Saturday, November 23, 2013

Week - 2 Swing Trading - Basics

Welcome back guys and girls to WEEK 2 on Swing trading

Last week we started with an intro on stage analysis. This week I am going to give you a broader view on all four stages and three phases associated with every stage.

Lets get started rite away, We will do a quick lesson on Elliot wave this week, that would complete the major lessons on swing charting (not trading).

I firmly believe that to compete in the market arena, the four stock market stages will be one of your weapons to time the move perfectly and add confidence in buying any rally. But this comes only with practice, take 10 charts a week, practice and practice until you master it. It is my advice to use this as a supporting point to any other analysis you perform.
The chart (from last week) for reference again

Lets take a look at all the stages and phases.

Stage 1A – Bottom Found.

                First sign of strength after a down trend (typically)

Stage 1 – Pattern forming.
Breakout of the down trend and price putting out higher lows in tight range (Starter position, with tight losses)

Stage 1B – Pattern Breakout.

Breakout – This is where we come in as Swing trader.

Stage 2A – Retrace - First Breakout.

Retrace to test, fib levels, pivots, supports, trendlines etc.

Stage 2 - Advancing Stage

The move happens, and the ticker gets overbought and keeps moving.

Stage 2B – Parabolic move or a huge % gain candle.

(I try to keep an eye for any parabolic moves here, if it happens,I quickly plot out trendlines, and watch for trendline supports on different time period or use 10 SMA instead of trendlines ).  

Stage 3A – Price action slowing, signs of weakness.

Look for reversal chart pattern to begin forming. (look for consolidation volume)

Stage 3 – Top heavy. (decreasing volume on push ups is one way to spot this)

Scale out inside the reversal chart pattern

Stage 3B – Breaking down.

Watch for 20 SMA or Trendline support to break.

Stage 4A – Downtrend begins.

Break down and trend down.

Stage 4 - The Declining Stage.

Here there may be a retest of up trend line that was broken, be sure to watch for shorts typically will lose at the trendline resistance. (Very few stocks breakout again, AAMRQ recently is a good example of this).

Stage 4B - Late in downtrend.

Forget the ticker for a while, let it cool. Move on to the second ticker from your list.

On all these stages, you should keep an eye on Volume and Price. Any technical indicator you use or read about is based on either one or both. Nothing else.

Note: A leading indicator cannot be a leading indicator, because the price and volume has to develop completely for the indicators to generate or confirm a signal.

Stock market stages occur in all time frames on every chart you look at. Sometimes can be hidden in a weekly chart, or 30 min chart or 5 min chart. It is up to you to decide what time frame you want to look at, and see if you have enough reward to risk ratio. If you don’t find it good enough, move on, we have 10,000+ stocks trading why get stuck with crappy tickers? .

(I am going to just touch the basic here, this is very complicated to locate the pattern, there are various views discussed on this, but honestly I don’t use it, well with that being said, the overview from my perspective of Elliot theory is any breakout will retrace, that’s all I need from these 300+ books that talks about Elliot's theory).

The Elliott wave pattern defines that securities tend to move in a five + three wave patterns that consists of a Trending and a consolidation phase.
This is how an Elliot wave is described to be. 

To show some Live examples of Elliot wave, below is a chart again TSLA – it is familiar and has what I was looking to add an example.

On the above chart you can see there is one complete Elliot wave (I, II, III, IV, V), and One incomplete Elliot wave ((I), (II), (III)) It is incomplete because the (IV) and (V) is missing. Hindsight can tell you lot of stories. Will TSLA complete the missing moves??? Only Elliot and his firm believer can bet on it, Not me.

If you can successfully spot an Elliot wave (especially 3 or III or iii) and time it perfectly, you are a genius and you are going to over take any so called stock market teachers monthly gains, I am serious, lol. 


- Next week we will get into SMA vs EMA, what to use? and how to use?

I am not going to talk about Golden cross, Silver cross, Bronze cross (I am yet to see platinum and diamond crosses lol), you can find all that information on every site available, whether it is paid or free. The methods i describe here are some techniques i use and how i use moving averages. 

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1 comment:

udaycs said...

Hope some one was following TSLA, There goes the Elliot bounce at $110 ish.

I try to use Live examples. If swinged from the time of this post, 30% gainer.