actually put that in the chat you can copy that and save that for later which explains a more deeper dive on adding the script also if you click on the document in there provides the steps on adding those script and again a description on what they're doing now in the context of a swing trade we typically are looking for examples of stocks that may be trending that may be pulling back and looking for them to possibly bounce and go higher you know this would be an example of a successful swing when price pulls back makes a higher low bounces takes out a previous high that would be a successful swing example okay uh so we would look for something like that another way of looking for swings is looking for breakouts and moving average crossovers are one way uh where some traders uh may be able to capture some momentum when there's a positive crossover typically prices are rising and they may be breaking out of a previous price pattern so you can make note of those scripts there also if you happen to be listening to the recorded webcast you'll also notice here over on the left hand margin i've listed some of those script there but the uh the twitter feed will give you an explanation on adding though so as we scroll down and take a look at a few of these this kind of supports some of the basics of technical analysis when we go ahead and apply some of the principles of technical analysis that i know james myself ben watson and other instructors will teach in our technical analysis workshop and that is covered in the technical analysis uh course is you know there's basically three principles we're trying to apply uh with technical trading one identify the trend okay and we'll utilize an example of script to help us get an idea of that trend uh two support and resistance if we have an uptrending stock and prices pulling back let's stay to a support area that's incorporating that second principle those two alone would be an example of a trade setup and then three would be momentum that would be the price actually following through whether on a bounce or in a case of a breakout break in resistance on a bullish trade and continue in to move higher so if we take those principles and apply those to some of these example scripts so i go ahead and pull this over a little bit and when we think those principles in mind this may help us find some of these swing setups now the two columns that i have here the first one uh is the crossover script and again reference you to both the recorded link as well as on the profile the second one is the cohold looking for whether prices may be trading above the high of a low day or in the case of a rolling over price trading below the low of a high day this would be a potential swing entry and this would be a potential swing exit we actually applied some of that last week when we had discussed some of those trail and stops and we'll hit that later on in this session so as we look at some of the stocks in this list we can see different colors or variations the ones that are in bright green would represent examples of stocks that may have stronger trends anything that's in green is above a major average in this case a 55-day moving average representing that intermediate uptrend notice in the case of applied materials i believe here amat notice it's shown in break green where it's explained that all the averages in this example are above each other now there's a bit of a roll over here but let's take a closer look at this notice that the price action had previously reversed the downtrend we see higher highs higher lows and we're seeing price pulling back which is potentially a another higher low so we still have an uptrend notice as we see the previous swing going from the low to the high and then we see a pullback over the course of a couple of days so kind of an example of a bull flag this is a common swing type of setup we also talked as we do every week is you know what is a potential target for that swing it may be that previous move so we can go ahead and right click on that drawn line that i have i'll could do a duplicate or just move it over and then take it to that higher low now this would be a successful swing if the price bounces and takes out that previous high even a stronger swing if it makes a similar move to the upside as it's done in the past now notice when we look at the next script that's in here which is the kahold cah for close above high cbl for close below low now notice it is showing uh in the red now is that necessarily a bad thing when it comes to a setup in the case of a strongly uptrending stock that can actually be a precursor to a bullish trade i think it's just the concept of a you know red light green light you know if you're going forward and you're going in the right direction there's probably going to be a few pauses along the way right a traffic light okay that traffic light may go red that's just a pause as an example light turns green again continuation you're on your way once again so don't necessarily be intimidated that a red signal is necessarily bad now if we're already in an example of a swing trade that could potentially be an exit if the price is backing off of their highs and in this case the reason why it is showing red is because the price has closed or it's trading below the low of a high day or as my script is a little more technical it's looking for harami's so if it pushes outside of an inside day whether to the upside it'll be green to the downside it would be red but notice that the even though it's red the trend has not fundamentally changed and with trade now now this is qualcomm uh doing it let's go ahead back to apply materials same principle uh an inside day instead of bouncing higher and going green it broke down a little bit more again the trend is still intact as long as the price is still making higher lows preferably we would like to see it below or above previous highs and notice intra-day prices coming off of those lows potentially indicating a failed move confirmation is looking for the price to close above the high the low day so let's say tomorrow if the price did trade higher and goes above this previous day then this script here would turn green it may not be too many examples of green as the markets down today uh just make sure here pro lodges pld this is one example is i believe a few real estate stocks are higher notice here's the low day and price is trading above the high the low day so that's a hold so we're seeing a little bit of a bullish bounce now notice in this case unlike the other example notices is shown as a lighter green which means that that trend is not quite as strong that means some of the averages may have gone a little negative a little more of a stronger pullback some traders may be looking for a little more of a breakout which would be kind of a little more of a smaller reversal of this price action notice we're seeing more equal lows not higher lows so more neutral we can see the resistance this is actually topic in fact i'll make a note for this for tomorrow uh in the case of our breakout and reversal patterns got a little bit of a double bottom and if prices were to break out that would signify a reversal of that move as brad's mentioned yep certainly one of the uh outperforming areas of the market uh this year as we go ahead and look at sectors on the s p 500 sectors uh reits for the last a little over four months have been a top performer although interestingly the last 21 days they have lagged so not sure if that's a sign of rotation that's a big question mark let's see what happens if price goes ahead and breaks down uh that area would continue to be weaker and we've talked about this in the past with some of the home builders and some of the home improvements but their question mark there may be some signs of those reversals here's lennar homes another pattern we'll be talking about tomorrow and breakouts and reversals and i'm more that inverse head and shoulders potential reversal so looking to see if things are able to strengthen up over the shorter term on real estate and notice here uh if i go ahead and bring up a lennar on another list here just go ahead and bring up this i can go ahead and add here let me do it let's see here oh that's actually a scan let me go ahead and just bring up a little list of stocks here i'm gonna sort through that well there's lennar and notice kind of the characteristics shorter term averages all above each other and it's currently showing a little bit of a pullback that could be a setup for an example of a bull flag strong existing trend with a little bit of a negative pullback that could be at starts at the beginning this is where one can potentially capture uh that beginning setup of a flag whether it's a one day two day three day could be several day pullback keep an eye on some of the previous lows as long as it's making higher lows that could be a potential setup okay so let's go ahead and do an example of a trade but in summary on that topic you know kind of a check on knowledge utilizing some productivity tools to identify a trend an example of a strong trend and for bull flag examples and then looking for those pullbacks now if it's red in a strong trend you know we may be seeing a sequence of several days of a pullback which can set up for that bounce confirmation is looking for price to trade or close above the high of the low day so with that in mind let's take a look at a couple of setups uh see what they're looking like right now based off of that those same principles that we were applying and uh a few in a discretionary uh side there which i believe uh didn't do so bad today and so lois here here's a abercrombie and fitch notice strong overall trend um you know if we were looking at this you know on a list a f you can kind of see the example of a relatively stronger trend now this is just showing the relationships of moving averages make sure you look at the chart as well to confirm that that price action or a bullish bull flag example is making higher highs and higher lows we can see that there okay if you struggle on identifying the highs and lows that are in a trend as i've shown before you can go up to the patterns tool select show patterns make sure it's clicked and then go to select patterns once you're there it's part of the candlestick formations and look for williams fractal a good teaching tool to illustrate previous candle reversals and these candle reversals are essentially move this aside kind of some of the key application of swing trades whereas a close below the low of a high day could be the exit of a bullish swing trade or possibly a bearish trade entry and in the case of a hold price trading above the high the low day a potential bullish entry or a bearish exit once that's added i'll go ahead and put a little carrot points on there let's go and double click on that add that bring this over and you can kind of see the sequence there particularly in the case of the higher lows now notice it's not going to plot this here until it actually confirms we see an example of potential hammer there you can see the previous highs and also another principle of technical analysis as i connect the dots i can do the same thing as my five-year-old granddaughter kind of connect the dots there broken resistance has a tendency of acting as new support so we have an example of an ascending triangle that we talk in breakouts and reversals in the technicals course price broke out has pulled back and retested that that's another potential classic setup for a swing trade looking back at the previous move we can actually just look at the pattern itself i'll go to drawing tool diagonal line we'll go ahead and just connect the dots and there's that basic shape of a triangle one can measure the distance between that support and resistance and something i commonly do in tomorrow's class with these patterns take a rectangle under the drawing tools we'll highlight between support and resistance over that support and resistance i kind of shaved off a little bit there that's okay right click activate the drawing we can push that to the breakout point and what that enables us to do in this example is based off the size of the pattern between support and resistance one may project out a similar move and likewise with the passage of time how long can it take to make that move and a lot of that's based off of the size of the pattern now if there's momentum a lot of times one can have a half of a move or that full move in a relatively small period of time okay so if we go ahead and look for a potential entry here now we have still about 40 minutes left in the market i'm going to set this up based off of assuming that the price is not going to close above this area but we're going to do a setup if the price tomorrow goes above the high of the low day to enter that trade and we can use an example of a buy stop so i'm actually going to right click on the chart we're going to do a i'll do a buy custom with oco bracket i will also go ahead and plug in the example of a stop as well as a target price now let's focus on the entry here for a moment look at the high of the low day and the high the low day here looks like it's at 45.65 so let's say we put in a trigger that's about 20 cents above that so let's say 45.85 okay so looking to capture some momentum now some traders may wait till tomorrow afternoon uh to see if the price is clearly going to close above that area to prevent a fade or to mitigate if the price actually fades later in the day we'll take the risk for this example um so what i'm going to do is on that order we're going to change from a limit and we're going to make it a stop limit we're also going to make this gtc since the market is still open if we place it after the close today we can leave it as day it'll be in effect for the next trading session but since this trading session is still open we want this to be in effect not only for today but for tomorrow and jack i'm not sure what you mean by calling it a short trade we are looking at an example of a bullish trade for this example so here we go we have a stop limit now notice there's two prices we got stop and we have limit the stop is our trigger price what we're saying is if the stock hits a certain price we want it to buy the stock at a particular price so our trigger on this i believe was about 20 cents above that level there which i believe was about 40 45 85.
that's going to be our trigger 45.85 we hit enter if the price hits 45.85 as it trades higher it's going to trigger this limit order now there's a second price what we need to do is specify well how much at or above that 45.85 are we willing to pay to capture that momentum now there could be some gaps and that's why some traders may use a limit order to limit how much they're willing to pay let's say we'll just do a little bit of a buffer here and i'll just say 25 45 uh we'll do 20 cents above so i'll just put 46.05 that's about counts for about 20 cents above that area there so if the price gaps and let's say you know is up at you know 46 and a half 47 this would not fill because it's not a marketable order and that's okay so some traders may not want to chase the stock and there's some pros and cons with that all right now if you're uh to your question uh jack you know why would one consider doing a bearish trade in an uptrending stock this kind of goes against the principle of kind of sticking with the tide so to speak we talk about this in our technical analysis workshop if you're going to ride a wave in you probably like to ride the wave being supported by the tide if you kind of go against the tide you have a tendency of being pulled out now some traders very short term may do a counter type trend uh move but notice and i'm sure mr james boyd will agree with the concept as we look at a stock that is typically up trending well this one's been a little more volatile though if you look at the swings i'm just highlighting the bullish swings these are examples of bullish swings here's some examples of bearish swings and when you kind of look at these as a whole where are the better swings to the upside or to the downside are they to the upside or to the downside looks like it would make sense would be more towards the upside right if we look at other stocks you know with momentum now if stocks are more range bound or in sideways ranges that may be more equal but even with something like apple uh which you know had been more neutral notice that the bias has been to the upside because that's where the longer term trend has been okay all right so here we go with anf so we have that set up then and let's go ahead and continue on that so we have the potential entry set now let's talk about the exits all right here let's make sure we address our time and force we'll go to gtc for good till cancel we want these orders to continue working as long as we're in the trade and then as far as the potential stop order we can look at that low day and if we look at the low day we have 43.90
as the low let's say we do one percent below that go to calculator and again that was a low of 43.90 we'll take 43.9 times 0.99 that would be one percent
below that low go ahead we can do a horizontal line to plot that i can always right click on that line edit the properties put in 4346 i'll make that red to represent a potential stop now keep in mind once again stop order is not guaranteed to fill at this price what we're saying is if the price goes below takes out that low goes below 43.46 it will execute a market order now if that price is lower it's gonna fill whatever that marketable price is there's no guarantee it will fill at that price but if it's a liquid market not gaps then one may be potentially closed out near that price okay so we'll go ahead and we'll adjust that on there 43.46 hit enter and then if we have a target in mind we'll use a limit order and we already did the work on that based off of that previous pattern now some very short-term traders you know may go ahead and look at that previous high as a short-term target others may be targeted in that full swing what we'll do is we'll target this full swing but we'll set an alert if the price takes out that high so let's go ahead and look at that previous high you know upwards around 49 and change if i want i can right click on the rectangle uh edit the properties that should pretty much give you that area there looks like it's about 49.80
so we'll go in we'll plug in 49.80 hit enter and then we'll do a confirm and send uh now we got 100 shares here uh so keep in mind as far as position sizing uh you know how much one is willing to allocate you know into an individual stock you know if this was like an example of a fifty thousand dollar account you know that would be a little under 10 allocation okay uh the theoretical risk on the trade the difference between the entry price and the stock price so here we're looking at about uh two dollars and 30 some cents so some traders may position size that way you know how much per share are you willing to put at risk here's 230 if i was risking about 500 dollars then you know one may potentially in this example do uh 200 shares let's go ahead and edit that if i'm doing my math right room and send now notice the allocation would be higher here but if we did uh 230 assuming that we got stopped out near that price which is no guarantee two dollars and uh 30 cents times 200 shares that's risking about 460 dollars okay again we'll hit confirm and send on this we can double check the order as far as looking to do a buy stop the price hits 45.85 it will attempt to fill at that price or better and then we have an oco bracket one cancels other if we do hit our desired target of 49.80
it'll cancel out the stop if the price rolls over and stops out it will go ahead and cancel out the other bracket let's go ahead and we'll send that through we can see those orders on the chart and arif says uh is this the only four stocks not for options well one can do the same thing with an option as we've done some options trades in this class as well including spread trades but we did a stock example and it usually goes the other way when i do an option example someone will ask how about the stock so we cover all the bases there so we're looking at this example and potentially bouncing there's no guarantee that occur tomorrow but if it does we're looking to capture that now there may be some examples that may already be bouncing uh let's look at another one i was looking at earlier this is 3d those we can see a similar setup okay can someone do a very similar technique that i just did uh with the example that we're looking at on a f absolutely and we see a potential low day one can put in an order the trade above that area or wait till tomorrow look at in the afternoon is the price opening up and trading and looks like it may close above the high of the low day like i said with today's price action we don't have many stocks doing that as much let me go ahead and go to a another list tony says and let's look at some of the questions here tony says thanks for doing the oco bracket trying to one oco bracket on every order is there every time not to do an oco bracket well this is really a matter of personal preference if if one is doing a trade where they have an idea of where their entry is and so they're going to enter a trade yet they also have uh a exit in mind both from an upside as well as a downside then an oco bracket or some other conditional order can be a way of doing that where they can plan uh their exits however you know by contrast uh james who teaches a trend trading class uh technically speaking trend trading weeks to months he may not necessarily have a specific price target to exit but may just have a stop order uh that may continue to be adjusted as the trend develops so it's really a matter of personal preference in the case of the swing trade we've used examples of having a targeted exit okay likewise getting back to the example that we did on anf i also had shared that you know as far as management if we were to get into trade whoop we don't did not want to do that if we look at that previous high you know i can go ahead and right click on or around that previous high and create an alert where we can be alerted if the price goes above a previous high and at that point you know we may still have our target in mind but consider adjusting our stop at least up to a break even to where the entry price is thus reducing the risk on a trade okay and keep that in mind uh because also when there is a significant move uh one may potentially begin maybe indicate a trail and stop which is our discussion from last week and we will wrap up on that but before we do that let's get a little in our mind visual of some other potential setups to look for so we can find any green here and someone did mention chewie so there's a chewy again these are not recommendations of buyer selling security but an illustrative example of a strong trend utilizes moving averages now notice this one is showing an example of a potentially a kaholt so let's click on that take a closer look and you know we see a few things going on here from an example of a potential reversal pattern inverse head and shoulders transitioning of lower highs and lower lows to higher lows so there's a shoulder head shoulder we've had a diagonal break a retest and we can see that price is trading above the high the low day now this is potentially a little bit of a conundrum although it does point towards the potential benefit of entering into a trade earlier utilizing that buy stop is to capture the momentum if that momentum shows itself and notice in this case here i believe we've in one day or at least two sessions we have taken out that previous high we're pretty much at that area so already a positive swing determinate on whether to enter or not enter based off an example of a swing if we look at this previous swing right click we'll duplicate that go to that area you know one may deduce you know based off of the previous move and the price can obviously continue to go higher from a shorter term but based off of the potential gain is it worth the risk so you know kind of missed the momentum on the day but this kind of illustrates uh kind of the benefit of a buy stop if that momentum shows now the momentum doesn't show and that's a fade that can result in a you know obviously a losing trade um this may be another example we'll take a look at you know outside of days to weeks but thinking on more weeks to months you know setting up possibly something longer term and i know something that james covers in his class as well but that is an illustration of a cohort so very good appreciate feedback there and we'll see how that reversal plays out now notice as we look at this this is why the moving averages have been helpful and some of the things i've done over here is when both of these moving averages cross above in this example an intermediate average a 55 day that is potentially signaling the bullish reversal of this previous downtrend now no guarantee on that but that's how we can find some of these reversals based off of these crossovers and in this script here these crossovers will appear it happens within the last few days in dark green there's a few uh bio uh stocks that may be uh setting up we can find more of an overall reversal some of these are more continuations that we'll talk more about tomorrow kind of on the energy front a lot of rectangles and triangles but on some of these examples of bullish swings you know look at examples of stocks that may have stronger trends if it's red look for the flag setup and if it turns green that could potentially be part of that bounce as we look at icln those kind of fading a little bit but price trading above the high the low day uh a t you can see another example this is actually a little more of a breakout potentially all right so what we've accomplished we've looked at on ways of finding some of these swing setups we did an example of a practice trade let's real quick do a follow-up as far as our trailing stops and those of you joined us last week should be familiar with this if you didn't join us uh that's okay uh i will have a link to the previous session uh in the um description uh for this session you can always go ahead and look for john mcnichol swing trading and you'll see the trail and stop session now we had done one on applied materials amat utilizing the parabolic sar we actually implemented that on 629 where what we did was we utilized the parabolic sar as the price went higher if the price was below the parabolic it would go ahead and stop out so kind of a visualize for you here if we go ahead and bring that up on the chart amat zoom into the last three months it was also in that session two we showed you on how to add the parabolic star or your technical indicators and we actually tweaked the settings to make it a little more conducive to some of these swings so here's the parabolic star tracking up we instituted this on the 29th so that was on this day we didn't know that that would be the high day but that's when we put in the trail and notice that the parabolic did go higher the next day when the price reversed the parabolic switch and at that moment when the price ended up being below the parabolic it went ahead and closed out the trade so this was actually closed out earlier in the session and therefore didn't necessarily suffer that pullback and certainly the following two days if we go ahead and go back on the monitor tab and look at the trade history that was generated on july 1st at 7 55 about 25 minutes into the market it went ahead and closed out the option trade so we basically walked away with uh you know a gain on that a relatively smaller one but more importantly the parabolic sar example worked okay um and by the way folks very important did not notice there is a survey that came out very important we get some feedback from you so i'll have james push it through again also another opportunity to vote after you fill out the survey go ahead and click like let me know that you enjoyed this presentation those you that are listening to the archive session you can go ahead and click like and there's also a place to comment below but very important to fill out the survey james thanks for sharing that the other example that we did was on the practice trade i believe on alcoa where we utilize an example of just the standard stop by taking one atr average true range and that's currently set for two dollars and fifty cents uh if we look at alcoa right now notice that the price is actually traded below the low of the high day potentially failing if we use the parabolic we would already be stopped out but the trade would more likely be a wash now notice this is actually one of the reasons why i haven't put a parabolic sar on the initial trade entry because there could be potential for whip saws uh the idea that i've utilized for our examples on a trail and stop utilizing a parabolic sar is when there's already a move in the positive direction maybe making half of that move and then instituting a potential trail and stop now your results may vary there's pros and cons and as we look even with alcoa um notice that it's potentially retesting its breakout and could potentially be another uh entry kind of more of a flag in a stiff breeze looking to see if the price is able to break out of that range could be another example of utilizing a buy stop okay all right folks well we are coming up on our time just double check on the comments once again folks fill out the survey uh click like hopefully you learned something new today as some ways on being able to find some of these swing setups by utilizing some of the productivity tools like the scripts which you can see on my pin twitter profile utilizing different order types in this case a buy stop with an oco bracket to plan out that trade and trade the plan and then hopefully you can see the follow-up as far as our trailing stops from last week on how they've been playing out and we'll continue utilizing those as well okay again folks if you want to get uh some of the script they are all here in my scratch pad you can go ahead and look at the archive session and do that and better yet if you're able to follow on twitter you can go ahead and get that information here on my pin tweet and i will share that link in the chat all right let's get that through send that out and remember folks in order to demonstrate the function out of the platform we did use some actual symbols as we were looking for some of those swing setups doing practice trades and doing the trailing stop follow up there and keep in mind uh that we did not make any recommendations or endorsement of any particular investment or a particular investment strategy any investment decision you make in your self-directed account is solely your responsibility so thanks for joining us once again folks wish you all have a wonderful day click like fill out the survey and we'll talk to you again real soon bye now you