Swing Trading Days to Weeks | John McNichol | 2-23-21 | Adjusting Stops, Trailing Stops, and more

Swing Trading Days to Weeks | John McNichol | 2-23-21 | Adjusting Stops, Trailing Stops, and more

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good morning everyone john mcnichol here and welcome to swing trading days to weeks join my good friend on chat cameron may our topic today is going to be swing exits after we take a look at the market open see if we can find some additional setup so stick around all right it's great to see everyone live here this morning such as sandeep charles michelle anthony dan bayek jorge ricardo and everyone else uh once again cameron mays helping out on the chat if there's some questions i am unable to get to and a shout out for those of you that are listening to the archive session as well do appreciate you joining us each and every week as we take a look at the market open and focus on short-term setups from days to weeks you can see my twitter handle on the screen if you wish to follow myself along with other fine instructors such as cameron uh at j mcnichol underscore tda cameron's is at c may m-a-y underscore tda let's take care of disclosures folks we'll get right into it options not suitable for all investors as well as spread straddles other multi-leg options strategies often involve greater more complex risk single leg option trades now in order to demonstrate the functionality of the platform we will be using actual symbols keeping in mind td ameritrade does not make recommendations or determine suitability of any security or strategy for individual traders any investment decision you make in your self-directed account is solely your responsibility transaction costs important should be considered when evaluating any trade and you're encouraged to practice what you learn today with tools such as the paper money software which is for application purposes only and successful virtual trading during one time period does not guarantee successful investment of actual funds during later time periods market conditions change continuously now a stop loss order will not guarantee an execution at or near an activation price once activated they compete against other income and market orders and as always folks all investing involves risks including the risk of loss there's our agenda we'll take a look at the market open uh we'll discuss swing exits uh including a trail and stop and uh with time permitting we'll see we have some additional swing setups that we can take a look at i think starting off with the market open uh may give you an idea of where to look uh for some of the different potential swing setups so without further ado let's go ahead and get into that starting off uh from a top down looking at some of the broad market indices now if you've been following along uh you know from yesterday as we started off the week there's been a divergence uh in what some of the indices are doing and a lot of that can probably be explored in some of the sectors now uh as we look at the s p 500 spx and we discussed this yesterday at the futures at the open in the market yesterday during the futures class and later on with the breakout and reversals class around midday even though the s p had pulled back uh going into its fifth session uh it was still trying to hold previous highs hold previous highs you know that broken resistance potentially acting as new support operative word potential as we can see this morning uh prices have continued to fall below that support now this is not a a change in trend you know if one's looking at you know the aspect of you know prevailing highs and lows in the trend you know we're still seeing a higher low potentially you know prices are above you know an intermediate average in this case a 55-day moving average some traders may be utilizing a 30-day but prices are above that however for a swing trader you know that's looking to capture you know that upward momentum breaking down below a previous high does indicate some of that weakness indicators uh such as the macd a momentum indicator typically would probably end up going a bit more negative as we can see indicating that momentum now just because it's pulling back deeper doesn't necessarily mean a change to a bearish trend uh but it's given a bit of a warning uh that at least from a shorter term perspective that there is less upward momentum and when looking for a bullish swing is to lean towards those areas of the market and stocks that are relatively stronger and hopefully holding those previous highs by contrast the dow djx notice the dow is down this morning but notice distinctively a little bit better well quite a bit better as far as its trend where we can see prices still close to those highs if we look at the tails of the candles shorter term we can see kind of more sideways now still down today above we put it in context of some of those previous highs we can see the dow is holding that range back almost to within pennies there as previous resistance acting as new support uh a breakdown below that support would put in the same boat as the s p you'll notice uh even in the macd you know kind of slightly negative but closer to that center line so you can kind of see as comparison uh the dow relatively stronger also with tools like relative strength that we've discussed compared against the s p that relative strength line's been rising since about mid february so kind of think of this as we look at these indices and some of you probably already know the answer why we're seeing some of these divergences and if you don't it probably becomes even clearer when we look at the nasdaq the nasdaq 100 as we look at the trend of the nasdaq 100 another gap down at the opening we had a gap down on monday clearly downward momentum looking at relative strength compared to the s p clearly underperforming and it started kind of going more with the market with the s p versus lagging and then as we look at it from price action you know not only did the nasdaq violate previous highs implying more that downward momentum looking at the lows pretty close on taking out that low or at the very least making more equal lows is going to imply more of a sideways trend we're below the 50-day moving average if this moving average continues to go more sideways implying that sideways trend so you know so far you know if from an index perspective uh the dow which is the dow 30 stocks is relatively the strongest as far as from a bullish perspective on swing setups last but certainly not least the russell rut the small caps we've discussed small caps for quite some time on its relative outperformance rise in price rise in relative strength as far as that trend now lately uh over the shorter term that relative strength has been going a little more sideways implying more of the market perform with the s p uh unfortunately the small caps are down pretty strongly today down 2.6 percent some technicians may look at the small caps as kind of a leader of uh potential market moves and uh we're basically testing where the russell broke out so basically all the gains or most of the gains from the early part of february have been given back now if one's looking to be bullish you know traders are looking for some sign of a hold you know at those highs it may start off with a harami or an inside day if prices hold and the next day prices kind of go inside that range uh we share some of those productivity tools such as that kaholt script that may identify some of those potential bounces there so definitely a mix but you know even as we speak prices are still falling and then looking at volatility it's expectation that volatility uh would be rising this morning as we're kind of getting in the higher range and uh at least recently and um we'll see if that actually backs off today now you know with a lot of those drivers on you know why kind of a divergence there on different indices where you don't pretty much don't have to look much further uh than looking at some of the sectors uh as far as starting off the morning some of the sectors that stand out very defensive uh in uh in who's performing utilities staples real estate so more of a risk off as the market opens whereas more of the risk on areas of the market like discretionary information technology communication services uh but particularly information tech and consumer are the worst performers um outperformers over the last month such as materials uh let me try that again you know out performers over this last month like energy and financials uh are actually relatively holding up okay from a bullish perspective um if traders are looking for a bounce uh in these areas these could be the stocks that may recover um but a lot of a lot more inflows you know into some of those more stable industries if we go ahead and look at the market watch tab you can break down and take a look at you know which stocks are in that index so if i go to a public list and you know we recognize the dow was making some of those moves let's bring that up we can sort and you can see got amgen procter and gamble verizon disney uh kind of leading the way uh caterpillar in there outperform we're going to take a look at caterpillar in a moment on managing exits some energy companies in there uh looking at the losers we can see in discretionary and tech home depot salesforce apple weighing down microsoft intel we can see a lot of the attack selling off and if you go ahead and look at something such as the s p 500 and go ahead and recognize you know gainers and losers and we're seeing some in the real estate space uh energy holding up relatively well then you look at some of the losers by sorting through this there's tesla down for a second day down eleven percent uh etsy you can see the tech carnival down which is kind of more towards a reopening when i was looking at this on the pre-market you know airlines have received a lot of upgrades uh but interestingly enough they still may be in the positive uh but they're not up towards the top here as i was looking at in the pre-market so there's kind of a run through rundown on the market which can be some drivers on you know if one's bullish on some of these swing setups where some of that relative strength is at let's see if uh else kind of stands out here quick before on a lot of things down pretty much across the board uh from a news driver here uh if you're keeping an eye on the news you know a lot of the concerns from more of a macro is we have uh chairman powell that i believe is going to be uh speaking uh to congress today and i think also tomorrow uh so getting some insights uh as far as what the fed is thinking we have interest rates uh that have been rising quite rapidly which is putting a uh the inflationary concern for the markets and then also with the uh federal uh with the budget or the covid relief uh looks like it'll be getting through the house uh on friday and saturday uh and then go to the senate where uh it'll more than likely be chopped down and uh you know investors will be seeing you know what uh is going to be the end result of that potential package there uh if we take a quick look at uh let's say tnx uh for yields you know those yields uh you know continue to rise looks like it backed off a little bit off of those highs and uh possibly giving some relief towards some of those defensive industries typically when the market is more fearful bonds would have a tendency of rising uh and we're not necessarily seeing that uh but as far as with a lot of the money and the flows seem to be flowing into more defensive stocks uh at the expense of those higher growth uh which are those growth stocks are going to be more sensitive towards interest rate changes okay so hopefully that macro kind of helps you out what does that mean for a swing trader you know macros typically are you know more uh intermediate to longer term in nature may not necessarily have as a direct impact on short-term traders however short-term traders are concerned about things such as volatility and that indecisiveness or you know un not knowing uh you know where the economic strength is you know concerns such as inflation you know money can be rapidly flowing from one area to another and that can quickly impact a short-term trade just as much as an earnings event uh you know can which is known uh some of these macro events are a little less known and the market has a tendency of potentially reacting violently to that okay um now you know michael mentioned uh you know you're seeing some of the productivity tools that i kind of glanced at earlier uh we're not gonna do a deep dive on this one here today uh we will take a closer look at it next week if you join us but for those of you that are new and we welcome you any of the script that i share is always going to be in the scratch pad over here on the left hand side with those seven digit codes if you're unfamiliar with adding those things uh simply uh follow me on twitter at jmcnickel underscore tda if you go to my profile i have a pin tweet which has the same script as well as an explanation on what it does uh likewise there's a step by step you have the opportunity to follow those steps and you can repeat the same thing appreciate the feedback uh mrs dd uh you know it's important to kind of take a step back and look at things when markets change um and kind of look into why and you will that continue to be an issue we can see dramatically on the impact of that to something such as the nasdaq uh and those that followed me particularly in the futures class you know we talked about hedging uh as the markets were hitting those highs and it's for you know those times when it happens right now the nasdaq's down about uh just shy of about eight percent from those highs ten percent is a correction okay all right so let's go ahead and get into since we are seeing some things pulling back uh you know when it comes to swing trading since these are relatively shorter term trades a lot of our setups uh when we have entered a trade we've done things where we may have created a a bracket order where if you know price goes ahead and hits a particular target on a bullish trade it may close out if the price reverses and hits a stop uh it would get out at a loss and cancel the other order you know some traders just may have a a stop uh and then adjust that uh whether on a daily basis or if they've hit a potential target possibly adjust that manually so let's talk a little bit about that we'll put in the context of trades we did last week uh to see what some of those results are and we'll apply some trailing stops on some examples that i've done from another class so what i'm going to do is we're going to go to uh let's bring that up uh we'll go to the monitor tab and do the account statement there so we did two practice trades last week um one was uh starbucks let's focus on the fur on the on the bullish one starbucks and this was an example where we had done a uh i believe a a bracket order where we had entered in as the price was anticipating or looking at it bouncing and then we had put in a bracket order uh to close it out you know if it had hit a target a limit order of about uh 116 targeted price uh or if the price uh went against us and would have been stopped out and we had put in a stop i believe at around 103.67 now keep in mind stops are not guaranteed to fill at a particular price uh once uh it hits that price it triggers it creates a market order it'll compete against those uh other orders now we look at the trade history uh you know we entered in at about 106 14 and then three days later we were unfortunately stopped out now if we go ahead and look at the chart on that this is where stops can particularly be helpful you know if one's going to fail fail fast you know we had done that a little bit of a flag where we had a sharp move price had pulled back started seeing a bounce now we had talked about you know the pros and cons of you know whether entering in earlier in the day or waiting for the close uh you know if one was waiting for the close during the day you know they may have decided to wait for the next day to see if it traded higher looking for some of that momentum either way pros and cons for that uh if we look at the stop you know price unfortunately you know getting pulled with the market went ahead and stopped and out at 106.67 now still a better outcome versus uh not having a stop on a short-term trade and defining that risk because right now we're trading at about 101 about 2.50 below that okay so there we go um the other trade that we did uh was uh i believe it was uh paychecks let me go ahead and look at that one interesting we have to go and look for that uh let's see here back on the 11th uh our bucks that was on the 16th uh checkpoint hkp and uh checkpoint it was an example of a a put trade and uh as we look at this one this one's a little more favorable not moving down as quickly as we probably would like based off what the market's been doing this was an example of a bear flag where price went down sharply we traced up a couple of days we did this bearish bounce where price traded below low of the high day trade as low as around 113 kind of came up a little bit looks like we're seeing it fade again today now if i now this is an option trade someone asked about as far as uh doing an uh trailing stops or whatever with a an option trade i go ahead and let's bring up constructed that uh let's see here we go so we had uh did a limit order to buy a put option and then we had put a market order gtc with a conditional order if you see any gears on your orders to the right that means one had entered that condition so if we go ahead and plug that in one if you're you know on your monitor tab or you know looking at some of your history i can go back here for instance as well uh let's see you know if you have any orders that are open you know they should show up over on the left as well this is where we can actually click to view those now when you view uh a condition will not it won't actually show what that condition is you'd have to right click and when you do a cancel and replace to view it a little more closely and click on that gear when we do that we basically created a bracket order inside this condition so basically if the stock goes ahead and drops down to 1 1250 uh that would be a the downward price that we're looking for to trade down to uh or if it trades up in this case 123.50

it would close it out at a loss now if one wanted to uh you know one can adjust if we're talking about adjusting a stop we can go ahead and take a look at that price and see where we're currently at uh one way of doing stop adjustments is taking a look at your existing trade and you know from this example you know we had entered in when the stock i believe traded below about uh you know about below 118. the targeted price uh i believe we had at around uh 112 50. i think we were targeting kind of a previous low range a little bit further here yeah i think we were kind of targeting you know down around this low range uh from the fall and we can still leave that in there uh but some traders may consider you know once the stock has made you know half of its move okay once it's made half of its move you know to its target is to consider you know whether scaling out or adjusting that stop now one way we can do we could do it manually by taking a look at the high of that previous day and then adjusting the stop to a dollar amount or a percentage above it and whether it's one percent or a dollar amount so for instance if we were to do this as of yesterday uh i can put my cursor on that bar we have a high of it's showing 116 82 and you know let's say i would put an example and set it let's say 20 cents above that you know 116.82 20 cents above that would be 117 what i can do we can go back to that order i can right click on that order actually i think you need to actually click on it to open it you can right click and do a cancel and replace i'll go into that here brings up the condition and so instead of 123.50 i can go ahead and change that to 117. i think it was o2 leave it at that uh and so now if the price was to trade up and hit that 117 level it'll trigger a market order to go ahead and sell that put at whatever the market price is so we can also see those conditions uh being displayed up on the chart here i can go ahead and click save and do a confirm and send and send and then you know as far as a daily routine you know what one can do is you know to continually repeat that step each day so you know if today price trades lower and this is the high we can go to that high and say okay we're at one fifteen fifty nine and we're looking at the prices up here one fifteen fifty nine and you know and adjust it to a dollar amount or a percentage above that now that is manually what you're doing there is actually trailing a stop you know as the price continues going down you're just adjusting your stop as the price goes down and whether it hits the target or it reverses and then it'll take your stop out all right now another way of doing this is uh you know one can utilize some of the tools on the platform uh to maybe automatically create a trail and stop and one can use the trail and stop function on thinkorswim or you can utilize the in an indicator which we've done in the past like a parabolic sar so let's go ahead and take a look at those examples and with that in mind so if i go ahead and let's see on some of these other examples so you know here's here's another example that i have um you know in the case now it's a little bit harder when we do it with um with an option um as far as doing a a hard trail and stop on an option that may be a little more difficult to do based off of spreads you may have a tendency of finding yourself getting kicked out of the trade even though the stock price may not have done something dramatic you can still utilize i'm going to show you another way with caterpillar in a moment let's take a look at delta so i'm gonna bring up dal for delta now delta's had upgrades along with the rest of the airlines there we had a pretty big move yesterday actually uh hit the target uh yesterday or a a price target based off of some previous moves opened up higher kind of went down looks like the price may be holding there now if i wanted to uh i can go ahead and take a look at an existing stop and you want to stock you know you can go ahead and just raise those stops up on the chart or go ahead and edit that order right click we'll do a cancel and replace and as you can see this is a regular stop now if i click on the drop down for the order we can change this to a trailing stop and kind of the the tact that that i've taken in our examples is not not to institute a trail and stop unless the price has made a significant move maybe at least halfway to your target or you're pretty close to your target and you're looking to try and capitalize if the price continues going higher having a trail and stop early may end up kicking you out uh prior to a significant move so you know one idea is just give it an opportunity to breathe and make its move before you consider jumping on before jumping on and putting in that trail so you know we've reached or came up to a particular target now when you come to a trail and stop here uh you can do it based off of a dollar amount in this case 10 cents you can change it to a percentage if you want to trail it by a certain percentage uh so you know let's say here you know i can say um you know two percent and then do a confirm and send and what this will do is it'll basically trail a stop two percent below the current price so if the price continues going higher that stop will rise with it but once it pulls back two percent it will go ahead and take out that stop so one may choose to do it by a percentage amount uh or if i want to do it by a dollar amount you know trail it by a dollar uh whatever fixed amount you want you can go ahead and do that and one the trail and buy a dollar confirm and send and you can go ahead and put that in there try that again it didn't like that make sure it sticks oh there's an extra decimal point there that's why 1.00 a little nearsighted here

so didn't pick up on that so there you go so in this case we'll be trailing by uh a dollar um what i'm going to do is uh i'm still going to use a fixed uh stop as an example i'm just going to go ahead and pull it up to where it was about two days ago it's a personal preference as far as if one's utilizing trailing stops one's a little more of a larger move uh on the option i think on the option one it could be helpful as well so let's go ahead and look at caterpillar and what we'll do at caterpillar is we'll do a a conditional order that may trail the stock and to do that i'm going to go to the chart we'll bring up caterpillar and if you go back in the archive this is uh an indicator that we've brought up in the past it's called a parabolic sar uh i'm going to go ahead and uh go to studies we're gonna go to edit studies and then i'm gonna add two indicators i'm gonna add atr which is average true range this is another indicator we talked about and this will help possibly with some of the questions because i already saw a question as far as you know what could be a good percentage for a stop the one that doesn't stop you out and lets the price go higher now that's a little facetious but there is a little uh indicator you can potentially use the atr to give you an idea of you know what is an expected move or a potential move i'm going to add that and then i'm also going to add a parabolic sar which stands for stop in reverse add that one we'll get to the parabolic on a moment but on the atr so here's caterpillar atr stands for average true range which is kind of the average daily range of that stock in this case over the last 14 periods currently the atr for caterpillar is showing 5.39 so from a dollar amount um one can go ahead and possibly set a stop that's at least five dollars and 39 cents something that takes you outside of that daily range or may do a multiple of that one and a half times or two times that value and then set a stop uh that amount below the current price and you know this indicator is dynamic it'll change with volatility so a three percent stop may be fine at one point but at other times it may have to be a four or five percent stop based off of some of those expected moves so an atr could be a good way of doing that we've utilized this in the futures class and i've done this from time to time in this class we're going to use another indicator the parabolic sar and i already added it and notice on the parabolic sar it will actually plot price points that could be a likely trail if the price is going higher the tr the parabolic will follow underneath the price if the price has fallen it will be trailing above you can kind of see where potential reversals are i've even used this indicator with the default settings uh for traders trying to identify potential breakouts of patterns a breakout typically will have a reversal of that parabolic indicator we're going to utilize this for a stop now notice right now uh this parabolic is running you know a bit below uh that current price uh for a swing trader this may not be as tight of a stop when one is kind of added near a target so we're going to adjust the settings some of that followed me before uh we've uh adjusted these in the past and i'm going to go to the beaker to edit this and we're going to go to parabolic sar and here's the default settings i'm going to click on the little gear to the right of that and by making uh the acceleration larger and uh we'll make the limit uh a little bit uh larger here we're actually going to tighten up that parabolic and the settings that uh you've been practicing with a little overlooked there we're gonna do a 0.1 for the acceleration and a 0.3 for the limit and when i click ok and apply you'll notice how this is going to tighten up and you know one can play around those settings to see what suits them and uh what's kind of interesting with the parabolic sar is as the price gets stronger the stop naturally kind of tightens up so when the price does reverse uh it may not be given as much gains now prices went kind of parabolic here uh on caterpillar so it may take a period to kind of catch up and get closer to that price but nevertheless we'll do this for illustrative purposes so what i can do is set a trail and stop to get out of the option or actually i shouldn't say trail and stop but set a conditional order to get out of the option if the price goes at or below or we'll just say below that parabolic and so to do that uh we're going to go ahead and go back to caterpillar and i have an existing stop on here so i'm going to click on view orders i'm going to right click and cancel under replace order and if i go to the gear now if you're initiating uh a sell order and you want to do a condition you won't see the gear it'll be invisible but if you put your cursor in the same spot it will appear i'm going to click on that and you can see that i just have a condition kind of similar to a stop market where the stock drops down to 172 close out the trade and you know one can manually change that now what i'm going to do is i'm going to change the method to a study we're going to go to study and now i'm going to select edit now this may take a little practice uh uh you know for some traders uh it looks a little sophisticated and it is um you can put a technical condition you know to whether buy or sell a stock or an option right now by default it has a simple moving average i'm going to delete that and i'm going to go ahead and select add condition click add condition and then you know just think about what we're looking to do so we're looking at the uh the study and i'm just going to do uh price or i'm going to do uh yeah i'm going to do price and you know as we look at the price you know you got different values here you know it doesn't have the um the last in here for some reason but uh uh i can just go ahead and take a look at you know let's say we'll do close which is basically the equivalent of the last price during the day i can say if the close is less than and then go to the next box and we'll select study so we did price selected close is less than and then we go ahead and select study and then we're going to look for the parabolic sar there it is and we'll make sure that the settings are the settings that we wanted which we did a 0.1 and a 0.3 and it says within one bar so basically kind of the current bar i'm gonna click save click ok then now if we look uh at the top here you can see that if the close is less than the parabolic sar it should go ahead and sell that option at the market i'll click save hit confirm and send that's another opportunity to see what you're looking to do study we're looking for the close is less than the parabolic sar with that setting that we did click send it went ahead and canceled the other one and now we should have a work in order to basically take care of it based off of that indicator hopefully you learned something new with that uh today uh as we went ahead and went over different examples kind of a quick glance at the market it's like uh you know after and this is kind of natural you know after about five and going in a six day to a pullback you know some attempt uh to uh hold this case kind of around that 55 day moving average let's look at the nasdaq you know we are seeing potentially a hammer there or a dragonfly doojie uh at that support and whether this translates to a big bullish swing we will see uh would encourage you to go ahead and take a look at stocks in your watch list for you know some setups particularly ones you know that are relatively stronger you know that are setting up looking like the dow as an example let's say real quick uh we've got a brief minute here you know we are still in earnings uh there's tj maxx they're coming out on the 24th but pushing up on resistance potential breakout uh i wouldn't expect to see too many bullish bounces but keeping an eye on some of the benchmarks like apple on the tech side discretionary stocks like nike still falling you know home depot coming out with earnings but you know we're we're seeing a test you know of you know some trending support and if if powell has some good things to say or or there's benefits coming out with uh the stimulus uh inflation not as much of a concern uh then you know we may see uh more of a stronger bounce but still some weakness here as we go in this tuesday afternoon so we'd encourage to practice what you learn here today folks maybe practice in on your paper money with stops if you have a stock that may have came close to reaching a target and looking at some profit adjustment you know by adjusting a stop you may be reducing risk on the overall trade and whether you're adjusting it manually and trailing it or using something a little more automated whether it's the trail and stop function on thinkorswim or utilizing a study and a condition order like we did with that parabolic sar if you join us next week we'll go and focus more on the entry side again on trade setups looking forward to seeing you there and if you do like this video please click like so that way many other people can have the benefit of this education as well i do appreciate those you have joined us here today uh and uh appreciate cameron for helping out on the chat uh let's go ahead and let you go and uh let's see coming up next at the top of the hour is using options as a stock investor with james boyd so stick around and looking forward to seeing you on the twitter space as well have a great day everyone we'll talk to you again soon and remember in order to demonstrate the functionality platform we had to use actual symbols keep in mind td ameritrade does not make recommendations or determine suitability of any security or strategy for individual traders any investment decision you make in your self-directed account is solely your responsibility take care everybody

2021-02-27 00:20

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