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”.

There’s actually a lot going on with this statement:

  • Swing trade.
  • Positive.
  • Reversals.

Swing Trade.

I would define a swing trade as an opportunity to move in and out of a position within a time period that lasts from an overnight hold to one lasting 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.

Positive.

A positive swing trade simply means that the expected direction of the trade is going up.  Pretty basic.  Buy low sell high.  This is perfect for someone starting out with a small account.  The opposite would be negative (duh).  Right now, I don’t swing trade negative opportunities.  In order to profit from down moves, you can use one of two basic methods:

  • Buy puts
  • Sell short (You could also sell calls…covered or naked, but that’s off topic)

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.

Reversals.

I’m a contrarian…I’m looking to enter a stock that has been in a downtrend.  I’m expecting that downtrend to stop, then move higher.  Mind you, I’m not an idiot, stepping in front of a moving train.  The ideal situation is to enter when all the signs are pointing to a reversal of the trend.  Those signs are the key to making money swing trading reversals.

At this point, recent buyers at higher levels, 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…where I buy the shares they are selling.  Hold and watch it rise.  That’s the ideal scenario, anyway.  🙂

 

Perfect examples of 2 typical swing trades I make:

Below are two graphs showing typical swing trades that I make.  I am going to take these two trades and explain them step-by-step.  You will be able to see how I make sure that my trades use different techniques, which I combine to provide a “weight of evidence” that provides a relatively high probability that the trade will work out and move higher.

 

Here is a chart of Apple (AAPL) below.  You can see I labeled the 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 have ideal characteristics that I am typically looking for.

When I see charts like this, my heart quickens.  I gotta tell you, these two charts are perfect!  And I’m not really talking about what happened after the buy and where I ended up selling.  The beauty is in everything else before the trade took place.  The shaded areas on the right of each graph is what happened after my entry points.  When I had to make the descision to enter these two trades, that shaded area was nothing but the hard right edge with the prices on the right.

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

Well, I’m going to take you through, step-step-by step, what else I see on these two charts that maybe you don’t see right now.  If you follow along here, you can see how I go about determining whether to enter these two trades or not

Swing Trade Case Study – Perfect setups

Below is the start to a multi-part series where I take you through the basics of what I am looking for when I take any swing trade.  In level of importance, with 10 being the most important to me…all of these steps are 10’s.  The other stuff I use and know are important, but these steps form the foundation of all of my trades.

Ok, let’s get started!

Part 1 – The Move Up and the Move Down

The Greedy Goblin

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