Thursday, March 29, 2012

Swing Trade

MetaStock SPRS Series - Week 61 - TechniTrader® Stock Discussion for MetaStock Users - Swing Trade - March 26, 2012
By: Martha Stokes C.M.T.

Small details make all the difference between highly profitable swing trading and mediocre results or worse, intermittent profitable trades followed by chronic losses.

Swing trading requires considerable attention to details and focus to maintain highly profitable trades. One area that most swing traders need more work on is reading candlestick charts. Often traders will depend far too much on indicators rather than the pure price action.

Candlesticks are far superior to bar charts for today’s automated marketplace because they are easier to read, offer a far more graphic and detailed account of price action and provide a stronger image of price over time.

SMG is an excellent example of 2 velocity runs within a range-bound price pattern. Many traders do not see the significant difference between a momentum run and a velocity run.

Chart 1

A momentum run has resting days, minor profit-taking, and pauses within the run. A velocity run, as is shown above at the end of January and in early March, is a unique candlestick pattern. Price not only moves up, each day the candles lengthen. In addition volume increases during the velocity run. A velocity run doesn’t pause or rest; it doesn’t form stair step patterns or create any kind of day by day support.

This means swing traders need to recognize that this is not a momentum pattern but a velocity pattern. Velocity analysis is slightly different from momentum analysis. Stops need to be placed intraday at times rather than at the weak support levels of a momentum action.

Velocity runs also tell the trader that many market participant groups are buying this stock and that word is spreading about the run. The run also goes vertical much faster than a momentum run so the number of days a velocity pattern can sustain is far more limited than on a momentum run which can at times last for many days.

This means that when you are in a velocity run, you must continually move up stops and prepare to exit before the stock reverses. If you wait for the stock to start the profit-taking, you are likely to lose more profits and/or have your stop jumped over as HFTs sell down so quickly your order to sell is missed in the thousands of HFT orders.

Swing trading can be a lot of fun and highly profitable but it requires substantially more technical skills than position trading.

Trade wisely,

Martha Stokes, C.M.T.
Member of Market Technicians Association
Master Rated Technical Analyst: Decisions Unlimited, Inc.
Instructor and Developer of TechniTrader® Stock Market Courses
MetaStock Partner

©2012 Decisions Unlimited, Inc.

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1 comment:

Anonymous said...

Instead of using RSI as an Overbought/Oversold Oscillator, using it as a Momentum Oscillator allows you to enter vidmate stocks sooner and hold as they move up.