Registered User
Joined: 12/8/2004
Posts: 1,301
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This is an actual still active swing trade.
We are looking for 3-5 downward candles from a stock which is in an intermediate uptrend(above 50ma). Here we see WYE which gave us this opportunity a few days ago. When you swing trade you are only concerned with resistance, you are never concerned about support. Why? Because you are depending on the support being the candle before you enter. If you are wrong you are wrong, but you are making a low risk high probability trade.
As you can see we have had 4 pretty crummy days in this stock. Assuming we are looking at this chart while the market is closed, we may or may not place a trade on this stock. If the high of the last bar is exceeded we will place a trade. Do not, I repeat, do not place a buy limit order just above the high. You will soon come to realize when you do this that you, and only you will be the high of the day. These type of orders are placed at the exchange so the market maker or specialist will have it on his books as soon as you place it. Just trust me that if he can find a way to take your order he will whether the stock has any strength or not.
Most brokers now have what are called conditional orders, or trade triggers. These are much better orders because they stay on the broker’s computer, and are not directed to the market until your conditions are met. I strongly recommend using this type of order both to exit and enter a stock.
Now remember, whenever you swing trade YOUR RISK is the size of the last candle before you enter. Why? Because we are not going to buy this stock unless the high of the previous day is exceeded and our stop is going to be set slightly below the low of the previous day before entry. So in this example our approximate risk would be the difference between 50.79 and 50.12. Allowing for slippage and keeping your stop below the low lets just assume our risk is .85 cents per share.
In swing trading you never want to have a risk reward of less than 1.5 to 1, preferably 2 to 1 or better. We have .85 cents risk and what is our possible reward? For that we turn to resistance. Resistance is at 52.12. 52.12 minus 50.80 is 1.32. 1.32 divided by .85 is 1.55 r/r. Not the best, but it does meet our minimum criteria.
OK, we have placed our conditional order with our broker, now lets see what happens during the next day.
Ok, we now come home after the market closes and see everything is moving smoothly but we now have one more thing to do. We now move our stop up to slightly below the low of today. Our target is 52.12 or slightly below. We are not there yet. We are profitable right now, but we can still lose money because our stop is still below our purchase price. We do not panic. We do not take profits. We sit tight.
Now lets see what tomorrow brings.
Ok, now we are at a decision point. We immediately move our stop loss to slightly below the low of the day again, but now we have to determine if we want to sell. We are close enough to our target to take profits. In my instance, I decided to hang in there because all drug stocks seem to be getting more money poured into them as people move out of tech stocks. I did want to take profits at my target so since I purchased 400 shares I decided to put a sell order in for tomorrow at 52.00 for 300 shares, and keep 100 to see what happens in the future. You might want to look at stochastics and see if the stock looks overbought here, or rsi, or any other indicator you use that shows whether a stock is continuing to show strength. Or you could place a trailing stop on the stock, or even just continue this process of placing your stop below the low of each day until you get stopped out.
Now that brings us to today.
As you can see we have quite an ugly candle so I probably screwed up with that remaining 100 shares. The stock did go up through resistance but immediately got shot back down. This stock will probably go down on monday, but I will place my stop on the remaining 100 shares at the low of today.
I hope this helps some of you guys.
Remember, trading is about taking low risk. Your object is to enter a stock when you know it will cost you little money if YOU ARE WRONG!!!. There is nothing wrong with being wrong. If you can trade stocks with a 2:1 reward vs risk ratio you will still make a lot of money being wrong the majority of time, so do not give up.
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Registered User
Joined: 3/21/2006
Posts: 4,308
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I learned swing trading a little differently, but I like this equally as well.. I will start looking for these opportunities right away..
Thanks again for your devotion in helping all of us further our knowledge..
Apsll...
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Registered User
Joined: 10/7/2004
Posts: 2,181
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HNC, that took a lot of your time. Most charitable of you. You are to be commended.
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Registered User
Joined: 1/29/2005
Posts: 104
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I ran a scan for this setup tonight and got over 250 hits, but I have some questions.
HNC, are the following stocks viable candidates? NTMD, YHOO, SAPE, MESA, COWN, BELM, & ICON?
Do you include doji's in your 3-5 days of down days or must they each be "long" days?
Back testing this theory, it seems very good. I'm impressed and plan on paper trading this theory. Thank you.
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Registered User
Joined: 1/28/2005
Posts: 6,049
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lpark
If we bypass things like volume and fundamentals. My
guess would be NTMD and MESA are not qualified
candidates. (of the stocks listed)
They are not in a sufficient up-trend.
Since the concept is to buy weakness within strength.
I would probably place a linear regression line of
63 (you can experiment with this length)
days on the price chart. then do a percent slope
sort. The stocks at the top of the list (strongest
uptrend) would probably be your best candidates.
Thanks
diceman
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Registered User
Joined: 9/13/2006
Posts: 143
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HNC:
Thanks a lot for devoting your time to educate me and others. I have lost so much before I start to learn and educate myself. For years I was only following recommendations of paid newsletters. Again thank you!
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Registered User
Joined: 12/8/2004
Posts: 1,301
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QUOTE (apsll) I learned swing trading a little differently, but I like this equally as well.. I will start looking for these opportunities right away..
Thanks again for your devotion in helping all of us further our knowledge..
Apsll...
You are correct. There are literally hundreds of variations of swing trading. Some are based on fibs, parabolic sar, some do not move your stop at all, you just sell after 3-5 days no matter where the price is, etc.
It's important to try whatever you think may work, and adjust accordingly.
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Registered User
Joined: 12/8/2004
Posts: 1,301
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QUOTE (lpark) I ran a scan for this setup tonight and got over 250 hits, but I have some questions.
HNC, are the following stocks viable candidates? NTMD, YHOO, SAPE, MESA, COWN, BELM, & ICON?
Do you include doji's in your 3-5 days of down days or must they each be "long" days?
Back testing this theory, it seems very good. I'm impressed and plan on paper trading this theory. Thank you.
For my style NTMD actually does fit the bill. I do like stocks with more volume and a higher price, but from just a literal standpoint it does fit the bill.
Yhoo is a perfect example as well. If you also look at the MMA or multiple moving average system I mentioned in another thread you can also see this stock is getting closer to being a buy on that system as well. This kind of serves a a double confirmation.
Mesa does not meet the standards due to downward intermediate trend. If you are scanning for stocks just add C>xavg60 to your pcf. You can even do what diceman explained. His is a little different type of swing trading where you just buy at the bottom of the channel and sell at the top. That system works as well but you hold for longer periods because stocks very rarely move up and down the channel in 3 to 5 days(at least not a 50day channel).
Cown may fit the bill but I don't like it. There are many corrections that are ABC corrections from a high. If you notice it had a straight drop down, that was the a leg of the correction. The next move was an upward move that did not reach the previous high, that was the b leg. The c leg is always the longest wave and it will be downward so the prospects of this stock moving up are not good right now. Chances are though, the entry requirements of exceeding a new high will never be met on the stock because it will have more than 5 down days.
Belm and icon meet the conditions as well. Icon really looks good because it has a hammer candlestick in the downtrend. Just make sure the high of the day is surpassed before entering the stock. Nice job finding stocks.
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Registered User
Joined: 10/7/2004
Posts: 2,181
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Here are two PCF's that might be useful in conjunction with HNC's "Essentials".
I call this first one "Doji Finder"; Diceman or HNC may have some refinements for it but it has brought me many a good opportunity.
H2 > H1 AND H1 > H AND H - L < H2 - L2 AND H - L < H1 - L1 AND C >= O * .995 AND C <= O * 1.005
The next one is similar, I call it "Against the Grain". (It's also very useful and the tool I use alot during downtrends. If a stock goes above the high of the day after we find stocks with this, you're usually good for 1 to 1 1/2%...but back to the main post)
Here's the PCF:
H1 < H2 AND H < H1 AND L < L1 AND O < (H + L) / 2 AND C > (H + L) / 2 AND C >= AVGC50
(I added the "C>=AVGC50" to comply with HNC's requirements. When looking for Against the Grains in a downward trending market, I use H<=AVGC13 in place of C>=AVGC50.)
With either of these, you can use a 30-day linear regression line on price. Right-click and select sort by that linear regression line. When it's done, press "Home". (You can also right-click on the screen where it says, "LinReg30".
Then watch the linear regression line as a sign of good support. (I know HNC said not to worry about support but this may add a little confidence when picking the day to get in and/or as you're` getting used to using the system he has shared with us). If the candlestick/bar/line/etc is resting right on the LR30, that's a good sign.
These can be used on any universe of stocks and should yield some good candidates that are ready for action. Of course, each will want to tailor it with price ranges, volume limits, etc.
I certainly hope these don't confuse but, rather, are helpful contributions to the thread.
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Registered User
Joined: 4/18/2005
Posts: 4,090
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this was nice.. I would have passed this set up myself becasue the larger picture is a bit more ambiguous to me. But then again some thing is happening to my trading. I think I have an issue in mentally mixing my time frames. also it seems like market strenght has bee some what less now. How are you posting he images ?
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Registered User
Joined: 4/18/2005
Posts: 4,090
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Actually as I think of it, the way I learned this is more of a momentum trade. but it dosent matter who calls it what it was proffitable and well executed. I personally like to use a limit order at my target price which is resistance minus a tad. ON ocassion I have had stocks zip rightthrough and my exit was prematuere ...but as often I get out on the top of a whick.
I would like to start dong more of these quick 1-2 day holds and taking little gains more frequently. I get it in my head that I i'm 2 or more points and hold as my proffits go from 1.75 to -1.75 of late.
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Registered User
Joined: 9/18/2006
Posts: 83
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By this statement..."Do not, I repeat, do not place a buy limit order just above the high. You will soon come to realize when you do this that you, and only you will be the high of the day"...I assume one must wait to place the order if you are not able to place a conditional order with your broker. Very nice explanation for us novices, thanks.
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Registered User
Joined: 1/7/2007
Posts: 45
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HaveNoCents.....You are the best...I can't thank you enough..As you know I'm as NEW as you can get. You have a wonderful way of explaining things that even a NEWBIE understands.
I haven't posed alot in the last couple of days because I have been studying and watching the videos here.
HNC ever since I posted a newbie question you have spent alot of time on the different thread explaining StockTrading101 to us as a group.
Seeing the examples are GREAT,,,,,,,,,,,I hope I'm not asking for to much but PLEASE keep these GREAT threads coming.
THANKS!!!!THANKS!!!!THANKS!!!!!THANKS!!!!!THANKS!!!
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Registered User
Joined: 1/7/2007
Posts: 45
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Help!!! How would a write a pfc for this scan?
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Registered User
Joined: 12/8/2004
Posts: 1,301
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Scanning is the most powerful tool in tc2007, but as I mentioned previously I now trade only a basket of 100 stocks. I look at those 100 stocks every night. The stocks I selected are the top 1 or 2 companies in about 60 industries. I only update this list once every year. This causes me to miss some high flyers, but it also gives me an indication of how the overall market is doing. Normally I have a choice of at least 4 or 5 trades a day. When I can't find anything to trade in the basket, I don't trade and normally as it works out, I am glad that I didn't trade.
Although I love scans to filter volume and price, I do not like scans to find patterns. It is sometimes difficult to mathmatically define a pattern, and normally when you try to do so you miss some opportunities. I actually want to see every chart. Every night I make my own personal prediction for each of the 100 stocks based on the indicators that I use. It helps me improve my pattern recognition, and it helps me become thouroughly familiar with each of the 100 stocks.
Good luck to all.
Keep experimenting. I'll check in on the weekends, but you won't see any more posts on the weekdays. I HAVE to get back to testing and trading my own systems.
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Registered User
Joined: 1/28/2005
Posts: 6,049
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Cowgirl1964
One of the things I see new traders do is get so caught
up in the "system" and so caught up in the "rules" that
they don't know what to do.
Remember that everything can be broken down into its basics.
I view trading and trading systems as "ideas" rather than
rules. (Always remember if its too complicated something
is wrong)
If we look at this stripped of its jargon. It is basically looking
to buy short-term weakness in an up-trend. Yes you can
add fibonacci rules to it. You can add specific candle
patterns to it and all types of rules but you are still simply
trying to buy weakness in an up-trend.
-------------------------------------------------------------------------------------
So how do we "define" weakness in a up-trend?
Well I think the stock should be down over the last
few days (weakness):
C < C1 AND C1 < C2 AND C2 < C3 AND C3 < C4
Since we want this to be in a up-trend. I think the
50 moving average should be greater that its previous
value (up-trend):
XAVGC50 > XAVGC50.1 AND C > XAVGC50
---------------------------------------------------------------------------------
So the final scan would be:
C < C1 AND C1 < C2 AND C2 < C3 AND C3 < C4 AND XAVGC50 > XAVGC50.1
-----------------------------------------------------------------------------------
Obviously after experimentation this can be refined. Price
limits and volume limits can be added if desired.
I think that this is a good starting point for this type
of formation.
(also see tobydad's comments above)
Thanks
diceman
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Registered User
Joined: 1/28/2005
Posts: 6,049
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If there is any confusion use the final scan above.
In my early statement I show:
XAVGC50 > XAVGC50.1 AND C > XAVGC50
(I eliminated the ( C > XAVGC50) in the final
scan because an exponential moving average will always move up
when the close is above it. So the part:
(XAVGC50 > XAVGC50.1) takes care of
it.)
So my post should read like this:
"-------------------------------------------------------------------------------------
So how do we "define" weakness in a up-trend?
Well I think the stock should be down over the last
few days (weakness):
C < C1 AND C1 < C2 AND C2 < C3 AND C3 < C4
Since we want this to be in a up-trend. I think the
50 moving average should be greater that its previous
value (up-trend):
XAVGC50 > XAVGC50.1
---------------------------------------------------------------------------------
So the final scan would be:
C < C1 AND C1 < C2 AND C2 < C3 AND C3 < C4 AND XAVGC50 > XAVGC50.1
-----------------------------------------------------------------------------------"
Thanks
diceman
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Registered User
Joined: 9/21/2005
Posts: 566
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Diceman or Tobydad,
Maybe one of you can explain this to me. I copied HNC's text below and underlined the sentence I am confused about:
We are looking for 3-5 downward candles from a stock which is in an intermediate uptrend(above 50ma). Here we see WYE which gave us this opportunity a few days ago. When you swing trade you are only concerned with resistance, you are never concerned about support. Why? Because you are depending on the support being the candle before you enter. If you are wrong you are wrong, but you are making a low risk high probability trade.
Why are you depending on support being the candle before you enter? Any particular tool or scan that picks this point as support? Or just a shot in the dark on a point that looks like a good entry place?
Thanks
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Registered User
Joined: 1/28/2005
Posts: 6,049
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jcfla7
The entry candle is HNC's interpretation of the entry.
There is no required candle entry position.
The basic idea is to consider a recent low as "support"
but you are not required to trade that way. You can
change your entry/exit criteria to whatever you feel
more comfortable with.
(you are relying on the stock to tell you where its
recent support is)
Thanks
diceman
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Registered User
Joined: 10/7/2004
Posts: 2,181
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HNC also said,
"If the high of the last bar is exceeded we will place a trade."
I would respectfully add to Diceman's response that HNC's comment above is the reason that we are considering "...the candle before you enter..." as support.
If we were just placing a market order or buying somewhere between the high and low of the day, we would need to look for support in some more conventional manner.
But as we are only placing an order if the high is exceeded, we can, with some reasonable safety, consider the short-term direction to have changed.
Diceman, HNC, do I have that right?
Hope this helps.
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Registered User
Joined: 12/8/2004
Posts: 1,301
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You have it EXACTLY RIGHT!!!! Thanks for saying it clearer than I could.
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Registered User
Joined: 1/28/2005
Posts: 6,049
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Correct Tobydad. The theory is the up-turn would imply that
the recent low was support.
Remember jcfla7.
HNC also stated:
"If you are wrong you are wrong,"
The idea is when you are correct you will make more money
than when you are wrong on balance. (not that you cant
be wrong)
Thanks
diceman
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Registered User
Joined: 3/25/2005
Posts: 864
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If I were you guys, to keep things simple, I
would have used the latest swing low price
of 50.12 which occurred on 12/16, as the
support level.
Also, you could reference daily pivot point
analysis to get S1 support of 50.13 for the
next trading day of 12/17.
But, maybe that's just me. It just seems to
me that it takes all of the guess work out
of coming up with different answers as to
what the support should be.
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Registered User
Joined: 1/28/2005
Posts: 6,049
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Yes memorableproducts. That was what I was alluding to
in my first response.
HNC has supplied 1 interpretation of how to enter and exit
this trade. However that can be adjusted to suit trading
style and time frame.
(while its possible an "improvement" by a new trader
can lead to worse results. I always like to encourage
them to think and realize nothing is set in stone.
(unless you want it to be))
Thanks
diceman
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Registered User
Joined: 5/14/2006
Posts: 42
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Regarding Tobydads PCF for Doji Finder...I tried it and it says syntax error..anyhelp would be appreciated
Thanks
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Registered User
Joined: 4/18/2005
Posts: 4,090
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Try copy and pasteing it..
I have one.. I'm not shure if it's the same as his.
H2 > H1 AND H1 > H AND (H - L) < (H2 - L2) AND (H - L) < H1 - L1) AND C >= O * .995 AND C <= O * 1.005
It apears to be the same one.. and mine works well so copy and paste it and see that works. I've never tried touse it an an indicator.. if that is the case then it might be a true false type. I use it in scans and for sorting
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Registered User
Joined: 10/7/2004
Posts: 426
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Just browsing thru and thought I would make a comment on this thread. The chart that HaveNoCents displayed on WYE is IMO the biggest reason that traders loose money. I see people read divergence on MACD, Stocs, and lots of indicators but not the most important, Price itself. Take a good look at the chart. Do you see in Jan 07 where Price tested the high of Oct 06 and failed to make a now high. That is a negative divergence of Price and is a very good indicator that WYE is now starting a downturn and there is no reason to go long. If you absolutely have to go long (maybe a state law or something), then wait until you see a failure to make a new low and put the odds of a winner in your favor. I don't mean to step on anyone's toes, but IMO this should be the first thought when looking at a chart.
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Registered User
Joined: 3/21/2006
Posts: 4,308
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Booker. I think that HNC's point was more about swing trading as opposed to finding a quality stock pick. He did show step by step how he pulled a profit with this security by swing trading between the support and resistance levels. His ideas inspired me a lot back then as you are doing for me today with your three wave testing of the previous lows in a bottoming stock (better put as a stock coming off its bottom).
I look at divergence in a different light and for different reasons, but your theories on bottoms are very sound and helpfull to me.
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