• ignore the RSI until a profit of 12% has been attainedNeither of the losses is avoided, but all 4 scratch trades yield a profit of 12%. The linear phaseprofits are much reduced but the net result is:• 11 profits totalling 390p• 2 losses totalling 40p• Total net profit 350p
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GLOSSARYBack testApply a trading technique to past price data and/or charts to see whether the technique worksand, if so, how well.Bear squeezeSellers go on strike just at the very time that the bears are desperate to close out their shortpositions (usually because a piece of news has upset bearish expectations). Those who want togo long and the bears scramble for scarce stock, driving prices up substantially in a short spaceof time. It is often the cause of the bearish signal reversed point & figure signal.Bollinger bandThis indicator is named after its inventor, John Bollinger. It uses a moving average as its startingpoint, then plots a line above the moving average and a line below the moving average. The distanceof the upper and lower lines from the moving average can be a percentage selected by the user,or one or more standard deviations. So a 21 day 7% Bollinger band will plot a 21 day movingaverage and a line which tracks the moving average 7% above it and another line which tracksthe moving average 7% below it. If you plot the 21 day 7% Bollinger band you will find that95% of the year’s price action falls within the upper and lower lines. When the market penetratesone of the lines, it is regarded as overextended. It is yet another measure of overshot momentum.Complex swing high/lowA correction which contains at least 3 days counter to the prevailing trend, but which has takenmore than 3 days to form the high/low because there are one or more days which haveinterrupted the rally or pullback by moving in the direction of the main trend.CorrectionA move counter to the prevailing trend.Down dayThe market records a lower high and a lower low or equal low than the previous day.Exchange Traded Fund (ETF)A type of fund which has already attracted $124 billion in the US. Like an investment trust,ETFs are quoted on the stock market. They are therefore more liquid than unit trusts, as well ashaving a narrow spread between the bid and the offer price. However they don’t have the samedisadvantage as investment trusts of trading at a discount to net assets because shares arecancelled each time ETFs are sold. Arbitrage possibilities mean that the ETF share price staysclosely in line with net asset value. Effectively, ETFs are low cost market and sector trackers.There is no stamp duty on ETFs.
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False startAfter forming a 3 day swing high or low the market appears to signal that the correction is overby reverting to the main trend. The next day, and/or the day after, it changes its mind andcontinues the correction by moving counter to the trend.FTSEFTSE International is a joint venture between the Financial Times and the London StockExchange which compiles a range of market indices. I use the term FTSE throughout the bookas an abbreviation for the FTSE 100 index of leading companies in the UK, the most widelyused measure of the UK’s stock market.Inside dayA day which has a lower high and a higher low than the previous day. On a bar chart, its dailyrange is therefore contained ‘inside’ the previous day’s bar. Inside days are ignored for thepurposes of counting the number of days in a swing- see the BSkyB chart on page 49. They arenot ignored completely. Once the 3 day swing low has been completed, it may be followed byan inside day. If, on the following day, the inside day’s high (low) is breached that activates thebuy signal. I know this is somewhat illogical, but it is practical.Intraday reversalThe market breaches a trend change point, apparently signalling a new trend but then during theday it reverses substantially, so that by the end of the day it looks much more like it has formeda (deviant) swing high/low rather than a change in trend.Kagi chartsThese charts are not well known but they work on very much the same underlying principle asGann’s swing charts, except that they are based only on closing prices, which I would havethought is a serious disadvantage, although I have not investigated the matter.Linear phaseA substantial move in the market or in the price of a share. For part of the phase, prices advanceor decline in a straight line without any corrections of note. The duration of linear phases arevariable from 3 weeks to 16 weeks.Momentum oscillatorThe advance of the PC has seen an avalanche of arithmetical indicators for traders to use.Number-crunching is precisely what the PC is good at. There is a wide variety of momentumoscillators which can be used to judge overshot momentum. Almost all of the indicators oscillatebetween extremely low readings (oversold) and extremely high readings (overbought).
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Glossary
Not held basisYour broker accepts an instruction which the market will not accept, such as an order to executean option on LIFFE only if the FTSE 100 index crosses a certain point. Your broker is doing youa favour. ‘Not held’ means that if he misses the trade because he is busy doing other things, ormore realistically, he’s a little slow or late in executing the trade, you can’t complain. He is notheld to account for your fill.Outside dayA day which has a higher high and a lower low than the previous day. On a bar chart, its dailyrange is therefore ‘outside’ the previous day’s bar. How to count the outside day? Should it becoloured blue (an up day) or red (a down day) or a different colour entirely. To some extent theproblem solves itself. Outside days are often caused by a pronounced market reaction to a pieceof news. The early strength (or weakness) is completely reversed and the market usually closesnear its lows (highs) of the day. As a result I count outside days as down days if the close is weakor up days if the close is strong. This is the only time the closing price is relevant on mymodified swing charts, and it is only relevant because there is no better way, in my opinion, ofcategorizing an outside day. There is one general exception. The day that the swing high is madecannot justifiably be categorised as a down day, since it is defining the high, so an outside daywhich creates the swing high but closes near the lows of the day is not counted as a down day(despite the fact that the software has coloured it red). Vice versa for swing lows.Point & figure chartA system of plotting price movement in which the plotter disregards time and makes a new plotonly when there is (predefined) relevant movement either in the existing direction or as areversal to the existing direction. Price changes are recorded in columns of Os and Xs.SETS (Stock Exchange Electronic Trading Service)The electronic order book operated by the London Stock Exchange. Prices are now order driven.Anyone can pay for access to market depth information (price levels and quantities of bids andoffers by market participants).Short-termI am not sure there is much profit in defining this term. It means different things to differentpeople, and also different things to the same person, depending on context. The swing tradertrades short-term trends. A valid short-term trend will usually last at least 5 weeks and usuallynot longer than 16 weeks, although it is immaterial if it does last longer.Stop orderAn order that becomes a market order when a specified level is reached. A buy stop order isplaced above the market and will become a market order to buy if and only if the market risesto the level specified. A sell stop is placed below the market and will become a market order tosell if and only if the market falls to the level specified. It can be used to terminate or to initiatepositions. It eliminates the need to be wedded to a computer screen on a full-time basis.211
Marc Rivalland on Swing Trading
Swing highCould theoretically refer to any intermediate high. In this book it refers to countertrendcorrections. In standard Gann theory a relevant countertrend correction in a bear market, a swinghigh, is made by a minimum of 3 consecutive up days. In my modified system, there must be atleast 3 days, but the up days needn’t be consecutive. Complex swing highs will often take 5-8days to form. Vice versa for a swing low.Trend change pointShorthand for the highest point of the last upward correction in a downtrend or the lowest pointof the last downward correction in an uptrend. If either point is violated the trend is deemed tohave changed.Up dayThe market records a higher high or equal high and a higher low than the previous day. The closeis irrelevant. If you hear on television that the market fell, that is based on the closing price. Itmay yet have been an up day on a bar chart..
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Index
Advfn.com 21
Gann swing charts 24-30
Back testing 70-71
Gann, W.D. 10, 21, 24, 46, 72, 187
Baruch, Bernard 141, 186
'Indicatoritis' 173
Blumenthal, Earl 120, 123, 147, 150
Inside day 32
Bollinger Bands 76, 79-80
Integrating point & figure and swing charts152-158
Buffett, Warren 9, 20, 133Bullish percent charts 173Burke, Michael 90, 98, 107, 111, 119, 129,142, 173Candlesticks 173CFDs 17, 22Change of trend signals 45-47, 67-68, 69equivocal change of trend 50-54, 62Cohen, A.W. 16, 90, 92-93, 110, 112,140-142, 148, 173
Intermarket cross checking 62, 65-66Intraday reversal 56-58Investors Chronicle 14, 98, 108, 109, 142,156, 171-172, 181Linear phase 17-18, 72-80Logic of charts 13, 95Long term buy and hold investors 3, 9Market trend 152Momentum indicators (oscillators) 163
Complex swing highs and lows 40-43, 48-55,64-65
Moving averages 171-172
Continuation of trend signals 48, 67, 68, 71
Moving stop losses 67, 69
Coppock indicator 172
Naked puts 179
Covered calls 181-182
Options 68
Davis, Robert Earl 106, 122
Outside day 32, 36, 44, 48
Disequilibrium 14
Overbought/oversold 163-165
Dorsey, Thomas 98, 118, 149, 173
Point & figure charts 90-95box value 93data to be used 92old economy stocks 136optimisation of 148-149reliability of 147-148trend lines 142
Dow theory 25-26, 46ETFs (exchange traded funds) 22, 189Failed signals 55-56False starts 55-61Gann angles 25
Point & figure signalsascending triple top 108213
Marc Rivalland on Swing Trading
bearish or bullish shakeout 128-133bearish signal 102bearish signal reversed 103bull trap 111bullish signal 101bullish signal reversed 104catapult 112-113descending triple bottom 115double top and double bottom 99-100high pole 120-121long tail down 118spread triple bottom 116spread triple top 109triangles 105-106triple bottom 114triple bottom with long tail 117triple bottom withlower highs 127triple top 107triple top with long tail 110triple top with rising lows 124-126Whipsaw 133Profit targets/taking profits 20, 69-73,140-142, 167Pyramiding 34Relative strength 173-174Reuters mini-pager 21RSIdivergence 168-169explanation of 162marks significant highs and lows164-166taking profits 167tells you something new 164weekly 170-171Sector indices 149Selling short 16Smith, Courtney 22
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Spread betting 22Spring trap reversal 57-62Stockcharts.com 21Swing trade/trading 8, 10, 11Trading all the swings 81-88Trading days 44Trading with the trend 141-145Trend lines 142-144Wilder, Welles 162Wyckoff, Richard 57Zieg, Kermit 98, 122, 147
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