How to SwingTrade - An Educational Thread

Ktm,

I read JMcGraw's post on Rtharp.

It's very interesting...

I'm unsure, but I believe those numbers are derived from his risk/reward ratio which he trades by, which is 1/3 (preffered) or 1/2.5 which he would also accept, these are according to his notes...

-*- Now comes reward analysis... I look for trades with a HIGHLY probable reward that is at least 2.5x greater than the risk, I prefer 3x.

--JMcGraw
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So I believe that is how he determines his numbers.

I would like to know his time frame also, It seems like he trades on a daily basis, but i'm sure.

I don't think bars or candlesticks matter here, since it doesn't seem like he uses any candlestick formations to enter or exit a trade.

To me, his strategy resembles the Wave Principle.



--yk
 
I think I understand the risk/reward as being a risk of 2 points vs. a reward of 6...therefore 1:3. What I would like to know is WHY did he decide to buy at 50 and use 48 and 56 as the targets. What does his setup look like?

I use candlesticks and also look for fishbowls forming. I like to use hourly charts and watch the volume as well as using Money Flow and Level II. What he has done seems much more scientific, thus measureable and repeatable, which is key to what we all need to do (to get our heads out of the equation and bring a standardized system into play). I understand what he is saying about uptrends/downtrends. My hourly chart shows a downtrend while my daily shows (that same downtrend) as a retracement in a longer uptrend...that the stock is really going up.

The thoery is to follow the uptrend and go long when the retracement is ending. He seems to have done some historical math on each of his stocks to determine the "typical" percentage of retracement...my assumption is that he buys in when the percentages are in his favor based on this math. Alas we await his reply...

 
-*- I risk between 1% and 2.5% on each trade. I objectively pick my stop loss point, then figure how much a 1% or so loss would be, then divide that by the point loss in the stock to get the size of my position. Example: ABC trades at 50, I see the risk as being at 48, and reward at 56. Capital is 20,000, so 2% is $400, 400 divided by 2 (or 50-48) = 200. So I trade 200 shares.
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Reading that, I would think those numbers (50, 48 , 56) are calculated based on his money management rules. So if he had more or less capital I believe those numbers would change with the amount of capital he has to trade.

--yk
 
First of all, you guys are reading to much into those 3 numbers. I just picked them out of the air. :) Its just a perfect 1:3 setup, thats all. Such a trade would be rare in actual trading. 50 is enter, 48 is 2 points below 50, 56 is 6 points above 50, so the reward is 3 x the risk.
Its like the "ideal" risk:reward setup.

How do you determine when a reversal is imminent?
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I described a situation on rtharps board where I try to short the first retracement rally in a downtrend. (its in a reply to one of the questions) Thats an example.

KTM, for the most part was right when he said:
The thoery is to follow the uptrend and go long when the retracement is ending. He seems to have done some historical math on each of his stocks to determine the "typical" percentage of retracement...my assumption is that he buys in when the percentages are in his favor based on this math.

I dont use percise technical setups, so some of it has to do with intuition as well. My main goal was to create a methodology that helped develope an intuitive sense of where prices will go, but at the same time have a map to guide you. Like I said in the original post, "the stats keep intuition in check".

Lets say a stock is in an uptrend, and has retraced the last up move for 3 days. Say the stats say 65% of all counter-uptrend retracements lasted 3 days or less. If everything looks good I buy that dip, statistically I have a 65% chance of being right. If I'm wrong, big deal, I'll get stopped out and decide if I want to buy the 4th day. Sometimes I will buy, but othertimes I may not feel right about it and may wait another day.

Its also great for "hunches", I can check that hunch to see if it has a historical probability of working.

How far back do you go in reviewing a stock's history in trend movement to determine the risk/reward points? in other words - in your example of ABC at 50 with 48 risk and 56 reward - what conditions existed that allowed you to determine those exact price points?
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I collect data on as far back as the stock has been more or less as liquid as it is at the moment. If a stock traded very thinly for its first 3 years, but on its 4th year started to do alot of volume and has ever since, I exclude the first 3 years. They are irrelevent.

............. hmmmmmmmmmmmmmmmmmmmmmmm................

I just spent 10 minutes trying to to describe in writing a setup with the risk, reward, and entry all explained, and its just too hard. So, I'll notate a chart and try to post it. Give me a little time. (Its really hard to explain this stuff in words, especially with nothing to point to! :) )

What time frame do you utilize on your charts? Do you use candlesticks or bars?
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Daily. And like YK said, candlestick or bars dont really matter because I dont trade patterns. But I perfer to look at bars.
 
Almost forgot... For those of you who could not view the .gif chart I posted on rtharps board, you have to sign up to rtharps community with username and password to view it. (Its free and it just takes a minute)

If you still cant get the .gif, email me and I will send it to you.
 

John, thanks for the posting your article. It would be
very helpful to me and perhaps others if you could
give some examples of the kinds of Excel worksheets
and VBA code you used. I can get daily OHLC data into
Excel, but I don't know enough about VBA to proceed.

Thanks.

-vitajex
 
andrassm

-I use tc2000 to scan through my stocks. Its fairly simple and only costs 30 a month so anyone can afford it.

HAs a nice option that will rank every stock sector. Than go through the sectors and find the dynamite stocks. Takes me a few hours a day.

I also have some canned scans I use with metastock. But everyone should use tc2000.
 
I'm just starting out in swingtrading ,and have few questions..hope you can help.

re:where to place stops

I've read alot about swingtrrding and allways noticed that for stops they all agree on placing it right below the previous day's low.
What if your entry point is too far it? where do you place then?

at what time of the day do you enter a position and why?
do you enter as soon as your entry point is triggered?

what do you do if the day after you entered a position ,the stocks gaps down ( :( ) ?

I have other questions will ask them some other time.

Thanks for helping me!!!!! :)
 
What if your entry point is too far it?
Then it is a bad trade and you skip it.
Make sure you keep your risk/reward ratio in perspective.
Don't have have a 2 point stop when you are aiming to
get 1 point out of a move.

where do you place then?
Or you place it below the day's low.
Or the low of the last pullback.

at what time of the day do you enter a position and why?
Anytime is good. You have to make your own plan and
trade it. There are many different styles of swing trading.

do you enter as soon as your entry point is triggered?
It's up to you. Some people buy it and place a stop immediately. Some people wait for the first pullback after penetrating the trigger to confirm the move.

what do you do if the day after you entered a position ,the stocks gaps down?
Mark the low after the first 5 minutes and sell 1/2 if it crosses it.
Mark the low after the first 30 minutes and sell rest/all if it crosses it.

 
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