Swing Trading Simplified - Larry D Spears
Swing Trading Simplified - Larry D Spears
Swing Trading Simplified - Larry D Spears
Spears
FOREWORD BY
Larry Swing
Swing Trading
Simplified
By Larry D. Spears
Foreword by
Larry Swing
MrSwing.com
MARKETPLACE BOOKS
Columbia, Maryland
MARKETPLACE BOOKS
Simplified Series
Technical Analysis Simplified
by Cid Drake
Elliott Wave Simplified
by Clff Drake
Moving Averages Simplified
by CM Drake
Gann Simplified
by Clff Drake
Support & Resistance Simplified
by Mfchael C. Thomsett
- Larry D. Spears
ISBN 1-59280-063-7
Printed in the United States of America
Contents
Foreword
Introduction
9
Chapter 1:
What It Is-An OveNiew of the Swing-Trading Concept
15
Chapter 2:
23
Chapter 3:
31
Chapter 4:
How to Develop a Swing-Trading
11
Master Plan
ll
49
Chapter 5:
Some Swing-Trading Case Studies
75
Summary
The Up-and-Down Path to Profits
89
Appendices:
93
97
Resource Guide
Recommended Reading
At-Home Workshops
About the Author
103
107
119
All investment decisions have certain inherent risks, and swing trading is not suitable for all investors. Marketplace Books therefore disclaims any warranties or representations, whether express or implied, concerning the accuracy or completeness
of the information or advice contained in this book. Any investment a reader may
make based on such information is at the reader's sole risk. You should carefully
research or consult a qualified financial advisor before making any particular investment. Readers of this book who utilize options in their trading should recognize
that options have unique risks and are not suited to many investors. Prior to buying
or selling an option, a person must receive a copy of Characteristics and Risks of
Standardized Options. Copies of this document are available from your broker or
the Chicago Board Options Exchange, 400 S. LaSalle Street, Chicago, IL 60605. The
OCC Prospectus contains information on options issued by The Options Clearing
Corporation. Copies of this document are available from The Options Clearing
Corporation, 440 S. LaSalle Street, 24th Floor, Chicago, IL 60605 or the Chicago
Board Options Exchange, 400 S. LaSalle Street, Chicago, IL 60605. The documents
available discuss exchange-traded options issued by The Options Clearing
Corporation and are intended for educational purposes. No statement in the documents should be construed as a recommendation to buy or sell a security or to
provide investment advice.
Foreword
positions at levels of support and resistance. By examining chart pattern characteristics, they make
money in both trending and range-bound markets.
Swing trading is a classic strategy that involves holding
stocks for a short period of time - typically from a
few days to a few weeks. Unlike day trading, swing
trading is independent of time-though some swing
traders will prefer to exit a slow-moving position and
move on to a new opportunity.
Swing trading is very popular among short- and medium-term traders. It offers many virtues compared to
the hyperactivity of day trading. With recent changes
in SEC regulations that affect the way brokerage firms
administer margin requirements for day-trading accounts, many traders have moved away from day trading towards a swing-trading style.
This book -Swing Trading Simplified-communicates the essence of Swing Trading in a simple
and straightforward manner. It describes the tools
necessary to identify swing-trading opportunities,
and explains the guidelines needed to implement
this strategy. Filled with innovative and important
trading techniques, it is a great asset to beginner
and experienced swing traders alike.
-
Larry Swing
MrSwing.com
Introduction
Throughout most
cessful investor.
of the 1990s,
virtually anyone
could be a suc-
In-depth analysis
of a company's
fundamentals
generally wasn't
required prior to
purchasing its
stock, nor was
there a need
for excessive
concern about
timing.
The rapidly
expanding
Internet had
proven ideal for
dissemination of
stock prices and
related financial
information,
giving birth in
short order to
the online
brokerage
industry and
the Eledronic
Communication
Networks (ECNs).
10
Then everything
changed! Shortly
after calendar
page headings
started beginning with the
Longer-term investors watched painfully as the plunging market prices cut their portfolio values by a third,
then by a half and, finally, for some with heavy concentrations of tech issues, by three-quarters. Underlying values and fundamentals meant little - especially in the face of widespread accounting and management scandals that repeatedly questioned the very
truth of those once-sacred appraisals. Day traders also
watched their trading opportunities and success rates
plummet initially driving their affordable taste levels
from filet mignon status down to hot dog rank, and
finally forcing countless numbers of them back to their
former non-financial professions.
numeral "2,"
the longest
bull market in
history came
to a screeching
halt. It was,
quite literally, a
life-altering shift
in market tides.
11
"Swing trading"
could be just
the dose of
medicine you
11
need to restore
vitality-and
investment
program.
11
/I
Think of swing
trading as
something
of a cross
between the
quick-in-and-out..
low-profit-pertrade approach
taken by day
traders and the
low-frequency,
big-gain
methodology
used by longerterm investors.
11
12
The rationale
behind swing
trading is
presented clearly
and concisely,
the analytical
foundation
gives the basic
information you
need without a
lot of extra
technical
"mumbo jumbo"
and The Master
Plan entry and
exit rules are
spelled out in
step-by-step
fashion.
13
14
CHAPTER 1
15
arsenal of
strategic options
can be broken
down into three
basic categories:
1. When a stock's
primary trend
is bullish
2. When a stock's
primary trend
is bearish
3. When a stock
is range-bound
16
look a bit more closely at the motivations and objectives of the typical swing trader, once again making a
comparison to the longer-term investor and the day
trader, as we did briefly in the Introduction.
Whether you're
a long-term
investor, a
day trader or a
swing trader,
your primary
lt
goal in initiating
any stock
position is to
make a profit.
17
The longer-term
(or "buy-andhold") investor
makes only a
limited number
of trades - as
few as five or
ten - each year,
while the
day trader makes
10, 15 or even
more round-trip
trades of 1,000
or so shares
each day.
18
Swing trading is
something of a
"hybrid" strategy
featuring the
most favorable
elements of both
day trading and
longer-term
investing.
19
Swing trading is
a proven strategy
with fairly
clear-cut entry
and exit criteria
-less demanding
than those of the
day trader and
less subjective
than those of
the longer-term
investor-so
it's not difficult
to build a
strong record of
successful trades.
20
With swing
trading, it's fairly
easy to find good
opportunities,
the trading
period is short
and, should
you make a
mistake, you
get an almost
immediate
chance to redeem
yourself with a
new trade.
21
other specific
guidelines you'll
learn, you will
quickly be able
to launch your
own swing
trading program
- a program that
will enable you
to slowly, but
surely, increase
your wealth
using a disciplined, low-risk
approach to
playing today's
uncertain
markets.
22
CHAPTER 2
Swing-trading
profits are
entirely
dependent on
successfully
riding these
waves - jumping
aboard an
upward-trending
wave pattern
when prices are
near the bottom
of a trough, or
climbing on a
Thus, though the wave patterns found in stock market prices are rarely as uniform as those found in
nature (so-called "sine" waves), you can be assured
that they do indeed exist-and will continue to exist
in the future. This is important because swing-trading
profits are entirely dependent on successfully riding
these waves - jumping aboard an upward-trending
wave pattern when prices are near the bottom of a
trough, or climbing on a downward-trending wave
downwardtrending wave
when prices are
23
the basis of
its revenues,
balance sheet,
produds,
technical analysis.
produdion
capacity, market
demand, etc.,
then fadoring
in the overall
economic climate,
in order to arrive
at a projedion
of its potential
earnings growth
and, by association, its future
stock price.
revenues, balance sheet, products, production capacity, market demand, etc., then factoring in the overall
economic climate, in order to arrive at a projection of
its potential earnings growth and, by association, its
future stock price.
By contrast, technical analysis assumes the market
knows all the key fundamental information about a
company before it becomes public and factors that information into the present price. The technician seeks
to interpret the market reaction to this information by
analyzing price movements as they are depicted in
various chart patterns, then predict future price action
based on how similar patterns evolved in the past.
Technical analysis
can best be
described as
the study of
historical price
performance in
an effort to
predict future
price movements.
25
is the sum of
present
knowledge
about an
investment,
it's not really
reactiverather. it
anticipates
changes in
fundamentals.
3. There is a
linear relationship between
price and time.
26
We've taken
the time to
stress these three
points because
they all help
explain why
stock prices tend
to move in
trends - as well
as why they
typically break
out of those
trends or
unexpectedly
reverse.
27
cornerstone
precepts of
Support is the price level at which traders have historically shown a willingness to purchase a given
stock or security.
28
A resistance
level can be
defined as the
price point at
which the supply
of a stock
exceeds the
as the price
One additional key point: Support and resistance levels may not be static over time-i.e., the line depicting them on a price chart may not be flat.
point at which
the demand
for a stock will
exceed its supply.
29
Understanding
the nuances of
support and
resistance, and
learning to
recognize the
specific levels
for each on the
price chart of a
given stock, is
perhaps the most
important element
in becoming a
successful
swing trader.
30
CHAPTER 3
ost humans have a very hard time interpreting an assortment of complicated investment
data with the speed necessary to make efficient market decisions. That is why, as human stock
traders, we strive to find ways of presenting such data
in a manner that makes it easier to analyze. Perhaps
the most effective means of doing that is through the
use of stock charts-which can, in a matter of minutes, convey the information needed to identify quality trading opportunities and suggest optimum price
points for seizing those opportunities.
There are, of course, several different kinds of charts,
and the list of the various types of indicators they can
be adapted to display is virtually endless. However,
regardless of the style, all charts do essentially the same
thing - they provide a visual representation of the
results of technical analysis, recapping the historical
price action of the security being analyzed. Even the
simplest of charts can provide a wealth of information.
Take, for example, the basic line chart of General
Electric Co. (GE) shown in Figure 3.1 on the next page.
Although it features just three lines-the price line, a
50-day moving average (MA) line and a 200-day moving average line-you can tell a lot about GE with
even the quickest glance. To wit, it had been in a
31
,-'"
SO-day
/ ' Moving
Average
2OG-day
Moving
/
Average
A
.}
'" T
Price Line
FIGURE 3-1:
One-year Line
Chart of GE stock
featuring a
SO-day and 200-
day moving
average.
steady downward trend for the better part of a yearthen, in March 2003, it staged a sharp upward breakout, penetrating first the 50-day MA and, a few days
later, the 200-day MA, before pulling back slightly.
That was a very bullish move and, if the pullback held
above the 200-day MA line, most likely signaled a
reversal and the start of a new upward trend.
We tell you that not to suggest that GE is a good
swing-trading candidate, or a good investment in general, but merely to demonstrate the power that even
a simple chart has in providing insight into the psychology of the market. That's important because psychology is one of the most important elements of
technical analysis. In fact, what technicians actually do
is trade people, not stocks. That's a key reason technical analysis is so successful in forecasting future price
movements - because people never change! They
keep making the same investment mistakes over and
over-which is a lucky thing for those of us who
hope to profit from such mistakes.
32
FIGURE 3-2:
One-year
chart of GE
stock featuring
a SO-dayand
200-day moving
average.
flr
...... 1
Trading Volume
~'---
200-day
Moving
Average
.,,,
~n
B''''
'.1
33
As noted, the two charts already shown are representative of the most simple charting methodology used.
Once you become more deeply involved in swing trading and hone your analytical skills, you'll want to
advance to more sophisticated chart types that convey
added information. In fact, even if you don't do any of
your own charting or analysis, but instead use an online service such as MasterSwings or others in the market, you will still need to be familiar with the more
advanced chart types as virtually all the top analysts
and advisors use them. Thus, to help you ramp up
your learning curve, we'll take a little extra time here
to familiarize you with a couple of the most popular
charting forms, with a focus on those most appropriate for swing-trading applications and those embraced by some of the most widely known professional swing traders.
34
Bar
Candlestick
High-
Close /
Open "-
Low-
now become so popular in the West that the term "Japanese" has generally been dropped from the name.
As with the standard bar chart, candlestick charts display the open, high, low and closing prices for each
day's price action in a given stock or market index.
However, they do so in a manner that accentuates the
relationship between the opening and closing prices.
Figure 3.3, above, illustrates the key differences.
FIGURE 3.3
35
FIGURE 3-4:
Three-month
Candlestick
Chart of GE
stock featuring
a 50-day and
200-day moving
average.
....
O"'~I"-vtt
_.
...
~r_~_
-"' I -1.:=J~~.!:!!.I"_1
200-day
Moving
, Average
36
SO-day
Moving
Average
37
If
If
38
If
The analysis of
volume is a
basic, but very
important
component of
technical analysis, providing
significant
clues as to the
strength or
weakness of a
given price
move.
39
width of the
candlestick's real
body. It varies
depending on
the level of
volume during
the covered
trading periodthe greater the
volume, the
wider the body,
40
Standard
Candlestick
Equivolume
Candlestick
Figure 3.5
A standard bull
ish candlestick
line and one
modified with
the Equivolume
feature.
41
"'OWI~'~"-~n..
..S'M1I"
...:.:J~ -"'L.J.!!!!:..l~~.=.J
...... 1
200-day
I Moving
,Average
FIGURE 3.6
Equivolume
Candlestick Chart
for Autozone,
Inc. (AZO).
42
Volume-Price Relationships
Affecting Trend Performance
Trend Reversals are typically signaled by:
Above-average vol ume with very little
price movement.
Above-average volume that follow s a
strong advance or decline in prices.
I recommend
looking at
volume in
relation to price
movement,
simply because
the two in
combination help
to both establish
trends and
provide signals
regarding
whether they
are likely to
accompany both trend reversal and trend continuation signals. Then, we'll conclude this chapter by taking a quick look at two examples of actual trend patterns- just so you'll have the pictures clear in your
mind when we finally begin discussing the specific elements of our swing-trading Master Plan.
continue or
move into a
reversal phase.
43
Price movement
in an uptrend.
FIGURE 3.7
This standard
candlestick
chart shows the
price movement
for Myriad
Genetics, Inc.
(MVGN) in an
uptrend.
44
Understanding
the mechanics
of the price
pulIbacks is
important
because, when
we swing trade
in an uptrend,
we buy only
on a pullback.
45
FIGURE 3.8
This standard
candlestick chart
shows the price
movement for
VeriSign, Inc.
(VRSN) in a
downtrend.
Price movement
in a downtrend.
16
23
13
20
46
Applying the same terminology as before, a downtrend can thus be identified as a progression of minor
pullbacks, with each decline falling lower than the
previous low, separated by a series of minor rallies,
with the top (or peak) of each stopping at a lower
level than the previous one. Again, the repetition of
this pattern is important because, when we swing
trade in a downtrend, we sell short only near the
peaks of the minor rallies - with the proven expectation of a subsequent pullback once more boosting
our chances of making a profit.
When we swing
trade in a downtrend, we sell
short only near
the peaks of the
minor rallieswith the proven
expectation of a
subsequent
pullback once
more boosting
our chances of
making a profit.
47
CHAPTER 4
How to Develop a
Swing-Trading Master Plan
49
Trading on
margin means
borrowing a
portion (usually
50 percent) of
the price of the
stocks you buy
from your broker.
50
The decision as to whether you want to trade on margin must be a personal one -- not knowing your individual financial situation or your emotional tolerance
for risk, we can't make it for you. However, as we said,
to swing trade, you do need to have a margin
account, even if you plan never to trade" on margin."
Sweep feature
committed to
open trades are
automatically
swept into a
money market
account at the
end of the day
so they earn
interest.
51
If you plan to be
an active swing
trader, you need
to make sure, up
front, that your
account is set
up so that once
the available
capital is used
up, the broker
will automatically cancel the
rest of the
open orders.
52
Since swing
trading requires
buying and
selling stocks
that do, in fact,
swing a fair
amount in price,
you need to start
with stocks that:
demonstrate
a reasonable
degree of
volatility
have a reason-
ably wide
absolutetrading range
have a hefty
daily trading
volume
53
Every good
technical
analysis software
package has a
"screening"
function that lets
you enter your
desired criteria,
then runs them
against a list of
all available
stocks to
determine which
ones fulfil! the
conditions
you've set.
54
Step 1- From your list of trading candidates, identify those stocks that are currently in an established
trend, either upward or downward.
55
want to buy
stocks that are in
an established
downtrend.
short position, place a stop-loss order to protect yourself against an adverse price move, as well as a limit
order to close the position at the price needed to produce your desired profit. Ideally, your broker will allow
you to place these two orders at the same time on an
OCO (One Cancels Other) or OCA (One Cancels All)
basis.
A Couple of Notes on
What to Expect
Swing trading through an online broker has some distinct differences from other trading methodologies, so
it's likely you may encounter some things you don't
expect. Here are a couple of added notes that may
help you avoid some confusion as you're getting started. Review them quickly; then we'll move ahead and
give you the specific rules featured in our swing-trading Master Plan.
First, don't be disappointed when some of your orders
to initiate swing trades don't get filled. Remember,
you will be using limit orders only. If such an order
doesn't get filled, it's because the market moved the
opposite of what you expected - meaning you didn't
want the position anyway. In fact, the rules set out in
the Master Plan are specifically designed to allow entry
56
Swing trading's
purpose is to
avoid exactly
such situations
by identifying
the size of a
likely move in
advance (based
on the width of
the trading range
within the
primary trend),
then grabbing
the target profit
as soon as it!s
achieved.
57
few trades, you'll realize it's really quite simple. The best
characteristic of the Master Plan is that it doesn't require
you to use your own judgment-the rules are entirely
mechanical. Although your initial reaction to this might
conditions you
biggest obstacles to success in trading are human emotions-specifically, fear and greed. But, when you fol-
58
140
1.
1261/8" ;,~
1 20
.T+~
18
~!~ ,~
100
De,Une
80
~.~
60
25
Oct
16
23
30
Nav
-'
FIGURE 4.1
59
According to the
definition we use
in the Master
Plan, a stock is
considered to
have "gapped
up" when it
opens higher
than the previous
day's close by 50
cents or more.
Likewise, it is
considered to
have "gapped
down" any time
it opens 50 cents
or more below
the prior day's
close.
Gapped Down
60
When to enter
your trade -the
price at which
you initiate
your swing-trade
position depends
on whether or
not the stock
has gapped up,
or down, at the
opening.
61
A "buy stop"
is an order to
purchase a stock
should the share
price rise (or fall)
to a pre-specified
level. It can be
used to initiate a
new long trade
or close out a
short position.
A "sell stop"
is an order to sell
a stock should
the share price
fall (or rise) to a
pre-specified
level. It can
be used to
sell shares you
currently own or
to initiate a new
short position.
62
When you
profit-or to
quickly bail out
if prices turn
against youagain based on
specific rules
Setting an initial profit target of approximately 7 percent (7.0%). In the case of bullish swing
trades, in which you buy stock, this means setting
a "limit-sell" order at a price roughly 7 percent
above your entry point. And, in the case of bearish
swing trades involving the short sale of stock, it
means setting a "limit-buy" order at a price about
7 percent below your entry price.
provided in our
Master Plan.
63
below the low on the day that was used to set the
entry price - whichever is higher. To clarify, if the
stock you bought opened without a gap on the day of
purchase, the stop would be placed at a price 6 cents
below the previous days low - if that price was higher than the stop price that would be set by the 4 percent rule. But, if the stock you bought opened with a
gap on the day of purchase, then the stop would be
placed at a price 6 cents below the current days
low-again assuming that price was higher than the
stop price set by the 4 percent rule.
In bearish trades, the opposite would apply. Specifically, you would place the buy stop at a level 4 percent above your entry price, or at a price 6 cents above
the high on the day that was used to set the entry
price-whichever is lower. Clarifying once again, if
the stock you sold short opened without a gap on the
day of purchase, the buy stop would be placed at a
price 6 cents above the previous day's high - if that
price was lower than the stop price that would be set
by the 4 percent rule. However, if the stock you sold
short opened with a gap on the day of purchase, then
the stop would be positioned at a price 6 cents above
the current day's high - again assuming that price
was lower than the stop price set by the 4 percent
rule.
These stop-loss rules seem complex at first glance, and
we'll admit they are a bit complicated. However, you'll
get the hang of how they work fairly quickly once you
start using them regularly. Besides, in all likelihood,
you'll never have to actually figure them yourself. With
the sophisticated account-management software provided by most online brokerages these days, you can
simply enter your desired stop-loss criteria and, if you
~G
TRADING SIMPLIFIED
A trailing stop
loss is the
process of
steadily reducing
-or perhaps
even eliminating
As already noted, the primary goal of the swing-trading Master Plan is to increase your profits and strictly
control your losses so as to promote steady growth of
your capital base. Doing this, however, requires diligently monitoring your positions each day they're
open, and adjusting your stop orders based on that
day's price action. It also requires taking your profits
according to a predetermined plan whenever your
targets are reached.
- your chances
of suffering a
loss by progressively raising
your stop level
as a stock's price
rises (in a long
position), or
lowering it as
the price falls
(in a short
position).
65
A gap opening.
66
67
FIGURE 4.2
Flow Chart
showing all
possible trading
actions for a
bullish "long
swing" trade.
Long Swing
No
Yes
Stock is Purchased
---r
position closes.
Sell stop closes
the 2nd half of
the position.
No
I
68
Wait 30 Minutes
Wait S Minutes
Yes
Gap
Up
-'-
+Yes
Next Day
Stock Opens With a Gap
Yes
fD~:n
Wait S minutes
Sell limit for Yz the
shares remains the
same
Sell stop - whichever is higheryesterday .. stop loss
or 6 cents below
yesterday's low
Yes
Gap
Up
Wait 30 minutes
Sell limit for 'h the
shares remains the
same
Sell stop-whichever is higheryesterday's stop loss
or 6 cents below
yesterday's low
Because of the
diligent use of
trailing stop-loss
orders, it's
probable that
your typical loss
69
To initiate a
short swing
trade, you do
what is referred
to as "selling
the stock short."
This essentially
70
200
~~t~,
Short Swing
180
1,~~ll I
160
140
~~
'~t~
Increases
16
23
30
Nav
13
20
FIGURE 4.3
Arrows on this
chart show the
placement of
short swing
trades, opened
near the peak
of short-term
rallies, but after
the stock had
resumed its
downtrend.
You've now been introduced to the basic fundamentals of swing trading, as well as the entry and exit
rules, risk-control methods and other guidelines featured in our Master Plan. When you finish the remainder of this book and begin doing additional research
into the resources available to help you get actually
71
Short Swing
No
Yes
-,. - rt
Buy stop closes
the 2nd half of
the position.
I
FIGURE 4.4
FlowChart
showing all
possible bearish
"short swing"
trading actions.
72
.. +
\--No
Yes
Next Day
Stock Opens With a Gap
Yes
,
l
Wait 5 Minutes
Wait 30 Minutes
Gap
Up
Gap
Down
Yes
~ Down
Gap
Yes
Gap
Up
Wait 5 minutes
Wait 30 minutes
Buy limit for Yz the
shares remains the
same
SWING TIP:
Don't Hesitate to TRY AGAIN
There w ill be numerous t imes during your swing-trading career
when an order you place with your broker fai ls to get filled . That
will usually occur when the stock moves counter to what you
expected - which could actually make it a more attractive buy
tomorrow, since it w ill be deeper in a short-term pullback or higher in a short-term rally. Should that happen, take another look at
the prices and opening action the following morning and, if you
like what you see, place another order to initiate a trade. One
warning, however: Don't do this for more than five consecutive
days as that many counter moves may signal a major trend reversal rather than just a short-term swing against the primary trend.
There's little doubt these tools of the analytical wizard's art can provide valuable insight into such areas as
trend development and continuation. However, they
can also unnecessarily complicate your efforts to
achieve swing-trading success.
By contrast, the rules and guidelines provided in our
Master Plan-which, in truth, were developed using
many of the same indicators and formulae just mentioned - are relatively concise, clear and easy to implement. And, they have a proven record of success.
So, why not rely on them to get you started - resisting the inclination too many novices have to make
swing trading a lot harder than it needs to be. Then,
move on to more complicated applications as you get
more experience under your belt.
73
CHAPTER 5
Some Swing-Trading
Case Studies
We recommend
that you find
and use a good
software package
that can screen
stocks based
on a variety of
technical indicators and provide
a list of those
with promising
chart patterns.
11
While it's not necessary to have an in-depth understanding of these indicators in order to be a successful swing trader, it is helpful to have a basic knowledge of some of the more widely used pattern recog-
75
Four indicators
we do want to
take a closer look
at include:
moving
averages (MA)
"Force Index"
directional
movement
index (OM!)
"Up/Oownllnl
Out" overlay
76
A moving
average is
simply the
average closing
price of a
stock or index
calculated over a
In addition to the simple (or arithmetic) moving average (SMA) calculated by the above formula, there are
four other popular types of moving averages: exponential, triangular, variable and weighted. Moving
averages can also be calculated based on a number of
indicators other than the closing price, including
opening, high and low prices, as well as volume.
specific number
of days, usually
ranging from 10
to 200.
77
Uptrend
Downtrend
78
~QQQ's Chart
File
~'"!.,';
Chart
Indicators
Zoom In
Favoriles
View
I Zoom Out I~
Ulililies
Time
Tracker
MrSwing
Help
I Scan I Quote I
100
80
60
40
01
~aO
Force Index x10.000.000
--
--..
----
8 .0
--St.oIA2..-"'.
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o
9.0
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Average
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42 .31
41 .06
39.81
38 .56
37.31
36.06
34.81
33.56
32.31
1 - - - 2O-day
Oct
Moving
Average
FIGURE 5.1
This chart of
the NASDAQ 100
Index illustrates
how 10-, 20and 50-day
moving averages
are depicted
graphically.
79
When the FI-13MA is greater than zero and the FI3MA is less than zero, the bulls are winning, which
signals an uptrend and a potential opportunity to do
a long swing trade. And, when the situation is
reversed - i.e., the FI-13MA is less than zero and the
FI-3MA is greater than zero-the bears are winning,
meaning the stock is in a downtrend and conditions
could be ripe for a short swing trade. Once again,
Figure 5.1, above, illustrates how the Force Index moving averages are displayed on an Equivolume chart.
80
FIGURE 5.2
S..!:!!! - .. I..::.J~~~~
OWof'"
M .....
-~
--- - ~~
,,'-----'
----
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..----------
,,--../ ~"----~
--
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81
Up/Downlln/Out
is a chart overlay
program that
color-codes the
individual bars,
or candlesticks,
on charts, based
on price move-
ment in order to
illustrate the
relationship
between the
current high and
low price and the
previous day's
Up (green) indicates that the current high is higher than the previous high and the current low is
higher than the previous low.
Down (red) indicates the current high is lower
than the previous high and the current low is lower
than the previous low.
In (yellow) indicates the current high is lower than
the previous high, and the current low is higher
than previous low.
82
Out (blue) indicates that the current high is higher than the previous high, and the current low is
lower than the previous low.
Because this book isn't being printed in color, we can't
illustrate exactly how much the overlay enhances your
ability to interpret chart price relationships, which is an
important element in setting your swing-trade stops as
spelled out in the Master Plan rules. However, if you visit
the mrswing.com website, you'll be able to see several
examples of how this indicator actually appears.
83
Figure 5.3
This illustration
shows the price
movements of
Georgia Pacific
Corp. (GP) as
depicted in an
Equivolume
chart. Review
it, as well as
those on the
following two
pages, not for
any specific
signal, but
rather to get
a feel for how
the various
indicators just
discussed
appear on
Equivolume
charts.
FIGURE 5.4
A sample
Equivolume
chart for KT
Corporation
(KTC)
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A sample
Equivolume
chart for
Nordstrom,
Inc. (JWN)
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00
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A sample
Equivolume
chart for
Myriad
Genetics
(MYGN)
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MA1-40,30: MAZ-38 B6 N.A3-34.G4 DI!3t -01.11 ADX30
Figure 5.7
Trade: DFXI
Date: 04/26/2002
Reasons for trade/setup: CLOSE> SMAC50 and CLOSE>
SMAC20 (to be sure the stock is stili in an uptrend) and HIGH <
HIGH1 and HIGH1 < HIGH2 AND (the stock must be experiencing a 3-day declinelpullback within the context of an uptrend)
and FORCE3<=0 AND FORCE13>=0 (the short-term battle is
now won by the bears, but stili the bulls are in control of the
longer-term battle)
Swing Entry Price: $42.48 (High of yesterday $42.42 + $0.06)
Stop Loss Price: $41.35 (order $0.06 below the low of the
previous day $41.41 - $0.06)
Target: $45.45 (entry price +7%)
Exit: $45.45 (05/02/2002) & $43.44 (05/02/2002)
Reason for exit: $45.45 at a 7% gain on the long swing
trade & $43.44 trailing stop low of yesterday $43.50 - $0.06
Profit/loss: $1.965 = ($2.97 + $0.96)12 or gain of 4.63%
86
IT
fU
.J
80
80
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10
0
8.0
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.00
28
Z1:n
2U2
",m
20>'2
....
2437
'P'
"r
X
Trade: PFG
Date: 04/12/2002
Reasons for trade/setup: CLOSE> SMAC50 and CLOSE>
FIGURE 5.8
SMAC20 (to be sure the stock is still in an uptrend) and HIGH <
HIGH1 and HIGH1 < HIGH2 AND (the stock must be experiencing a 3-day decline/pullback within the context of an uptrend)
and FORCE3<=O AND FORCE13>=0 (the short-term battle is
now won by the bears, but still the bulls are in control of the
longer-term battle)
87
PTEf'(s Chart
r..
..
Irdicetor. r_es
Chart
-.:..:.J
I l _ O<A I~
l _ '"
.... ~ J:..P"'''W_
S VlNGTAACKE/i
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DM("'.oerO
'00
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00
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--
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n -r
0
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70
PTE,l
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+.~
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,
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771.
21193
~
~
2- . .
23 ....
c-20~
20.93
FIGURE 5.9
22 I.
Trade: PTEN
Date: 03/26/2002
Reasons for trade/setup: CLOSE> SMAC50 and CLOSE>
SMAC20 (to be sure the stock is still in an uptrend) and HIGH <
HIGH1 and HIGH1 < HIGH2 AND (the stock must be experiencing a 3-day declinelpullback within the context of an uptrend)
and FORCE3<=0 AND FORCE13>=O (the short-term battle is
now won by the bears, but still the bulls are in control of the
longer-term battle)
Swing Entry price: $26.84 (High of yesterday $26.78 + $0.06)
Stop loss price: $25.94 (order $0.06 below the low of the
previous day $26.00 - $0.06)
Target: $28.72 (entry price +7%)
Exit: $28.72 (03/28/2002) & $29.99 (04/03/2002) at open
Reason for exit: $28.72 at a 7% gain on the long swing
trade & $29.99 trailing stop low of yesterday $30.31 - $0.06
Profit/loss: $2.515 = ($1.88 + $3.15)/2 or gain of 9.37%
88
SUMMARY
The Up-and-Down
Path to Profits
11
Obviously. this
is a lot of
11
information to
absorb. and it
may take some
time - and some
real-world
experience before you fully
grasp all the
finer points and
subtle nuances
of the swingtrading art.
89
The driving
principle of the
swing concept is
that you deal
only in stocks
which are
already moving
in an established
trend - and you
open only those
positions, either
long or short,
that will profit
from a continuation of that
primary trend.
90
SWING TIP
The secrets to swing-trading success are:
Confidence! Discipline!
Focus! Patience!
91
APPENDICES
93
FIGURE A.1
9~
!,MQ
'
. . ~ .....
- .. I=l~~~~.=J
--------
'.1-""".
I
94
=p
.-
MasterSwings is mrswing.com's paid daily e-mail advisory service. Each day, subscribers receive Swing-Trading Alerts identifying the most promising long and short trades of the day. Alerts
are generated by mrswing.com's state-of-the-art swing-trading
models, which scan a universe of g,OOO-plus stocks, utilizing a
variety of technical indicators and select only those potential
trades that offer an optimum chance for profit with a strictly limited risk. Each day's e-mail advisory features four different trade
categories (bullish, bearish, reversals, and breakout-breakdown
swings), with four different trade recommendations in each category. The alerts also feature entry, exit and money-management
specifics for each recommended trade.
95
Interactive Brokers
Interactive Brokers is a discount firm that's ideal for swing trading.
It offers an order feature called one cancels all (OCA). This feature
allows you to enter the three components of an order as a group.
For example, for a long swing trade, this would include:
A buy stop to buy the stock when the price moves above the
stop price.
A sell stop to sell the shares if the price moves down 4%.
A sell limit to lock in profits (on half the shares) when the price
rises 7%.
In other words, you are able to enter sell orders even before the
stock is purchased. They then become active once the purchase
transaction is completed. If only part of the buy order is filled (for
example, half the shares), the quantity of the sell orders is adjusted accordingly. Once the stock is purchased, if either of the sell
orders is executed, the other is automatically canceled. The OCA
option is fairly rare among online brokers-but very valuable.
Using these features, you can place your orders before the market
opens and forget about them until the evening or the next day.
You're probably saying, "But what if the market gaps up or down?
The rules are different?" That's true, but gap openings happen infrequently-and you can often predict if a stock is likely to gap up or
97
optionsXpress
optionsXpress is another discount brokerage firm we like because
of its many features favorable to swing traders. While the name suggests a specialist in options, you can trade stocks, bonds and mutual funds as well. optionsXpress also has a unique autotrading service
called Xecute that mrswing.com uses for several of its services.
Their daily swing-trading recommendations also go directly to
optionsXpress, which will automatically place the buy and sell orders
for your account. This is a particularly convenient feature for subscribers who are unable to watch the market.
For swing traders, optionsXpress has a feature called one cancels
other (OCO). Once a long trade is placed, both closing sell orders
(the limit and the stop) can be placed simultaneously. Then, when
one is executed, the other will automatically be canceled. optionsXpress is also working on a feature (which will likely be ready by the
time you read this) that will allow buy and sell orders to be placed
98
99
Resource Guide
Tools for Success in Trading
Recommended Reading
Item #T190X-1199048
Item #T190X-11221
www.traderslibrary.com
103
Swing Trading
Power Strategies to Cut Risk and Boost Profits
By Jon Markman
Ideal for today's active traders, swing-trading bridges the gap between long-term "buy-&-holders" and day traders. Now, CNBCI
MSN Money's Jon Markman presents the highly profitable, risk-abating benefits of swing trading in a thorough, move-by-move playbook for swing trading in the big leagues.
$29.95.
Item #T190X-821613
Enter the hidden world of master pattern recognition and build powerful swing-trading strategies that respond quickly to changing market conditions. This complete, practical guide to modern swing trading includes over 180 illustrations and dozens of proprietary setups
that illustrate both classic and highly original short-term tactics.
$55.00.
Item #T190X-11668
104
Item #T190X-1661626
Item #T190X-41613
Item #T190X-84668
By Jack Schwager
In the classic hard-cover version, this title is a true investment
"Bible." In-depth interviews with key players expose every facet of
their winning strategies for consistently outperforming peers. See
how you can do it, too!
$39.95.
Item #T190X-2106
www.traderslibrary.com
105
$79.95.
Item #T190X-10781
www.traderslibrary.com
106
At Home Workshops
www.traderslibrary.com
107
$99.00.
$129.00.
$129.00.
$799.00.
www.traderslibrary.com
108
FREE 2-Week
Trial to
SwingTracker
T
SwingTracker v4.0
- a quote, scan and
charting software
designed specifically
for swing & day
traders
Real-time Intra-day
technical charts
Sophisticated stock
tools & dozens of
technical indicators
Plus many special
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110
--
SwingTracker
111
119
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are available at discounts
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Boyer at 800-272-2855 or e-mail
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primer. With a foreword by the popular "MrSwing.com" - this new guide from Larry
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As traders increasingly seek a sensible balance between the high-risk world of day
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