hello
and welcome everyone my name is cameron
may it's six o'clock eastern standard
time on a wednesday and that means it's
time for today's market and what you can
do about it
we're spending about 30 minutes together
today taking a look at what's been
happening with stocks and stock
markets we're going to talk about what
may be pushing prices up and down
then we're going to be examining a
strategy that might be employed under
these sorts of conditions so i'm looking
forward to the discussion
uh before we get to that let me say
hello to all of our returning veterans
hello there gabriel and kenny
i see uh um an attendee chatting in from
seattle
i love seattle my family and i have made
a point to go up there and vacation
there a few times
fantastic part of the country gary is
there hot in atlanta
ricardo hello there good to see you and
we have connie hill standing by another
one of our educators who is
going to be helping us out with any
questions that i can't get to
sometimes there can be too many
questions for the presenter to address
in the normal flow of the discussion so
connie's here to pick up the slack for
us so thank you connie
uh and also if you happen to be here for
the very first time i want to welcome
you as well if you want to chime in if
you're feeling brave just let me know
first timer i always like to see who my
new audience members are and finally 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
six o'clock eastern is when we kick
things off and we don't go much beyond
30 minutes ever so
don't be late all right hello there
deborah apologize
or we go by bala well welcome great to
see you but let's
let's go uh first of all discuss the
risk associated with investing
and then we'll set an agenda okay so
some quick reminders this is important
information the following presentation
is for educational purposes only
transaction costs are important factors
that should be considered
evaluating any trade uh any investment
decision you make in your self-directed
account is solely your responsibility we
will be using real examples in today's
discussion it's not a recommendation
or endorsement of the securities or
strategies discussed
and although this webcast discusses
technical analysis
other approaches including fundamental
analysis may assert very different views
so jr is this your first time here and
deborah first timer welcome welcome aldo
hello
miss educated hi there
in maryland and bala it's your first
time here welcome
all right well here's what we're going
to be doing today three items on the
agenda we have 30 minutes let's get as
much done as we can
we're going to take a look at what's
happening with the markets then we're
going to get into that strategy
discussion i mentioned and specifically
we're going to be discussing something
known
as a fibonacci it's a tool that's
available on thinkorswim charts and i'll
show you some examples
of how that might be applied under these
sorts of
conditions and scenarios and then we're
going to wrap it up with like an example
trade setup
all right so hopefully we connect the
dots we go from market review
to a market to to a trading theory and
finally wrap it up with trading
application
and and what i'd like everybody to do is
go home with a better understanding or a
brand new introduction
to this tool known as a fibonacci tool
also some
sometimes called the fibonacci
retracements
okay so let's get to it let's go to the
market see what they're doing
yep markets are going higher we really
haven't changed
that tune much since we hit that bottom
back here on the 23rd of march
uh the s p 500 is making higher highs
and
higher lows and yeah i'm making some
reference to some technical jargon
we'll we'll do some what we call
technical analysis that just means using
charts
if you feel like you need some help with
your charting i would definitely
strongly recommend that you check out a
web webcast on fridays
that's taught by my very good friend pat
milali
fantastic guy great coach great educator
he teaches a webcast on fridays it's
called advanced charting techniques
and i'll link one of pat's previous
webcasts in the archive for this
discussion right up here in the upper
right hand corner
all right but one of the basic one of
the very foundational principles of
technical analysis
for some investors is the study of
near-term lows and highs as the markets
advance and as stocks advance
they don't tend to go straight up they
can for a little while
but instead they tend to run up for a
period and then pull back
so for example you'll see the s p when
it began this
big advance it ran up for a few days
maybe a week and then it pulled back and
then it ran up
and it pulled back and on and on and i
think once you've trained your eye to
see that you can start to recognize
those sorts of patterns
in price behavior that's what i'm
talking about the ebbs and flows of
price
and what what some investors look for
are
as prices press up
and then pull back they look at those
relative highs and lows
and they just look to see did we get to
a higher high on the most recent upswing
compared to the last one
or did it stay lower and that might
signal what might be going on with the
trend
so i think from that basic
technical point of view we might be able
to make a case for bullishness although
hey when we're trading at all-time highs
it doesn't take much to make a
case for that right now the markets can
turn at any time
but what i wanted to do instead of spend
a lot of time on trend analysis
let me clear that drawing set and i just
want to look at what's happened very
recently
so oh question just came in where can we
find the webcast schedules
very very simple you log into your td
ameritrade account online td ameritrade
dot com
and click on education and right there
you'll see
webcasts and there's a schedule so it's
right here i don't mind a little quick
sidebar because i think this is
important so i'm just logged into an
example account td ameritrade.com this
is the home
page that we're on so i'm just going to
pop up here to education
and click on webcasts and you'll see
right there there will be three tabs
upcoming webcasts archive webcasts and
then the webcast calendar
there it is so pretty simple right
okay so uh back to the markets though
look what's happened very recently we've
had a pretty strong solid advance over
the course of about the last
two weeks and we just talked about how
markets and stocks will tend to ebb
and flow not always but that seems to be
a historically strong pattern
to uh shareholder behavior over time
and so if we're looking at this through
that lens
where might a technical investor expect
the markets to move next
well if they've just run up it might be
time for a pause it might be time for
some profit taking it might be time for
a pullback
so that really does raise a question for
investors that we're going to be
addressing this is my teaser for the
for the topic that we're going to be
discussing we're going to be talking
about this fibonacci tool it's found
right down here
in your drawing tools or right up here
under your drawing tools or you can
right click on the chart and find them
but before we get into that
i want to talk about what's been driving
this price activity and
particularly for today we had a strong
day up
this webcast is called today's market
so what drove activity for today
or at least what seems to be largely
contributing to today's activity
what sort of headlines have you seen new
veterans can chime in
help the new ones along if they haven't
been following the news closer maybe you
have and it's just your first time in my
webcast
but think about the headlines that maybe
you've seen today that might be
contributing to this upward move in the
market so the continuation of the trend
that we've already seen established
i think there are a few things right
number one
there may be progress i'm not a medical
expert so this is
purely just me observing what others are
observing okay
maybe progress along the vaccine front
there it seems to be that there's some
enthusiasm along those lines even in
you know i'm a sports fan i'm a college
sports fan we have our
our local team uh message board and i
get on there and read what others
have to say and guess what the hot topic
is today it's
vaccine progress interesting right
for some of the country football
season's right around the corner and yet
that's what's been
uh discussed quite a bit so there can be
some enthusiasm
that that pressure on the economy
which has been lifted to some extent it
would maybe see
more and more progress on that front
what else might be contributing
what else have you seen kerry says a
vaccine by election day
i don't know the timelines there right
i'm not going to try to call that but
at least there's been that discussion
there's also
maybe additional stimulus coming there's
some discussion along those lines
once again i don't know exactly what's
going to happen with that
uh our elected officials can do whatever
they want
to do i'm not in control of that but
we'll see so stimulus
we've seen progress on the vaccine front
and finally some signs of health
in the or increasing health in the
economy right we just had the
the uh the fez the fed's beige book
report come out anyway if you are
mike if you're a beginner in san antonio
welcome great to have you
where do you find all this stuff because
we had this question earlier how do you
find the schedule for webcast well where
do you find
news if you want to get caught up on
that kind of a thing well if you're
logged into td ameritrade.com you can
just go right here
to the research and ideas tab and as you
hover over that
just click on news right here
and after the markets close one place
that you can grab
quick headlines this is a summary of
maybe some of the big headlines down
here under what's called the editor's
picks okay so read this very first
headline here
dow rallies above 29 000. now is now
within two percent of its all-time highs
so
nasdaq s p fully recovered setting
records
almost every day but the dow just has a
little bit more work to do
well look at this very first headline
investors betting on additional stimulus
we just talked about that and a
coronavirus vaccine
so maybe more people willing to take
more risk on stock investing at the
moment
are they does that risk mean the
guaranteed reward not necessarily but
that seems to be driving
uh market activity right now and the
bottom line is regardless of what what
may be contributing to pro
stocks advancing stocks are advancing
and in the short term maybe they've
advanced to a peak
so let's go back to that earlier thought
that i had and let's suppose that we
are an investor looking at this and this
investor has concluded
that maybe there's going to be a bit of
a pullback well
that can be difficult because
maybe maybe the investor's looking for a
new opportunity to enter let me just
draw something in here so maybe they're
expecting something like this you'll
notice the dashed lines because
it's anticipating something hasn't
actually happened yet
okay but let's suppose that investor
has just decided you know what i want in
on this hot stock market but i don't
want to necessarily
buy it short-term highs maybe the best
opportunities are
when the markets are achieving you know
short-term lows
looking to buy it at one or more at more
of these sorts of
scenarios so with this with stocks
having just recently advanced
how long might that investor wait well
that is a question that is sometimes
addressed by technical traders
in their effort to define how long might
they wait for us for a stock or markets
run up
they might apply this fibonacci tool so
i'm going to use that let me clean this
off
clear my drawing set and i'm going to
come down here to my
my current tool is this trendline tool
you can see the little icon down below
and click on that
and then i'm going to choose the icon
that looks like a percentage
and you'll notice as i hover over that
it says fibonacci retracements
so i'm going to click on that i'm going
to draw using this tool
and then i'm going to explain what it's
doing for us okay
so let me zoom in here so we can be a
little bit more precise with our drawing
and this is the way that some
traders might do this when they're using
a fibonacci tool they'll go to the top
of a big advance in an upward trending
stock now this can be applied in a
downward trending stock stock
or stock market condition theoretically
but it's going up so we're going to be
talking about going up
so this to draw the lines it just
involves two clicks we go to the top of
an up move
and click once and then we go to the
bottom
of that up move and click again so
there's that upswing and what this
tool is doing now is drawing in
potential lines
of support or resistance and they can be
id and they can be difficult to identify
in other words price floors and price
ceilings can be it can be difficult to
identify when
a stock or a stock market is doing
something it's never done before
the s p has never been this high right
so it's hard to just look back in
history and say well let's see where
prices were before the last time they
hit a price for there is no price floor
back here it's just
it's empty space so we can't look for
other touch points for support or
resistance lines
so now that we've drawn this before i
interpret it
i want to explain how the numbers are
generated and what
what potential significance this holds
so let me read this first of all
there's a chat question that just came
in i want to take a quick peek at it
uh dario says what i found difficulty in
is detecting
uh entering prices and base prices set
up my stops how could we deal with that
when trends are going up every day
meaning highs go higher oh okay so dario
really
this could potentially apply to that
scenario this is that that actually is
one of those scenarios that some traders
will recruit fibonaccis
so that the difficulty here that dario
is describing is
where do we put a stop or a sell order
below an entry price
if the stock market just keeps going
straight up
and finding lows isn't easy well that's
what uh this tool is commonly used for
and gary says does this work well with
such a short time frame
gary this is actually a tool that can
it's very portable as most technical
tools are
among different time frames could be
very short term could be very long term
all right but whether it ultimately
works for the trader obviously
each you each um each event
is unique unto itself right but let's
quickly
explore what this tool is so i want to
describe for you what's called the
fibonacci
sequence so help me out with the math
here you veterans what do we start with
we start with the number one and then we
go with a one again
and then a two and then a three and then
a five
watch how magically i can just produce
this from memory
okay i'm gonna do this kind of quickly
let's put some dots in there did i just
memorize those numbers no actually a
fibonacci sequence is very
easily mathematically produced we start
with the number one
and then add 1 to that 1 plus 1
is 2. and then we just continue with
that sequence always adding the most
recent number to the one just before so
2 plus 1 is 3 3 plus 2 is 5. 5 plus 3 is
8
8 plus 5 is 13 13 plus 8 is 21 and so on
and that produces for us what we call
the fibonacci sequence and in
mathematics
this fibonacci sequence is a big deal
lots of books have been written about it
a lot of
study has gone into this it also has
found significance
in uh in biology because
when we use these numbers and actually
there are some simple manipulations of
the numbers that can be applied and they
are applied in the case of this
fibonacci sequence that we're using on
our chart
they can produce patterns that
seem to uh that seem to be
highly prevalent in in nature so
here's what i'm talking about
let's take in this fibonacci sequence
there's something known as the
golden ratio
so what is the golden ratio well you
take any number in the sequence and then
divide it by the one just before
if we take 89 and divide that by 55 i
don't even have to get my calculator out
i know what number that's going to
produce it's going to be 1.618
or something close obviously they're
going to be maybe some rounding that
needs to be done
but 1.618
is what's known as the golden ratio and
in in mathematical terms without going
to too far into it
what we notice is that in nature this
number describes a lot of things that
happen in nature the distribution of
seeds
on on a on a sunflower
the arrangement of the seed pods on a
pine cone
the uh the development of the of the
chambers on a nautilus you know i don't
know if you know what a nautilus is it's
the big
snail looking squid looking thing that
sort of jets itself around
underwater but um
all throughout nature we see things that
seem to exist in a ratio
one to 0.618
so we call that the golden ratio okay
that's interesting if we happen to want
to study biology it's interesting if we
happen to want to study mathematics
what we're really interested in here is
charting
technical analysis well what some
traders
have done is borrowed from math and
borrowed from biology and applied it to
their charts
and they've noted you know it seems like
nature repeats these sorts of ratios
and shareholders repeat these sorts of
ratios
in the way that they manage their stock
positions as a group
right we're not talking about an
individual shareholder
but taken together the wisdom of the
masses for some reason
according to the observations of some
traders seem to
seem to repeat these sorts of behaviors
in their in their own trading
so look at the numbers here that we have
and one that might stick out to you is
61.8 well there's some
other ones here 38.2 23.6 how are those
generated
well guess what if we take
55 and divide it by 89 and we can get
our calculator just
so you can see this 55 divided by 89 so
any number
divided by the number to its right in
the sequence
always produces a number very close to
0.618
that's one of our fibonacci numbers
if we take a number and divide the the
the number that is two positions to its
right so in other words 34 divided by 89
would be an example
34 divided by 89 gives us what
0.38 what do we have here so 0.382
38.2 and if we just keep moving
21 divided by 89 so now we're looking at
it at a number and dividing it by the
third number in sequence off to its
right
21 divided by 89
what do we get 23.6 what's over here
23.6 so
i went i just went through all that
explanation just to show you where these
lines are coming from they're coming
from math they're coming from nature and
now they're being applied to a chart
in the effort that or in the observation
that maybe these seem to
have some significance for the way that
investors behave and here's
one potential application okay we set up
this discussion with a very simple
question if the stock market represented
by the s p
just ran up sharply if and this is a big
f at this point
but if it starts to pull back how far
might it be likely to pull back
and for users of fibonaccis
that pull back they might expect this to
pull back about
one-third to one-half or in other words
down to between the 61.8
and the 50 percent um line
so let me just draw this in here let me
switch up my drawing tool again and what
we're going to do
is draw in just to represent a potential
target
zone for new entry maybe down right
there that could be a pretty typical
fibonacci
uh retracement area so an investor might
just say well if the stocks already run
up and i'm just going to sit there and
wait for it to pull back and i just want
to know how far to pull back that might
be it
so let's look at a historical example
here on the s p 500
we can see here's a big run up right
here pretty similar
right to what we've seen let's
um let's draw our fibonacci on there
we're going to go right up to the peak
follow right on down to the trough
and let's see where stocks settled in
if an investor were looking to maybe get
into new stock positions
between the 61.8 and the 50 percent
retracement level
did that do a pretty good job yeah were
there moments where there are a couple
of hours maybe here where the where
prices actually got a little bit lower
yes but at that point was there more
downside risk that ultimately proved
true
or upside potential now this is one
isolated example it's not a guarantee
that's always going to work out we all
know that stocks can go down
go down as far as we thought they were
going to go and then it could continue
to go down
right but this is one of the ways that
an investor might use a fibonacci
to enter into into a new trade
after a big run-up right
well that answers about the third about
a third
of a of a true trade next question
what if the trade doesn't work out how
patient are we so this is going back to
dario's question
so let's suppose that we were in the
mess the investor that got in here or
maybe they got in here
how long might they hold on but with a
fibonacci
if we break below the 50 percent that
doesn't necessarily mean that the
that the concept is wrong just yet
breaking below the next fibonacci though
that can be seen as more technically
significant so they may set a stop in
this case or a seller to get back out of
the trade that's now
failing down below that 38.2 line so it
might be just a few pennies it might be
a dollar or so to even give it a little
bit more wiggle room
but down below that fibonacci so if
that's helpful dario
that's something that can be
experimented with
all right so what we ought to do now
though is uh let's go apply this sort of
new oh
by the way i've done two thirds let's do
the out of the third so we have our
entry
we have an exit if the trade goes wrong
but what if where's our exit of the
trade goes right
there are a couple of potential
applications here for some investors
once they get in
down in this 50 to 61.8 percent range
they may just choose to get right back
out
if we just get back up to the previous
high
that is seen as being a pretty
conservative target using fibonaccis
alternately they may look to get in
if the stock rises up to what we call a
fibonacci extension
let me zoom back out here i'm going to
move over
and the extension is getting up to the
golden ratio 1.618
and that in this case would be if we
happen to get right back up here looks
like our target may have been on the s p
500 around 35
23 or so so dario is that very helpful
gary i see that as good stuff
good all right now what i i definitely
want to emphasize is this is
not a sales pitch for a specific
approach to to analysis it's just
introducing a new tool
right in any case
let's go have a look at an example stock
let's you know there's a stock that's
been running up quite a bit how about
netflix look at netflix man
so again an investor who uses fibonaccis
who's looking for a
a bullish trade setup may look for a
major
upswing in stock price and do you think
these two days could represent that
look at this stock ran up
right there in two days boom that's a
big upswing going from a low down here
around 480
up to a high around 550. so boy
yeah that's a that's a big move 20 move
or something like that on the stock
how far back might we expect it to pull
from that point well let's
get our fibonacci tool and we're going
to go all the way up to the top
the very tip top of that candle and then
we're going to move all the way down to
the very
bottom of that candle and if we're
looking for an entry
between the 61.8 and the 50
looks like it worked out in this case
and then it blasts it off again it's
already hit that first target
maybe working on a second let's do this
though
so we missed that first move let's
remove this drawing
maybe there's another fibonacci
opportunity with this big
upswing over just the last couple of
days
huh look at that we ran up
hit a peak how far down did we pull bang
this today's low was smack on
that 50 one and it's kind of amazing
when we do this sort of analysis how
frequently that occurs right in that
61.8 to 50 percent range is not a
guarantee of any
individual circumstance so canciona says
does fibonacci only work for strong
uptrends or any trends so it can be up
trends it can be downtrends
but typically the investor is looking
for a major swing
in one direction or the other in keeping
with an established trend so if we have
an uptrend we're looking for big
upswings
if we have a downtrend we're looking for
big downswings and planning for bearish
trades i'm not doing any bearish trading
today
so for today what if we were to just say
you know what well maybe we're a little
bit late to the game on today's candle
on netflix but
let's just suppose we're going to get
into it anyway it's kind of an expensive
stock 550 bucks what if we spent about
five thousand dollars in our paper money
account
under the assumption that maybe this is
set to go higher still
how high well let's pull this down
and this provides a potential target
around 582.
so keep that in mind 582 is our target
where would our stop be well probably
right down below 537 and a half
it's how about if we just say just to
make it simple 535.
so we have a stop down here cell order
down at 5 35 to
limit losses not eliminate
but limit 535
stop 582 target
let's go place that trade so we go to
our trade tab
make sure that we're looking at netflix
and i'm going to right click on the ask
price and put in a custom
buyer with an oco bracket an ocl bracket
just
puts in a buy order plus two sellers one
above one below our entry
price so let's put that in we don't
in our example i didn't want to do quite
you know
a hundred shares let's just make that 10
shares
we want to make sure that all of those
are for 10. there we go
and how about i'm going to put this in
as a market order obviously if we enter
market orders that can
introduce risk that we're not happy with
the order we pay with the price we pay
especially when you do this
after the markets have closed but i just
wanted to show how we might get this
done
our limit order what was it 582
yep that's to take profits
should they occur
and our stop was 5 35 correct
there we go and for the both of those
we're going to set these
orders as good till canceled on the sell
orders
that market order we leave it as a day
order good till canceled as
on the sell order so unless netflix
decides it goes
decides to go sideways forever what
we're doing here is looking for the
stock to maybe continue its upward
trajectory using that strong momentum
that it's had
and hopefully getting that 582 target in
which case
we're out we're selling or if it falls
down to 5 35 that'll trim it
trigger a stop order now a stop order is
never a guarantee that we will
sell at a specific price it just sends a
market or
order off if we get down to that level
bobby tiger well yeah that's right um
james says can this rule be applied to
new stocks with this technique it's not
a rule rules are
pretty strict this is a technique can it
be applied to new stocks
theoretically um can it be applied on
shorter terms
again yep it is some investors will use
it on a very short term time frame maybe
on a minute by minute chart
others might actually be using it on a
week by week chart
yeah so i agree with what connie's just
said there but that's
it i'm going to go ahead and confirm and
send this trade now
this order does not carry transaction
fees but transaction costs are still a
consideration
for some trans for some trades so just
be aware of that
but it looks like it's going to be about
a 55 000 trade
we're looking to you know make an
upswing hopefully make about 30 bucks on
the trade
on the upswing limiting our risk to
about 16 17 dollars for the downswing
dave says uh
dave says does it matter where you start
from when using the fibonacci tool
meaning from start to start from the
bottom of the trend to the top
vice versa that's an excellent question
i'm glad you asked
it i'm going to send this order off and
this is going to be my last question
that i'll address but let's go to the
let's go to our our chart again and
you'll notice that i always draw
i always drew from the top down and it
is important
yeah if we draw from the bottom up
there's nothing wrong with that as long
as we were planning a bearish trade
let me clear off my drawing set watch
what happens oh maybe i'll use this big
move
what if i drew from the bottom up click
once
move up click again the lines look
pretty similar the numbers are inverted
but within the two fibonaccis the two
major fibonaccis that's not a big deal
what is a big deal though
is my extensions are now below the
current price which is helpful
if i were looking for a bearish trade
planning a target
not helpful for a bullish look at this
no matter how high i go
there's no target up above
so yeah top down
when drawing for bullish trades bottom
up when drawing for bearish trends okay
great great question all right everybody
my time has come and gone but i have
accomplished
everything that i set out to do we
wanted to take a look at market
conditions
see what sort of strategy they brought
to mind for me that was fibonaccis for
today so that's what we talked about
and we use an example trade to try to
tie it
tie it all together and hopefully
everybody goes home now with a better
understanding
of a tool they already knew or a new
introduction to the tool that might be
new for their for their toolbox at least
in paper money right
i would suggest at this point get out
there and get some practice with this go
play some trades in paper money
maybe using some fibonacci analysis see
if you can
set a target set a stop identify those
big upswings and see if you can figure
out where to enter a trade
all right i think those are some big
questions to be answered so uh go have
fun with that
i'm going to set you loose we're going
to take a little bit of a break in a
little while a couple of hours we have
our virtual workshop coming up i don't
know if you've been enjoying that but we
have them
every monday through thursday if you
haven't seen them go enjoy
them connie thanks for helping out
mahalo to you
bobby tiger boy
um as i set you loose though
quick reminder of the risks associated
with our investing risks are real we did
use real examples in today's discussion
it's not a recommendation or endorsement
of the security or the strategy
discussed
janine was that helpful for a newbie
good i hope i went at a pace that
everybody can follow
that's always my goal uh so you veterans
thanks for being here
if you're new here i hope to see you
again next wednesday put it in your
calendar six o'clock eastern
is when we kick these these things off
and you'll notice half an hour's up
we're done all right everybody go enjoy
that webcast
remember that risks are real we did use
real examples in today's discussion it's
not a recommendation or endorsement i
said that already
i'm going to repeat it but uh i will
look for you in my other
regularly scheduled sessions or if you
just want to come back again next
wednesday that's fantastic too but hey
whenever i see you again
until that moment arrives i want to wish
you the very best of luck happy
investing
bye
you
