column = good
chart patterns to trade, the right column = don't trade these. These are all 10-day charts.
=) [incite =) PI
  
Steady uptrend on volume; ok to buy on pullbacks Splke buying pattern, don't buy after it’s ran up, “if youmissed it you were too late", don't chase. Cornmonchatroom purmp n dump pattern to avoid.
ret zl ivsate =) Pi[y S)Slea a] SfTr Nae
  
Bottom bounce off oversold condition for no good
reason, buy after the bottom levels out for awhile in . . .consolidation pattem Indeterminate pattern: ATHM is not telling us much
here you might want to try and play the channel, buying at27 support, but it's a relatively "lovw-percentage" pattern.Volume and price action Is not telling me anything, andbesides the retracernents are pretty sharp, I'd probably getshaken out. | don't play until it breaks through 30
PS fre aI) PY SSE A) ST)
 
IB rr
Buying off key support levels. | had sold at the top (tothe left, at 9 5/8), | bought again at what | think is a bottomat 8 1/4 (on the right, 8 days later), see volume at the farleft and far right, these are supportiresistance levels forDECC (check with a 6-rnonth chart) Below is a sampletrade confirmation from March 8th
Making $1156 on 3-day swing trades -> Close P&L $ 1156.25rc ace Cc aso eee
[Stock [Bought | Shar. [Sold f+ Pa
D +
nal
 
 
Buying at a consolidation point this is risky bottom,fishing, we've had a Selloff in GENE fram 75 down to 30, atwhich point you see a lot of shares changing hands forseveral days with no price movement. I'd buy at 30 here ancputin a stop right under the consolidation level (say at 291/2 or so) The heavy volurne at 30 is what makes this one“ok to play", using a closer-than-normal stop.
 
fo alien a) Plw Galea) a)
  
ienT r Aub m y ee am m ;
Buying a cup-and-handle breakout: these are usually asafe breakthrough play, in this case | was in at the bottom(18 5/8) since | play SPLS for a Inving, sold at the 23 tap; agood trade entry would be on the breakout abave 20resistance and sell al 23. Since everyone knows them,though, expect selling shortly after the breakout.
[__ S| firwrctthe FIV SI Sies| 5) sir
 
ere
Cup and handle: well, if you weren't in from the bottomon this CL run, it’s too late to enter nowy. I'd put it on thewatchlist and buy only if it breaks through 55 on decentvolume in the rnorning or late atternoon, tor example |wouldn't initiate 4 new position yet.
 
for afc SPV Seal al TI
Ana
 
HLTH not too healthy here: Now, it's stillin a steadydowntrend, so 4 swing play might be risky on the waydown The heavy recent volume is a bullish |ndicator,though, so it's on my watchlist, make it break through aprevious resistance level (eg 40) before buying. Dont catcha falling knife, you might get a bounce on the way down butit could have a ways further. Eg | recently got faked out byCCL, thought 32 was a bottom, actually it's 22. Missed it.
 
In a tight range: These are great for daytrading plays, but notfor swing trades, your risk reward ratio isn't good enough tobuy when the stock is chopping around like ORCL is here
Buy only if you see a heavy volurne breakout above the currentresistance level at about 85
Watch for additional Module 4 lessons an chart patternsand iechnical analysisFour
Swing Trading Strategies
@PREVIOUS NEXT
Back toMODULE 4
© Chaasing the Best Stocks far Swing Trading
Review our brief guidelines for “how to choose the beststocks for daytrading” first at_this link frorn Module 4This lesson will help you look figure cut whet types ofstocks make good candidates for swing trading. Again,swing trading is defined as trading smaller shares (100-300 is the number | use most often, may go as high as.(000, but not often), over an expected trading timeframeof from 2 days to several weeks
Far swing trades, | tend to “battam fish" more than |do buy breakouts, although breakouts are fine as well,especially candidates for overnight gaps up on goodnews or other buying momentum.
We look for chart patiems, and to a lesser extend, pre-eamings release momentum, analysts ratings and news,to help decide whether or not to enter a position. Charts:tule in TA.
It takes practice to learn swing trading TA, expectto spend at least 6 months ar so before the patterns‘start to become ‘Second nature’ to you, and for youta be able to trade prafitably consistently.
Trading is not easy money. Anyone who tells youothenwise is trying to sell you something. Stock pickingsites are a bit more valuable for swing trading than fordaytrading, but I still advise you to do your awnresearch and leaming.
+ There are 3 general types of swing trades to enter:
Buying towards the lower 1/3 of a ‘trading channel"Buying a “hattom baunce” for oversold stocksBuying a breakout above a key resistance level.
wre
» Leaming to trade these three profitably is how to makegood daily money on swing trades. Note | made close toa thousand dollars on 100-300 share trades held lessthan @ few days each on Fri. Apr? (IMGX/CHR overnightholds}
 
Swing trades should be held with the expectation of raking atleast 10% profit within a 2-20 day treding cycle.
Choosing the Right Stocks to Swing Trade:
This section will help you Jeam how to screen tor the best types of stocks to swing trede: whet price level? what to look for on achant? when to buy vs sell vs weit?
FUNNEL SCAN: --YR. iO-day. intraday Charts
We first introduced you to this concept back in Module 1 - doyou remernber how it warks?
Your stock scanning must start with the big picture of thestock's ratings, price movement, trading range and overall 1-yrtrend, This is the widest part of the funnel. Then we drill downand look more closely at the specific supportresistance areasfor the mest recent 10 days of trading, along with volumepattems before buying
In daytrading, we look at market (Scompa/String), 10-day, thensector ($cin, $sox), then intraday charts, followed by T&S,finally using level 2 to tine our entries and exits.
In swing trading, we start by looking al the analysts’recommendations (must be <1.8), volume patterns, 1-year chartand it's 200MA, 100MA, SOMA, trend and supportresistancelines. As long as | buy the stock somewhere In the lowest 1/3 ofthe day's trading range I'm happy. Or, if | buy a strong stockthat's breaking out above a key resistence level that's great too
Swing trading is much more approximate than daytrading is Myswing trading stops are often determined by the prior 2-3 monthsupport level.
If'm swingtrading, | may well let a §24 stock goall the way down to $19 3/4 before @ stop istaken.. it depends on how many shares you'retrading and for what time honzon. Of course if!were daytrading this same $24 stock my stopswould be no more than 3/3 of a point, more likelyjust 2-3 spreads.
The point? Swing trading has a wider ‘margin oferrr’, and requires more patience. Worst case,you may have to wait almost an entire quarter (3months, 60 trading days!) before a healthy profit isavailable (eg ORCL last summer, CCL now). |generally prefer to hold only 2-10 days maxhowever, as | do not want to tie up capital Waitingfor a stock to come back’.
Your scan should accomplish ane mainobjective: to narrow your list of trading stocks toa small hancful with the highest potential for priceImprovement in the near term. t's ike plantingseeds, you buy 100-200 shares of a handful ofstocks and take the profit from each one as it‘sprouts’ and the price has gone up over 10%.Examples:
Let's look at IMGX. (hy the way, | don't even know what the name of the company is or what they do, or who theircompetitors are, and I never will. | buy and sell based on chart patterns. | know earnings release/ratings for the
stock, that’s it)
All | know is, they IPOd about 6 months ago, have strong analysts ratings (1.7) and recently dropped back to retestthe low of the trading range, so I'm a bit interested:
IMGX 6-month chart: 6 month trading range 8 1/2 - 46
Usually, you want to look at the 1-yearchart and plot the SOMA 100MA, and200MA lines on it. See the DCLKexample below for more on why Thisstock IPOd 6 months aga, so that's allthe data we have to work with,
You can anticipate that buyers will lnok toget in ifthe stock retests i's previousmajor low, which was around 10. Sureenough, that's exactly where this stockbounced, So, you want to enter early andride it up. I would expect IMGX to trade upinto the high teens over the next severalmonths. | could be wrong, but I'mprobaaly right
Now let's look at the 10-day chart, to jookat what the other traders have been doingwith this stock lataly Avoid stocks thathave had no buying interest at all, ofcourse.
[re TT SSL
 
IMGX 10-day chart: The MOST IMPORTANT ONE in Swing Trading. Support at 10, resistance at
25, volume reversal 10-12:
After checking the 1-year chart to determinemajor support/resistance and trend line, wefocus in on the 10-day chart to look forvolume patterns and bounces
Here Ive annotated this chart for you. .IMGXwas a short when it lost 20 support, acover/buy jong off 10-12 support. We boughtat 12 1/2 and sold 2 days later at 14 1/2 fora healthy 16% profit. Our stop was at 9 7/8;we would've sold it had it dropped this lowand waited for it to regain 10 1/4 beforebuying it back.
All these swing trades are watched realtime,
with alerts, to help us squeeze the mostprofit possible out of each trade.
Let's look at the final chart in our arsenal,the intraday chart. | didnt use level 2 or timeand sales to manage this winning swingtrade, that level of precision isnt neededwhen your trading range spans several daysot more You wart ta roughly entar and exitwith a 8-10% profit, not scalp fractions.
rt rea I IP =
Bai) em has) b) ats
USELL 1/2
 
IMGX 1-day/intraday chart: Ok. now | sold at 14 1/2 (the 2nd top), which was correct,on this gap up. Remember to SELL GAPS UP on the OPEN and BUY GAPS DOWN onthe open. I'll be watching IMGX to play it again on Monday April 10.a ee |
This stock closed the day prior at around 13.
it gapped all the way up to 13 7/3 on the openand continued cleer up to 15 before being soldoff, Instead of taking the first profit (whichwould've been fine), we waited to see ifitwould make a higher high.
   
it didnt, so we sold shottly after the next top,at 14 1/2, This was the right decision, as thestock retraced back down to 13 at the end ofthe day
The play on the day following this pattem? If itdrops down to 12-12 and starts to sell thenwait for it to get back above 13, if it gaps up to14-14 4/2 I'd still wait for it to push above 151/4 bafore buying back, if it's up on volumeand moving before 10am.
The swing trade's goal is te buy relatively lowon one day and sell higher on another dayThat's t.
ILLUSTRATED TIPS FOR SWING TRADES: CHOOSING THE RIGHT STOCKS
Drawdown for Swings Bottom Fishing - How Deep?© Decide where you will take a stop loss at, + There's difference between correctly ‘nailing thebased on a prior support level, before entering bottom’ and ‘catching a falling knife’.
a swing trade. Play one step ehead of thegame, knowing that the mm's/specialists willtry to take out stops at the “obvious”
Frequently, the first round of buying isnt strongenough to sustain the stock, and it will continue tosell of. A goad example is CCL, | bought at 33, it lost
areas...choose something slightly cifferent. 30 and continued all the way down to 221 Or WMT, |* In selecting stocks to swing trade, make bought at 53, it went on down to 43! Beforesure you're not buying overbought expensive bouncing
stocks that have had a huge runup in the lastcouple of months. Focus on buying towardsthe bottom of a trading range, as a stock is“starting to come back”. Or, buy early inabreakout on good newsfeamings. Just don'tbe the “bagholder" who paid more thaneveryone else did.
© So, make sure to set stops ifthe market proves youwrong and they continue selling it off. Usually, it's agood idea to buy a bounce off a bottom, using theprevious bottom as a stop loss point
Overreactions? [oa frsracios SI) PF ALA) S|
Overreactions to news/earnings can provide profitable swingtrade opportunities too.
Here's @ recent 10-day chart of LTO LGTO's stock gotcut in half- 56%6I Apr 3 after revealing it would have torestate 1899 earnings due 0 misreporting by its sales staff.
As you can see, the first drop, to 22, wasnt the realbottom, that hapgened one day later, when it dropped to16. | think 56% is a bit much to drop the stock, and that aretracement of 15-20% 1s highly likely over the next 2months. Sure enough, it's climbing back up out of the pil.
It will have a tough time over the next few weeks but a drapthis sharp (iike PGs}, seers a bit much. | could be wrong,
 this sharp (like PGs), seems a bit much | could be wrong,it could go lower, but this looks like a bottom consolitationarea to me. If| were to take another long position downhere, which | might, on an up day, the stop would be set at19 3/4
 
Major TrendIs “the trend your friend"? Well, maybe, if you buy strong rar alec SEI Sislet al sl
stocks on pullbacks. Overall, though, trends have seemedto whipsaw strongly during the first part of 2000 andvolatility seems to be the name of the game. So, BuyReversals and Pivot ponts is more profitable.
Let's look at this 1-year chart of DCLK. We have plotted the00-day MA (white), the 100MA (orange) and the 50-dayMA (yellow). Why care about these numbers? Weellll, aninteresting thing here, you see, OCLK has never lost it's200 MA, and unlike QCOMAOSU t's not trading at amultiple of its 200MA either
The 200MA is a key support line for all stocks. Why?Fund managers and other institutional traders watch the200MA for supporresistance This tells us DCLK is almostcertainly a BUY at 76-80, it's 200MA, with a stop loss at7Oish,
The 100MA-200MA spread is often ¢ trading range, so youcan [ok to exit the position before it tauches the 100MA(or possible SOMA) line
 
Voiatility
Volatility is wonderful - it's how | maka my living, The key isto be on the right side of the volatility.
Fee aA ims coon I) PF ales) A Tr |Here's a nice 10-day chart swing to trade. YUM. That'sTaco Bell/Pizza Hit/KFC.. nice to eat there too. | like tosnack at the YUM chart often; you can see that it’s usuallya buy right above 30 and usually a sell at 31 1/2- 32recently
For fast-food stocks, | like to trade YUM PZZA JBX OSSI.
Capitalizing on volatilty in stocks like this is a goldmine,look how much it swings over a (0-day period. You can seeevery time it touches 32 people look to sell it. All of the foodstocks are oversold down here (April 2000) and | would be along-term buyer of all of them Same thing with manyretailers, such as ROST WMT TCT ANN etc.
 Module Swing Trading Strategies s@PREVIOUS NEXTFourBack 10« Risk Management far Swing Trades Part 1: Managing Time in the MODULE 4Trade vs Optimum Share Sizes@ Maio Points:
In managing your nsk for short-term swing trading, (several
days to weeks), it 1s ackisable tu louk al three mainvariables your will manage for the trade:
Number of shares you will tradeThe length af time you expect to hold the stock
‘The suppartiesistance areas you will use to determinestops and exit pnces
wee
This lesson will focus on the first two of the three areas,
well cover supportresistance in the TA lesscns later in the
module.
shares of any one stock, with a rare exception of cheap(under §15) equities. Why? You want to limit your risk.
Also, | often swing trade 2s little as 50 shares of expensive
‘net or semi stocks, between $60-§120/share, for §- to &point profits over a Several day to week time herizon.
down or choppy for longer than 2-3 weeks then consider
taking the small loss and buying a different stock. .youte
losing the profit potential you could gain by rotating thecapital into a better performing stock. If you're wrong, getout and try again with a different stock.
In general, | find it useful to swing trade no more than 300
You should also have what | call a “time stop” on the tradeas well - if youte tying up capital in a stock that's slightly
© From a tisk management standpoint, you want to limityour exposure in bath share size and time wasted‘waiting for the stock to go up
A tradeoff can be made between the number ofshares traded and the length af time in the tradeit's generally better to add in smaller increments to yourwinners than it is to average down on losers. Example:‘You buy 200 shares of DELL at 44 one day, you see 2days later it's up to 46, you might add another 100shares, and sell all 300 4 days later at 48. Add in smallincrements to your winning swing trades, do not add inlarger increments (eg doubling the position)
Also, if you must average down, do so with a largerposition on the bottom, using stops, to weight yourposition more heavily at the lowest price possible. InGeneral, we avoid averacing down, or “throwing goodmoney after bad", the only time you should averagedown Is when the stock Is rebouncing on volume off atrue support level, then you should add a larger positionoff this confirmed bottom (using a stop at the previoussupport level). Again, this is technically an independenttrade, which is (hopefully) a better one than yourcriginal position, which was taken too high.
Managing Risk in Swing Trades:Time vs. Number of Shares
Number of Shares to Swing Trade
“How many shares should I buy?"
Swing trade examples: —_
Remember, your nsk:reward ratio Is higher forswing Irades, so you should buy less sharesthan you would for 2 daytrade.
200 shares of a $22 stock that goes up
11/2 points in | week = $350 profit
Overnight holds may get a gap down on badnews. The reverse can happen too, of course,you can profit from a gap up on good news.
But, we want to be overly cautious when wetrade. The key Is to limit your risk In as manyways possible, one way is to trade less shares,from 50-300 shares.
As youll see in the next lesson, one way tomaximize your leverage is to swing trace anumber of stocks at the same time. | do this, 1will be long in from 3 to 16 positionssimultaneously, and sell whenever one ‘popsup" past my profit target.
lt tekes a bit longer than a daytrade of course,since I'm trading fewer shares each timeTypically (ll buy a handful of good qualitystocks in 100-200 share increments that are
400 shares of a $11 stock that goes up7/8 points in 2 weeks = $348 profit
100 shares of a $41 stock that goes up2.5/8 points in 4 days = $262 profit
50 shares of a $68 stock that goes up6 1/4 points in 3 weeks = $425 profit
If youte sitting in a half-dozen or so positions and take thesetypes of profits 1-3 times every day you can also make greatmoney trading the marketbouncing off a bottom, or breaking out above a
n Like the fish, you are slowly swimming along, scooping upprevious trading range
daily profits, which add up nicely over the course of a month
Managing risk with smailer share sizes’ as alieys, you still need to identify stops ahead of time and stick to themYou can always buy the stock back later it goas up through your stop area Your stops will be wicler (3-5%) thanthey are for daytiading, where we use 1-2% max stops.
Timing your Swing Trades “How long should! expect to hold the stock for?"
This is where technical anelysis and your tradingplan come into play.
+ Limit the time you are in a swing trade to nomore than 2-3 weeks, in general
Why? You dont want to tle up your valuabletrading capital in 2 non-performing "wrong"trade You're not 2 lang-term investor
You should feel very comfortable taking a10% plus profit anytime it presents itselfYou may, for example, buy a stock one dayand see it gap up 14% on the open the verynext day Even though you bought the stockthinking "Il may need to hold it a few days orweeks to get a good profil out of it", beopportunistic - if you see the green, then Sellit and bank the profits.
* Let the buyers’ and sellers’ behavior in thestock's chart pattern tell you how long youshould expect to be in the trade. Look at 25-day and 10-day chart as well as thelonger tern & manth/1-year charts
How tuch volatility 1s in the stock? Youwant to swing trade stocks that are in asteady uptrend, have bottomed and arebouncing, or are in a predictable tradingrange.
Look at the chart to define yourexpectations of how lang you want to be inthe trade before selling your position.
.
Exampie: Let's look at the SPLS (Staples) chart below. It's a one-year chart
+ What's the overall trend? down
+ Yhat's the major supporvresistance areas for the last several months?
Support at 19 and resistance at 23
« Where co you swing trade it? Buy at 19-20 1/8 and sell at 22-23.« How long do you expect to be in the trade? Based on the chart volatility, no
longer than 2 weeks.
fers 5) RTE] |) [VSS nel) Tr
 Timing Tips for Swing Traders:
DRAW THE CHART AHEAD OFTINIE: Mo | don't mean one ofthose hokey future-chartprediction websites, rather, printout the 3-month chart cf yourstock and draw out thesupportresistance lines anc the‘deadline’ you will give the tradeto be profitable, or to be stoppedout at, in.
Example. If you enter the tradeApril 16th, maybe give it til theend of the month (or meetingyour profit target or stop loss). Ifit's still chopping around and
youre +7- 1/2 point with no major
movement after a couple weeks,consider closing the trade and
THE MORE SHARES YOUTRADE, THE SHORTER YOURTIME HORIZON SHOULD BE: ifyoute only trading 50-100shares of a stock and it's takingup less than 10% of your tracingcapital, then maybe you can sitin the trade for a month, or eventwo, to wait for a decent profit.
If you're trading 200-300, ormore, shares, expect to get outwithin 2 weeks maximum. Otheropportunities are out there forthis amount of trading capitalyouve allocated to the trade, if
and buy a different stockinstead,
it's not performing, then “fire it"
rolling the money into a differentstock pick.
Swing Trading StrategiesFour
+ Risk Management for Swing Trades Part 1: Using Stops, Partialia
Management & Diversification
This is another "big picture basics" lesson that is designedto help you get started in swing trading successfully.
Risk management in this lesson will help you figure outhow to best allocate your capital, use swing tradingStops and diversify the stocks you are trading.
In swing trading, we recommend that you have ahancful of stocks that you trade simultaneously. I have heldanywhere from 2 106 different stocks, almost all srrallshares (60-300 shares each), for a 3-day to 2week or sohold
What types af stocks to have? I'd suggest picking 1-2 fromeach of several differert sectors (eg retailers, nets, semi's)
 
DISCIPLINE IS STILLIMPORTANT IN SWINGTRADING: Dont fall into thecommon trap of letting ‘baddaytrades tum intoinvestrments/swing trades.”Your only protection againstsloppy trading is to WRITEDOWN AND STICK TO yourstops, entry and exit points.This can be simple and brief,on a blank piece of paper.The main thing is to use it tohelp you trade with definedboundaties, so you don't losemoney.
PREVIOUS NEXT
Back 10MODULE 4
© Why dowe recommend this swing trading approach?Simple: if you only have 1-2 stocks you're playingyou will probably get impatient waiting for it to. go upfaster, and exit the position toc soon, with a smellprofit.
If you have a handful ("basket") of stocks youte inthen you can sell ane when it “pops up" to give you adecent profit (of &-20%) and use the capital to buyanother stock, rotating your money over ever coupleof weeks intc new etocke while your capital basegrows
Managing Risk in Swing Trades:Using Stops, Portfolio Management & Diversification
Using Stops in Swing Trades 
On Day One of this DISH trade you can see some [Interval Chat +initial buying in the first half of the trading day. Where
‘would you set your stop |ass here? No more than 5% aya] east aaway from the trade entry, or 48 1/2, tight under the aie ; pam havaday's low.
 
 
 
Po
How do you determine a trade exit srea? Again, |always like to exil right under whole number support,especially "decade" numbers like 80 in this example.Now, DISH kept running up, and
That's fine, half the time stocks will go nght back downagain as well.,.better to book the profit and the re-buy
the stock again ifit pushes it's way through 60, say 7 7you might buy again at 61-62. aidan edaIn hindsight it's always easy to see how a trade“should¥e" been managed; let's figure out how to make nilthese decisions Before you get into a trade Here's an
activity to help you with this: a nan ae
 
SWING TRADE STOP ACTIVITY:
Take a look al the three chart examples shown here.Let's do an intraductory Technical Analysis simulationactivity to learn this critical skill
For each 4-day chert, | want you begin by to cover upthe “left 3 days" with a piece of paper. Now, move the
paper slowly to the right, 10 simulate each trading day VSN =] fimervaichet =] PIV @|Sjes| a] [i SG
Let's say you entered the trade anywhere on Day 1.Now, where is your stop loss at (remember it must beless then 5% of the stack price). Now, how would youfigure an exit strategy? Where would you book a profit,or use a trailing stop al? How would you manage yourstops for each example?
 
BYVSN:
e Support is Where?
« Resistance is Where?
© Trade Entry Would Be Where?© Trade Stop Loss is Set Where?© Trade Exit Would be Where?
 
SPLS] F]finteveichat Fl) PIV @[eles| al fir GR
SPLS:
Support is Where?
e Resistance is Where?
Trade Entry Would Be Where?Trade Stop Loss is Set Where?e Trade Exit Would be Where?
 RRAAL =] [interval Chon =] |P IV &{Sles) al Safir GR
RRAR:
© Support is Where?« Resistance is Where?
+ Trade Entry Would Be Where?« Trade Stop Loss is Set Where?© Trade Exit Would be Where?
 
Managing Your Portfolio: The DTU ROTATION METHOD
When swing trading (which Ive been doing a lot more of lately}, it's a good idea to keep a “rotation crop" ofstocks that youre swing trading, Here's how it works:
Be sure your support/tesistance levels decided on by the same time horizon you have for the trade, eg if youreplanning on holding less than a month then look at 1-2 months worth of data, if you're planning on holding lessthan 10 days then look at 10 day support/resistance
1. Buy 100 shares ofeach of 46 stocks.
2