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Swing Trader’s Insight By Scott Hoffman
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Introduction This trading sheet is a guide to swing trading. By swing trading, I refer to trades
that are held longer than day trades but shorter than long-term trend followers. swing trading you are looking to get into a trade one day, hold it overnight (or a few days) and get out as the momentum changes. A swing trader should always working to minimize a loss and although the profits from trading in this timefram are generally modest, hopefully the winning percentage is fairly high.
Swing trading has two modes. The first is swing trading which has its basis in
George Taylor Douglass’ book, The Taylor Trading Technique. Taylor was a floor trader at the CBOT who kept a detailed trading diary and developed a mechanic trading system from it. If you really want to get to know his take on the system read the book. But be warned! Taylor was a dry writer and the book is a bear to wade through.
Taylor’s “system” is based on the premise that the market moves in two to three day timeframes, moving from a low to a high and back to a low. The other important concepts are the importance of the previous day’s high and low, the length of upswings relative to downswings, and being a solely technical trader (ignoring fundamentals). You're Reading a Preview Unlock full access with a free trial.
Cycle Day #1 – “Buying” Day
With Free Trial The first day of the cycle isDownload the buying day. Look for a buy day two days after a swing high(the highest high of the past few days). On a buy day, look for the market to make its lows first, finding support around yesterday’s low. If the mar opens flat to higher, look to buy the first sell off towards the previous low. If the market trades under yesterday’s low, be careful about going home long. The ma the da should close higher than where it opened. If it is making new lows late in Sign up to vote on this title it is usually best to exit. You can often get in the next day at a better price. Useful Not useful
Generally, it’s good rule of thumb not to buy late in the
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Cycle Day #2 – “Selling” Day
If you are long and the market is closing in your favor, carry your long position overnight. Odds favor a higher opening the next day setting up the selling day, second day of the cycle. On the sell day you should look to sell into strength, liq dating your position, and going home flat. Often, the sell day trades on both sid in what I call a “fade” day. A fade day often follows a trend day and can be trad from either side.
Cycle Day #3 – “Sell Short” Day
The third day of the cycle is the sell short day. The sell short day is the mirror im of the buying day. On a sell short day, you should be looking to sell early mornin resistance, looking for resist around the previous day’s hi Sell short day two days after buy day The market should not be m ing highs late in the day, if i is you should be able to get better entry point the next d On a sell short day, the mar You're Reading a Preview ket should close lower than i Unlock full access with a free trial. opened. The sell short day is often followed by a “fade” da
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That is the gist of Taylor’s te nique-a rhythm of buy-sell-s short. I don’t always recogni where we are in Taylor’s cycl (you’re always learning!), but on days when it is clear, at the least it gives you a good indication of the market’s bias for that day. the relation o SignInupswing to votetrading, on this title the open to the close should indicate the direction of the next opening Notmorning’s useful Useful This helps you determine whether the odds favor being a buyer or a seller on a given day. Learn to anticipate what the market will do, not just react to
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day’s low. Tests of previous swing highs and lows often are good trading opportu ties, and have natural stop points.
Swing trading is a good trading system most of the time. However, there are tim when a market will stop its swings and move sharply in one direction. Knowing when these moves are coming can not only help keep you from stepping in fron of a developing trend, they often give you an opportunity to catch a breakout. Fortunately, the market often tips its hand that such a move may be coming. La Williams observed that volatility is cyclical, that a period of low volatility is often precursor to an increase in volatility.
A reliable indicator of market activity and/or volatility is the day’s trading range Toby Crabel’s book, Day Trading with Short Term Price Patterns and Opening Ra Breakouts, He gives an alternate way to look for impending sharp moves. Crabe looked at daily trading ranges and found that days having small ranges in relati to recent days are often a good indicator of range expansion moves. He compar day’s trading range to that of the previous seven and found that a day that had smallest range was often followed by a sharp move.
Trading “Breakout” Days You're Reading a Preview
A “narrow range” day signal is a good sign to not take swing trades. On these d Unlock full access with a free trial. (which I indicate in the range column), look to trade a breakout of the previous d range. Alternatively, you could look to trade a breakout of the first hour’s range Download With Free Trial day after the signal day (this is how Crabel traded it). We don’t know the direct the market will breakout, so approach these with an open mind!
Two narrow range days in a row!
On a breakout day, I genera would look to enter the long at the previous day’shigh, a Sign up to vote on this title to enter the short side at the Useful Not useful previous day’s low. On the d of entry, the opposite side w serve as the stop loss. If you
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Trading “Fade” Days
Conversely, a day that has the largest range of the previous seven has often spe its energy. These days are often followed by a day where moves tend to fizzle o and the market returns to where it started. On these days, morning moves can often be faded looking for the market to return to where it started. These wide range days often occur in conjunction with a “fade” day.
Fade day following a wide range day
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Useful Not useful The “Range” heading on the trade sheet is where I note breakout and fade day ups. Breakout days will be indicated by one of the following three abbreviations
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The fifth column, H/L, is base on Larry Williams’ observation that a market that tends to o at one extreme and close at t other has a small chance of fo low through the next day. For example, when a market ope on its low and closes on its hi there is a high probability tha on the following day the prev ous day’s high will serve as g resistance and a test of the p vious day’s high will be a goo selling opportunity. The conve is true for a day that opens o its high and closes on its low. You're Reading a Preview define extreme as the upper a 3 HL down days! Unlock full access with a free trial.lower 20 percent of the range As with the Range column, if Download With Free Trialthere is no setup, I will leave that column blank.
An extreme example of a HL sale
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increase and explosive moves often come out of these setups. I will put “Low” in this column on days when the volatility ratio is sufficiently low to warrant lookin for a breakout.
20 day high
In the Comments column I w sometimes point out a 20-da high or low. A classic breako system looked to buy on the Sell day highest high or sell on the lo est low of the prior 20 days. These will often serve as a p objective for a trend and fail You're Reading a Preview breakouts of 20-day highs/lo often give good short- term, Unlock full access with a free trial. risk reversal trades. For the side, look for a market to tra Download With Free Trial under its lowest low of the p 20 days (make certain that t low hasn’t been in the past f days). Look to buy when the market trades back up throu the old low and use the extr Sign up to vote on this title low as the initial stop point. useful Useful Not can also look to take this tra when a market closes on a n 20-day high/low and reverse
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Trading Rules 1.
Always look to minimize risk. Move stops in your favor as soon as possib
2.
Your first loss is usually your best loss-get out of losers quickly.
3.
A good trade should be profitable quickly. Be cautious about taking losin trades home. You can often get back in the next day at a better price.
4.
Never “average down” a losing trade.
5.
Never say “never” and “can’t”.
6.
Never trade without stops.
7.
Do your homework. There is no success without work.
8.
Have a game plan - learn to anticipate where the market will go, not react to it.
9.
Having no position is a position. Don’t be afraid to be a spectator. The markets will always be there. If there’s nothing to trade, don’t trade
10. Trade when you understand the market. If you’re not sure, again, don’t trade.
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Abbreviations/Definitions/Explanations:
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Buy Day: Look to buy early day weakness
With Free Trial Sell Day: Look to exit longs Download on strength. Sell the first rally of a lower opening Sell Short Day: Look to sell early morning strength
Scalp Only: Look to exit these trades quickly. Often these trades are going agains bigger term trend. Sign up to vote on this title ID: Inside day. Look for range expansion Useful Not useful
NR7 (or NR4): The narrowest day of the past 7 or 4 days. Look for breakout mode
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References/Further Reading Street Smarts: High Probability Short Term Trading Strategies By Laurence Connors and Linda Raschke
The Taylor Trading Technique By George Douglass Taylor
Day Trading with Short-Term Price Patterns & Opening Range Breakouts By Toby Crabel
Contract Symbol Key
Contract Month Symbol
SP- S&P 500
SB-Sugar
F-January
NQ-NASDAQ 100
KC-Coffee
G-February
US-Treasury Bonds
CT-Cotton
H-March
ED-Eurodollar (interest rate)
CL-Crude Oil
J-April
JY-Japanese Yen EC- Euro Currency BP-British Pound CD-Canadian Dollar
You're ReadingGas a Preview NG-Natural
K-May
LC-Live Cattle
M-June
LH-Lean Hogs
N-July
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S-Soybeans Download With Free Trial
Q-August
GC-Comex Gold
W-Wheat (Chicago)
U-September
SV-Comex Silver
C-Corn
V-October
HG-Copper
SM-Soymeal
X-November
CO-Cocoa
Z-December Sign up to vote on this title
Scott Hoffman
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550 West Jackson Blvd. 14th Floor Chicago, IL 60661 p: 800.800.3840 / 312.788.2400 www.danielstrading.com
Scott Hoffman p: 877.311.2862 / 312.756.4421
[email protected]
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