Basic tenets of swing trading

M

mg_mg

This thread is for the techniques about swing trading. First, here is a quote from LBR's homepage (http://www.lbrgroup.com/index.asp?page=SwingTrading):

"Basic tenets of swing trading: During strong trends, we use retracement swings to enter in the direction of the trend. These points are also referred to as 'pullbacks' or 'dips' in an existing trend. When a new momentum high is made, we look to our highest probability trade, which is to buy the first pullback. When a new momentum low is made, we look to sell the first rally. We continue trading in the direction of the main trend until there is a buying or selling climax, or a failure test. A failure test would be the most aggressive type of trade entry when swing trading. A retracement in a trend would be the most conservative. Pattern recognition is used to determine the trend and also to define a 'failure test.' Experienced swing traders always look to trade in the direction of the higher-time-frame trend, while using the lower time frame patterns to determine risk and entry. "
 
Quote from mg_mg:

This thread is for the techniques about swing trading. First, here is a quote from LBR's homepage (http://www.lbrgroup.com/index.asp?page=SwingTrading):

"Basic tenets of swing trading: Experienced swing traders always look to trade in the direction of the higher-time-frame trend, while using the lower time frame patterns to determine risk and entry. "
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That is basic however it is still helpful;
LBR group still likes a 20 period moving average also.

:cool:
 
As a swing trader who also buys pullbacks, I've found that it's important to focus on fundamentals, as well as technical levels that define the pullback. Every stock I trade goes through a monthly selection process that includes factors such as current and projected EPS, PE, PS, VOL and capitalization. If you are going to trade long for a multiday hold, it is very helpful to know that other professional investors are also going to be in there buying when things get soft. I also punch my returns by often taking on more shares if there is further weakness, provided there is no negative news or reports out on the stock.

The key to this operation is defining the levels that help you get into a stock that is ready to rally, without grabbing for a knife that may continue falling. If you find those, and if you understand the importance of a qualified watch list, then you can make a very good living as a swing trader in nearly any market environment.

How do you find these trades? Start by reading the charts. Look for those conditions that set up a pullback and a following rally. Look for buyers rushing for the doors. Panic bars are easy to see. Keep your indicators very simple. Then backtest, backtest, backtest to find what works, when it works, and why it works. There is good logic to these trades, and it starts with the charts.

Recent Swing Pullbacks:
CCU - 9/29
COH - 9/30
FAST - 9/30
ETM - 9/29
TSC0 - 10/1
 
HI lindq. I have a? about CCU pullback. In retrospect it might look like a pullback, but without the right edge of the last 2 days is'nt the price action of CCU like catching a falling knife for the long swing trade?

Broke low in Aug w/ conviction. Not trying to second guess about CCU just wanting to gain further insight on what makes CCu on Aug 29th a poss long entry. Thanks
 
Quote from GATrader:

HI lindq. I have a? about CCU pullback. In retrospect it might look like a pullback, but without the right edge of the last 2 days is'nt the price action of CCU like catching a falling knife for the long swing trade?

Broke low in Aug w/ conviction. Not trying to second guess about CCU just wanting to gain further insight on what makes CCu on Aug 29th a poss long entry. Thanks
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Look at price on 9/29. How did it compare to recent average price levels? Then look at intraday action on 9/29 that continued the follow thru. Further, at that time CCU was down in sympathy with Viacom, another media company, and sympathy plays are often very productive. (This is not part of my strategy, but it helps make a decision on how heavy to go into the trade.) Also, the overall market was sharply down, which tends to give rise to a number of good swing candidates at the same time, and which is often followed by an overall market rally. On 9/29 I bought 11 stocks, 9 or which have already closed at 4% or greater. In each case of the examples I provided, they all share common characteristics of giving a buy signal for a long swing trade. The levels are there in front of you, using a combination of the simplest and oldest indicators.

Does this completely prevent further deterioration in every stock? Of course not. But the right levels, on the right list of stocks, can give you an excellent risk/reward ratio for few days in the market. And that's why fundamental considerations are also so important. Holding junk that is 5% below your entry is a bad position to be in. But holding a great company that is seriously oversold is time to load up the truck.
 
Quote from Amkeer:

Here is another for ya! HD:D
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HD lately would not have fit my parameters for a few reasons, not the least of which is that it is has not been oversold by any measure, and the potential for gain isn't worth tying up my capital for a few days.

I suppose one could stretch and see that HD was at support in a short term trading range on Monday, but in my book that isn't screaming for me to toss money around.

Now, if HD had moved to 29 in a few days on heavy volume, then showed me a nice drop on my target day, I might have gotten interested because I was seeing HD holders rushing for the exits. And that DOES happen a few times a year to even the best stocks, for often the stupidest reasons.

The only difficulty with this approach is the mental block that needs to be overcome that you are always buying at the point of maximum fear in the stock, and often in the market. (Would you have been buying heavily at the bottom yesterday? That's what it takes.) That fear needs to be overcome to profit on long swings, because that is where money is made.
 
lindq, how do you work your exits?

I will exit if I see a reflection off some serious S/R, but I also keep an eye on the trend. When the trend turn against me I will also exit. Usually I exit half of my position at the first sign of trouble, then again at the next.
 
Quote from peterfigliozzi:

lindq, how do you work your exits?

I will exit if I see a reflection off some serious S/R, but I also keep an eye on the trend. When the trend turn against me I will also exit. Usually I exit half of my position at the first sign of trouble, then again at the next.
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That's a good question. To be honest, I have never nailed an exit strategy that works in every market environment, and it used to bug me. But I just gave myself into the fact that "it all depends". My basic exit strategy is a profit target of 4%, at which time I will wait until the close of that day to sell. If a stock has not performed in 10 days, I will also exit. However, now that the market seems to have put in a bottom, I have been using a strategy of holding for 5%, and if the stock stalls I will wait until even and pull out. If I see that the overall market has topped, and about to pull back to a level that will likely generate more trades, and I have a stinker or two that hasn't performed, I will dump them. But fortunately...here's the value of fundamentals...that doesn't happen often. I have had a few stocks that have trapped me in real fundamental changes, and at that point I will typically decide that the cash is better put to work in another trade.

Over two years this admittedly mushy exit strategy has given me an average of 3.25% net gain per trade, so I've stopped worrying about not having something locked in stone.

I think there is value in your scheme of exiting gradually, but I've just never pursued it.
 
Well I got in HD on Tuesday at 31.78 and it traveled to 33.40. A decent move for 2 days. The potential for more gain is ahead.
 
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