Swing Points
For a swing point low, the
first candle makes a low, the second candle
makes a lower low, and the third candle makes a
higher low. This third candle tells us that the
sellers have gotten weak and the stock will
likely reverse.
For a swing point high, the
first candle makes a high, the second candle
makes a higher high, and the third candle makes
a lower high. This third candle tells us that
the buyers have gotten weak and the stock will
likely reverse.
Here are pictures of the candles to help you
better understand swing points:
For our long entry strategy, we are trying to
find stocks that have pulled back into the
Traders Zone that have made a swing
point low.
Like this:
You can see on the chart above that this
stock is in a nice uptrend with the 10ma above
the 30ema. The stock has pulled back into the
TAZ and made a nice swing point low
(highlighted).
See how the pattern consists of a low, lower
low, then a higher low? Great! Our entry
strategy would be to enter this stock on the day
of the third candle.
Now lets look at a stock on the short side.
We are looking for a stock in a nice downtrend
with the 10ma below the 30ma. Then we wait for a
rally into the TAZ that forms a swing point
high.
Like this:
See how the pattern consists of a high,
higher high, then a lower high? We would look
for an entry on the third candle.
Consecutive Price Patterns
Ok, now check this out. Look back up at the
first chart where the stock pulls back into the
TAZ. You will notice that the pullback consists
of three consecutive down days with lower highs
and lower lows.
That is what you want to look for in a
pullback. You can buy the stock the first time
it trades above the previous candles high. This
will complete the swing point low.
On the second chart, you will see that the
stock has three consecutive up days with higher
highs and higher lows. The fourth candles still
makes a higher high and a higher low. The fifth
candle finally makes a lower high and a lower
low - completing the swing point.
Pullbacks do not have to consist of
exactly 3 consecutive up days (for short
trades) or down days (for long trades.)
Sometimes you will run your scans and find
stocks that have more than that.
One final note: When you are looking for
swing points to develop, you always want to look
to the left of the chart to see if the stock is
at a support or resistance area on the chart.
That will improve the reliability of this entry
strategy.
Ok, now that we know how to get into a trade,
how do we get out?
