Technically Speaking: Breakouts & Reversals | Barbara Armstrong | 11-2-20 | Trading with a Target
Well, hello. Everyone, this is barbara armstrong, coming to you live from sunny salt lake city. I am filling in for john mcnichol, today, and, happy, to be. Covering. Uh one of his classes, as many of you know john, is involved in the military, and he will be. Away. On military, duties for the next couple of weeks so. Today you've got, me, um. Covering this class you've got, connie hill in the chat. So we are going to. Have an interesting, time together today. Great to see so many of the regulars. And it's some new, i want to say faces. Um in this class today too so hello to rashmi, and lewis, and mike and charles, and ivan, and. Marina, and jason, and peter and sarah, and alfred, and the rest of the gang great to have you all here. So let's get through our important, information, so that we can get right down to business. I have three, stocks, that i want to focus on today. And we're going to do, at, least. One, example, trade on each of them so stick around. Lots of great stuff coming your. Way. Okay, so guys, as you can see, uh from the blue bird, floating there over my head i'm on twitter, as is connie, and our all the other coaches. If you are brand, new, to these webcasts. And you aren't, following, me on twitter already. You may want to put that on your to-do list at the armstrong, underscore, tda, the same with connie hill, at. Chill, c-h-i-l-l. Underscore, tda. Lots of great content, being posted, daily, and you'll be sorry if you miss it. Okay. So. In this class, we talk, about, options, we also talk about stops and i'm going to do. At least one trade in each category, today but options aren't suitable for all investors, as there are special risks inherent to options, trading. Which may expose, investors, to potentially, rapid and substantial. Losses. We need to be aware of that, also, know that in order, to demonstrate, the functionality, of the platform and the concepts, we're talking about, we will be, looking at actual, symbols, and lots of them. However, that isn't to be construed, as a recommendation. On the part of td ameritrade, or myself. Any investment, decision, that you make in your. Live account, is, on you my friends. Know that all investing. Involves, risk, including, the risk of loss. Okay. And these are the infamous. Greeks. So what are we going to do today this list always looks so modest but we could talk for an hour, and not wander, off this agenda, so we're gonna have a quick look at. Um, how the markets, look today. We're going to look at some uh setup, patterns. Um. Breakouts. And. One is a bounce, and. It just looks like, an interesting, to me so it may be a bit beyond the context, of this class but i think that you guys will be happy to discuss that one too we're going to place a couple of example, trades and then that'll be. A wrap. Okay, i'm getting ahead of myself. So let's get out to the thinkorswim. Platform. And i've got volatility. Up here and as we can see, by the vix. Um. Volatility. You know our fear, index, is continuing. To move to the upside. You know we're back up around 40. we haven't seen, 40, for a while. I mean we haven't seen 40 since, june. Um. So you know and although. Even at 30. Um. The vix is historically, quite a bit higher than it's been um to be sitting up at 40. Another. 30 some percent, higher, than the 30 we've been kind of cruising, at for the last month or so. Is a fairly significant. Jump. If we come and we look at the s p 500. And you know for those, of you, who. Um, especially, if you follow my in, trading a smaller, account class we start every. Friday, by, looking, at. The. Market forecast. Indicator. On the s p.
500. And. What this gives us an idea, of so we've seen you know the market came up hit new all-time, highs. Back on september, 2nd. And then hasn't, really done that again. It pulled, back to around the 3200. Mark so a 400. Point pullback. Came back up almost, kissed that previous, high. And is back now around, this. Support, level. What we see, on the market, forecast. Line. Let me just grab my drawing tool here. And the line we're really looking at is this, green, line or the intermediate. Line, and when you have that line, up trending. In this 20 to 80 zone. Let me just change my drawing tool. In this 20 to 80, range. That's considered, to be bullish. When it is downtrending. As it is now. That's a sign that there's a little less, bullish, confidence. In the market. So we're going to take that into account, as we look at our trade, so what this is suggesting, is that. Something that is directionally. Bullish. Um. Might, have a, harder, time, being, successful. Now are there outliers, to that always. You know but. This is an idea of where the market, in general, is right now. So let's. Now change our study. Call this my, barbs, basic, study set. You know three green arrows. That's what we used to call it. Okay. So when we come over the first stock that i wanted to look at. Was. Their. Sign. So we can see and this is a six month chart so let's look at it you know a little further out so, this is a one-year, chart on verisign. If you're not familiar, with this company. You know, it's, it's in the tech sector, but we've got, you know two analysts, saying. And you know one who's saying it's a buy one that's neutral we've seen this stock in the last five years has had a tremendous, run gone from 54, dollars a share up to 219. Currently, sitting, you know, around that 188. Level. We've seen the earnings, per share going up dramatically, so it's not like it's technically.
Not A sound company, but when we take a look at it's been going, sideways. In this kind of, 190. 750. To about, 220.. So if we round to 228. And we say okay that's about, a 22. Range. Grab my drawing tools. And we'll throw them over here. If this, range, here is about twenty two dollars. What are we going to expect, if the stock, breaks, out of this range either to the upside, or as it has, the downside. What would we expect, the move to be. And i know some of you seasoned, veterans, in there probably have an answer for that. So go ahead, and type that into the chat. So if this range is 22. What would where, might we expect this to stop, if this line was around 198. So. My spidey, sense would say. You know 198. Minus, 22. Would be maybe around, 176. You know and do these patterns, always follow through, of course not but then if we come to the chart and we say, well do we see support, around, 176.. Yeah you know maybe not necessarily. We see support, here, around this 150. Mark. And then if we come up here we say well you know. Around, 171. You know might get hung up around 171. You know so if we say our target's, a little bit ahead of that around, 176. Um, if we wanted, to. Place, this trade. You know we would come in and, you know we could sell the stock, short this is going to be an option, example. Where we are going to say okay, if we wanted to get out of this trade. Where would be a good spot to get out, well you might say hey if it goes back above, this. Support, level support, becoming new resistance, if it breaks above that. You might want to get out or you might say you know if i'm, going to trade, this, breakout, below. A support, level. As a swing trade, i'm going to take this high. The most recent, high. And i'm just going to add 1, to that. 193.83. So i'm going to take that add 1. 193. 83. Times, one decimal zero one, and that's going to be my stop. And i'm going to bring up my calculator. 193. 83. Times. One decimal, zero one. Now one of the things that experienced. Traders, like to do. Is if they're wrong, they want to admit, it quickly, and get out quickly. With, more, of, their. You know earnings, or, more of their, um. Their assets. Intact. So if we say okay. Our stop is going to be at. 195.76. And our target. Which was at 198. Minus, 22. At one our target's, going to be 176.. Now it's already, moved. Part of the way and today, you know if we look at this and we we look at this as a bear, flag. Right which some technicians. Might do. Where the flag, has taken us through the support, level. Okay let me just draw this over here. So. I don't know why i'm having trouble getting my tools to kick in today. Came down. And then it was like a one day pull back. And then today, we have this bearish, engulfing. Pattern. Bringing us back down. So if we look at this and we come up to our trade tab and we say. Okay. If we come out to december. And we look at the at, the money. Um. Put that would be. Now and we could do the first strike in the money. Our delta's, our probability. Of having a profitable, trade is going to be a little higher but we're going to spend. You know 50 percent more. So if we said well if our target on this is 185. Now we've got a really, wide bit ass spread here. And so you know you look at that bid ask spread and you might say hey if i can get filled. Around, 750. I'll take it, otherwise, there's so much, going on in the market. Um. Maybe you don't want to take that trade or maybe you you say well i've only got a 60 cent spread, here.
Um Which is within the range of acceptability. Um. But it's you know you've only got a 34. Percent, chance of that being profitable. So if we look at that bid ask spread and we think that it's too wide we might just pass on the trade altogether. Or we might say you know what if, the market maker, is willing to go to. 750. On that. Then, i i might consider, taking that trade. So, i'm going to come to, i want to buy custom. With an oco, bracket. The first thing is i'm not willing to pay. Nine dollars, for that. If i can get filled, at the mid. Um. I'll take it otherwise. Well we'll just let that one go. And then when do we want to get out well we want to get out, when it hits our mark what will that option be worth, we don't know exactly. So we're going to say we want to get out. When verisign. Is, at or below. 176.. Okay. And then, if we are incorrect. When do we want to get out. Well again we're going to make this, market, order. And say, hey, if this goes, at or above. 1, above the high of the recent, high. That's. 195.76. Get us out. 195. 76. Get a set. So when we hit confirm, and send oh now it's down to 650.. So you know what we're gonna come. Down to 750. On that. Confirm, and send. We want to buy. One. Of the 185. Puts. At, 750. Um, and we want to exit, when it goes at or below, 176. So this is a bearish, trade. Or. If it goes against, us and it goes up to. 195.76. We want out. How much can we lose the most we can lose is what we paid to get in. How much could we make well the most we could make is a verisign, went to zero. What are the odds of that happening. Not high. But that's. Technically, what it's worth. And. We're going to put that in our. This is really. Some might call it a swing trade. Um and then some might say you know what um this is just a directional. Trade, and it is a long put i'm going to put it in my. Long put. Bucket. Or group, it's technically, called a group. Now what might this be worth. If let's say, in the next. Two weeks this were to go. And hit our target. So let's say two weeks from today. So today is the second, we're going to hit reset. Let's say by the 13th. This has come down and hit our target so it's come down by 12, dollars. And i'm not going to, take volatility. Or anything else into account. So this seven dollar. Let's call it 750. Option if we get filled. Would be worth about. Thirteen, dollars. And so that would you know we wouldn't have doubled our money but we would have made a nice profit, on it now what if instead. It goes up to 195. It goes up seven dollars, instead of coming down eight and hits our stop. We'll call it eight dollars it was, 195.83. I think, so if it went up eight dollars. A you know not a 50. Loss, but close to it. So that gives you just an estimate. This is the field, price. And i think it's pretty cool. Uh. The market, trend. Indicators. That market forecast. There's a question in the chat from eve. Um. That, is. Posted, on my twitter feed and it's pinned to the top. That market forecast, study that was created by ken rose and he just does all kinds of. Oh. Okay so there was another question about, where did i get this overview, information, on, on verisign. So for that, i just went to the analyze. Tab. And then i came over to fundamentals. So if you come to the analyze, tab. And then you come to fundamentals. And then you know i can't when i've got the drawing tools on but you know then you can look at all kinds of stuff like here's the earnings per share. So we can see that generally, speaking, healthy company. Sales per share going, up. But for you may want to go and look at the news on this like why is this stock breaking down. Is it just general. Market, fear or, a lot of people because the stock has done very well taking their profits.
Or Is there some, other general, uncertainty, in the market. So the next one i want to look at is, our friend netflix. So a netflix. Has been a friend to many of us right. Um. You know over this last six months where, you know we haven't flown to europe, we haven't, you know. Done any number of things family reunions, canceled, all kinds of stuff, but you know netflix, has been there for us. By gum. Um but netflix. Has been trading in a range, and so technically. This isn't a breakout, because it hasn't broken out so one might say well i'm waiting, for netflix. You know to break out either to the upside or the downside, but in the meantime. It's been trading, between. Like that say. 466. Ish. And, you know. 563. Or 4.. So it's been trading in like this hundred dollar range between, say 465. And. 565. Kind of thing. And what is the technical, pattern that we have. Today. Um just a sec i have something here in the chat connie. Uh just like let me get rid of that person. Yeah. Slither, king we can live without. Okay. So. Netflix. Um, we have this, pattern, and do all patterns, follow through not necessarily. But we've seen, netflix. Come, down. To this support, level. Not once. Oops. Not once. Okay this is driving me nuts. Today. It's come down and hit this level. You know, once. Twice. Three. You know, it multiple, times here, four. Five. And now it's coming back into the hood again. And then it comes up and it hit, 575. And then it came back and hit like. 560-ish. And then it came back and hit 560. Again. And so, this is what i would call a bounce. Entry. Because. It looks like it's bouncing, off, this support, level right here right. And so could we do. You know a trade where we just want to get it to get back up to say this 550. Level. And then we'll say you know what um we'll thank the trading. Uh powers that be if this goes up now could it turn around and break below support it absolutely. Could. But if we look at this and we say okay so let's say we wanted to do this as a stock, trade now this is an expensive, stock. Uh you know it's currently trading at, 480. Dollars, a share. So. Um. Here we go. So if we look at this and we say okay. So where would we want to get out, well if we look at this support, level say around, 466. And let's say we want to keep things. Kind of tight. If it goes, 2, below that. You know, your number you might want it to be three percent. You know you could make it five percent you can make it whatever you want i just encourage people to be consistent. So but if we say we're gonna, you know for this example, go two percent below support that would be four fifty 56, 68. Would be our stop. And then, if we wanted to put a target, in and say hey. If this gets up, around that neighborhood, 550. Ish. You know because every time it's come back up it hit what 557. It hit 560. 575.. So let's not be greedy, let's say hey if this hits 550. Um let's just, call that good. Okay, so. If we wanted to put that trade in and we can do it a couple of ways. So. There's a. Just let's do this trade and then i'll come back and look at the chat again because i can see.
That There's a couple of questions, in the chat and i will address those. So if we, come up to the trade tab and we say, okay. We're having an oco. Order day we're going to come out to december. Oh sorry. That's for the option one which we'll do next. We're just going to come up here and we're going to buy this stock. It's currently trading at. 480.50. We want to, buy. Custom. With an oco, bracket. And, we're willing to pay the current, price. We want to get out when it hits 550. And these are so much easier to see when we're doing the stock, right because we don't have to put in all these conditional, orders. But if it comes down and it hits, 456. 68. We want to get out. 456. 68.. So how much are we risking. Well, if i take my 456. 68. And i subtract. 5. Oh sorry. I don't know oh 550, was our target. Okay sorry. So if i take my, 456. 68. And we subtract, our current price, which is. 480.88. Oh. For crying out loud. Okay i'm gonna do this on my little calculator. I this seems to be my nemesis. Here. While we're risking, about 25. So if i take 480. Minus. 456. It's 24.. It's about 24. A share. So we're risking. Hundred and forty. Dollars. Or. Twenty four hundred dollars. Times a hundred twenty four dollars a share, times a hundred shares so we're risking twenty four hundred dollars. Now if your. You know max risk is a thousand, dollars. Then you would not take this trade. Because we're risking, twenty four hundred dollars on this trade, now how much can we make, well if we go from. 480. To 550. And we've done this with a 100. Shares. You know that's 70 dollars a share or 7, 000. So you have to make sure you're properly, position, sizing so what you may say instead, is, well i don't have to do this with, 100, shares i could do this with fifty shares. You know and then you're risking, twelve hundred dollars. And so if you say okay, you know what twelve hundred dollars, is you know more my snack, bracket. In order to be position, sizing appropriately. I hit that little paper clip. And then when i hit enter. It. You know make sure, everything is aligned, properly, confirm, and send. And, with this one we're doing this as a directional. Trade so we can put that in our swing trading bucket. Fire in the hole. So we're just waiting for that one, to fill.
Now If we wanted to do this as an option, trade. We could come out here so this is a bullish, trade. We could look at it's trading at 480.95. So if we looked at the 480. Strike. Again we could put in the same target. So instead, of having to invest, with a hundred shares, 48. 000. Here we're investing, 3. 300. And we're essentially, controlling. A thousand. So if i come here, so sorry. I'm going to right click anywhere, on this line, and i can do that same, by custom, with an oco, bracket. So we're willing to pay. The current price, and when we come back and we look at this. We can see that on this one. You know our bid ass spreads, are much much tighter. Because, we've got a lot more volume, on, this. You know 800, contracts. Where the other one had had just less than a thousand. So. Um. Yeah so again. We're going to make these both our exits, gtc. Market. And market. And when do we want to get out. We want to get out, and i always. Do things in the same order. Which is, target, first because i think i was born an optimist. Plus, there's a rhythm, in the way you place things and if you do things the same way every time. You're more likely. To not make a mistake. And then when we come down to this one. We want to get out if it goes. At or below. 456.68. Confirm, and send. We want to buy. Uh. One. Contract, the 480, call on netflix, at 3320. We want to get out when it hits 550. Which is our target, or if it goes against us at. 456.68. How much can we make well the sky's the limit, but it's actually, not the limit because we're saying we're going to get out, when it hits. 550. And so we put that in our swing trading, bucket. And. Fire in the hole. Now with this one if you're saying well, let's do that theo, price thing again. You know we can come up here to layout. Theo price are you guys all familiar, with. Theo price. Yeah so somebody asked who jb, is. It is james boyd. Yeah. And i know a couple of people have typed that in. And when you type in names the system will automatically. Hide. It. So, let me just go back now and, answer a couple of questions, tony is asking what's the difference with your method of setting a first triggers, oco, with a, threshold. With a price versus. A stop, order. Tony i don't understand, your question. I'm sorry about that. Um. Class. Connie's a great instructor, i'm not surprised that you enjoyed her class somebody was typing into the chat that they enjoyed her class. Um. Yes that market forecast, is pinned to the top of my, twitter, feed so you can find it there. Okay so somebody's, asking how do you find studies with breakout patterns that's beyond the scope of this class, this, class, today. Because we're really out of time there was one more. Setup i wanted to go over and we may go over although we won't have time to physically, place the trade. So there's a question by naveen, and i i love this question what is the scan used for picking. Um. Verisign. So, i did two. Highly, technical. Uh, scans, and i say this facetiously. Because. Um i don't. Tend to do, a lot of scans, unless i'm looking for something like a utility, stock that pays a dividend. When i'm looking for setups for a class like this, i want stocks, that are really. Highly, traded. And so what i will do is you can see the s p 100, here. I brought up the s p 100. I link. My watch, list, to the charts. And i start clicking through. And looking for setups. Now verisign. You're saying well, if i look at this verisign, isn't on that list, nope. Um the first, list i went through. Was and both of these are just public lists. The nasdaq, 100. So, and, here was verisign. So i just very quickly, go through. And and i can click from chart to chart. So do we have a breakout. And you know my, i. I i, you know so i will tend to draw lines on a chart. So you know when i look at varus. Analytics. Uh well it's kind of trading in a range isn't it but has it broken out, no. Could we trade this. Yeah but i already had netflix. And that's how netflix, showed up also. So i just very quickly can click through. From one to the other because i've, you know i've got my charts, linked together. And for those of you who are new, i am posting, a. Tip a daily, tip. And i i'm committed to doing that at least four times a week, where, i just little tips and tricks that you can use on toss. On my twitter, feed so i encourage you to go because i did post i think four.
Little Tips last week on how to organize the monitor, tab or i'll post tips like this. To just make it easier to scan, so that was, my sophisticated. Scan. I'm not very sophisticated. At all. Okay. What is the. Scan. Okay we already covered that. So, i think, we've got the rest, covered. Because i know i used to find it frustrating. You know i started with td ameritrade, not as a coach i started as a client, so i used to be the person watching these. And so if you're wondering, if you can really figure this out by. Watching, webcasts, like these, absolutely. Absolutely. You can. Um. I i think this is, these webcasts, are just the best game in town if you because it's, it's one thing to do the course and i think the courses, are a fantastic. Place to start. Um, but then i want to see how this stuff is applied. In the markets, with what's going on, now. And so i find that, you know these webcasts, are a great way so, here's lulu, a lot of people are living in their lulus. But when we take a look at, this setup, and this is another, breakout. And it's breaking, out to the downside. So, when we take a look at this i'm going to change my drawing, tool. And, when we look at the size of this, pennant. It's about 108. Dollars, wide. And so, when something, breaks out of a pennant pattern, one might, suggest. That. If i take this line. And i duplicate. It. That, we could see this you know drop. Another. 108. Dollars. From. You know that line. Which would take us down to about that 218. Level. And you might kind of go like. You know but it it's a possibility. So if you look at this you know and you might say well where, are there other support, levels well you could, you know when we look at this, this way. You can say well we've got support, here which is interesting, because the last time it came down where did it come down to this 289-ish. Level. So, if you wanted to trade, this to the downside, you might want to put an alert in around that 289. To see if it bounces, at 289. Or if it continues, on down. And so you know i'm going to leave that for you to practice, with because we are out of time today. And again, where would you put your stop, where would you exit, in the event that you're wrong. I think it's important, to know when you're getting out before you get into, any particular, position, both if the trade goes for you, and just as importantly. If the trade does not. So, how do i manage my own account. A lot of what i talk about in these classes. Are concepts, that i would employ, in the managing, of my own account. I would never suggest. In a trading, room something that, um, is a principle that i wouldn't really be willing to. Apply. I'm not going to tell you one thing and, and do something. You know completely, different, i i think that having a rules-based. Trading strategy. Is a particularly. Great way of taking the emotion out of trading, and one of my favorite expressions, and i can't say that i made it up i just adopted, it. Don't be trading on hope. Hope is like oh, it's broken below that i own lulu, i'm hoping it's going to go back up. Hope is not a trading strategy, don't be smoking the opium. So know when you're getting out. Okay guys, that's a wrap for today. So you know did we look at the market forecast. We did. Did we look at a couple of examples. Of breakouts, and bounces, we did we looked at, netflix, which was in a sideways, range and bouncing off a support level and how we might trade that.
We Looked at, verison, which was breaking. Below the support, level on a sideways, range and looked at. How, you know a couple of example, trades. For that and then we talked about, lulu, and how it was breaking out of a pennant pattern to the downsize, and how we might measure our expectation. Um. You know of. Of, where that might go, and, you know so we did some example, trade so i hope you guys found this helpful. I know we all miss john but connie and i are doing our level best to fill those big shoes, and we appreciate, his service. Um tomorrow, is election, day. So you know the pandemic. Is rearing its ugly head again i hope that you guys are all being, super cautious. Um would love for everybody to come out of this um, as sane, and healthy, and however, the election, turns out. Um i think that as american, citizens, we're a pretty resilient, bunch, and. We will be fine. So options, are not suitable, again for all investors, keep that in mind. Um there are special, risks inherent, options trading. Um, also know that in order to demonstrate, the functionality. Of the platform we need to use actual symbols. And we looked at several today. They were all examples, my friends, not to be construed. As a recommendation. Um, in any way shape or form. Yes, i stand corrected, ricardo, said these are not big shoes they are big boots and boots they are. For john. His boots are made for walking, for jumping out of airplanes. All of that. Um. Yeah, okay so guys know that all investing, has risk including the risk of loss it's been a pleasure. Thank you for joining me and i will look forward to seeing you in a webcast. Coming up soon take care everyone, bye for. Now.