Sunday, February 7, 2010

My Swing Trading Setups

As I alluded to before I generally target stocks experiencing strong sector momentum for long trades and short trades after the momentum has reversed ( I will feature short set-ups in another post). After stock selection, the second most important element of my trading strategy is market timing. I have two long signals: an intermediate term signal and a short term signal. For position type trades I wait for the T2108 to get down to the 30 - 20 zone and then for the indexes to begin a rally attempt. Friday 5th of February is a perfect example of this signal which occurs no more than 1 to 4 times per year and is illustrated below.



When I get this signal, I look for stocks that have either IPOed recently and/or are part of a group of stocks in a powerful long term up trend (50 day MA is above 200 day MA and 6 month and 12 month relative price strenght v SPY is above 85 - 90) and are displaying what I term as comparative price strength. One example is Team Health Holdings Inc. (TMH) shown below.



The standard entry trigger for TMH would a move through the orange line or $15.50 while the markets follow through to the upside after Friday's pivot reversal. However, I have slight different entry strategies. This set up is a flat base, one of the bases taught by IBD. I look for IBD type bases early in a new rally.

However, as the rally matures I wait for 2 - 10 day pullbacks in the major indexes and look for pullbacks or short term consolidations in individual stocks in my watchlist. Two examples are shown below from trades I recently took. The first one was a breakout trade in TSTC from a pennant type setup after the FXI had pulled back for 8 days then started bouncing. The chart of the FXI at the time is shown on the left and the TSTC entry on the right. The yellow line indicates the entry price.



The second example shown below was a pullback trade I took in CAAS after the FXI had pullback for three days in a row then started bouncing. Again the yellow line marks the trigger price.



CAAS turned out to be one of my best trades netting me over $900. Entries are the easiest part of my trading plan. The complicated parts are: (1) knowing when to exit and when to stagger exits and (2) knowing when to go above or below the standard 2% risk on individual trades as all setups are not created equally!

Catching tops and bottoms is not important at all but having a positive expectancy is.

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