How To Locate The Best Swing Trading Setups
In this article I am going talk about tactics using Pivot High and Pivot Low
days in Swing Trading and give to give you a basic strategy that you can begin
using right away that keys off of pivot days. Active traders are always on the lookout
for new stock trading strategies and stock trading tools to help them increase their edge.
First, lets talk about what works and what doesn't work in Swing Trading. We pretty much know what
doesn't work in swing trading. For instance, trying to play "earnings roulette"
where you bet on how a stock is going to react to an earnings release, or trying
to trade off of breaking news, both are losing propositions over time and give you the same odds as a trip to Vegas.
Also, when you are doing shorter term swing trading,
the longer term fundamentals don't really don't play a key roll in how a trade will
follow through, so a heavy reliance on fundamental stock research is usually a waste of time in swing trading.
So everything I am going to be discussing in this article will be based on the daily stock chart
and the short term swing cycle.
The Basic Concept In Swing Trading.
A basic concept of Swing Trading is that we locate, either through the review of lots of stock charts, or the
use of various types of stock scans, high momentum stocks that are currently in a strong uptrend.
Once we build a watchlist of strong stocks that are trading higher, we wait for them to pullback. Identifying the proper
time to enter the stock on a pullback is the key to this type of Swing Trade Setup. We want to get into a stock
just before the trend resumes. If we take a trade in a stock, and the trend does not resume as expected, we have a stoploss in place to take us
out of the trade. Hanging on to losing trades is a major way to reduce your success rate in swing trading.
Identify Stocks In A Strong Trend
Wait For A Pullback To Enter A Trade
Watch For The Trend To Resume
The 3 Main Goals Of Swing Trading.
Swing Trading is a process over time. In other words, you will be taking many trade over the course
of your career as a trader. There are 3 things we must focus on to be profitable swing traders.
More Winning Trades Than Losing Trades
Bigger Winning Trades Than Losing Trades
Never Allow Catastrophic Losses
If you pick strongly trending stocks, and can learn to locate good swing trading setups, and only initiate swing trades on proper trade entry
triggers, then in the end, you should be able to achieve more winners than losers. If you use proper initial stop loss placement, and
understand how to pick good price targets for you swing trading exits, and allow your winners to run, you should be able to end up with
bigger winning trades versus losing trades. And finally, always using a stop loss on your trades will help guarantee that you never
find yourself taking a catastrophic loss on any individual trade. It only takes one major loser to wipe out all of your hard earned
swing trading gains and run your trading account into the ground.
Letting Winners Run - Article #1 Exit Strategies
Letting Winners Run - Article #2 Trailing Stop-loss
One of the best rules in trading you will ever learn is to cut your losers quickly and allow your winners to work over an extended period of time.
What Is A Pivot Day? Pivot Days, (not to be confused with Day Trader Pivots) are daily price bars that stick out from the crowd.
Over the years Pivot Days have been identified by different names. For instance, early on, Henry Wheeler Chase and then later, the famous commodity trader Larry
Williams referred to Pivot Days as "Ringed Highs" and "Ringed Lows" due to the fact that in the days before computers when people still graphed charts out by hand
or received printed charts from a service, they simply circled or ringed the highs and lows of the pivot days with a pencil. Other names used by technical traders
are, Swing Highs and Swing Lows, Reversal High and Reversal Low, Fractal High and Low and finally Buying Climaxes and Selling Climaxes as many times there is a noticeable
spike in volume seen on Pivot Days.
Pivot Days are not to be confused with Day Trader Pivots What is a Day Trader Pivot?
Locating Pivot Highs and Pivot Lows
A Pivot Low, (See Chart Below) is a day where the low descends lower then the days preceding it and the days immediately following it. An official pivot
low has four HIGHER lows just before and four higher lows just after, making the pivot day itself look like a spike protruding down. An official pivot
high day is just the opposite. We look for four lower highs just before the pivot day and four lower highs just after. The Pivot High day should resemble
a small antenna projecting up above the surrounding days.
Advantages Of Using Pivot Days
Trading using Pivot Days offer many nice advantages. First of all, it is one pattern that is universal on any time frame, and you will notice that it repeats
itself over and over with great frequency. One out of every ten-fifteen price bars will become a pivot bar. As we progress forward in this article examining
an actual Pivot Day setup strategy, you will see that Pivots are a consistent and accurate means of finding great trades and are excellent visual reference
points on your charts to work with.
A Basic Pivot Day Swing Trading Setup Here I offer you a Trading Strategy that uses a 3-3 Pivot High day as the starting
point, followed by 5 or more consecutive closes below a 5-day Simple Moving Average, with a move back above the 5-Day SMA acting as the trade
entry trigger. We will break the strategy down into sections A-B-C and take a look at several examples.
A.) What Is A 3-3 Pivot High? We look for a stock that is experiencing a strong price trend to the upside, then wait for a Pivot High Day that
has three lower highs just before the pivot day and three lower highs just after. (See Below) The high of the day will look like a small needle poking up higher
than all of the surrounding days.
B.) Count The Closes Below 5-SMA Next we want to count 5 or more consecutive closes below a 5-Day Simple Moving Average.
When we see 5 or more closes below a 5 day moving average this represents SELLING EXHAUSTION. In order for a stock price to be able to reverse course and go the
opposite direction, in this case a rebound to the upside, the selling pressure must dissipate.. basically dry up. When this occurs, any small amount of buying
pressure can act as a catalyst and get a new price rally under way.
C.) Watch For A Price Above 5-Day Our Swing Trading Entry Trigger occurs when we see the price pass back above the 5-Day
Simple Moving Average. Here the Swing Trader has two options. An aggressive trader can take a position intra-day as soon as he or she see the price begin to
cross above the average. A more casual Swing Trader who may not have the luxury of being around a computer during market hours can place limit order to buy
shares the next day at the open after spotting 1 successful CLOSE ABOVE 5-Day SMA. In either case, the move back above the 5-Day SMA represents the first
hint of renewed buying pressure and an increase of the upward momentum for the stock, after a pullback.
Accurate Roadmap To The Swing Trading Cycle You see when we put A-B-C together we get a complete picture of one type of Swing
Trading Cycle that can play itself out over a period of 2-3 weeks. A.) Is the Pivot High Day, B.) Is the 5-8 Days of selling exhaustion, C.) Is the Entry
Example #1 - ADSK LONG - The Pivot Trade Setup In the example starting below we have a basic HLOC chart of a stock that has been in a
strong uptrend and has just begun to pullback.
Locate The 3-3 Pivot High Day We spot 3 lower highs before and 3 lower highs after one day that spikes UP which signifies a Pivot High Day.
Selling Exhaustion Next we wait for 5-8+ consecutive closes BELOW the 5-Day Simple Moving Average. Note: The closes count can include
days that are part of the 3-3 Pivot High pattern.
The Trade Entry Trigger Watch for the 1st day that passes or closes back up ABOVE the 5-Day SMA. This is your trigger to get LONG on a
The Follow Through After the Pivot Trade Setup plays itself out and triggers and entry, ADSK experiences a strong 8.2% price rally over
the following 6 trading days.
Example #2 - INTC SHORT - The Pivot Trade Setup In the example starting below we have a basic HLOC chart of a stock that has been in a
strong downtrend and has just begun to retrace.
Locate The 3-3 Pivot Low Day We spot 3 higher lows before and 3 higher lows after one day that spikes DOWN which signifies a Pivot Low Day.
Buying Exhaustion Next we wait for 5-8+ consecutive closes ABOVE the 5-Day Simple Moving Average. Note: The closes count can include
days that are part of the 3-3 Pivot Low pattern.
The Trade Entry Trigger Watch for the 1st day that passes or closes back down BELOW the 5-Day SMA. This is your trigger to get SHORT on a
The Follow Through After the Pivot Trade Setup plays itself out and triggers and entry, INTC experiences a strong 9.4% sell-off over
the following 7 trading days.
Stop Placement In this type of trade setup you have 3 different ways you can determine your stop-loss placement. They are, below the low
of the current bar, below the low of 1 day back, and the 3rd is below the low of 4 trading days. Placing a stop below the current day's low might be a tigher stop
and allow you to aggressively trade a bigger position because if the stop gets hit it could be the same dollar loss as if you traded less shares but used a wider
Increasing Accuracy. One way to perhaps increase the accuracy rate of follow through on a trade setup like we have discussed here in this
article is to look for a trade setup that occurs just ABOVE AN UPWARD SLOPING KEY MOVING AVERAGE. When you get the Pivot Setup just above lets say, an upward
sloping 200-day SMA or 50-day EMA for example price may get the added effect of a moving average bounce.
Confirmations With Other Indicators You may notice at the bottom of the Swing Cycle as you just learned it, that you will see a nice confirmation
with other Technical Indicators that are commonly used, such as an Oversold reading on your Stochastic, MACD, RSI Oscillators.
Automation Is The Key. What if you had a piece of software that automatically did all the processing for the above Pivot Trade
setup, (in addition to 10 other Swing Trading Setups) on your entire watchlist of stocks with the single click of a mouse button? This could help
you save a ton of time each evening and prevent analysis mistakes you might make.
Meet Jeffrey - The Developer of the Stock Pivot Trade Analyzer Software System
Besides being a full time Swing Trader and Day Trader for the past 10 years, Jeffrey has been a Software Engineer for most of his adult career working with
numerous Fortune 500 companies designing and developing dozens of large scale software systems ranging from Corporate Accounting Systems, Scheduling and Forecasting Systems
and Statistical Data Analysis Programs. Over the past 5 years he has been able to devote all of his skill and experience from the Software Industry into developing one of the finest and most
sophisticated pieces of Stock Signal Analysis Systems for use by himself as well as his fellow Swing Traders... and whats more, he offers it for use to the general public for an incrediably reasonable price.
Jeffrey's Trading Workshop
The Stock Pivot Trade Analyzer Picks Off Every Entry With Precision. Here is an example of the Pivot Trader in action calling out
every single entry on a high flying stock with cool precision.
Our Newest Swing Trade Setup. We call this the SUPER DEEP PULLBACK. Have you have seen the stock of a really great company
start to selloff, trading lower and lower. You know it is becoming way undervalued and must be getting ready to bounce, but you are just not sure when it is safe to buy.
Well the new Super Deep Pullback performs unique analysis to get you in just before the big bounce occurs and the price attempts to retrace back to previous levels.
Cool Export Features Of The Software.
Each evening when you auto-analyze your favorite watchlist of stocks for potential Swing Trading Setups, you can easily print or export to an excel spreadsheet
all the Trade Alerts that the software finds. The Stock Pivot Trade Analzyer not only does all of the hard core analysis and number crunching for you,
but allows you several easy ways to export the results for futher study.
The Swing-Trading-Club For Active Traders
At $499, one average size winning trade on a $5000 position could easily pay your entire year membership to the Swing Trading Club, where you will get invaluable
ongoing training on advanced Swing Trading Tactics as well as the use of our new super state-of-the-art Stock Pivot Trade Analyzer Software, which will help you to
find the best swing trading setups. Think of it another way,
if the Pivot Trader can just keep you out of one BAD TRADE going forward, your entire 1 year membership is covered. At the very reasonable price of only $499,
it simply becomes, "Penny wise, Pound Foolish" to NOT take advantage of this special offer, as you will not find such a great combination of stock trading tools for the price
Ready to get started?
Here is great resource by Victor Niederhoffer with lots of great reading: DailySpeculations.com