Friday, June 20, 2014

Anatomy of a Swing Trade: Intel - by Martha Stokes CMT

Many traders open their charting software to see a big gap like the one that happened in Intel (INTC) and then are very frustrated that they were not in the stock before it gapped. Sometimes technical traders will chase such gaps, which is not a good idea most of the time.

This was a swing trade and there were many opportunities to enter the stock prior to the gap.
The goal of a swing trade is to enter prior to or as the run gets underway.

Buyers totally controlled the price action in this run. Note the large white candles that moved price up after each resting phase. They were similar in size and had no viable wicks or tails. Between each rising up day, there were short-term profit-taking days that created resting days, which are continuation patterns, meaning the buying dominance was still intact. All the while, volume patterns were solid and TT Quiet Accumulation indicator patterns confirmed prior accumulation. This is the anatomy of a classic momentum swing trade.

While retail traders were taking profits after a big up day, professionals, who know how to trade momentum runs, simply bought more which caused the resting day patterns. Retail traders took meager profits while pros netted the huge gains of a multiple-day run and then the gap.

Retail traders often cut profits short and let losses grow. This is the opposite of what professionals do and is why professionals enjoy an 80-90% profit rate while retail traders settle for 50-40% or even lower at times.

Retail traders are often scared to death to hold a stock that is moving with momentum. The reason they are not comfortable holding is they have gotten burned too many times with whipsaw trades and now can’t enjoy great profits on a solid momentum run swing trade. This happens when the wrong indicators, wrong entry signals, and outdated technical analysis are employed in stock selections.

Trading should not be a strategy. It must be a process that uses analysis that eliminates every stock but the strongest stocks to trade for swing style momentum.

Price indicators do not reveal who is controlling price. Dark Pools buy in incrementally and do not disturb price. Without Accumulation/Distribution indicators and Volume bars to study alongside candle patterns, it is impossible to determine a momentum move that is about to commence and how to manage the trade thereafter. All technical swing traders need to be able to anticipate the momentum prior to the stock gapping or running so fast there is no time to enter.

For INTC, there were several entries as noted on the stock chart above. Holding through the minor profit-taking is an easy decision to make when the proper indicators are studied and the correct candle patterns identified. Then, the gap provided even more profits. The probability of a gap by High Frequency Traders was evident in the chart before the stock gapped.  
Summary:  We’re seeing better swing style momentum right now than there has been all year, and this buying energy sets up well for HFTs to push prices up for great gains for those who are able to recognize the strength-building patterns. Set yourself up for success by learning to use the best tools for identifying momentum in stocks: the modern-day Candlestick patterns, Volume bars and Accumulation/Distribution indicators.

For more on indicator patterns that set up for swing style momentum, click here.

Trade wisely,

Martha Stokes CMT
Chartered Market Technician
Member of Market Technicians Association
Master Rated Technical Analyst for Decisions Unlimited, Inc.
Instructor and Developer of TechniTrader® Stock Market Courses
MetaStock® Partner

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