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Effective Method To Trade With The Trend

Sep 22

Posted by admin in Stocks Mutual Funds

Ever wanted to know a proven method to track the trends and make the trend of the market your personal friend?

Here?s how you can do so:

1. Find a short term moving average. Use 20 days simple moving average

2. Find a longer term moving average. Use 65 days simple moving average.

Look for a ?golden cross? to denote market trending upwards to buy when the 20 days simple moving average crosses over the 65 days simple moving average. When this happens we know the short term average of 20 days is stronger than the 65 days average, suggesting currently the market is trending upwards and is in strength.

Conversely, look for a ?dead cross? when the market is trending downwards to sell when the 65 days simple moving average crosses over the 20 days simple moving average. When this occurs, we know the short term strength of the market is weaker than the past 65 days and the market is falling off from its high prices.

While we can follow the trend in this way and avoid a lot of whipsawns by taking such periods of the simple moving averages, we actually do suffer the drawback of a less sensitive indicator. If we wish to be more responsive, and are willing to suffer some whipsaws as well, we can modify the moving averages to shorter duration moving averages, such as a crossover between a 7 day and a 15 day simple moving average.

Trend following systems are always lagging, so they are always slower than what we would like to have, and are in fact confirmatory. These systems are generated and always sighted AFTER the market has turned.

But when you adopt this as a trading method, over the long term, you will find you will be able to track the trends of the markets effectively, and will turn out to be a winner in the stock markets.

Peter Lim, Certified Financial Planner, has been a registered dealer representative and is currently a Trading Coach and author of several ebooks on stock market trading and investment. He provides a free Swing Trading course and many free resources at http://www.online-guides.info/Swing-Trading
Learn about his Swing Trading method at http://signaldot.poolofwisdom.com/swingbook.phtml

Writen By : Peter Lim

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The Importance Of A Stop Loss

Sep 15

Posted by admin in Stocks Mutual Funds

When you understand the basic principles of technical analysis, you already have got some knowledge that will help you to
trade well.

Technical analysis is important, but what\’s even more important is something we refer to as money management.
In order to trade well, you should have a set of rules that you\’re going to follow consistently.

The most important thing that you\’re going to have to learn to become a succesful trader, is taking a loss.

If you have the courage to take a loss, you will always have money in your trading account.
Simply because you are willing to sell stocks with a small loss, you will be able to make a profit with only 4 good trades out of 10.

Taking a loss is admitting that you were wrong.
Traders that keep ignoring the negative signals of the market and refuse to take a loss, might loose a very large part of their trading capital. If a stock is trending lower, a turn north will not happen that easily.
But most of the investors don\’t like to admit that they\’ve made a bad decision and continue to hold the losing stock.

Trading in stocks is speculating and so it\’s impossible to be right all the time!
Before you step in the trading game, you must understand what you are doing.
Let\’s compare it with the owner of a shop: buying new products is always a risk, you never know if they are going to sell well. The shop owner will only try new products if his business can afford it, even if he will make several wrong decisions in a row.

Traders in stocks are just like shop owners. We are in the business of trading.
As trader must decide how much money he can afford to loose.

Let\’s look at the raw figures:

- if you lose 10% on a trade, you must win 11% on the next trade in order to have your capital back;

- if you lose 15%, you must win 18% on the next trade in order to have your capital back;

- if you lose 25%, you must win 33% on the next trade in order to have your capital back;

- if you lose 35%, you must win 55% on the next trade in order to have your capital back;

- if you lose 50%, you must win 100% on the next trade in order to have your capital back;

You can only start to make money if you understand the huge risks that are connected with not taking a loss on time.

Steven Anthonis has a website that offers FREE technical analysis of the Dow Jones

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How To Pick Winning Stocks

Sep 13

Posted by admin in Stocks Mutual Funds

There is nothing more exciting than finding an undervalued stock and seeing it explode out of nowhere rising in value 100% or more in a few weeks. Some stocks can move as much as 1000% in a year and?. Even after the stock market crashed in 2000, some stocks still have gone up 500% or more in a year.

So how do we find these? Well first let me say that there is no way to know which ones are going to double or triple in value. If we knew then we could literally ?bet the farm? on the trade.

The main thing we can do as swing traders and position traders is to uncover stocks that have the potential for profits based on certain technical parameters found on the charts. There is not enough room in this article to go into depth on the technical analysis of stocks, but what I am going to do is share with you the first step in sifting though the thousands of stocks that trade each day.

One of the easiest ways to cut your list of stocks down is to use a stock scanning software such as ?Stockfetcher.com?. What it allows you to do is program in any criteria you want and then it will automatically spit out a list of stocks that meet those exact criteria.

Let me give you some specific examples?. For starters say you only have a small account of $10,000, you shouldn?t be looking at expensive stocks that are in the $50-$200 range. This is because when they are too expensive, you can?t buy many shares. So, the first thing I would do is tell the software to only give me a list of stocks under $20. I would also have it screen out stocks less than $2 as I don?t want to trade penny stocks.

Second, I only want a list of stocks that trade at least 500,000 shares a day. The more volume the better as there is more liquidity. This means that it will be easier to buy or sell shares at any time. Stocks with high volume have much less chance of being manipulated by market makers and market insiders.

Third, I want stocks that have a lot of volatility. Volatility is what causes fast movement over a short period of time. Old blue chip stocks such as Caterpillar, Ford or Kellogg?s don?t move that fast and have little volatility. To make sure you have volatility, I would tell the software to find only Nasdaq stocks. Since this comprises of mostly tech stocks, the odds are much higher of strong and fast moves.

Fourth, if the market is in an uptrend then I want to be a buyer so I could program in the following? Look for stocks with a relative strength of 90 or above. This will ensure that the stock has a lot of upward market momentum. You could even add an additional filter to cut the list down more. For example: Tell the software to look for stocks that made new highs within the past 90 days.

You could use the exact opposite approach to short stocks in a bearish market. Look for stocks with a relative strength of less than 10 and made new lows within the past 90 days.

What is really cool about stock scanning software is you can do the job in less than a minute. Without this software the work is slow and tedious. Once you run the scan you should have a relatively small list of stocks to examine closer.

The final step is to examine each stock for certain technical analysis patterns that can lead to explosive moves. However, as I said above there is just not enough room to go into detail here.

Hope this gives you some food for thought and points you one step closer to your goals.

This article is courtesy of Dr. Jeffrey Wilde, a trading veteran with 15 years of experience in all major markets. He is a trading coach to over 1500 traders in 47 countries.

For additional info: http://www.win-at-trading.com

Writen By : Jeff Wilde

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The Stock Trading Plan – Why You Must Have One To Trade Successfully

Sep 10

Posted by admin in Stocks Mutual Funds

This is the continuing story of our two imaginary traders, Peter and Paul.

Peter is a professional trader, Paul is not. Peter has a tested, proven, written trading plan that he follows each time he enters a trade, Paul does not.

Peter and Paul have had vastly different Stock trading experiences – Peter has just made another substantial profit – this time from the Bear market, Paul has lost heavily.

A chance meeting with Peter\’s group of friends one day at lunch launches Paul on a learning curve that will see him become a good trader, but not without some hard lessons along the way.

Today Peter shares his trading plan and the importance of having a trading plan with Paul.

\”Today we will work on your Trading Plan,\” Peter told Paul as they sat down for the start of their next weekly mentoring meeting.

Peter handed Paul a copy of Robert Miner\’s book, Dynamic Trading, and said, \”Here, read this section of this wonderful trading book.\” Paul read to himself quietly as Peter poured them both a cup of coffee.

\”The purpose of Technical Analysis is not to be able to accurately identify every market position, all of the time. While this may be the daydream of many analysts and most amateur traders, it is an impossibility.

\”Every method of technical analysis has it\’s limitations and at times will provide contradictory information. Unless the analyst, trader or investor is willing to accept that his or her analysis will from time to time not provide a confident opinion of market position, he or she is doomed to failure.

\”The objective of technical analysis is to identify those market conditions and the specific trading strategies that have a high probability of success.

\”If there is a key concept associated with trading and investing, it must be probability. All consistently profitable traders and investors know that every trading and investing decision only has a probability of success, never a certainty.

\”Losses are inevitable and are just as much a part of successful trading as profits. If a trader has a successful trading plan, he or she should have no more emotional response to a loss than to a win. Each will be inevitable.

\”While it may be difficult to maintain a completely non-emotional relationship to trading and investing, an understanding that trading is a Business of probabilities will go a long way towards developing a stable attitude towards the Business.

\”All successful traders have a defined, written trading plan. The trading plan can take many forms. At the very least, it will provide the minimum guidelines that must be satisfied before a trade will be considered. It may be as complex as a long set of very restrictive rules that must be satisfied before a trade can be considered.

\”Each has it\’s strengths and weaknesses. Neither method, whether rules or guidelines, guarantees success, but the lack of either will ensure failure.

\”Why have a trading plan and not follow it? Each guideline and rule must be included with reason and purpose. All successful traders and investors consistently follow their trading plan and they know that if they violate their trading plan it will always be costly in the long run.

\”A trader who does not consistently abide by his or her trading plan is doomed to failure.\”

Paul looked at Peter after he finished reading, and understood the implications of what Robert Miner had written. He had never had any sort of trading plan. He had just taken the advice of other people and bought, held and hoped for the best.

Peter said, \”You need a trading plan my friend if you are ever going to make money in this Business. Then you have to have the ability to follow it.

\”The paragraphs you have just read are as important, and maybe more so, than learning any method of analysis or trading strategies or methods.

\”Even a trading plan that included technical analysis and trading strategies that were 100% accurate, in other words, would indeed predict the future trend of a Stock or Index every time with perfect certainty, would not result in you making a profit if you do not know and act in accordance with the qualities discussed above.\”

\”With this in mind, I will now share with you my trading philosophy, trading plan and rules.

\”I have found having this set of guidelines gives me a high probability of making successful, profitable trades. As Robert Miner said in his book, some losses are inevitable no matter what rules or strategies are used. They are a cost of doing business.

\”A Trading Plan and rules that you have tested and trust will help you remove the two biggest enemies traders face – Fear and Greed. These two factors have probably cost more traders more money than anything the market can throw at us.

\”By writing down and consistently following a solid plan that you have back tested and proven to be profitable with you paper trading, you put yourself ahead of 90% of market participants who fail to do any research or testing before they risk their capital in the market, and are eventually wiped out or give up because \”the market just isn\’t for me.\”

\”You must remember however,\” Peter continued, \”These are my guidelines. You might feel comfortable with them or you may not -you have to develop your own style.

\”These rules also do not constitute trading advice…you must sit down and determine what your rules and guidelines are going to be. Use these…or not. You must however decide which of the parameters you are going to use for your trading, then -

Write them down into a plan of action – and follow the plan.

Peter\’s Trading Philosophy -

He went on, \”My trading objective is to enter trades in the direction of the major trend using daily end of day data. There are three conditions under which I will enter a trade -

When pattern, price and my mechanical filters indicate a trend reversal has taken place.

On the first correction within the new trend, for example, the first higher low in a new uptrend.

On any trend continuation signal once the Stock or Index has signaled the new trend is underway.

\”The initial trend reversal position will always be in lots of 2 Futures positions or $20,000 invested in a Stock. A trend continuation trade entry will be 2 or more futures positions and $10,000 invested in a Stock.

Stop loss orders will be placed 5-50 cents or points past the extreme of the most recent swing pivot at the time the trade is placed – the number of points or cents used depends of the Stock or Future being traded.

\”These numbers will be different for every trader depending on risk tolerance and account size. Only take on as much as you can handle psychologically, or you set yourself up for failure.

\”If your position size is too large, you will tend to jump out at the first sign of trouble, often at the worst possible time. Trade within you comfort zone and success is much easier.

\”My initial capital exposure never exceeds 5% of my available account equity. Additional positions will not be taken unless the initial position is in profit and taking the additional position keeps the risk of the entire position below 5% of account equity. In other words, additional positions are only taken using the markets money.

Trading Rules and Trading Plan -

Peter continued as Paul took notes, \”My Trading Plan and rules offer two types of trades – Trend Reversal entries and Trend Continuation entries.

\”Trend Reversal entries are taken any time a Stock or Index completes a reaction and appears to be going into an Impulse Trend.

They are also taken when a clear 5 Wave sequence has completed, as we can expect at least a substantial correction, and possibly a change in trend at the end of a 5 Wave sequence.

The rules for Trend Reversal trades are -

The price must break a valid trendline.

The Moving Averages must cross, indicating a change in the short term trend.

For Long Trades, the Stock or Index MUST make a higher swing high, followed by a higher swing low on the daily chart. We enter the trade once the price rallies from the higher low.

For Short Trades, the Stock MUST make a lower swing low followed by a lower swing high on the daily chart. We enter the trade once the price falls from the lower high.

\”Trend Continuation entries are taken within the Impulse legs of Trends. They are not taken when price is within a consolidation period or a reaction.

The rules for Trend Continuation trades are -

For Long Trades, the Stock price must be above a valid Trendline.

The price bars must be above the longer term (usually 18 days) Moving Average on the daily chart.

The Stock must be making higher swing highs and lows on the daily chart.

The reactions within the uptrend must be less than 4 days.

For Short Trades, the Stock price must be below a valid Trendline.

The price bars must be below the longer term (usually 18 days) Moving Average on the daily chart.

The Stock must be making lower swing lows and highs on the daily chart.

The reactions within the downtrend must be less than 4 days.

\”Moving average periods are Stock or Index specific, in other words, try to find a combination that works on the markets you are interested in trading that don\’t give too many whipsaws. For example, 9 and 18 periods work well on many Stocks. Sometimes you can go as low as 6 and 13, or you may need as much as 15 and 30.

\”Play with it and find the optimum Moving Average numbers for the Stocks you trade. Then you can add the Trendline and swing high and low rules and you are ready to look for some trades.

\”A Valid Trendline must touch at least 2 and preferably 3 data point extremes – three significant highs or lows within a trend.

So, in summary, this is Peters Trading Plan…

To enter a trade on a Trend Reversal, he needs a Trendline break, a Moving Average crossover, and a swing higher or lower to get set in an uptrend, and a trendline break, a Moving Average crossover and a lower swing low and lower swing high to enter a downtrend.

To enter a Trend Continuation Trade, he needs a strongly trending market with reactions to the main trend of less than 4 days. He enters with the main trend as the reactions come to an end and places his stop loss orders just past the swing pivot extreme in case the trend fails to continue.

\”Now we have looked at my rules for entering trades, lets put them to work on a Stock,\” he said to Paul.

Turning to his computer screen, Peter opened a chart of IGT and scrolled back to 2001 – about half way through the bear market.
Charts available at StockTradingReview.com

\”We know that at this point in time, the weekly and monthly trend in this Stock was down, so we are looking for a valid entry with the trend at the end of a larger degree reaction – a trend continuation trade.

\”I have removed all but two moving averages for clarity – these are 7 and 13 periods.

\”You can see that the Stock made a low on August 8th, then rallied for 14 trading days including the inside day after the day of the high.

\”It then fell sharply, breaking a swing low. Two inside days then one day up followed, then another inside day, followed by a day that broke the low of the inside day but closed slightly higher.

\”The moving averages were coming very close together, therefore the third filter I use to enter was nearly in place, as we had already had the trendline break and lower top.

\”The Stock broke down the next day, and at the close, the moving averages had crossed – I sold $20,000 worth of IGT short at the close and it fell sharply for 5 days before recovering.

\”It had a two day rally, then a day down, so I moved my stop loss order to above the swing high this day down formed and was taken out of the trade three days later after price rallied.

\”My entry was at $13.18, my exit was at $10.70, giving me a net profit after Brokerage of $4,605 for a 13 day trade.

Paul could see the set-up quite easily now once it was shown to him in an example.

Peter continued, \”Lets have a look at another example.\” Peter opened a chart of MER and scrolled back to one of his trades from May 2002. Charts available at StockTradingReview.com

\”This trade was also when the bear market was well underway and MER was in a strong downtrend on the weekly and monthly chart.

Looking at the daily chart, Peter said, \”This Stock made a low, then rallied for 10 days. It then made a lower swing low and then rallied 2 days – the lower swing low is Filter one.

\”It touched my short term trendline 4 times as it rallied before breaking down – that is Filter two.

\”It then fell two days, had a one day rally, then gave a sell signal as it took out the low of that day.

\”This trade didn\’t result in the same quick profit as the one in IGT, but it was very satisfying all the same. My entry was at $40.55 and my exit was at $33.20 as it broke upwards through my stop loss order above a swing high.

\”This Stock gave me several more good profits as the downtrend continued. The set-up is always the same.

\”A short term Trendline break, a Moving average crossover, a lower low and lower top in a downtrend.

\”Let\’s have a look at an uptrend so you get the idea of what it looks like in a rally.\” Peter opened a chart of MSFT from Mid 2003, when the weekly and monthly trend had turned upwards.
Charts available at StockTradingReview.com

\”You can see here that MSFT made a high in early July and then sold off for nearly over 5 weeks.

\”Then the moving averages crossed and the short term downtrend line was broken convincingly by a large rally off multiple lows at around $25.50. This set up a 5 day rally, then the Stock fell one day before recovering at the close to be up on the day.

\”The buy signal was generated at the close, as this met all of the conditions. The Stock rallied over 20% during the next 5 weeks – that was very pleasant to watch.\”

Paul could see the simplicity of Peter\’s trading methods and was keen to go out and apply them in the Stock market.

Peter cautioned him however, \”Remember Paul, not all trades are this easy and turn out as well, but by trading these types of trends on the daily chart, when the weekly trend is also in the same direction, we have a high probability of a profitable outcome in a large percentage of cases.

\”Trying to guess tops and bottoms is a dangerous practice. It is a high risk trading strategy that rarely produces consistent profits.

\”It can be done using time, price and pattern to help us, as I did at the low in the S

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Swing Trading Strategies

Sep 5

Posted by admin in Stocks Mutual Funds

Using Swing Trading Strategies and Technical Analysis when Trading Stocks to Make Consistent Trading Profits.

This article is one small part of a series of lessons using Swing Trading Strategies and Technical Analysis developed by WD Gann which are designed to show how anyone can build a profitable Stock or Commodity trading business from scratch.

The lessons are available for you to study here at StockTradingReview.com

Swing charts can be a valuable technical analysis tool in determining the trend of any market or Stock and assisting with entry and exit levels for your trades.

Please follow along on the charts below as we go through this lesson. Charts available at StockTradingReview.com.

Firstly some basic ground rules for those of you who are unfamiliar with swing charts and swing trading.

WD Gann is credited with bringing swing charting methods into prominence may years ago, and he used swing trading extensively along with his forecasting skills to profit from the market.

Please study the first chart below. I have drawn the swings of the market over the bar chart so you can see how a swing chart is drawn. Charts available at StockTradingReview.com.

The line on a daily swing chart goes up to the highest point of the daily bars each day until a daily low is broken, then goes down to the low of each bar until a daily high is broken. Pretty simple.

An inside day has no effect on the swing chart – the swing line simply stays where it is until a daily high or low is broken.

An outside day affects a swing chart in different ways, depending on the price action of the market.

If the price rallies first, making a new daily high, then falls and makes a new daily low, the swing chart goes to the top of the high bar first and then to the low of the day.

If the price first goes down and breaks a daily low, then rallies to make a new daily high on the same day, the swing chart goes down to the low of the day, then goes up to the high of the day.

An outside day that is with the trend is usually a very good trend continuation signal – traders tried to change the trend of the market early but were overwhelmed by the other market participants.

You can see examples of outside days in the chart above.

Now, lets have a look at how to use this trading method in a Stock.

Looking firstly at the first chart of UNH below, we can see that the Stock is making higher tops and bottoms, therefore the trend is obviously up.

At no stage has there been any reason for a trader to do anything but buy this Stock or trade it in that direction using Derivatives. If you have charting software and would like to follow along with this trade, please do so now.

If you do not have charting software, consider subscribing to Incrediblecharts or you can go to Bigcharts and use their free charting software. If you use Bigcharts, select \’Java Chart\’ with the code UNH and you will be able to scroll back and follow the prices as we go through them.

The fact that this Stock was in an uptrend prior to this area of the chart gives us a clue as to which way the trend is likely to go in the future. Trends usually continue for far longer than most traders think they will.

The 30 day simple moving average (the blue line) will be our final trend filter for determining trend direction – we will not take a trade against the direction of the 30 day moving average.

WD Gann placed major significance on the fact that strongly trending Stocks or Commodities usually had reactions to the main trend of 3 days or less. Therefore, we will define a strong uptrend by the following rules -

The price bars are predominately above the shorter term (7 day) moving average

There are more up days than down days – in other words, more blue bars than red bars on our chart

The reactions to the main trend are 3 days or less

We need a higher swing high first, then a higher swing low before we can enter an uptrend

Assuming that we are just starting to trade this Stock and it looks promising as a candidate because it has been trending consistently higher for several weeks, how do we find an entry signal using swing trading rules and strategies?

After the 5 day reaction that ended on December 10 (near the bottom left had side of the chart above), the Stock advanced for 4 days up to what could have been a double top.

Because the trend is up, double tops often fail, but many traders think it\’s the end of the run and naturally sell, often resulting in a 1 or 2 day reaction. As the top is taken out, the majority of these traders will buy back their sold positions, giving additional strength to the uptrend with their buy orders.

This is what happened here – there was a 1 day reaction and then the Stock rallied straight to a new high for the move, indication great strength in the uptrend and possibly short covering as well.

Our buy signal is as soon as price trades 5 cents above the high of the lowest day any the reaction.

Once we are in the position, we place a stop loss order several cents below the swing low formed by the reaction in case the trend fails to continue – if this occurs we will be safely taken out of the trade with a small loss.

The low of the 1 day reaction at $52.55 failed to make it down to the previous swing high at $51.79 (note the horizontal line drawn across from this top), leaving a gap in price of 76 cents.

This subtle signal is often a sign the market is giving us that it is about to start a strong move higher. The sellers failed in their attempt to push the Stock price lower – This means we should BUY!

By taking out the old high and a potential double top within just one trading day, the Stock is telling us that there is a good chance of further gains. If it had taken several days to take out the old high, the risk is that the move higher has a greater probability of failure.

So, we are now in the trade with a stop loss order in place below the swing low. The Stock had another day up, then another 1 day reaction, then rallied to another potential double top, had an inside day and one day down, then to another new high.

The formation of another higher swing low gives us another opportunity to compound our position as soon as the price trades above the high of the low bar (turning our swing chart up again) and then we place our stop loss orders safely a few cents below the higher swing low.

The Stock again left a gap in price between the swing low and the previous swing high and made a double bottom at $55.51 and $55.54 – this is a very powerful continuation signal.

The Stock then rallied for 5 consecutive days. Things are looking great, then suddenly, in one day, the price falls right back down, through the previous swing lows, and stops us out.

This is a problem if we keep our stop loss orders close below the swing lows. For this reason, it pays to back test how far a Stock you are interested in trading usually goes through swing lows before recovering.

Some Stocks will trend well for months, then break a swing low by 20 or 40 cents, only to then continue on with the trend. If a Stock routinely goes 40 cents, we want to put our stop loss orders at least 50 cents below the most recent swing low, so we are not stopped out prematurely. How far below the swings is something you will be able to work out by back testing the Stocks you trade.

By doing your own research and finding how the Stocks you trade usually react around swing lows, you will be able to place your stop loss orders a safe distance below the swings (or above the swing highs in a downtrend) and ride the big moves without being stopped out.

Of course, some Stocks do not lend themselves to swing trading, so just don\’t use this strategy on those Companies. Use another method more suited to those particular Stocks.

UNH continued to rally after this selloff, making higher swing highs and lows, then breaking the lows occasionally. The 30 day moving average continued to move higher, so the way to trade this Stock was to keep looking for buying opportunities off each of the higher lows within the trend.

This is one of the drawbacks of swing trading – often very good trades will be interrupted by you being stopped out. Then, you have to wait for a higher swing high, then a higher swing low before you can enter again.

While this is annoying, there are many times when a Stock will trend upwards for many weeks and not break a swing low. There are periods when Stocks will trend lower for weeks or months and not break a swing low.

You cannot know beforehand what will happen with any particular trade, so you just have to take them all and roll with the punches as they occur.

Over time, if you are trading Stocks that trend well and don\’t consistently break swing lows or highs by more than a few cents, you will do very well using this method.

If the Stocks you trade do not trend, this strategy will cost you a lot of money.

Therefore, look for Stocks that trend and trade only those. The Charts below show some more example of strong trends with the swing chart overlayed over the price bars. Charts available at StockTradingReview.com.

All it takes is a few of good strong trends like those above each year to make a lot of money trading. Unfortunately, many people fight the trend and sell too early or even short sell Stocks that are in strong uptrends, thinking they have picked the top, only to see the Stock continue to rally further immediately.

By the time the buyers are exhausted, these traders have spent their monetary and psychological capital in a futile attempt to pick the top of the market.

Swing charts give us a mechanical indicator to use for entries and exits and take a lot of the guess work out of our trading. Along with the 30 day moving average, it was very hard to argue that the trend was anything but up at any time here by simply looking at the higher tops and bottoms on the chart and the trend of the blue line.

Losses on some trades are inevitable, as we cannot know for sure what the market will do. It only takes one person somewhere in the world to invalidate your perfect trade set-up and send the price of any Stock in the opposite direction to what you were certain was going to happen.

All our analysis can do is alert us to probabilities – there are no certainties in financial markets. This is the hardest thing for most traders to accept. We all hate to be wrong, but that is the nature of the Business.

All we can do is take every trade and see what happens. The better our analysis and our system, the more likely our trades will produce profits.

Every one of us must develop our own system of analysis that we are comfortable with, based on what we learn from other traders, and then we must take every trade that system signals. If we start to second guess our system, we may as well throw it away and just stick with our day job.

Make a decision to develop a system you are happy with, whether it involves the Swing Trading methods I have shown you in this lesson or not, and commit to taking 20 trade set-ups no matter what, firstly on paper until you gain confidence, then if you are making paper profits, using real cash.

Then follow your rules to the letter. This will give you an objective measure of how profitable your system is and whether it is right for you.

If you can enter a trade and hold a position overnight while still being able to sleep, your plan is sound. If not, you may need to reduce the size of your position or adjust your plan is some other way.

The large profits come from identifying a strongly trending market and taking multiple positions with that trend. This naturally involves holding overnight, sometimes for many nights.

We hope this lesson helps you in your understanding of Swing charts and Gann\’s Swing Trading methods and how to use them. If you have any questions, please email us by using the form on the Contact Page and we will try to answer them for you.

If you feel you have benefited from this article, and would like to learn more about Swing Trading, then please feel free to subscribe to our Free Newsletter \”The Stock Trading Review\”, for stories on how other traders use Swing Charts and Swing Trading Strategies to make profitable trades in the Stock market.

Visit the website at, StockTradingReview.com for more lessons and articles on Swing Trading that will help you become a better, more consistently profitable trader.

To Your Trading Success,

Tony Spann and Stock Trading Review Team

Stock Trading Review is dedicated to helping you succeed as a trader by sharing with you simple and easy to follow tips and techniques.

Discover more insider secrets and the exact proven strategies to trade stocks profitably: http://www.stocktradingreview.com

Copyright(C)2005 Stock Trading Review

Writen By : Tony Spann

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Stocks And Shares – Two Basic Tests For A Powerful Trendline Trading Strategy

Jan 5

Posted by admin in Stocks Mutual Funds

One of the most fundamental and basic principle of gauging a stock behavior is to study the trendlines of a stock.

If you observe a stock, you will find that the prices move in trends. Quite often, a series of ascending bottoms in a rising market can be joined together by a straight line, just as can the tops of an ascending series of rally peaks. These lines are called “trendlines” and the area between the two trendlines is also known as the trend channel. Channels may trend up, down or sideways.

By drawing lines connecting market highs and market lows, you can often determine a trend channel. A trend reversal is often indicated when a market changes direction and break out of its trend lines.

For example, a trendline joining a series of troughs is eventually penetrated on the downside. Once this downward penetration of the trendline is sighted, you may expect a bearish market to be forthcoming. If the reverse occurs, we can expect a bullish situation.

So far, our assumption is that once there is a move away from an established trendline, or a breakout, a trend reversal is imminent. However, experienced traders would know such simplistic assumptions are in fact dangerous and even cause misleading moves or “whipsaws”.

How shall we avoid this then?

Before we can conclude that an outbreak is valid and decide on future trading signals based on such trendline outbreaks, it is important to test the outbreak.

It would be to your advantage to await a 3 percent penetration of the boundaries in terms of price before finally concluding that a signal is indeed confirmed.

Another method to test the validity of the outbreak is to examine the volume characteristics that accompany the outbreak. There is a common practice by many traders to place total emphasis on price alone and neglect volume. This is indeed a serious flaw in any trading strategy to neglect volume.

The general principle is that volume moves together with the trend. This means that as prices of a stock increase, there should be an accompanying increase in volume. Anything that does not confirm this rule will create a “divergence” and is a warning sign that the prevailing trend is probably in the process of reversing.

This rule will help you avoid being caught by misleading signals. It may be a simple rule, but its application will eventually prove to be one that will bring substantial benefits to filter out weak misleading signals.

By using the principles of trendlines and using the penetration test of 3% or the volume principle, you will be able to identify the trend of any stock and decide whether the impending signal is indeed weak or is a whipsaw.

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Trading Baskets II: The Crapolio, A Roll Of The Dice In The Stock Market

Aug 31

Posted by admin in Investing, Stocks Mutual Funds

In a previously written article, we expanded the use of the term ?Trading Baskets? to include stocks from different sectors or industries. Now I want to share with you an approach to day trading or swing trading that I had some success with back in the wild and woolly, pinnacle days of day trading that may still work today. Unfortunately, this basket of stocks was dubbed ?The Crapolilo?, a name it just could not shake. You?ll see why.

The crucial element that traders are looking for in any stock, which makes it a good day trade or swing trade, is movement or momentum. There are any numbers of things that can cause movement in a stock. Usually it is news of some sort, either positive or negative. It doesn?t really matter. You are only looking for movement, up or down. However, for this particular strategy we are looking for positive news. Keep in mind that it is not your job as a trader to totally understand why or what is causing the movement in a stock, beyond what it takes to make a quick profit.

If you spend enough time glued to a computer monitor with CNBC blaring in the background and are looking for a stock to make a quick buck on, sooner or later you will realize that there are some familiar names that just keep popping up over and over again. From these repeating names you may want to consider building your own Crapolio.

Start by tracking the stocks that keep coming up over and over again. In this scenario the stocks for which we are looking usually play out the same way every time one of the stocks has news of some sort. Traders will jump on the stock, causing a mad scramble to get in on the move, and the stock will run up in price for a nice gain. The challenge is to be as early as possible on the play, get into the money (profitable), and get out before the momentum turns and the stock retreats. Rest assured, they will retreat because that is one thing all of the stocks we are looking for have in common; they hardly ever hold their gains. If you?re late to get in and even later to get out, you won?t make a dime and will maybe even lose money. It is this phenomenon that the now famous Floyd?s 4-Gets are based upon: Get In, Get Profit, Get Out and Get Away!

So here?s what I did, but remember that this strategy may or may not be right for you. I set aside a percentage of my trading capital for a basket of stocks that became known as ?The Crapolio?. I picked a large number of the stocks I had been tracking, low cost stocks under $5-$10 for the most part, but not always. I charted every one of them as far back as I could, looking for the ones that were most likely to continue to repeat the scenario. I came up with what I thought was a recent low that was going to hold for some time; and I bought half the normal lot of shares I usually traded. (See link below to DTM: Decisive Trade Management and Trading Stops for lot sizes.) Then I waited.

The theory is that sooner or later these stocks will once again have some sort of news event that will move them to the upside. As soon as that news hit, I would be in an excellent position having already bought the stock at a recent low. I would then try to buy an additional half lot or a full lot once the new news event hit the street. Overall, I would be in the shares much earlier on average and be able to take advantage of the move and sell for a profit into the momentum. Being in the stock gave me the ability to lock in a nice profit without having to scramble to get in and scramble to sell before the momentum ran out.

Often, I would be in the stock and the news would hit over night, causing the stock to gap up significantly at the market opening in the morning.

However, this is not called ?The Crapolio? without a reason. High quality stocks do not usually behave this way to the same degree. Those that do are much more expensive, usually $35 or more, making it cost prohibitive for all but the wealthiest traders to use this plan.

As previously mentioned, most, if not all, of these stocks were under $10 and for a reason. These were not high quality stocks; in fact, the opposite was the case. Most were high-risk speculative tech stocks or bio-techs. Many were dot-coms; remember this was in the hay-days of the dot-com boom. As we all know now, there were a lot more dot-bombs than there were successes.

Obviously, this was my own version of Swing Trading.

IT IS IMPORTANT TO UNDERSTAND THESE WERE \”NOT\” BROKEN DAYTRADES. Each stock was chosen, charted and watched over a period of time before it was added to ?The Crapolio?.

I believe this strategy could still work today. However, it is to be considered extremely risky and should only be used with money you can afford to lose.

When trading this or any day trading strategy one should know and use DTM: Decisive Trade Management (see story at http://www.traderaide.com/index.html).

Happy trading!

No permission is needed to reproduce an unedited copy of this article as long the About The Author tag is left in tact and included. We do request that we be informed of where it is posted and reciprocal links will be considered. Email floyd@sbmag.org.

Floyd Snyder has been trading and investing in the stock market for three decades. He was on the forefront of the day trading craze that swept the nation back in the late 1990\’s both as a trader and as the moderator of one of the Internet\’s largest real time trading rooms. He is the owner of http://www.TraderAide.com, Strictly Business Magazine at http://www.sbmag.org

Writen By : Floyd Snyder

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