Swing trading
Swing trading
It is our firm belief that there is only one easy way to trade with discipline and that is when you keep things simple: BEAUTY THROUGH SIMPLICITY. This should be a general rule for everything you do in life: REDUCE TO BASICS
To fully understand what swingtrading really is, we are going to first start define what up/down trends are ...
Trends
UpTrend - A price movement consisting of a series of higher highs and higher lows. In other words, an uptrend is a series of successive rallies that extend though previous high points, interrupted by declines which terminate above the low point of the preceding sell-off. See MYGN
DownTrend - A price movement consisting of a series of lower lows and lower highs. In other words, a downtrend is a series of successive declines that extend though previous low points, interrupted by increases which terminate below the high point of the preceding rally. See VRSN
Swing Trading
Long Swing - Looking more closely at the definition of an uptrend: "an uptrend is a series of successive rallies that extend though previous high points, interrupted by declines/pullbacks that end above the low point of the preceding sell-off".
The Long Swing identifies buying opportunities in stocks that are in clear uptrends on the daily chart. In addition, the stock must be experiencing a minor decline/pullback within the context of this uptrend, allowing the purchase of the stock at a discount to its recent prices.
These declines identify the start of a long swing trade. We will use a technique for entering the market called trailing buy-stop. When the trend is up and the daily trend declines, it activates a trailing buy-stop technique: place a buy order 1/16 above the high of the previous day. If prices break out, you will be stopped out when the rally takes out the previous high. If prices decline, your buy-stop will not be touched. See MYGN
Short Swing -Looking more closely at the definition of an downtrend: "a downtrend is a series of successive declines that extend though previous low points, interrupted by increases/rallies that end below the high point of the preceding rally".
The Short Swing identifies shorting opportunities in stocks that are in clear downtrends on the daily chart. In addition, the stock must be experiencing a minor rally as part of this downtrend.
These increases identify the start of a short swing trade. We will use a technique for entering the market called trailing sell-stop. When the trend is down and the daily trend rallies, it activates a trailing sell-stop technique: place an order to sell short 1/16 below the low of the previous day. As soon as the market turns down below the previous low, you will be stopped out on the short side. If prices rally, your sell-stop will not be touched. See VRSN
Master Plan
Step1: WHAT - Finding swing opportunities There is no shortage of new opportunities, and MrSwing.com helps you find them. To start, you can sign-up for MrSwing Lite, which sends you a list of swing opportunities before the stock market opens on Monday.
I also strongly suggest signing up for my charting software specifically designed for swingtraders, SwingTracker. There is no substitute for seeing the charts, and all of my technical indicators are included. In addition, SwingTracker has an excellent scanning engine so that you can find the stocks you want to swingtrade. (A full explanation of the scan feature is located in the SwingLab section of this website.)
Step2: WHEN - Entry techniques Buying AFTER the open is BETTER wait a few moments to allow the market to breath normally
Technique 1: Long Swing Entry
Buy the stock from the moment it trades 0.06$ (=1/16) above its previous day's high. As soon as you buy, place a stop-loss order 0.06$ below the low of the previous day or the entry-price - 4%, whichever is higher.
Technique 2: Long GAP
Used on stocks that gap up or down at the open by 0.5$ (=1/2) or more. Once the stock has gapped, we wait for 5 minutes on a DOWN gap and we wait for 30 minutes on a UP gap. After 5 or 30 mins, we put a buy-stop order 0.06$ above the high of the new day. And we place a stop-loss order 0.06$ below the entry day's low.
In summary, we use the 30-min buy rule when trading in the same direction as the gap and we use the 5-min buy rule when trading in the opposite direction of the gap...
Technique 1S: Short Swing Entry
Sell the stock short from the moment it trades 0.06$ (=1/16) below its previous day's low. Once you sell short, place a stop-loss order 0.06$ above the high of the previous day or the entry-price +4%, whichever is lower.
Technique 2S: Short GAP Entry
Used on stocks that gap up or down at the open by 0.5$ (=1/2) or more. Once the stock has gapped, we wait for 5 minutes on a UP gap and we wait for 30 minutes on a DOWN gap. After 5 or 30 mins, we put a sell-stop order 0.06$ below the low of the new day. And we place a stop-loss order 0.06$ above the entry day's high.
In summary, we use the 30-min sell rule when trading in the same direction as the gap and we use the 5-min sell rule when trading in the opposite direction of the gap...
Step3: HOW - Exit techniques & riding the waves
Our money management principles can be summarized in easy rules:
- Stop-Loss Order - place your stop the moment you enter a trade. We exit our trade from the moment we have a 4% loss. We are not second guessing the trade... no problem... move on to the next swing trade...there is never a shortage of opportunities! To do this, we ride our trade using a trailing stop. After each day, we simply move our stop-order to 0.06$ under the low of that day for longswings. And we move our stop-order to 0.06$ above the high of that day for shortswings. However.. we never set the stop loss at a lower/higher price than the day before.
- The 50 percent rule - from the moment we have more than a 7% gain on the long swing trade we sell 50% of our shares...and we cover 50% of our shares on a short swing...
- Riding the wave - we ride the rest of our trade using a trailing stop. After each day, we simple move our stop-order to 0.06$ under the low of that day for longswings. And we move our stop-order to 0.06$ above the high of that day for shortswings.
- Gaps - be prepared to sell your positions if the stock gaps UP for longswings and to cover your short positions if the stock gaps DOWN for shortswing. We use the Long-Gap-Entry-rule as our exit-long-rule & our Short-Gap-Entry-rule as our exit-short-rule
SUMMARY
The Essentials in Technical Analysis : Volume, Equivolume, MA, ForceIndex, DMI
Intro
We humans have a very hard time making fast decisions with complicated info. That is why, as human traders, we try to simplify trading as much as possible, in order to scan fast & accurate trading opportunities in a few seconds: KEEP THINGS AS SIMPLE AS POSSIBLE!
The following TA tools are part of our daily charting arsenal: CANDLESTICK, VOLUME, EQUIVOLUME, MA, FORCEINDEX, DMI, Up/Down/In/Out...
Why does Technical Analysis work?
- Simply because the large professional traders cannot help leaving behind considerable evidence regarding their opinion on the direction of the market: Volume provides clues as to the intensity of a given price move...
- The Key is Psychology: you trade people, not stocks. People never change...most traders keep on making the same mistakes again and again...luckily for us...
The Basics
A stock price is determined by an exchange between buyers and sellers. If there are more buyers than sellers then the market goes UP; more sellers than buyers then the market goes DOWN. The price at which a stock is offered affects the trader's decision. If a trader is long and the stock starts to decline ( bad news/many sellers), then the trader could be forced to close his position. If short, he might do likewise on a rising stock. When a trader takes a long positions, he becomes a potential seller, while short positions are held by potential buyers. As prices change due to buying and selling pressure, information about the condition of the stock is revealed by the combination of price and volume action.
Japanese Candlesticks
In the 1600s, the Japanese developed a method of technical analysis to analyze the price of rice contracts. This technique is called candlestick charting. Steven Nison is credited with popularizing candlestick charting and has become recognized as the leading expert on their interpretation.
Candlestick charts display the open, high, low, and closing prices in a format similar to a modern-day bar-chart, but in a manner that extenuates the relationship between the opening and closing prices. Candlestick charts are simply a new way of looking at price; they don't involve any calculations.
Volume
Volume is simply the number of shares traded during a given timeframe (e.g., hour, day, week, month, etc.). The analysis of volume is a basic yet very important component of technical analysis. Volume provides clues as to the intensity of a given price move.
High volume levels are characteristic of market tops when there is a strong consensus that prices will move higher. High volume levels are also very common at the beginning of new trends (i.e., when prices break out of a trading range). Also, just before market bottoms, volume will often increase due to panic-driven selling.
Volume can help determine the strength of an existing trend. A strong up-trend should have higher volume on the upward legs of the trend, and lower volume on the downward (corrective) legs. Similarly, strong downtrends usually have higher volume on the downward legs of the trend and lower volume on the upward (corrective) legs.
EquiVolume
Equivolume displays prices in a manner that emphasizes the relationship between price and volume. Equivolume was developed by Richard W. Arms, Jr., and is explained in greater detail in his book Volume Cycles in the Stock Market.
Instead of displaying volume as an "afterthought" on the lower margin of a chart, Equivolume combines price and volume in a two-dimensional box. The top line of the box is the high for the period and the bottom line is the low for the period. The width of the box is the unique feature of Equivolume - it represents the volume for the period.
"Why does swing trading work? Simply because fast moving stocks tend to pause for a few days before they explode again. Just look at any candlestick chart! Stocks keep on cycling every 3, 5 to 7 days. In other words for, every three-day gain there will probably be a down day. For every five-day gain there may be three down days. A seven-day rally may produce up to five down days.
And the great thing about swingtrading is that there is never a shortage of new opportunities. We just need to wait patiently for the right stock to cycle..."
-- Larry Swing 14:13, 14 October 2006 (UTC) MrSwing.com