Wednesday, April 7, 2004
Issue Contents:
| 07:05 | The Day Ahead U.S. Market Calendar |
| 10:39 | Major Stock Indexes Technical Update |
| 11:26 | Broad Stock Indexes Swing Trading Tactics |
| 14:12 | Swing Trading Tactics Avoiding Whipsaws |
| 16:16 | TrendVue Active Trader Transcript for Wednesday |
| 16:16 | TrendVue Trader Talk Transcript for Wednesday |
Wednesday, April 7
- 7:00AM MBA Purchase Applications
- 8:30AM Import and Export Prices
- 1:00PM 10-Year TIPS Auction
- 3:00PM Consumer Credit
For earnings highlights, please see today's WSJ Earnings Calendar. Note that the markets will be closed on Good Friday, April 9.
On Monday, we marked out the overhead resistance levels found on the daily charts of the Dow Industrials, the S&P 500 and the NASDAQ 100 index.
Over the past day or two, we've seen climax buy conditions build up on the larger intraday timeframes as the indexes stalled in the resistance area that we marked out.
We know where the resistance is from just looking at the bars on the chart. Now we need to take a look at some key pieces of information provided by other tools.
We add the 20-day EMA (red line) an the 50-day MA (grey dotted line) plus the TrendVue Classic Swing indicator on to the bar chart.
What do we see? We see that the DOWNswing on the daily [$INDU], [$SPX] and [$NDX] charts ended on March 24 and they have been on UPswings since then. Add the fact that these major indices hit a potential resistance area, we would then be on the lookout for sellers first.
When a chart is on an UPswing, the only thing we usually do is to set up a trailing sell stop in case the upswing ends and it begins to reverse. On a swing trade basis, we typically trail the sell stop under the up bars (higher high and higher low than the day before).
If we take a look with the color bars applied where all the up bars are colored green, we can see that the swing trade (short sale on break of the April 6 low) was elected in today's trading.
We will answer a question from a subscriber in our next post, one that concerns the exact method of entry for a swing trade.
by Teresa Lo
A subscriber asks:
I have found that entering on the break of last days high/low very often results in whipsaws and leading to severe drawdowns of my trading acccount ... have you ever tested out other entry strategies like scaling into retracements ... ?
You've seen how the swing trade works on a theoretical basis. The reason why there are whipsaws is that traders are keenly aware of what they call pivot points, points of support and resistance that are important. In swing trading, the previous day's high and low are two points, because that is where sellers (the high) and buyers (the low) ultimately came out on a definitive basis on the prior day, and that pegs support and resistance when price goes back there again.
That said, there are also other factors at work intraday such, as first half hour or first hour breakout plays that tend to include encompass yesterday's high and low quite often. Everyone knows these setups, and therefore, traders, market makers, and specialists attempt to take advantage of orders that might have already been placed in these well-known locations in order to "run" them.
Typically, you will see a move downwards, and at the previous day's low, there will be a big surge of volume. That's when all the standing order are filled. When the smoke clears, that's when the fun begins...
We've seen that the danger in swing trading is the phenomenon of "running the stops" at important pivots because a large number of traders place importance (and therefore, their orders) at these points. In particular, the previous day's high and low, and first hour breakout spots are places where the unsuspecting trader can get trapped.
While there is no perfect method to avoid the inevitable losses in trading, if you are able to execute your trade on an intraday basis, you may be able to find a better entry intraday. There is an article in the Knowledge Base on initiating a swing trade intraday.
Transcript for Wednesday
Click on the title above to expand this document.
Transcript for Wednesday
Click on the title above to expand this document.