. Write down major 3. Write down major 4. Okay, now you have a
Example:100 RIMM @ 37100 DCLK @ 62100 BVSN @ 33
100 NOWL @ 19
support levels (no mare‘than 5% lower thanwhat you paid for thestock) for each stock.These are your stoploss areas (you will sellif the stock drops tothese prices).
Example:
RIMM Stop Loss = 34 7/8DCLK Stop Loss = 69 3/4BVSN Stop Loss = 29 7/8
NOVL Stop Loss = 17 7/8
resistance areas and profittargets for each stock in theportiolio:
Example:
RIMM resistance = 46, exittarget = 44-46
swing trading plandefined. This is critical.
Another tip to rememberis to use trailing stops inyour swing trades as wellas day trades (seeModule 1 for more on
this)... eg if you buy at 33and it goes up to 34 1/2,your trailing stop is at 34,which means you willsell at 34 to lock in a 1-point profit if the stockgoes down to 34.
 
DCL resistance = 70, exittarget = 68-70
BYSN resistance = 40, exittarget = 38-39
NOVL resistance = 22, exittarget = 21 7/6
Finally, you wait and watch. Let's say DCLK goes to 68 1/2 and you see another oversold stock starting to rebound.‘Well, you can sell your DCLK here since it's near a resistence level, book the profit, then go buy the other stock,“rotating your capital" into a higher-percentage trade.
Let's say that NOVL drops to 17 7/8, so you sell it, taking a minor lass. Your 12% gain on DCLI outweighs the 4%loss on NOVL, so you'te still at a profitable 3:1 reward:risk ratio.
You simply keep doing this process, rotating your capital into new stocks far 2-day to 2-week swing trades, sellingwhen the stock has hit a new high near a resistance level, and buying steck that's either ouncing or breaking outabove a key resistance level. It works - try it
Diversifying Your Stocks by Sector
Finally, let's look at managing risk by diversifying yourportfolio by sector. You shouldnt, for example, justswing trade all computer stocks, or internet stocks, or
brokers,
Try spreading your picks among several differentsectors so that you maximize the odds that at leest oneof them will do well on a given day This is a "swing
trading hedge"
For example, the stocks in the above example are all from differentsectors. You might include 1 semiconductor (eg VTSS XLNXAMAT INTC), 1 telecom (T WCOM), 1 wireless (QCOM AVE), 1retailer (WMT ROST) and one pharmaceutical (AMGN BGEN), forexample.
All sectors don't mave together, some days one sector will take thelead and others may be weak. In swing trading a portfolio, makesure i's diversified into different, strang sectors.Module Swing Trading Strategies PREVIOUS NEXT
 
Back to© Swing Trading Technical Analysis & Charting Part 4: MODULE 420/50/100/200 MAs, using MACD° Points:© Moving average lines play an important role in helping @ MA Lines are very useful in helping us determingyou to determine where other tradere will eee eupport how to play the 3 major chart patterns
                  
and resistance leel ncial trading firms buy and sell large quantities 1; dial Reales rt @licaie teaitaneof stacks based on equ that include MA lines, 80 sn ~uid be on the lockout for bounces” and 2. Bottom bounces off supportisha eka thio encitard iba Playing the supportiresistance in @ range«Tha mast important lines to pilot are the 2050 100 and
The chart patterthese three gatlems in motion, captured MayDis @ pair of bes that you can use to help Nolioe' ir: ulc ios iw tien: 1% lee:determine likely entry and exit points 28 well, when the have @ pair of charts: month “big pacturlines cross each other it signals a trand r the 1D-day "swing trading” chart
 
ih below are great example
oe That
            
    
 
BREAKTHROUGH SWINGTRADING PLAYABOVE RESISTANCE USING MA LINES
PLOTTING 20 50 100 200 MA LINES: 6-MONTH (SCO CHART
Notice in this6-month chart — [C50 EA fost chat) PI[V MISES] 4) sir SR
that CSCO has:
1) always stayed above its200MA (white) line,
2) has almost always stayedabove its 100MA (orange) line
What does this tell you?Cyerall, i's a strong stock,and that any weaknessshould be seen as a buyopportunity. It looks like 50-80is the “wide range" for thisstock, and that the 100MA, at63 should be considered akay support level. Use the MAlines to “map out" support andresistance for trading here.
We need more detailedinformation to trade it, though,so we look below at the 10-day chart:
 
 
10-day CSCO chart: Whatdo we see here?PLOTTING 20 MA AND MACD LINES: 10-DAY CSCO CHART
Sure enough, CSCO bouncedoff low 60's, once on 4/24 and
again on 5/3. csco =] firtevaChat | PIV @(Sjes) | Safir GR,
ould piace ouright under deor about 59 3/4 or so
 
Our exit target should be rightunder the next MA line, the100 MA, at about 70 Sao, theswing trade is
  
A breakout play would be tobuy once CSCO has crossed70 1/2 or sa, with a stop rightunder 70. Bottom bounceplay: Enterfuy low 60's, stoploss right under 60, exit target68-69
Using MACD: notice wherethe lines cross al the bottorn?First time/buy signal istowards the end of the day on4/24, sell signals at the top on4°26 and 5/", buy signal on513.
 
BOTTOM BOUNCE SWINGTRADING PLAYOFF SUPPORT USING MA LINES
PLOTTING 20 50 100 200 MA LINES: 6-MONTH CMGI CHART
MA Lines: CMGI has “lost 200MA support at 80, so major fund [OMG [Daly Chatmanagers probably wont aebuying ti it's aver 81
 
 
 
 
Notice that unlike CSCO fromabove, the MA lines (especiallythe red 20MA) have crossed over,a bearish downtrend reversalpattem
In general, avoid these types ofstocks for position trades, theswing trades you enter must usea previous (eg recent or 52-week)low as a stop loss level
One bullish signal, we haveCONSOLIDATION (choppiness)around the 50-70 level on thechatt, this can precede a trendreversal.
Pop Quiz: Whera should yourmaximum stop loss be for CMGIbased on this chart? Answerbelow.
 RANGE TRADING SWINGTRADING PLAYUSING MA LINES
PLOTTING 20 50 100 200 MA LINES: 6-MONTH SPLS CHART
Finally, we have SPLS, a classic [gage [Daiychan =] P|) SUC esIA| Bape) OR
“rolling stock". You can see therecent trend is down, and that 22Is hard resistance, at the200MA,
 
The other MA lines are notuseful for us in trading this stockbased on the chart to the right,What else do you notice "bigpicture"?
When SPLS dropped to 17 inNov 99 there was a huge upsidereversal, This is an importantexample of the kind of "bigpicture’ chart patterns youshould be aware of.
 
PLOTTING 20 MA AND MACD LINES: 10-DAY SPLS CHART
The MACD told us we had a buy —[SPLS Ey inevaichar ] P| S/S) 4) 5:Jir| GR
opportunity on 4/27 and 4/28,when the lines crossed to theupside.
Notice the heavy selling volumeon 53
Based on aur 6-month chart, |would enter along position at 171/4 and expect a bounce back toat least 18 1/4 within a few days.
Knowing a stacks’ trading rangeand playing the channel isafairly good way te swing tradeMake sure you're not channelplaying a stock that's run uphugely in the last severalmonths, those are "bubbles" thatmay burst, like the biolechs didin Jan-Feb 2000
Your stop on this swing tradewould be right under suport at16 3/4 or so.
 
These sets of chart patterns should help you identify similar high-percentage trading opportunities as they occur.In swing trading, you must always look at both the "big picture" 6-month (or longer) chart as well as a closer 10-day chartStops must be adhered to right under support levels, to insure against |arge downturns.
Plot similar graghs using bigcharts.com or your quote provider, and see where you should set slerts and make tradingdecisionsFour
* Swing Trading Technical Analysis & Charting Part 2: Identifying
Swing Trading Strategies
PREVIOUS NEXT
Back toMODULE 4
Trends, Channels and OverboughtOversold Conditions
@ Main Points:
@ Unlike daytrading
at the “big picture
determing good ent« It's frequentlymonth, 10-da
 
 
swing trading requirasnubiday trading range:
 
 
and ex
  
fuld intraday time
   
to helr
 
determine where a good entry and ext is
« My favonte strategies in
towards the lower and of a trading
   
OVERSOLD SWINGTRADING CHART PATTERN
ab
 
oversolc
 
 
trading invme or bul
 
previous resistance level
‘ll show you a number of illustrat
werbough, trending and
USING 10-Day & 6-month Charts
Notice in this 10-day chartthat PSUN has:
1) sold offto a low of 11 1/2-12, at which point you seehuge buying volume.
2) started to rebound from the12-13 area from a previous 10-day high of 23
What does this tell you? Thefirst thing to do is to checkwhy the stock dropped (same-store sales weaker thanexpected)... then, decidewhather yau think the drop inprice was overdone or not
The trade would have been tobuy at 12, using @ stop lossright under 12, eg at 11 1/2 orso for the swing trade. 10would 5 the absolutemaximum stop loss for thistrade,
We should also look at the 6-month chart for PSUN as wall
10.Day
PSUN Chart:
 
u 10 look
0 help
6.
ahve buying
ying
odchannel
© 10-day charts an ticularly helpful inavoiding low-percentage trades, eg buying in themiddis of a 10-day trading range és not a good idea
 
 
af ewig trades© Once you learn to recognize high-percentage charattame, you will be more likely to be successfulradeng with the market sentiment. This |awe you what 1
  
 
 
Ook for in several key chart
 
pattems
Swing tracing is almost all hased on chart pattamrecognition, adding things like recert prmavemart and MA, lines, volume and #
  
additional masons to anteniexit your trades
Fer esas =) (P|) Si sf A) |
6-Month PSUN Chart:
 EET force SIP TV ea aT
 
10-Day CIEN Chart:
(=) ESE] P TV tee 4 Ti
   
6-Month CIEN Chart:(er) ES) Pv Slices) S/R
   
10-Day PUMA Chart:
| PITY Siete 4) sir aR
 
6-Month PUMA Chart: 
10-Day RNWK Chart:
[Fe By rr ea I a 5
 
6-Month RNWK Chart:| 3] PIT s)sesl| 07 ma
k
 
10-Day SBUX Chart:
[RR fro eT SA
 
10-Day XLNX Chart:semiconductors (AMD WTX
MLN) have all been doing well ot ay fivevatiet PITY SUSiEalA| Safir CN
     
The chart shows steady buyingover the last 10 days from low 60sto high BUs. We see a resistancearea at the top naar 90), right? Sa,you'd wait for the stock to go aver91 of so on volume before buying,or, wait for a bounce off a decadenumber support level (eg 80, 70,60).
Recognizing trends is helpful,when there's no sellers than itmeans most people are confidentthe stock price will continue torise over time, and are hesitant tosell
Right nowy, it looks like a tradingzone of 80-90 defines where the
next trade opportunities will be forLINX
   
 
wate
     
any kind of tradin ys looking for high-percevalp you learn what to laok for in
 
ge trading setups, ones where ourng trades
reward is small as f
ssible
 
  
at werw bigcharts.com # you dont have a pay quote service provider
 
 
Swing Trading Strategies PREVIOUS NEXTBack to+ Understanding the Mechanics of Swing Trading: Recognizing Recurring MODULE 4
Stock Patterns & Likelihood of Fibo Retracement
           
 
° We port and ance {o identify dacent © | call these “recurring patter:trade entries and exit points, right? Okay, let's lnok price points at which buythis @ bit closer using what are called Fibonaced feverse, or, points at wi
     
tracements. ie"
   
olidate and “chop artrading,
during roamingically, you look to enter and exit positions baOn a stock retracing off lines at approximatel
       
  
     
 
   
   
     
50% and 62% of the total amount of the stock at Eouis com... they have aprice's mavemert in ane direction great free online "TA from A to 2” resaurce there© For daytrading, this roughly Gaddes the day's trading 00, i's required reading for everyone, along withrange, once established during the 9:50-10:30 penod Clearstation.com(roughly, that's where the highs and lows are often . ot need to mecharecallymade), into the medpoint and the top third and calculate these lines, of use sofware for it, itbottom th becomes 100% intuative, ag you get a feel forao Giitiedetovediginties upward talent’ automatically calculating these reversal areasmonth and Gmonth charts, along with the 10-day f course, occurs after youve spent
 
of hour aking a thousands of charts
@ Again, 2 good rule of thumb is to look first for the
charts, toyou plan your
 
h fibo retracement linje shead of tims... you
 
    
1!
   
identify where the stock may be likely
 
un inte midpoint of a trading range (eg notice a stock willellers (#f you're long) and get ready to ext the trade make it vove” from 9:30-10:30 then settle inbafore th k goes back down at roughly half the
low, the mi
  
ince between the high and> This is where you should notpercentage zone, rather look to
buy off the fino bands and the previous day
 
   
be trading, low
 
and low support and re
 USING FIBONACCI RETRACEMENTS WITH10-DAY CHARTS FOR SWING TRADING
Look for trade entries andexits within a trading rangeat the 3B%, 50% and 62% (or,roughly the midpoint and1/3 and 2/3 points of thetrading range)
See in this 10-day CRDSchart that:
1) our 10-day range is 7 to 14
2) after running up, the stacksold off down to a low ofroughly 1/3 of the range, or
9 the buy point would be on abreakout above this level (alsoa good secondary target tocover a short in the stock offthe top of the range, as is68%, the first cover target)
3) buyers brought the stockback up the 2/3 of the totalrange, to roughly 12 4/2
4) the next buy would be on abreakout above the range,above 14 or so, or, offabounce that occurs on any ofthe priot bounce areas, eg off9, 10, or through 12.
We look at a lot of midpoint(fibo 50%) trading in this 10-day chart of RNWK:
 
1) Ok the chart is busy, |wanted you to look for thesame types of things that | dowhen trading RNWK
2) The buy on 8/29 wasobvious, as it was retesting aprior low. . the stop loss wouldbe at 44 1/2 or so, but we didin fact gel buyers, al 10.30 asusual, off support. High-percentage easy day or swingtrade entry.
3) there are a number of minorbreakouts earlier in the weekthat would have been fine fordaytrades (can you spot themin 6/23 and 8/287)
4) the midpoint becomes anew support level for the stockon 8/31, as it went through 471/2 on good volume
5) It broke out above a keyresistance area, 50.
6) The next buy would be over50 1/2 on good morningvolume, with ¢ stop loss atright around 50, Or, off support
EROS F][interaichat Fl! PIP @|Sfes| a) Safir GR
 
NW] =] finewalchat =) PI Pv @{Sles| a) Safir RN
 at 47 1/2 bounce, or offsupport at 45 bounce
Finally, let's look at 10 daysof KANA - another well-annotated chart 1o help yousee the preision with which |look at stocks. By the way, |do all this stuff | haveannotated in my head, |wanted ta show you what linlooking at when | see thischart, using fibo retracements.
[ran]
=) Jmevacrat =) /P)]¥ @) Ses) A) Si] | ORI
aa
feb rIias1) Okay, we define our range :as 34 1/2 to 40.. note that we adidnt know where a beittorn areswould attract buyers til 6/29.which Is why we just watchedit til then ..never try to catch afalling knife or guess where thehotter is, for all | know itcould have gone to 17... 1wanted to see buyers cometack in with strength.
2) Having defined our tradingrange (on &29), we then drawcur midpoint line, at 37, andpatiently wail to see buyerscome back in above 37. if youare a swing trader who cantwatch the market closelyintraday, you might enter abuy limit order at 37, forexample.
 
3) Now we know there will probably be resistance al the previous high, al 40, especiallysince i's a whole decade number, right? Right? Ok then... so our exit target is right underAQ, at, say, 39 5/8 or 39 3/4 or so. We lock in a2 5/9 point profit on an overmight swingtrade hold.
4) Did you blink and miss it? Remember this is how we trade professionally - you have tobe aggressive and know your technicals and execute trades accordingly. It takesdiscipline, study and practice. No it’s not easy. A9-5 day job is easy | suppose. Thenagain, you get paid a while lot less for that too!
Does this make sense to you? Not yet? That's ok, it will in time - just remember to use the 1/3, 1/2 and 2/3 as a rough trading guide to help youdecide when to get in and cut of trades. This also applies to intraday and te longer-term (eg 3 or 6-month) time intervals as well. Apply it to theunique trading style and risk management strategy you have for your stocks.
Module Swing Trading Strategies PREVIOUS NEXTa Back toMODULE 4
« Chart Patterns: Buying into Pullbacks vs. Dead Cat Bounces
When tt comes to Identifying good trade entries forswing trades, | like to pay attention to both “deadcat bounces" and buying into pullbacks on slow
© Consolidations and why they'e importantwhen you'te bottom fishing: a ‘consolidation’ iswhen a stock has reached a tight trading range
uptrending stocks.
Dead cat bounces: when a stock sells off morethan 15-20% for a big gap cown, and gets a waveof buyers within the first trading hour after the gapdown...{these are also good for daytrades,especially when played premarket over ISLD).
A note on buying bottoms: trequently, Ive foundthat the first bottorn Isnt'the ‘teal’ bettorn, asecond selling wave can also follaw, which can hepainful.which is why stops are so important ..lookfor consolidation (see column to right) before tryingto buy # bottumn, or an otherwise compellingtechnical reason on the chart, eg it’s bouncing off a52-week low thats a decade number (like 20 or 30)at 10:30...and of course you need to still keep atight -5%) stop.
Buying into pullbacks: a stock has beengradually bought over a long time period (eq 3-6months) in a slow steady uptrend....you can buy iton a pullback, again with a stop loss right under aprevious low
 
that it hasn't yet broken cut of Let's say AMZNsells off down to 28 over a couple of days. .doyou buy yet? No... you wart for either a sharpreversal (more of a daytrade), or wait for thestock to “settle” into a tight trading range for atleast 2-3 days. Why? Because this tells youbuyers end sellers are evenly matched, eg thesellers are ne longer in firm control. The stacklooks flat. You then buy when the stock rnakesanew high right above the trading range (with astop under the top of the range). This tells youthat buyers are in control, at least for now. andatrade can be entered from the long position.The inverse of all the above is true for shorts,naturally.
Another good example is HLIT after it sold off, itstopped selling off and traded in a tight range forseveral days before geiting buyers, at whichpoint a high-percentage trade entry could bemadeBOTTOM FISHING (BOUNCE)CHART PATTERNS
6-month and 10-day DISH Charts:
In swing trading, we <=: baoalways pay attention to Daily Chat Pil¥ @iofen al osboth the 3-6month and 10-day chart.
Here's a tip you never hearabout: when buying into dipsfor a downtrending stock,Make Sure that buyers re-emerge regularly and thatit's not a slow decline with nobuying interest (see ETYS forexample)...in other words,make sure there's somevolatility, ups and downs, inthe 6-month or 3-month chartif you're buying into adowntrend. You can see thisin the 6-rnonth DISH chart tothe above right.
Lets look at the 10-day DISHchart now for the teal
action’. . Where do you seeconsolidation in this 10-daychart? The middle 4 days ors0...eventually buyers winand the stock breaks above
34172, where a swing tradebuy should be entered. 6-month and 10-day DCLK charts:
Now let's look at DCLK, my DCL =] (en) PTV Sem al Be
 
favorite daytrading stock ofthe moment. The downtrendlooks pretty ugly, but,looking at a 1-year chart yousee that 30ish is a 52-weeklow and we can expectsupport there The stockconsolidated around 40 for acouple of weeks, beforedropping (and then
bouncing).‘When buying swing trading OCLK | fintervalChat P| v|&) Qf a| EA
bottoms, | often have foundthe first bottom is not the real ||Fat
 
bottorn., we see this inDCLK ..| bought at 33 here,thinking it was the bottorn, it Asold off some more (you Pdwould stop aut at 32 at theend of the day, taking asmall lass)
   
The next day, you can see itdropped all the way down to
29-30.. you would buy againonce it breaks aver 30 intewalChat =] PW
Now the real question is,where do you sell? | wouldsell right under 40 (previousconsolidation zone, wherebuyers and sellers disagrae),and re-enter right above 41 orso. Earnings are due out,
   which provides another gap\wild card’ 6-month and 10-day HLIT charts:
HLIT: Strong selloff down to HLT Fle =] P| [v & Qf al
low 20s from a high of160...hmm probably a goodtime to buy, with an exittarget of 60-70 over a one-quarter (3-month) timeinterval
| like the consolidation rightover 20, this looks to be thebottom for HLIT.
   
   
In looking at the 10-day chart - eee alia _for HLIT, we enter a buy afterthe breakout from the HLT El fimewa Chat =] Pl vI@lo ea Al 8
consolidation range af 22-25 ..eq we buy the stack at25 1/2 or so. Our initial exittarget is roughly 1/3 to halfthe difference from where itdropped. .eg it dropped framAl, we buy at 25 1/2, we lookto sell at right under 30 (29 col OF1/2) the first tim, then buyagain at 31 or so and look tosell again at 37-39. Sit out =k ;
the ined areas at 7 . a‘decade’ numbers like 2030 10-day Nasdaq Composite and Goldman-Sachs Internet Index charts:40, sell at the 8-9 and rebuy
in at the 1-2 scOMPO, | interval chat) P| Ve Sfes
Using the Composite andSector Indexes to swingtrade:
Breakout!
Ok, we also always watchour sectorfindex charts right?The one thing | want you totake away from looking atthese two charts (NasdaqComposite and Internat internets are weak, short/sellAwait for a bounce (dont holdcomposite) is this: longs)
The §GIN is underperforming —_[SGINT =] Jintervalchat >] P| |v [@) Cea
 
the SCOMPQ, so you dontbuy internet stacks yet
(wait for key support areas atthe §GIN for a bounce), andlook for other sectors to playin long right now, eg semis ornetworkers, whateversstrong....use the divergenceas a relative strengthindicator.
 
BUYING INTO PULLBACKCHART PATTERNS
10-Day COVD Chart:I find it difficult to buy into
uptrends, as | hate a be the coe) 2] firtevaichat =] P| [Vv SJE 4] 2“bagholder" buying the top ofthe day But, we need to beable to buy strong stocks thatare getting stronger How do wedo this?
One strategy is to buy dips andbreakouts in uptrends.
‘We said COVD was a buy at18, ok it was, now what? |would have sold right under 20,buying again at 20 1/2... you seea consolidation here onthe last 49.Day RIMM Chart:day...I'd sell here and wait to
rebuy a dip beter. Dugg he, un | Seup, you try to buy towards the RIMM 2] finters chet =] IP [I @/Sifea Al 8
 
‘bottom 13rd" of the day'strading range as a general goal
Looking at RIMM here, you seelots of buying over a 10-dayperiod. What do you noticeregarding time-of day effects forRIMM? It generally tends io getafternoon buyers, do, this is astock I'd look to buy more oftenin the aftemoon, say 1:30-2pm,than in the morning. The low ofthe days tend to be at 10:30and in the late afternoon aswell, say at 3-3 30. These arethe buy times for this stock.
 
erm of"of a few
   
el, that should halp with some of the patterns you should be on the lookswingtrading bottom bounces and uptrend buying times. Get to know the ‘personalstocks and trade those
  
 
Swing Trading Strategies 4PREVIOUS NEXTBack to« Identifying High-Percentage Swing Trading Patiems: It's Saying MODULE 4
“Buy Me Here”
@ Main Points:
    
© Woe covered a number of effective swing trading Below, lve gathered a handful of whatn earlier lessons. Thes tesson will help consider to be high-percentage swing tradingterns that should be chart pattern os that are worth watchingrrisk ma for trade unities (August, 2000)
Remember that good traders respond
 
      
     
 
profitable if playedaking strat
Remember from one
    
 
 
         
e quickly to buy and sell pattems, versusthat you do not want 1 trying to predict what «al happen. Ive heenadin you're bar bumed, as we all have, by “trying to catch @
     
or
 
sta pressuring yourself to falling knie"...in swing trading many tradars
   
 
  
       
 
 
want to be a snwper booking for selective high- were vaped