Swing Trade Setups: How I trade

I swing trade positive reversals 

Pretty simple concept.  But let’s break that down so you and I are on the same page from this point going forward about my methods and how I define “swing trade positive reversals”.

I would define a swing trade as an opportunity to move in and out of a position within a time period that lasts from  1 day to no more than 2 weeks.  The “swing” simply refers to the change in the price.  The key is to feel confident that can speculate that there is a reasonable chance that you know what price change will be over that time frame.

How someone goes about figuring out how to speculate what makes a good trade or not are simply endless.

Right now, I’m only trading positive swing trade reversals for a few reasons.

  • This has been a bull market for the last 8 years.  Why fight the trend?
  • Also, one of my bigger accounts that I’m using is tax deferred, so the account is restricted for margin, which means I can’t short in that account.  If the market starts to unravel and has an extended bear period, all of my same concepts would apply, but would be opposite.

I’m looking to enter a stock that had a very recent, very temporary downtrend and about to turn back up in the direction of the primary, longer-term uptrend trend.

I’m expecting that downtrend to stop, then move higher.  Mind you, I’m not an idiot who is stepping in front of a moving train.  The ideal situation is to enter when all the signs are pointing to a reversal of what I expect to be a very short downward move within the overall uptrend.

Because of this very short-term downward move, very recent buyers now have a loss.  They’ve held on.  They are experiencing pain.  They can’t take it anymore.  Finally, they throw in the towel…right at the bottom…that’s where I buy the shares they are are selling to me.  Then I hold and watch it rise.  That’s the ideal scenario, anyway.  🙂

Examples of 2 typical swing trades I made:

Below are two graphs showing typical swing trades that I made.  I am going to take these two trades and explain them step-by-step.  You will be able to see how my trades combine multiple confirmations of a reversal to provide a “weight of evidence” that provides a relatively high probability that the trade will work out in my favor and move higher.

Here is a chart of Apple (AAPL) below.  You can see I labeled the my entry & exit (Buy & Sell) points.

Here’s the second example, ON Semiconductor Corp. (ON)

These two examples are what I would say are pretty darn near the typical trade setups that I look for.  They are ideal setups.

I gotta tell you, these two charts are perfect!  The beauty is in the setup.  The shaded areas on the right of each graph show what happened after my entry point.  When I had to make the decision to enter these two trades, that shaded area did not exist.  The chart ended before the grey shaded area.  I had nothing but the hard right edge of the chart to work with.  Looking back, you can see how well these trades worked out though, right?

Hindsight is 20/20 as they say…it looks easy now, doesn’t it?

But how did I decide to take these trades?

Why did they bounce higher?

I’m going to walk you through what I see on these two charts that maybe you don’t see right now.

If you follow along, you will understand why these ended up being perfect reversal swing trade patterns.

I’ll show you how I did it.

Ok, let’s get started!  

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Part 1 – The Move Up and the Move Down