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Buy range expansion at the beginning of a swing

Posted on 1/17/2014

Buy range expansion at the beginning of a swing. That is the essence of swing trading. Swing trading tries to capture part of a trend move or a range move. If you buy at beginning of swing you can sell near end of swing.

Buy range expansion after a period of 5 to 10 day consolidation and an orderly consolidation. Orderly consolidations are low volatility periods where buyer and seller at equilibrium. Buy range expansion preceded by low volatility period. A range expansion from that phase indicates fresh buying pressure. 

Buy range expansion after a negative day. A range expansion preceded by a negative day indicates start of a fresh swing.

Buy range expansion after a narrow range day. Narrower the range better it is. Narrow ranges often lead to explosive moves on range expansion.Buy range expansion after a series of narrow range days. That is even better.

Buy range expansion if stock is not up 3 days in a row. As a swing trader, if you regularly buy stocks up 3 days in a row , you are likely to sooner or later blow up your account. The Professional trader buy on first day of the swing as soon as range expansion is signalled. Second day follow through id driven by residual buyers, newsletter followers or slow reactors. Third day is when many novice notice the move and get excited. the professionals sell in to that euphoria. They are happy with their 8 to 20% profit in 3 days and the third day buyer becomes the bag holder.

Buy range expansion early in a trend. Say a stock is rang bound for 3 to 6 month and then it breaks out then that is a young trend. Buying proper momentum burst setups in these your trend first or second or third time works . But same stock when it is up say 6 month and trading near its high and all time high at some stage buying a extended move on that kind of stock will likely hasten your death as a trader. Even if you have to trade those kind of extended moves , ensure extremely good risk control and position sizing. As trends get extended they can become vulnerable to swing failures.

The most important thing to remember as swing trader is that always buy range expansion at beginning of swing move. That one rule can make you millions and save you lot of heartburn.

Methods and philosophy


Unknown said...

Thanks for sharing your anaylsis and took time to put in this blog.

Can you please shed some light on when to sell, I re-read multiple times, but not getting the clarity between these two swings. As I believe selling is everything then buying in stocks.

Thanks again!

Pradeep Bonde said...

Exit if it hits stop

* Exit next day of entry if the stock fully retraces the full 4% plus move. It indicates signal failure.

* Exit after 5 days if stock does not cross the close of signal day. Again indicates signal failure. Here you have to use a discretion in case of gap ups of 8% plus on signal day. In such cases you might give the trade more time.

* Exit on any day post signal day on which stock makes a 10% plus move. On such stocks as soon as it goes up 10% I move my stops to protect at least 8% of that profit. On such days, you should exit by end of day. In most cases 10% plus move days tend to go further and waiting till end of day gives you 3 to 5% more. But you must exit on the day of 10% plus move day. If you wait for next day to exit, you will often find the stock gap down at open.

* Variation of this is exit anytime the stock makes 15% move in 5 days post entry.

Tommy said...

Guru, I get it, I find it easy to see set up with trendlines, mark them with alerts, so when they trigger, I can buy. They dont always work, but finding the consolidation, the "narrow range," in your examples of, helps solidify your explanation. If I trade out, I dont abandon the stock, I may keep it in a past trade watchlist, as it has a tendency of consolidating and setting up once again, example MSFT then with support or resistant lines, I can either take it long or in the case of present, short it at trend after it tests resistance. Thanks @7

Scotty said...

Would it be possible to fix the broken image links? Unfortunately a lot of posts (especially a bit older ones) have them. Thank you!