Posts Tagged ‘Swing Trading Strategies’

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Swing Trading Chart Patterns – Double Top

Wednesday, June 23rd, 2010

Swing Trading Blog Post – "Double Top" Chart Pattern

Last week, in the midst of the 9 day "mini" rally, we notified our Swing Trading Newsletter subscribers of several stocks and ETF's that were forming interesting chart patterns.

As the market became short term "over bought" we noticed LRCX approaching at level that it reached in late April.

Here you can see the chart that we posted to our subscribers (and the hint we gave on Twitter) last Thursday.

LRCX - Swing Trading Chart Pattern

Thursday was the first day we noticed LRCX "stall" as price action created an "inside day" on decreased volume.

This was just a heads up to our subscribers that a "double top" MAY be forming but to wait for CONFIRMATION before entering into a SHORT position (if their trading strategy called for shorting in this context).

On the chart below you can see that on Friday (the day after our alert) price creates another "inside day" this time on increasing volume.

This type of "stalling" price action is something we would expect near an overhead resistance level but just because price "stalls" it is NOT a signal for us to take action (get LONG or SHORT) just yet.

LRCX - Swing Trading Chart Pattern

When the market GAPPED UP big time on Monday you will notice that LRCX did NOT gap up nearly as much.

LRCX stayed within the prior days range even though the market (and several other sectors) gapped up way above the prior days HIGH.

The market quickly rolled over on Monday and by the end of the day LRCX triggered our SHORT entry (BLUE ARROW) as it traded down through Fridays LOW ($41.89), confirming the "double top" pattern.

Just a reminder that since this "counter trend" strategy we consider this an advanced swing trading strategy that should only be taken by experienced swing traders.

That being said we typically use the HIGH on our ENTRY DAY as our initial stop level for this strategy.

Our entry price for the SHORT trade was .02 below Friday's low…$41.87.

The HIGH of our entry day price bar was actually exactly $1 above at $42.87 so we set our actual stop .02 above that at $42.89 giving us an initial risk of $1.02/share.

Using our standard PROFIT TARGET of 2:1 for this type of trade we set our target at $39.85 ($41.87 – $2.02).

Below you can see how the trade turned out.

LRCX - Swing Trading Chart Patterns

Although we like to see confirming VOLUME action when we enter into a trade we always put PRICE ACTION first.

Often times we will see VOLUME follow through the next day (after entry) just as it did here on Tuesday.

This morning LRCX traded down and hit our PROFIT TARGET ($39.85) before turning around and closing the day basically "mid-bar".

Price could continue LOWER from here but this type of strategy ("counter trend") calls for "precise" entries which allow for smaller profit targets.

Being alert to the potential "double top" that was forming we were able into a profitable short term swing trade once we received confirmation that the pattern was in place.

 

 

 

 

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Intraday Swing Trading

Saturday, June 12th, 2010

Can you "swing" trade intraday?

This seems to be a question that comes up a lot.

"Swing Trading" is typically defined as…a method or strategy used to profit from short term (1-4 day) price moves in the market.

Although the standard definition defines the typical length of time in a trade (1-4 days) another definition for "Swing Trading" is used to describe a method or strategy used to profit from "price swings" in the market.

This definition can be used for a trading strategy or method regardless of the time frame.

A "price swing" is used to describe the ebb and flow of price action.

As price moves from one point to the next it typically does so in back and forth wave like motions.

When price moves from a low point on the chart to a higher point this is typically identified as an "up swing".

The opposite is true for a "down swing" in price.

In the chart below we have identified the UP price swings with a BLUE arrow and the DOWN price swing with an ORANGE arrow.

Price Action - Price Swings

The alternating "swing" extremes are further identified as "swing highs" and "swing lows" once they begin to retrace from their highest or lowest point.

Here is the same chart with the "swing" highs (black horizontal lines) and "swing" lows (blue horizontal lines) in place.

Swing Highs and Lows - Swing Trading Price Action

So now that we have the terminology and definitions out of the way lets get back to the original question.

Using the second definition of a "Swing Trader" you can surely see how a day trader can trade the "price swings" in the market.

In fact in the two charts above you probably cant even tell if they are DAILY charts or INTRADAY charts since the price and time data has been removed.

Our main strategy for overnight Swing Trading is based on locating strong or weak stocks (and sectors) in relation to the market and trading these stocks (and ETF's) based on the context of the overall market conditions.

When we trade the "price swings" intraday we use the exact same strategy!

If the market is strong we are scanning the market looking for the strongest stocks and ETF's.

Once we locate thees strong stocks we then use technical analysis (price action, volume and trend lines) to locate and hopefully profit from the intraday "price swings".

We want to be in sync with the market so if the market has run up (UP swing), retraced (DOWN swing), we are looking for LOW RISK trade setups in the strongest stocks and ETF's.

That way if the market decides to make another UP swing we can enter into and hopefully profit from this next price swing in the market.

On the intraday (5 minute) chart below of AKAM you can see the first UP swing as price rallies from the open all the way up to just under $43.50.

AKAM then heads lower (retraces) creating a DOWN swing (orange arrow).

Overall the market was strong and the strength in AKAM from the open was obvious.

We are then anticipating another UP swing in AKAM if and when the market starts to show some signs of also moving up.

 

Intraday Swing Trading

We were able to enter into this intraday swing trade in AKAM just over $43 as the new "swing low" was put in place and the next UP swing in price began.

Although we are never sure how long the next "price swing" will last in this example AKAM ran up to just over $44 ( a one dollar move) before starting its next DOWN swing.

 

This is just one example of how you can "swing trade" intraday.

Although they may need some tweaking the potential strategies and ideas that you have for overnight swing trading can surely be utilized on an intraday basis.

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Swing Trading Week in Review – June 4, 2010

Friday, June 4th, 2010

And here we go again!

The Dow and S&P finished down 2% for the week while the Nasdaq held up a little better by losing ONLY 1.7%.

DIA Swing Trading ETF

Sounds pretty plain and simple but the trading during the week was a little bumpy.

The holiday week started off with yet another GAP DOWN in the market.

We know that the buyers have been defending the area just above 10,000 in the Dow as this GAP DOWN brought us right into this area.

The market rallied right from the open but late day selling came into the market and pushed the market down to close below its open…a true reversal day.

Wednesday the buyers stepped back into the market at near the same levels (just above 10,000) pushing the market higher right into the close.

Thursday the market GAPPED UP a bit but quickly fizzled out and closed near its mid point of the day.

Then Friday comes and BAM!…down we go again.

Sellers aggressively took the market lower with the Dow finishing down over 300 points for the day!

This was an important week in our opinion.

Not because of any significant financial related news or event.

We think it was important because of the lesson you could learn from this weeks trading action.

If you are a short term trader then the valuable lesson to be learned from this week's price action is to have "re-entry" plan in place.

Let's rewind a bit and look at the charts to see what we mean,

After last Friday's lackluster performance it appeared that Tuesday was setting up for the next leg lower in this down trend.

DIA - Dow 30 ETF

As a matter of fact there were a TON of SHORT Swing Trading setups on our "watch list".

We notified our newsletter subscribers of several SHORT stock setups and several possible LONG Inverse ETF setups for Tuesday morning.

The market GAPPED DOWN on Tuesday and the late day sell off actually triggered several of our SHORT swing trades near the close.

We did notice however that by the close the volume levels for this "reversal day" were low…not exactly what you want to see when the market reverses.

Trading price action is our primary focus but this volume "clue" was a caution flag for us.

On Wednesday the market rallied right from the open and closed near its high for the day…another bad sign for our SHORT positions.

Our best trades usually work right from the start and with the market moving up so strongly we were now "taking some pain" in our positions.

Another thing we noticed is that in some of our positions the volume INCREASED as price rallied on Wednesday.

We know from understanding the PVT Method that price moving UP as volume INCREASES is classic UP trending price action.

Look at the chart of KLAC below.

You can see where we entered out SHORT position (RED ARROW) and then look at Wednesday and Thursday's price and volume action.

KLAC - Swing Trading Stop Out

KLAC trades higher on INCREASING VOLUME (blue arrows) and closes above the recent swing high and our STOP LOSS point (black line).

Friday KLAC heads lower on INCREASING VOLUME confirming the "two stage" retrace.

Some of our other SHORT positions went up a bit with the market on Wednesday but on LOWER VOLUME (a clue of things to come?).

Let's look at one of our "good" SHORT positions.

Notice on the chart of DOW Chemical (DOW) below how unlike KLAC price actually moves sideways both Wednesday and Thursday.

DOW - SHORT swing Trade

This sideways price action is accompanied by LOWER, DECREASING VOLUME a good sign for our SHORT position.

DOW follows through to the down side nicely on INCREASING VOLUME as the market sells off on Friday.

As you can see from the charts above things played out pretty much as anticipated.

We got stopped out of some of our SHORTS that continued to rally on increased volume on Thursday.

Can you guess by now which positions stopped us out?

Our other positions that went up a bit with the market on LOWER volume (like Dow Chemical) ended up closing under their recent swing highs so we were able to hold onto to these.

We thought that Thursday's move in some of these stocks was possibly a "two stage" retrace so we were ready by Friday to re-enter our SHORT positions if price action called for it.

Friday the market GAPPED DOWN again and after about an hour of sideways trading rolled over and finished the day DOWN over 300 points on INCREASING VOLUME!

Our "good" short positions followed through nicely and, as planned, we re-entered into some of our positions that stopped us out just the day before.

By using both price action and volume we avoided getting "shaken out" of some of our SHORT positions.

Getting STOPPED OUT for a loss or near break even is not fun but by following our "re-entry" rules we were able to get back on the right side of the market and hopefully profit from our analysis.

Until next week….GOOD TRADING TO YOU!

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Swing Trading Week in Review – May 28, 2010

Friday, May 28th, 2010

Gap DOWN and roll over, Gap DOWN and RIP, Gap UP and roll over!

After all is said and done the roller coaster came to a stop and finished down about 60 points for the week.

Not bad considering that we gapped down HUGE on Tuesday and traded down to new yearly lows intraday.

DIA - Swing Trading ETF

All in all the week was a rather boring one for our Basic Swing Trading strategies.

If you were not already short coming into the week it was a little late and difficult to initiate any new SHORT positions.

Most of our basic bread and butter strategies are "with trend" strategies which means that we focus on swing trade setups in the same direction as the overall market and sector.

If the market is in a DOWN trend or DOWN channel these strategies focus on SHORT Swing Trading setups (or LONG Inverse ETF's).

If the market is in an UP trend or UP channel then of course we look for LONG Swing trades.

Some of our more advanced Swing Trading strategies are actually designed as "counter trend" strategies.

These strategies are designed to trade and profit from "bounces", pullbacks and retraces and trade in the opposite direction of the dominant trend.

An example of this would be buying into a LONG position in a DOWN trending stock as it comes into a possible area of support.

The are of course other factors to consider when using "counter trend" strategies and these should strategies should only be used by experienced swing traders.

I mention these advanced strategies because this week we saw a good opportunity to use them.

On Tuesday we noticed that the HUGE gap down brought us down to levels in the S&P and Dow that we saw in the beginning of February.

After such as extended move DOWN over the past 2 weeks you had to think that there MAY be some support in the area.

We did NOT blindly buy into the GAP down but instead we waited to see how the market traded around this level.

By mid morning on Tuesday the strength in the market was obvious…there were buyers picking up stock at these new lows.

As the market started to follow through the rest of the day we were able to initiate a few LONG trades.

We looked for relatively strong stocks that were either OVERSOLD or showing signs of holding a support level.

Stocks like ATVI and MCHP.

ATVI - Swing Trading Setup

MCHP - Swing Trading Setup

Both ATVI and MRVL were SHORT TERM OVERSOLD as they traded into their LONGER term support levels.

Tuesday's GAP and RIP gave us any opportunity for a low risk trade in both stocks.

We exited ATVI today (Friday) for a nice gain as it reached SHORT TERM OVER BOUGHT levels into the close.

MRVL was not yet OVER BOUGHT as of the close so we exited a portion of position and are trailing the rest with a tight stop.

We did stay away from some of the other stocks with similar patterns due to their recent weakness.

AXP and X come to mind as well as some of the other financial stocks.

We put these stocks on our "DO NOT TRADE" list because both sectors have been the leaders to the DOWN side in recent weeks.

The recent "bounce" in the market could simply be a pullback before the next down move.

If so we have a bunch of stocks that are setting up nicely to the SHORT side.

If the market finds some legs and continues UP from here we have a few positions on and we will trail our stops accordingly.

We will also look for opportunities to get into some of the strong stocks like FDO, SNDK, ALK and WSM.

No one knows for sure which way we go from here but by being able to trade the market by using some advanced strategies you should be able to make profitable trades in any environment.

Until next week…GOOD TRADING TO YOU!

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