Swing Trading Success Debit Spreads

Transcription

1 presented by Thomas Wood MicroQuantSM Identifying Key Support and Resistance Levels Swing Trading Success Debit Spreads

2 Submit All Questions Via GoToWebinar Side Menu

3 Risk Disclaimer Trading or inves-ng carries a high level of risk, and is not suitable for all persons. Before deciding to trade or invest you should carefully consider your investment objec-ves, level of experience, and ability to tolerate risk. This content is subject to change at any -me without no-ce, and is provided for the sole purpose of educa-on and assistance in making independent investment decisions. ValueCharts.com has taken reasonable measures to ensure the accuracy of the informa-on contained herein; however, ValueCharts.com does not guarantee its accuracy and is not liable for any loss or damage which may result directly or indirectly from such content or from an inability to access such informa-on or any delay in or failure of the transmission or the receipt of any instruc-on or no-fica-on in connec-on therewith. Any past performance results are shown for illustra-on and example only, are hypothe-cal and as such have many inherent limita-ons. No representa-on is being made that any account will or is likely to achieve profits or losses similar to those shown. Past performance is not necessarily indica-ve of future results.

4 CFTC Rule 4.41 (Hypothetical Disclaimer) U.S. Government Required Disclaimer - Commodity Futures Trading Commission Futures and Op-ons trading has large poten-al rewards, but also large poten-al risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and op-ons markets. Don't trade with money you can't afford to lose. This is neither a solicita-on nor an offer to Buy/Sell futures, stocks or op-ons on the same. No representa-on is being made that any account will or is likely to achieve profits or losses similar to those discussed on this web site. The past performance of any trading system or methodology is not necessarily indica-ve of future results. CFTC RULE HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR- OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL, OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE DISCUSSED WITHIN THIS SITE, SUPPORT AND TEXTS. OUR COURSE(S), PRODUCTS AND SERVICES SHOULD BE USED AS LEARNING AIDS ONLY AND SHOULD NOT BE USED TO INVEST REAL MONEY. IF YOU DECIDE TO INVEST REAL MONEY, ALL TRADING DECISIONS SHOULD BE YOUR OWN.

5 About Me Formal info 1995 Graduate of Vanderbilt University Full Broker at 23 with Merrill Lynch 12 Year Senior Advisor Vanguard Asset Management Service 27 months in Stocks & Op-ons Live Trading Room

6 Swing Trading Importance of Time Frame Swing Trading defini-on The Hourly Chart How to Swing on the Hourly chart

7 Swing Trading Fine Tuned Trading ½ Size Charts Technical Analysis Pajerns that work on a 60 min.

8 Debit Spread Basics What is a Debit Spread? Trading Stocks/ETFs vs Debit Spreads Basics of Debit Spreads Strengths & Weaknesses

9 Debit Spread Basics Debit Spreads Key to trading Small Accounts What you need to know to trade Debit Spreads well

10 Debit Spread Construction The Basics buy op-on, sell further away Where to place Strikes? How Wide?

11 Debit Spread Construction How long un-l expira-on? Profitable, now what? Staged Profits

12 Debit Spread Trading Plan Setup your Trade Parameters Searching for Opporuni-es Leong the Trade Develop & come to you

13 Debit Spread Trading Plan Do the trade on the ½ Size chart Execute the trade on the :45s Set your StopLoss

14 Debit Spread Trading Plan Evaluate every :30 and :00 Take Staged Profits Take care of the last 20%

15 Debit Spread Trading Plan 12 Pages of Wow! Put it all together

16 Swing Trading

17 Swing Trading Swing Trading defini-on Trades in a respec-ve Timeframe that lasts more than one trading day Usually in a trade across 2 4 trading days

18 Swing Trading The Importance of Timeframe - Timeframe the length of -me per chart bar - Bigger -meframes represent bigger Price Bars - Bigger Price Bars, bigger $$$ poten-al moves - Danger, Larger Stop Loss distances

19 Swing Trading The Importance of Timeframe - Slower, more manageable Entry points (you have -me) - Tick charts : about 30 seconds a bar - Time Charts : 5min, 15minute, 60 minute bars - Easier to enter, flexibility to use ½ size Time charts

20 Why Swing Trade? Swing Trading - Even on Swing Trades, stocks don t move in straight line - Fibonacci levels work very well on 60 minute charts - Plan for a measured move & structure Debit Spread accordingly

21 Swing Trading

22 Why Swing Trade? Swing Trading à TREND TRADES ß - Trend Trades / Breakouts are more plen-ful - Trending moves are more plen-ful on longer -meframes - See the trend on 60minute & Daily charts - Trends tend to persist within those frameworks.

23 Swing Trading The Hourly Chart The best chart to use for swing trades that last 2 4 trading days is the 60 minute (Hourly) chart. There are 6 7 Bars a day, each trade move is bars

24 Swing Trading

25 Swing Trading The Hourly Chart Very commonly used -meframe. Hourly Support & Resistance levels TA Price Pajerns usually are successful because everyone sees them and trades them

26 Swing Trading The Hourly Chart Op-mize Trading by adding Higher TF Daily EMAs (8 day, 50 day) Support & Resistance levels from Weekly & Monthly charts

27 Swing Trading

28 Swing Trading

29 Swing Trading Fine Tuned Trading ½ Size Charts When using 60 minute charts for TA pajerns, Use a 15 & 5 minute chart to get a headstart on the entry bar Evaluate entrys at (x:45), using 60, 30, 15, 5 minute charts

30 Swing Trading

31 Swing Trading Technical Analysis Pajerns that work on a 60 min. Reversals : Divergences Fibonacci Retracements

32 Swing Trading Technical Analysis Pajerns that work on a 60 min. Trends : Bullish Breakout, push higher through Resistance level Bearish Breakout, push lower through Support level

33 Swing Trading : Quiz

34 Swing Trading 1. How many Hourly Bars are there in a typical Swing Trade?

35 Swing Trading Q1. How many Hourly Bars are there in a typical Swing Trade? Answer : typically Swing Trades last 2-4 days, with around 6 bars hourly per day, should be bars for the expected trade move from the entry bar.

36 Swing Trading Q2. True or False. Trending Trades appear a lot less frequently in the Hourly timeframe.

37 Swing Trading Q2. True or False. Trending Trades appear a lot less frequently in the Hourly timeframe. Answer : FALSE Swing Trades are more frequent in the Hourly timeframe than the intraday timeframes of 1, 3, 5 minute timeframes. Almost even 50/50.

38 Swing Trading Q3. Name one way to reduce the Entry Trade risk when getting into a Swing Trade.

39 Swing Trading Q3. Name one way to reduce the Entry Trade risk when getting into a Swing Trade. Answer : use a Smaller Timeframe Swing Trades are usually done on an Hourly chart. Use a 30, 15, or 5 minute chart to get a headstart around :45, before the close of the bar.

40 Debit Spread Basics

41 Debit Spread Basics What is a Debit Spread? - Basic level of Op-ons knowledge - Deriva-ve of stock - Delta : value changes with stock price - Theta : value decreases with -me to expira-on

42 Debit Spread Basics What is a Debit Spread? Simultaneous long/short posi-ons of op-ons Same underlying stock Same op-on type : call, put Same expira-on date

43 Debit Spread Basics Debit Spreads the Basics - Debit Spread, pay for spread once placed - Loss is limited to amount invested. - No need for margin

44 Debit Spread Basics - Bullish : Call Debit Spread - Profits when price moves higher - - Maximum expira-on when price is higher than long call strike

45 Bullish Call Debit Spread

46 Debit Spread Basics - Bearish : Put Debit Spread - Profits when price moves lower - - Maximum expira-on when price is below than long put strike

47 Bearish Put Debit Spread

48 Debit Spread Basics Trading Stocks/ETS vs Debit Spreads Trading stocks/etfs Easier entry, simple brokerage order Smaller Bid/Ask spread Cheaper stocks commission rate Rela-vely simple % return

49 Debit Spread Basics Trading Stocks/ETF $200 priced stock/etf x 100 shares = $20,000 cost $5 move to $205 x100 shares = $500 profit % Return = $500/$20,000 = 2.5% return

50 Debit Spread Basics Trading Stocks/ETS vs Debit Spreads Trading Op-ons / Debit Spreads More complicated order entry Need to watch op-on volume Bid/Ask spreads both help & hinder order fills Because two op-on orders, 2x commission cost BENEFIT : LEVERAGE!!!

51 Debit Spread Basics Trading Debit Spreads $200 priced stock 200/205 Call Debit Spread = $1.50x100 = $150 cost $5 move to $205, Spread value $3.00x100 = $300 value % Return = $150 cost /$150 profit = 100% return

52 Debit Spread Basics Basics of Debit Spreads Strengths & Weaknesses

53 Debit Spread Basics Debit Spreads the STRENGTHS - LEVERAGE : Average trade profit is 50% or higher - Small cost to entry. Most $5 wide spreads cost $1 or $2 - Easy to enter and exit in highly liquid stocks - S-ll have poten-al trades in less liquid stocks

54 Swing Trading Success Debit Spreads the Weaknesses - You are Long Op-ons, some Theta effect - Timing of entry & exit are important parts of trade - Moves need to happen rela-vely soon - Don t hesitate to take profits when they appear

55 Debit Spread Basics Debit Spreads Key to trading Small Accounts - Debit Spreads are CHEAP - $100 - $200 for $5 wide spreads with 14 days - Maximum risk is limited to Debit Paid - Control risk per trade to foster steady account growth

56 Debit Spread Basics Debit Spreads Key to trading Small Accounts - Can be applied to Big stocks with no addi-onal cost allows par-cipa-on in explosive moves - Also, wider universe of Stocks & ETFs can be traded on Swing Trade -meframe with no penal-es

57 Debit Spread Basics: Quiz

58 Debit Spread Basics Q1. When Constructing a Debit Spread, the following is true. Debit Spreads is both long and short the same type of option They have different expiration dates They have to be $5 wide spreads

59 Debit Spread Basics Q1. - With Debit Spreads, both long and short options are the same type of option

60 Debit Spread Basics Q1. Answer Debit Spreads is both long and short the same type of option TRUE Bullish : Long/Short Call Options Bearish : Long/Short Put Options

61 Debit Spread Basics Q1. They have different expiration dates

62 Debit Spread Basics Q1. Answer They have different expiration dates FALSE The Spread must have the SAME option expiration date

63 Debit Spread Basics Q1. They have to be $5 wide spreads

64 Debit Spread Basics Q1. Answer They have to be $5 wide spreads FALSE The Spread can be any distance between the strike prices. (within reason usually $5,10, 15, 20 wide)

65 Debit Spread Basics Q2. Why are Debit Spreads well suited for trading Smaller Size Accounts?

66 Debit Spread Basics Q2. Why are Debit Spreads well suited for trading Smaller Size Accounts? Answer : Debit Spreads have a very low cost to enter a position : $100-$200 a spread Debit Spreads have a known maximum loss Debit Spreads have a very nice potential returns of 75%, 150%, +200% returns.

67 Debit Spread Basics Q3. One major concern for Debit Spread trades is Theta, or Option Decay.

68 Debit Spread Basics Q3. One major concern for Debit Spread trades is Theta, or Option Decay. Answer : FALSE With a well constructed Debit Spread, with enough time left until expiration, Theta or Time Decay is nullified by having long and short positions, until a point where there is less than 7 days until expiration.

69 Debit Spread Construc-on

70 Debit Spread Construction Process the Poten-al Move Iden-fy the Profit Target Zone Iden-fy the Stop Loss level

71 Debit Spread Construction Process the Poten-al Move With guidance from the Daily Chart Iden-fy how far the trade could go on 60 min

72 Debit Spread Construction Iden-fy the Profit Target Zone Use TA Guides Fibonacci Retracement Levels (38.2%, 50%, 61.8%) Daily 8EMA, Daily 50EMA Weekly/Monthly Support & Resistance levels Bracket a reasonable $5 or $10 wide Target Profit zone

73 Target Profit Zone

74 Debit Spread Construction Iden-fy the Stop Loss level Within the 60 min chart, iden-fy price level in which to set Stop Loss For Reversals: previous high/low levels For Breakouts: Fall back below resistance, or above support Pullbacks into consolida-on zone

75 Debit Spread Construction The Basics buy op-on, sell further away

76 Debit Spread Construction Where to place Strikes? Strike Prices of Debit Spreads should bracket the Profit Target Zone of the trade

77 Picking the Strike Prices

78 Debit Spread Construction Where to place Strikes? Strike Prices of Debit Spreads should bracket the Profit Target Zone of the trade Conserva-ve ATM/ITM strike & OTM strike Aggressive OTM strikes near Profit Target $

79 Conservative vs Aggressive Spreads

80 Debit Spread Construction How Wide? Wide Mix of ATM/OTM Easier to profit, overall smaller % return

81 Debit Spread Construction How Wide? Narrow finely tuned, Aggressive OTM, biggest profit poten-al

82 Wide vs Narrow Spreads

83 Debit Spread Construction How long un-l expira-on? Need just enough -me to complete the trade but not much more Normal Trade Swing Trade : 2-4 days Add 7-10 more Target days to expira-on : 9-14 days

84 Debit Spread Construction How long un-l expira-on? Conserva-ve Trade Normal days to expira-on : 9-21 days (Add +7 day buffer) Conserva-ve days to expira-on : days

85 Debit Spread Construction How long un-l expira-on? Aggressive Trade Swing Trade : 2-4 days Add + 4 days Aggressive days to expira-on : 6-8 days

86 Debit Spread Construction Sample Calcula-on: Projected trade 3 Days Calculate Normal Conserva-ve Aggressive

87 Debit Spread Construction Profitable, now what? Staged Profits

88 Debit Spread Construction Staged Profits Along the path of the Profit Target Zone iden-fy Support & resistance price levels Daily moving averages Fibonacci levels

89 Staged Profit Plan

90 Debit Spread Construction Support & resistance price levels Daily & Weekly price levels Daily moving averages 8 Day & 50 Day Exponen-al Moving Averages

91 Debit Spread Construction Fibonacci levels On retracements : 38.2%, 50%, 61.8% On extensions : 127%, 162%

92 Debit Spread Construction Staged Profits Iden-fy 2 or 3 proven levels, that have had previous interac-ons of stock trend Divide posi-on into 2 or 3 groups to ini-ate sells

93 Staged Profit Plan

94 Debit Spread Construction If enough shares/contracts Leave small por-on as runner, placing a lock- in profit stop loss. This runner might be start of a very large move.

95 Interac-ve Exercise

96 Interactive Exercise

97 Debit Spread Construction Type of Poten-al Trade?

98 Interactive Exercise

99 Debit Spread Construction Where is the Profit Target Zone?

100 Interactive Exercise

101 Debit Spread Construction Iden-fy Poten-al Strike Prices. Iden-fy Stop Loss Level

102 Interactive Exercise

103 Debit Spread Construction What is your Entry Point?

104 Interactive Exercise

105 Debit Spread Construction Where are your Staged Profit Points? What is your Profit Taking Plan? Runner?

106 Interactive Exercise

107 Debit Spread Construction Walk- Through Trade one more -me

108 Interactive Exercise

109 Debit Spread Construc-on: Quiz

110 Debit Spread Construction Q1. How do you decide what Strike Prices to use for your Debit Spread?

111 Debit Spread Construction Q1. How do you decide what Strike Prices to use for your Debit Spread? Answer : The Profit Target Zone, the price level where your believe your trade will move to, will determine your strike prices. Also, how aggressive or conservative you be in your trade, affects your selection

112 Debit Spread Construction Q2. Why do more Aggressive Trades have shorter days until expiration?

113 Debit Spread Construction Q2. Why do more Aggressive Trades have shorter days until expiration? Answer : Normally, options with less days until expiration are more affected by Delta price moves in the underlying. Also, max profit in an ITM spread occurs at expiration, because the Theta effect is stronger on short option than the ITM long option widening the value of the spread.

114 Debit Spread Construction Q3. What is the process that I use in taking profits that helps me boost my win ratio?

115 Debit Spread Construction Q3. What is the process that I use in taking profits that helps me boost my win ratio? Answer : I take profits, in a Planned Staged Profits process. By using 2 or 3 logical points in the projected move towards the Profit Target Zone, I take profit winners by selling some percentage of my overall positions at the profit sell points I also move my stop losses to breakeven trades when there is a profit, then eventually lock-in some profits with trailing stops.

116 Detailed Debit Spread Trading Plan

117 Debit Spread Trading Plan Setup your Trade Parameters - Determine appropriate trade size - For me, define risk of loss at 50% spread - Divide total max loss by amount of 50% spread = # contracts

118 Debit Spread Trading Plan Searching for Opporuni-es Search on the :45s Look at 60min, 15 min, 5 min charts

119 Swing Trade Entry Charts

120 Debit Spread Trading Plan Leong the Trade Develop & come to you It might take 1 or 2 days for a poten-al trade to develop enough to take a posi-on Maintain an ongoing watch list of poten-al opportuni-es 1-2 days out

121 Debit Spread Trading Plan Do the trade on the ½ Size chart Once you see a poten-al trade to develop on the 60 minute chart Iden-fy the parameters to pull the trigger on the trade

122 Debit Spread Trading Plan Execute the trade on the :45s based on price ac-on on the 15 minute or 5 minute charts Use limit orders to fine tune entry price Don t rush, watch for 2 nd chance entrys Breakouts : last kiss pullbacks Reversals : sideways bounces, 3 rd top/bojoms

123 Swing Trade Entry Charts

124 Debit Spread Trading Plan Set your StopLoss Beware the big stoploss move Enter on smaller TF opportunity

125 Debit Spread Trading Plan Watch for Opposite Trend develop in smaller -meframe which may give clues to wrong trade If small TF says wrong but Large TF says right, it is OK to reduce posi-on size

126 Debit Spread Trading Plan Evaluate Posi-on every :30 and :00 Remember this is a bigger TF opportunity Don t stare at the trade for the next 4 days Don t watch your P&L

127 Debit Spread Trading Plan Check it every 30 minutes. Con-nue to watch the Indexes, usually you are trading in the same direc-on Again, Don t watch your P&L this leads to rash decision making

128 Debit Spread Trading Plan Take Staged Profits Set out your 2 or 3 Planned profit taking levels As you approach your levels, start to watch on 5 minute charts Use limit orders to sell into strength

129 Debit Spread Trading Plan Take care of the difficult last 20% Through experience, you ll find out that the first 80% of a well thought out trade is an easy trade prices moves quickly, easy to take profits selling into strength The last 20%, especially when prices start to encounter some resistance, it may be more challenging to sell at your price. You may have to be a lijle more aggressive with price to get out.

130 Debit Spreads Summary

131 Ques-ons & Answers

132 Debit Spread Trading Plan Checklist Next Steps 1 st Time Around Review Workshop recording Setup 60min/Daily Scan charts Look for trades on daily chart, and 60 minute

133 Debit Spread Trading Plan Checklist When poten-al Swing Trade setups start to form Iden-fy 2 4 day move, Target Profit Zone Structure your Debit Spread Strike Price levels and Time Un-l Expira-on. Iden-fy Entry point, Use 5min & 15 min charts to enter the posi-on

134 Debit Spread Trading Plan Checklist Once your in the trade Set stop loss Setup your 2 3 Profit Taking Levels Watch Trade every 30 minutes, Watch indexes

135 Debit Spread Trading Plan Checklist Carry out Profit Taking Exit Trades, as each level is hit. Adjust to Break- even & Profit Locking Stop loss Order at each planned Exit Leave runner on with logical Stop Loss

136 Example Stock List for Debit Spreads

137 Example Stock List for Debit Spreads

138 Thank You