Swing Trading Strategies Setup

Double Got 'Em Setup

- Stock experienced a downtrend on a daily chart.
- Price rebound. Then, no less than 8 days later, price retests the low.
- If the stock holds its low and reverse, we will buy when it trades a few cents above the high of retest day.
- Once in, initial protective stop will be establish just under low price of entry day.
- Initial profit target: prior high

Moving Average Leapfrog

- Stock experienced a uptrend on a daily chart.
- After a move up, price pulls back in an orderly fashion, to its 20-day and 50-day moving averages.
-Bonus: price culminates the day in a small range candle.
- Check the stochastic for buy signal and OBV for positive action. (Stochastic in mid range and below. OBV at least neutral)
- If tomorrow the stock opens in positive territory above its 20-day and 50-day moving averages, buy when it trades $0.05 to 0.10 over today's high.
- Once in, the initial protective stop will be establish just under low prior of entry day.
- Initial profit target: prior high/
- Risk reward ratio should be 1:3

Stealthy Sidewinder

- Stock trades in an uptrend and currently consolidates sideways in a wedge, horizontal flag or ascending triangle.
- Price pattern trades just above the 20-day MA, and ideally, above the 50-dawy MA.
- Stochastic and OBV agree.
- Buy initial position when stock begins to rise out of consolidation on healthy volume. Or buy after the stock breaks through the upside horizontal resistance line, or both.
- Place an initial stop under the edge of the wedge.
- Set profit target the reflects initial risk reward at 1:3 or better.

- Exerpts from Short-Term Trading in the New Stock Market by Toni Turner

Sectors that do well in various parts of market cycle

Early Bull
- Transportation (airlines, railroads, trucking)
- Technology sector (software, hardware)
-> low interest rates

Middle Bull
- Capital Goods (manufacturing equipment)

Late Bull
- Basic Industry (aluminium, copper, paper, steel)

Peak
- Energy (oil, oil services, coal, natural gas)

Early Bear
- Consumers Non-Cyclicals (cosmetics, food)
- Health Care (drugs, biotechs, medical equipments)
->necessities

Mid Bear
-Utilities
->necessities

Late Bear
- Consumers Cyclicals (housing, autos)
- Financials
-> low interest rates

To know the better US stocks in each sector, visit this website - http://www.toniturner.com/shop/individual_groups_stocks.php

General Day Trading Tips

Excerpts from The Electronic Day Trader

- Buy up stocks. Sell down stocks.

- If a stock is hard to buy, it is going higher. If it is hard to sell, it is going lower.

- If a stock is supposed to go higher and it doesn't, it is going lower. ***

- Only play stocks in motion.

- Identify the catalyst that triggers any other short term traders' actions.

- Watch industry and market leaders for clues to determine strengths and weakness of market.

- Be aggressive in trending market.

- Try to establish who the real buyers and sellers are in a given situation.

- Get out when you can, not when you have to.

- Limit your losses. ***

Exerpt from How to Get Started in Electronic Day Trading

- Winners see positive events that happen to them as permannet. Negative things as temporary.

- Technical indicators are electric fences. If you brush against one of them, you get a shock. They are there to enforce trading discipline. Their purpose is to remind you to exit trade in a timely fashion - always cut you loss short!

- A good trader can make money being right only 30 to 40 percent of the time... other traders are right 80 percent of the time or even more - and still lose money! They lose more by holding losing trades than they make on their winners.

- Beginning traders should use technical analysis for trade maintenance. Set mental and technical stops. Follow them rigorously to keep profits and minimise loses.

- Do NOT hold losers. Admit you are wrong and be done with it. 

- Do not beat yourself up when you are wrong. This is not easy to do when losses amount to thousands of dollars, but it MUST be done. 

- Prepare to do battle another day.

- You picture in your mind exactly how you expect a trade to take place. If it does not follow you script, you close it out immediately.

-Do not wait for the obvious, trade ahead of news and events. 

Action Plan on Thursday

ST Engg
S63.SI

Buy price: $2.16
Break even: $2.19
Target price: $2.24 (possible?)

Candlestick Reversal Patterns

Hammer -- a candlestick with a long lower shadow and small real body. The shadow should be at least twice the length of the real body, and there should be no or very little upper shadow . The body may be either black or white, but the key is that this candlestick must occur within the context of a downtrend to be considered a hammer. The market may be "hammering" out a bottom.

Hanging Man -- identical in appearance to the hammer, but appears within the context of an uptrend.

Engulfing Patterns -- Bullish -- when a white, real body totally covers, "engulfs" the prior day's real body. The market should be in a definable trend, not chopping around sideways. The shadows of the prior candlestick do not need to be engulfed.

Bearish -- when a black, real body totally covers, "engulfs" the prior day's real body. The market should be in a definable trend, not chopping around sideways. The shadows of the prior candlestick do not need to be engulfed.

Dark-Cloud Cover(bearish) -- a top reversal formation where the first day of the pattern consists of a strong white, real body. The second day's price opens above the top of the upper shadow of the prior candlestick, but the close is at or near the low of the day, and well into the prior white, real body.

Piercing Pattern (bullish) -- opposite of the dark-cloud cover. Occurs within a downtrend. The first candlestick having a black, real body, and the second has a long, white, real body. The white day opens sharply lower, under the low of the prior black day. Then, prices close above the 50% point of the prior day's black real body.

Morning Star -- this is a bullish bottom reversal pattern. The formation is comprised of 3 candlesticks. The first candlestick is a tall black real body followed by the second, a small real body, which gaps (opens), lower (a star pattern). The third candlestick is a white real body that moves well into the first period's black real body. This is similar to an island pattern on standard bar charts.

Evening Star -- a bearish top reversal pattern and counterpart to the Morning Star. Three candlesticks compose the evening star, the first being long and white. The second forms a star, followed by the third, which has a black real body that moves sharply into the first white candlestick.

Doji Stars -- When a doji gaps above a real body in an uptrend, or gaps under a real body in a falling market, that particular doji is called a doji star. Two popular doji stars are the evening star and the morning star.

Evening Doji Star -- a doji star in an uptrend followed by a long, black real body that closed well into the prior white real body. If the candlestick after the doji star is white and gapped higher, the bearishness of the doji is invalidated.

Morning Doji Star -- a doji star in a downtrend followed by a long, white real body that closes well into the prior black real body. If the candlestick after the doji star is black and gapped lower, the bullishness of the doji is invalidated.

Shooting Star -- a small real body near the lower end of the trading range, with a long upper shadow. The color of the body is not critical. Not usually considered a major reversal sign, only a warning.

Inverted Hammer-- not really a star, but does look like a shooting star. When occurring within a downtrend, may be a turning signal. Body color is not critical.

NOTE (from Getting Started in Swing Trading):

- Candlesticks accompanied by strong volume is strong signal *

- Candlesticks signal SHOULD be confirmed by the next stick after the signal *

- Narrow range day -> promising indicator

- Combined with high volume -> strong indicator confirming end of trend

- spike + high volume / preceding price gap / big news -> power spike

- power spike -> start of new trend

- gap -> start of new trend / end of old trend

Practical Day Trading Strategies

Excerpts from The Electronic Day Trader

1. Relative Strength in Morning
- Find the most active stocks and the greatest points gainers and losers.
- Many of them that are up strong early, i.e. first 15 mins, pull back.
- Those that cannot pull back, or pull back a little, tend to move substantially higher in a short time.

2. Trend Reversal
- Look for stocks with small percentage declines relative to the market on sharp down days
- When the market rallies, look for these stocks to reverse.
- Eg. ABCD closes at 50, opens at 49, trades down to 48, and then rallies back above 49
- Make sure stock trade above closing price before buying

3. Strong into the Close/Gap in the Morning
- Stock that close near their highs are more likely to go higher than lower the next morning

4. Relative Strength and Volume
- Stock trading 2 to 4 times average volume and up 5% to 10% will continue to go up and follow through.
- However, stock up 25% on 20 times average volume is vulnerable to pull backs.

5. Anticipating Relative Strength
- Cyclical stocks, such as technology, automobiles and retailers, tend to do well in strong economy
- Interest-sensitive stocks, such as banks and home builders, tend to do poorly on days when bonds market perform poorly (interest rate increase).
- S&P strong + bonds weak -> cyclical stock GOOD
- S&P strong + bonds strong -> interest-sensitive stock GOOD

- Oil price increase -> Oil Stock GOOD, airlines stock BAD
- Strong dollar
-> Companies that produce overseas and sell in USA - GOOD (imports cheaper) eg. Toyota, Nike etc
-> Companies that export goods overseas - BAD (export more ex, harder to export)

6. Key Patterns
- Start of downtrend ->High cannot beat the previous high, confirm by low below previous low.

7. Interpret Openings
- 30 Year Bond Future Higher -> Higher stock price
- S&P 500 Futures Higher-> Higher stock price

8. Study Investor's Business Daily

9. After opening at 9:30
- 9:50 - 10:10 -> Opposite direction to opening (reaction)
- 10:10 - 12:00 -> Revert back to opening's trend 66% of the time

10. Take home winners
- Buy stocks in the last hour that are up on the day, that are trading on good volume, and that go out strong.
- Take note that overnight trades equal HIGHER RISK (but higher returns).

11. ALWAYS put a stop loss at yesterday's close (writer's own tip)
- Yesterday stop loss is an important short term Support.
- Once it is breached, it will go down for the next few hours or days.

~Excerpts from How to Get Started in Electronic Day Trading

1. Gap Trading

- "Amateurs control the open, professionals control the close"

- "Hook Close" and "Short Squeeze"

- During down days, professionals buy a stock going into the close ACTIVELY. This will look like a "hook" on a chart ("Hook Close") . Short sellers will often panic and are forced to cover their shorts.

- This will continue the next day and the stock will gap open, instilling even more panic of amateur short sellers who held on overnight ("Short Squeeze"). Professional will sell the stocks (even selling short) at inflated price to panic short sellers who are buying to cover.

- Once the volume of buying subsides indicating most of the amateur shorts are covered, the stocks falls quicky after the open, allowing the professionals to cover their short for a nice profit.

- *Strategy: Buy stocks that close strong, sell quickly the next day.

2. News Driven Price Patterns
http://www.geocities.com/koh_jiefeng/graph1.jpg

3. Earnings Announcements
http://www.geocities.com/koh_jiefeng/graph2.jpg

4. Stock Split Announcements
http://www.geocities.com/koh_jiefeng/graph3.jpg

Technical Analysis - Indicators Summary

--- SHORT INTRODUCTION ---

- Momentum Indicators works better in non-trending markets, while Trend Indicators works better in trending market.

- Trending or trading market can be determine by ADX, or whether price constantly passes through moving averages (-> trading market)

- Parameters of the indicators can be tweak to make it work better in the market it is in.

- Use at least 3 different TYPES of indicators to confirm each other's signals, eg. Volume based + Price based + Sentiment based

- I have attempt to group the indicators into different types to the best of my abilities, but may not be accurate.

- Constance Brown, author of All About Technical Analysis, divided technical indicators into 4 categories ->

1. Pattern Recognition -eg. candlesticks, triangles etc

2. Geometric Mathematical Relationships within Price Data or Indicators -eg. trending tools, cycle analysis, Fibonacci Ratios, Gann analysis etc

3. Based on Behavioral Traits and Extremes of Market Participants -eg. Elliot Wave, put/call option analysis, commitment of traders analysis etc

4. Correlations Between Markets -eg. intermarket and intramarket analysis - stock index futures

--- MOMENTUM INDICATORS ---

Stochastics Oscillator

- calculate closing price relative to range

- %K line - Main Line

- %D line - Moving Average of %K line

- Buy when lines move below 20 (oversold) andhook up (safe: to cross 20 again).

- Sell when lines move above 80 (overbought) and hook down (safe: to cross 80 again).

- Buy when %K rise above %D

- Sell when %K descend below %D

- Buy when stochastics move higher but price go lower

- Sell when stochastics move lower but price go higher

William %R

- same as Stochastic

Relative Strength Index (RSI)

- similar to Stochastic, just that RSI calculate closing price relative to prev closing price

- need to tweak to make it more accurate

- in bear market - range is ard 60 and 40

- in bull market - range is ard 85 to 45

--- TREND INDICATORS ---

Moving Average

-lagging indicator ->use to confirm trend

-Price trade above 20-day -> weak uptrend

-Price trad above 20-day and 50-day MA + 20 day MA above 50-day MA -> strong uptrend

-Price trade below 20-day and 50-day MA + 50 day MA above 20-day MA -> strong downtrend

-During uptrend, 20-day MA moves up and cross over 50-day MA ->BULLISH

MACD

- trend following (lagging) indicator -> slow

- MACD line above signal line (difference is shown on a bar chart) -> uptrend

- buy/sell signal -> MACD line crosses signal line

Commodity Channel Index

- Short term

- Buy long when indicator breaks above +100 and sell when it break back below +100

- Sell short when indicator fall below -100 and coverl when it break back above -100

- Longer term

- Buy long when indicator breaks above -100 and sell when it break back below +100

Bollinger Bands (BB)

- Volatility based

- sharp moves tend to occur after the Bands tightens (reduced volatility -> consolidation)

- first increase in volatility after a consolidation tend to mark the start of the next move

- moves starting at one Band tend to move to the opposite Band before reversing

- Rallies and reaction that take prices temp outside the Bands usually are assocaited with trend reversals (exhaustion)

Average Directional Index (ADX)

- Buy when +DI rises above -DI

- Sell when +DI crosses below -DI

- ADX above 30 -> up or down trend is developing

- ADX below 30 -> no trend

- Buy when ADX slices above 30 and move higher with +DI and -DI head south

- Sell when ADX slices above 30 and move higher with -DI and +DI head south

Ichimoku Kinko Hyo

- Tenkan Sen - shorter term

- Kijun Sen - baseline

- If the price stays above the cloud then there is an upward trend.

- If it stays below the cloud then there is a downward trend.

- If the price is within the cloud then the market is flat.

- If Tenkan-sen line moves sideways then it is a signal for a flat market.

- When the price exits the cloud downward it is a sell signal, upward is buy signal

- If Tenkan-sen crosses Kijun-sen from above it is a sell signal, and vice versa

- Kijun-sen and cloud edges are very strong resistance/support levels

--- VOLUME BASED INDICATORS ---

Volume

-Volume should confirm price movements, eg. breakout to upside on strong volume

-If NOT, non confirmation alerts us that the price action may FAIL

-Low-to-average volume + pullback in uptrend ->BULLISH

-High volume + pullback in uptrend ->BEARISH

-New high + weak volume ->BEARISH

-Soaring price + explosive volume ->BEARISH (overbought)

-Huge selling + high volume -> tradable bottom (oversold)

-Important low + steady volume for days -> BULLISH

On-Balance Volume Indicator (OBV)

-OBV usually follow price

-buy/sell signal -> OBV diverge from price

-OBV positive -> OBV tick up or going up

-esp meaningful if coincide with MACD/Stochastic etc

Price Volume Trend

- Trading signals same as OBV

Volume Accumulation/Distribution (V-A/D)

- close nearer to high, larger percentage of volume added (accumulation)

- close nearer to low, larger percentage of volume added (distribution)

- buy -> line turns from down to up

- sell -> line turns from up to down

- divergence from price

Money Flow

- derived from V-A/D

- signals same as Stochastics (overbought above 80 and oversold below 20)

- tweak the period to get more accurate signals

--- MARKET INDICATORS ---

Stock Index Futures

- Very short term leading indicator

- ESSENTIAL for intraday trading

Stock Index

- Stocks will normally follow its index

- Look out for stocks diverge from its index by alot

--- SENTIMENT INDICATORS ---

Put/Call Ratio

- work best in trending market

- one day's reading is not accurate

- above 1.00 -> Oversold

- above 0.60 -> Bearish

- below 0.50 -> Bullish

- below 0.40 -> Overbought

Volatility Index (VIX)

- VIX of 15% means options traders thinks S&P to move in 15% range over the next 12 mths

- VIX and S&P Index tend to move in opposite directions

- below 20 -> Overbought

- above 40 -> Oversold

VXN

- same as above, but for NASDAQ

- Momentum Indicators works better in non-trending markets, while Trend Indicators works better in trending market.

- Parameters of the indicators can be tweak to make it work better in the market it is in.

- Use different types of indicators to confirm each other's signals

Tick

- number of stocks ticking up minus number of stock ticking down

- extremely short term indicator

- +1100 -> overbought

- -1000 -> oversold

- use in conjunction with Futures Chart

Trin

- 0.5 to 1.0 -> favours long position

- above 1.2 -> oversold

- above 0.5 -> overbought

Trading Mistakes

TRADING MISTAKES!!!

http://www.decisionpoint.com/TAcourse/TradeMistakes.html

Summarising, they are

-- Letting small losses turn into large losses.

-- Refusing to take a loss at all.

-- Overbetting.

-- Bottom fishing/Catching falling knives.

-- Averaging down.

-- Shorting bulls and buying bears.

-- Confusing the company with its stock.

-- Falling in love with a "story."

-- Following the leader.

-- Buying IPOs.

-- Finding the Holy Grail.

-- Overtrading.

-- Excessive tape watching.

-- Being undercapitalized.

-- Letting the tax tail wag the stock dog.

-- Relying on gurus.

-- Thinking this market stuff is easy.

-- Thinking rather than looking.

.