Getting Started with Technical Analysis | Cameron May | 4-26-21 | Trading with Bull Flags Explained

Getting Started with Technical Analysis | Cameron May | 4-26-21 | Trading with Bull Flags Explained

Show Video

[Music] good morning and welcome everyone my name is cameron may it's 11 o'clock eastern standard time on a monday morning and that means that it's time for our weekly discussion called getting started with technical analysis and today i thought we would go back to what some might consider the basics this is probably going to be the most common price pattern that we see on a chart we're going to be talking about bull flags providing a guide to what both flags are an introduction to them and how they might be used to plan a trade i'd be interested to know how many of you out there have used bull flags just in your paper money is fine or in real life that's also great too but uh that's what we're going to be digging into today for those who are new to trading this is one that that we'll be able to see quite frequently on the chart so i'm looking forward to it as we get into it let me say hello to all of our returning veteran uh attendees i see a lot of you out there already a lot of people already chatting in most of these screen names i recognize some i don't but hello there narinder and timothy v j shannon uh t t d cunningham michael lon woodsman franco giles hello abu rayella frank let's see rowan gabriel bill janis miguel frenette aj omar juan and on and on the list goes thanks for being here week after week if you are one of our returning veterans welcome back if you're here for the very first time i want to welcome you as well if you'd like to uh just chat in let me know that you are a first timer i always do like to see who my new audience members are and if you're watching on the youtube archive after the fact enjoy the presentation but be aware that you're invited to join us live on monday mornings 11 o'clock eastern is when we kick things off uh e day says hope you're feeling well now from the covet shots you got yes yeah i got my my second shot uh got the moderna shot on thursday friday was not fun the rest of the weekend i was a little bit off and today i feel great so thank you let's see yeah i absolutely do a lot of you saying hope you're feeling better i am yes appreciate it all right i also see people checking in from around the country hello there in phoenix and uh state college pennsylvania new york uh plano texas corvallis oregon denver right over the hill from me i'm in salt lake in the salt lake city area in saratoga springs utah the bronx is here and represented good to see you all right well let's dive in and hello to all of our first timers i see a bunch of you out there so welcome we have connie here to help us out connie hill here to help us out with any chats or chat questions that i can't get to during the uh during the presentation bill you had the same experience with that uh particularly apparently stronger with the moderna second shot yup all right but as we get into this let me uh let me say that there are risks associated with trading yes with both flags as well so this is important information we need to bear in mind uh any of this investment decision you make in your self-directed account is solely your responsibility we are going to be using real examples in today's discussion not a recommendation or endorsement of any particular investment in our investment strategy uh we will be using technical analysis in this webcast but other approaches including fundamental analysis may assert very different views and all investing involves risks including the risk of loss all right so here's our agenda if you are new and i see yeah we have uh frenet first timer timothy and lon td cunningham omar millie uh pamper pet sitter laura a lot of you out there that are first-timers fantastic you're in a good crowd of people they'll all be here to help you out i'm going to try to deliver the education at a pace that everybody can follow because that's the purpose of these webcasts we do this every monday but here's our agenda for the day we're going to provide an introduction to this concept known as a bull flag it's it's uh in the category of what we call price patterns on a chart sometimes a trader will look at history on it on a stock chart and see if there's something that can be learned from that and maybe potentially carried off into future expectations both flags falls into that category and in my observation at least it's the most common pattern that we'll see on the chart so a good one to start with uh then we're going to go through some sample bull flags on some charts we're going to see some variations on the bull flag theme and then we're going to see how a trader might use a bull flag to plan a trade we're going to plan an example trade okay cln says cameron there are a bunch of indicators what works better for what trading that's a good question cln that's actually one that i dedicated a webcast to fairly recently so you can go back you can go to my playlist on our web on our uh youtube channel you can go to trader talks webcast from td ameritrade and just look through my last uh my last few presentations i can't remember exactly the title for it otherwise i'd give it to you all right but my webcasts are recorded and archived with occasionally a rare hiccup where we hit a technical glitch and we can't get it archived all right but let's go to the markets i wanted to talk first about why i thought you know today might be a good day to talk about bull flags so you veterans take a look at the chart of the s p 500 yes did we hit that all-time high what's our high today 41 16. now uh friday's high was 41.9417 so we're really really close at 41 92 88 as of this moment but trading right essentially at or near all-time highs on the s p here's what caught my eye today and made me think maybe we got to talk about bull flags what is this going from march 25th up to the high on uh what date was that april 16th so over that three week span what were we looking at there three and a half weeks some traders who use charts in their analysis may describe this as what we call a flagpole there was a strong move to the upside in a previously established established upward trend and for again for traders who use bull flags this might catch the eye so that got me thinking might be a good time to talk about bull flags i'll bet there are a bunch of them out there if the index that represents stocks on on the whole is presenting like a bull flag guess what we're probably going to see a lot of bull flags on individual stocks so let's talk about bull flags and i'm going to start with a symbol probably familiar to some of you it's called facebook yeah constituna miguel dom you all recognize that right that looks like a flagpole that was a pretty good traditional flagpole so here let's talk about a bull flag let's talk about how it's constructed how to identify it then we'll talk about maybe the psychological underpinnings maybe the historical significance of the pattern and then talk about using it to plan a trade okay so first of all before we go any further i have to re-emphasize back on spx i said that we already had an upward trend a bull flag is considered a continuation pattern it's a pattern that a trader looks for when they're wondering if an existing trend is likely to continue and if they if they see this pattern present itself it not only confirms the continuation of the trend at least an expected continuation of the trend it also delivers potential entry opportunities and potential trade management opportunities okay so the first thing that we're going to do with facebook is confirm that it was in an upward trend now facebook did consolidate sideways for a period but then you'll notice it raced up to a peak and pulled back so we would call this here's a low this is pretty basic technical analysis but there's a low and you compare it to the lows in the in the little cycle just before we call this a higher low we also see that we had a high and that was higher than the previous cyclical high so we have a higher high we have a higher low we have an upward trend that has been established and then we get an acceleration of that trend so it's this this is the first element of a bull flag pattern it's what we call the flag pole this is when we have an upward trend established and then something gets traders excited drives prices up at an even faster clip so for facebook we went from about 277 bucks up to about 316 bucks you can see that's like a forty dollar swing to the upside very quickly right well to some technical traders they see that and it gets their blood pressure up ooh not blood pressure let's say heart rate gets their heart rate going oh that was exciting this stock just raced up and in the course of looks like about two weeks here it went up 40 bucks on a 278 dollar stock we're talking about an increase in the on the order of about 15 15 in two weeks is about as much as an average stock investor might expect their portfolio to earn if historical averages hold that's like 18 months to two years of productivity in two weeks can you see why this sort of a thing might attract the eyes of some traders wow facebook not only was bullish it's getting more bullish however they also look at this behavior and they say wait a second it has already raced up so if a trader is looking to optimize entry are they looking to buy at or near short-term peaks or are they looking to buy at or near short-term lows so here's this hot stock that's caught their eye well maybe they look at this and they say yeah it's been hot maybe if i want to latch onto the next upward move i need to wait for this to take a breather so the next phase of a bull flag pattern is actually to to display some patience and wait for some profits to be taken and you can see that happening through this time frame on facebook where prices come back down this is actually not only anticipated by the bull flag trader but it's required for an entry we need to wait for the pullback so this is what we call the flag portion of the bull flag pattern and i think you can see if you've never seen a bull flag drawn on a chart before i think you can see why it has that title there's the flagpole here's the flag it looks like a flag right now the final element here is to wait for the entry so for some traders what they'll look for is as the flag pulls back they'll draw either mentally or actually draw a line on the chart connecting the highs of the flag portion of the pattern downward here so you can see that this is this downward sloping trend line here and if prices break out and remain above that flag as we get toward the end of the trading session that might be the entry signal so we've identified the flag we're starting to understand uh why it might hold some importance for traders why do we care about this breakout well this here we have a very bullish stock that now has a demonstrated ability to make a big move in a short period of time the trader has now waited patiently for some profits to be be taken and now they're just wondering hey if this is a stock that has behaved in a certain way before maybe it could do that again where we're not hoping the stock is going to do something brand new that it's never shown any ability to do before we're essentially just hoping for maybe a repeat performance and if we look at facebook in particular we can see this wasn't even a unique event is this the first time that facebook has run up with about this proportion in about this period of time nope it did it just about a month and a half ago maybe a couple of months ago it did it back here in january it did it even back here late last year you can see that this stock once it has a mine to it can get up and go and so a trader looks for maybe these sorts of behaviors as a signal that maybe the stock is getting ready to do this again something very is very exciting is happening that's driving prices higher we're expecting some profits to be taken now we maybe have a new opportunity joe says is there a bear flag yes there is joe yep um i wonder i'm gonna try a technique here no it didn't work all right never mind then i was gonna maybe show you something that uh i might not even remember this correctly never mind anyway in any case yes joe we'll talk about that maybe in a future presentation i wanted to stay focused on just bull flags but maybe if markets turn maybe we start talking about bear flats aaron great question so how high will it go that's a good question here's what a trader might do if this stock the last time it pulled back and then started to rally if it rallied this distance maybe the new trader looking for a new entry opportunity uh just uses that distance as a measuring device watch this little technique that can be applied on your chart you can actually just point your cursor at a line that you've drawn so i'm going to point at this this flag pole line right click on that line and then i'm going to duplicate it from the pop-up menu now it it turned my line to a lighter blue what i know and that what a new trader wouldn't is that there's actually now two overlapping lines and i just need to click on click on that line and drag it and you'll notice it has now taken one of those and i can reposition it right here hey look at that so what i've done is i've just taken this distance and i've applied it now i've done this in a conservative way i've applied it starting at the bottom of this flagpole pattern that appears to be confirming a breakout today now you'll see that the line is kind of shooting off the top of this chart and you might think well that's a bummer i can't really see where my target might be actually if you come over to this to this right margin click and drag that down i don't know if you're aware that you can do this but you can actually you can expand and contract your chart it has an accordion effect by clicking and dragging over there but that gives us some extra space to the upside and this now allows us to use this measuring technique to determine where a target might be so here we're starting to peel back the onion layers of the bull flag pattern and reveal one potential benefit is an entry signal it gives us a precise timing of when to get in is it a guarantee that that's going to be the best time nope but that's just how some traders use this the next thing that i might do is give us a time for when to get out of our trade if the stock behaves as anticipated and here it looks like our target would be if i just position my cursor up there and look over to that right margin again it shows us that target would be about 333 bucks so i can start to build that trade plan in my mind now as i mentioned though this is not a guarantee that we're actually going to see a repeat performance we may not see this or this repeated again and as a matter of fact maybe the trade just breaks down so sort of begs the next question how patient might a trader be if the stock decides to wiggle around a bit well the the theory here is that here we have a very bullish stock that traders have been very excited about recently and after some profit taken taking maybe that excitement will be restored and we'll see another next swing up if the stock falters and if it starts to fall again that might invalidate the reason that the logic of the c of the signal and so the trader might have a plan to get back out so what some traders do is they'll just say well okay i thought this was the bottom of that flag if i'm wrong and the stock falls below that bottom well now the flag pattern is starting to break down the reason for me taking this trade has been invalidated and maybe it's just time to draw a line in the sand so they might put uh they might have a plan to sell if the stock falls you know some distance below that low it might be a dollar it might be one percent you know some distance that can fluctuate the the preference for the amount of distance there can fluctuate from one trader to the next but there we go maybe have an exit plan just down below here let's call it one percent below that candle low so the low of that day if i hover over that i can see by looking at the l up here i can see that that low was 296. one

percent below that's gonna be about 293 dollars so maybe we have a plan to get out down here around 293. so now we start to again have a very complete plan for a trade buy on the breakout shoot for the target the flagpole target 333 bucks or plan to exit if the stock falls down to 293 dollars there we go yeah aaron so this could be entered as a stop loss order now we have to bear in mind if we use stop losses that is we place a sell order on day one that if the stock happens to fall to a certain price we want to sell stop loss is not a guarantee that we'll sell at a specific price it might be 293 it might be a little bit below that might be a lot below that depending on if the stock is falling fast or not but yeah there we go so there's a typical bull flag pattern now i want to talk about some of the proportions here one thing that i noticed and maybe some of you veterans picked up on this uh let's use some of the other this is going to be getting into sort of the the nitpicky details of both flags and there are some purists on some of these details so this is again going to be in the discretion of the each individual trader but what some traders will look for regarding the proportions the flag when the stock has done a flagpole like this i think when we're up here and maybe it's day one where the stock is starting to come down again we might be asking ourselves i wonder how long a typical flag lasts how long does a stock go down before it starts going back up again a couple of ways that might be measured number one is to look at the distance that the stock traveled up so if it went up 40 bucks i'm just i'm using round numbers here it's not exactly forty dollars but let's say the stock ran up 40 bucks well for some traders they might say they might expect it should sell off during the flag portion a third to maybe a half of that distance it should be here's the concept why a third to a half well there should be some profit taking that just makes sense if there's too much profit taking it may mean that whatever it was that got traders excited in the first place has been completely overwhelmed by something else that's got them spooked they're scared about something instead of just taking profits now they're jumping ship right if we go much beyond about a third to a half so in this case you'll notice you can just eyeball that looks like we came back about half the distance that was traveled up so that proportion for a flag looks pretty good but i know that they're going to be one or two purists here in our audience today you don't have to identify yourselves someone else might look at this and say okay so if this went up for two weeks using similar proportions we really only should see four or five days of selling something like that on the on the way down if the number of days down drags out too long for some traders that calls them that calls the flag pattern into question in this case we had about two weeks up about two weeks down just imagine if we had two weeks up and then we have three weeks of selling what's probably happened with the original momentum at least conceptually it's probably faded right so distance and time frame can play into the identification of a flag all right but uh i think we've done a pretty good job to this point of understanding the pattern let's get some repetition with it maybe look at a couple of variations on this theme so let's let's look at another stock wells fargo this one is a flag of a different time frame you can see first of all what's the trend stock has been going up stock's trading i believe these are all-time highs if not they're at least six month highs look at right here just about a week and a half ago the stock hit a low and then rallied sharply to a peak on our first chart we looked at two weeks of running up on this chart we're only seeing four days of running up does that count can that be a bold flag it can be yup and as you let me let you think about that for just a moment but i want to point out that uh connie has just i believe just re-chatted a link if you look in the chat window right now there's a link this is uh not available for every webcast so i hope you take out an opportunity while you can but this this link will take you to a short survey what i'd like you to do to give me some feedback on this on this webcast click that link right now but don't fill out survey yet you're not sure how the webcast entirely went but if you click the link it'll at least activate the survey and you can just hide it until after the webcast but i read those survey results they're very helpful to me i get the numbers i see the comments it helps me prepare for future webcasts so i definitely appreciate that if you can fill that out all right but now back to wells fargo we have four days of pretty solid buying the stock went from from 39 and a quarter up to a high of about 44 and a half let's do some rounding let's say it's five bucks a five dollar move on roughly a forty dollar stock we're talking about a twelve or a thirteen percent increase in the stock it just looked like a blip on the chart but that's a twelve percent move in four days that's a year year and a half of productivity on for an average portfolio in a very short period of time that's enough again to get the heart racing for some traders maybe they're looking for their entry signal so they wait for the stock to pull back how far and how long might they be wait for that stock to pull back well if we zoom in here you ran up for four days maybe we're looking for a pullback of about two days okay here we got two days down there was an attempted rally here but where did we where did we wind up the trading session back inside the flag pattern so it wasn't until really friday so that was our very last day of trading we got that breakout and now the stock's on the move again so now if we have an entry where might this stock be headed well let's right click duplicate that drawing drag that over to down here at the bottom of that pattern and that uh oh didn't like me the first time oh i know what's going on i went off the top of the chart it doesn't like that let's give ourselves some more space so that i can keep my cursor on the chart as we position that there we go and that looks like it's giving us a target around 47 still some wiggle room left in this chart now i said earlier that this is a more conservative way to establish a target going at the bottom of the flagpole i will say there are some traders who are a little bit more aggressive and instead of positioning their target there what they'll do is duplicate that flagpole and they'll actually position their [Music] their line at the breakout point for the pattern that is a little bit more aggressive you can see that that's not what i intend to do let's zoom back out i did something goofy here no just have to navigate away from that chart come back for a moment there we go let's zoom in quit doing that in any case there we go you can see if we set our target uh pardon me if we set our target line higher it produces a higher target it is more aggressive we're looking at maybe maybe a 47 target with the last placement this one's maybe a 48 target it's more aggressive maybe provides for more distant targets but maybe there's a lower probability of getting there all right so it'd be interest i'd be interested to see for those of you who use bull flags where do you position your flagpole line at the breakout point or down at the bottom of the flag there's not a right or wrong answer just maybe more aggressive more conservative there are pros and cons to each now i did want to talk briefly about some variations on this bull flag theme there are some other patterns that are very similar and actually interpreted effectively identically but they just look a little bit different one of those we among our team we affectionately refer to it as a bull flat and that's kind of what the s p is doing right now if you'll notice the s p ran up for a period of time but it hasn't really come down at all instead it's gone primarily sideways so let me just draw in some lines here and you can see that this is kind of like a flag in a stiff wind instead of drooping down it's going sideways like that well for technicians that might still be seen as adequate to blow off some steam for some profits to be taken what may be happening here is that for every seller that's ready to take some profits there's a new buyer that's stepping in to prop up those prices but if the stock trends sideways for a while and then breaks out it might still be identified as a flag all the rest of the trade planning uh is effectively identical and then finally there's a pattern known as a pennant a pennant is a type of flag it's a little triangular flag you've probably seen these in old pictures of old sporting events where they're holding up their little flags on a stick little triangular things we call those pennants on a chart a pennant looks like maybe what amgn has done recently here's amgen it had started moving higher pulled back there was an acceleration of that upward trend so there's our flagpole but here we can see that our our intraday highs got lower but our intraday lows are coming higher so we're actually pinching out to a point we still might apply the label of a bull flag to that or some traders might call it a pennant but if we break out of that upward of that downward sloping resistance line we might still apply the same logic right click let's duplicate that drawing and if we got our breakout we might project from here or from down here okay so i'm just reading through our chats we have a lot of questions i knew there would be when we have over we have close to 250 people on the live webcast right now that generates a lot of conversation so i definitely appreciate those can't get to all of them with my apologies you know if you weren't aware we do have a webcast i believe it's still on wednesdays maybe it moved to thursday i'm gonna have to double check but it's called ask a coach and it's for traders we have one for traders we have one for investors one for shorter term one for longer term so check out the one called ask a coach trader where we just make a coach available for your questions all right cln says is there a scanner for a flag pole pattern here's what i would suggest it's been my experience the easiest way to identify flagpoles is not to rely on a scanner even though there is we go right up here to see that might want to experiment with this little tool called patterns because this is a pattern here's here's what i do all i do is just bring up a watch list for example here's if we go to the watch list and we choose the public watch list and go to the s p 500 here are the 500 companies that make up the s p 500 and i can just click on one of them and as long as i have linked those let me show you something drag this out as long as we've selected the same color here as we have right here it links the chart to this watch list and then i can just hit the up and down arrows on my keyboard and it's going to navigate up and down those that list of symbols and look at that what's going on with applied materials right now hey there's an upward trend now i drew this all right it's not that this appears automatically but the point is i can quickly scan through a number of charts and what am i looking for i'm looking for flagpoles i'm looking for a little retracement and i'm looking for a breakout to the upside and a trader can go through uh you know dozens of charts in a minute all right so there we go everyone we've accomplished everything i set out to do we wanted to first of all provide an introduction to bull flags we did that we wanted to look at some sample bull flags on charts it's important to get some repetition for the for the learning or the understanding to really sink in and then we discussed how we might plan an example trade with a plan to exit if the trade goes well and a plan to exit if the trade goes poorly and we've done all of that hope you enjoyed that webcast i want to thank connie for helping out in the in the chat with any questions connie's always an awesome resource to have standing by right now is your final opportunity fill out that survey again connie if you do me a tiny favor and and just uh repost that right now so they have a convenient access to that link it definitely helps me out in my preparation for my future webcasts but we're going to do this again next week we'll pick another element of technical analysis and explore it at a depth and a level that everybody can follow and hopefully we we go home every week with a better firmer understanding of current concepts or a great understanding of brand new concepts all right so thank you connie perfect yeah oh that's the uh oh a script for a flag breakout thank you connie and then if you could post that survey or i can do that let me pop up here grab this survey link maybe she has and there might be a little bit of a delay oh there it is she got it thank you connie all right but remember as i set you loose lots of education yet to come go enjoy the rest of our webcast day but also bear in mind that risks are real we did use real examples in today's discussions not a recommendation or endorsement of any particular security or strategy all right everybody i will see you next week i have new webcasts throughout the week so if you want to if you want to check me out there you can also check me out on our affiliates i do uh regular uh appearances on the td ameritrade network that as a matter of fact i have one coming up in maybe an hour or so i have one every every day of the week except on tuesdays and i and i host a show on our affiliate uh the schwab live daily i do a webcast on tuesdays it's called charting the markets i'd love to see you there but uh everybody have a great day i'll look for you whenever i see you again whether it's uh in tomorrow's webcast or thursday or friday or you just circle back again monday until that day arrives i wanna wish you the very best of luck happy investing bye you

2021-04-29 19:06

Show Video

Other news