I’m Not A Swing Trader

July 26, 2006

Even though most of my trades are supposedly swing trades, I don't think I know the first thing about swing trading. In fact, I don't know the first thing about price action. Well, I know a little but certainly not enough to be successful. I was reading through the forums last night and came across a webinar by Linda Raschke on price action and swing trading. Reading articles and forums are great but watching videos can teach you so much more.

I found this video to be very helpful and I'll post the notes I took while I watched it:

Trends
have greater odds of continuation than reversals
a trend
seldom reverses without warning

trend
behavior

once a
trend is established, it takes considerable power and time to turn it
a major
trend seldom reverses without warning
the
absence of any pattern or swing in the price implies a continuation of trend
trends
tend to begin out of a low volatility environment

Very important

momentum
precedes price
if
momentum makes a new high or low, the odds are that the price high or low is
still to come
a
trader should look to establish a position on the first reaction following a
momentum high/low
there
are usually at least 3 impulse moves in the direction of a trend

How to
see if momentum decreasing or increasing?

by eye,
when downswing is greater than previous upswing, market is telling you that
supply demand imbalance to downside
when last
downswing greater than previous downside, momentum is increasing
when last
downswing is less than previous downswing, lessening momentum
lessening
momentum doesn't imply reversal, just that you may see some consolidation
need lower
lows in indicator (momentum) and lower lows in price
the
longer the sideways line, the greater the potential move

Technicians
job

what
is the trend on the current time frame?
what
is the trend on higher time frame?
what
are support and resistance levels?
is
the market in a trading range or trending following a breakout from a range?
is
the market in a range, is it moving from the high of the range to the low or
low to high?
if
the market is trending, is there an increase in momentum or a decrease in
momentum

what is the main play - based on existing
structure; looking for small or bigger play
risk
defined by swing lows or swing highs

higher
high and higher low after downtrend indicates a possible reversal. Warning!!!! At the point that the higher high is taken out, we have a reversal