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BONUS www. candlecharts.com/special/swing-trading-2/ 1

www. candlecharts.com/special/swing-trading-2/ www. candlecharts.com/special/swing-trading-2/ www. candlecharts.com/special/swing-trading-2/ 2

www. candlecharts.com/special/swing-trading-2/ www. candlecharts.com/special/swing-trading-2/ 3

SWING TRADING 2 USING CANDLESTICKS The one after part 1 WHAT WILL THIS COURSE WILL TEACH YOU? Review Part 1 chart patterns Identify NEW chart patterns to swing trade When to enter a trade When to exit a trade How to maximize profits and minimize risk INTRODUCTION This webinar on swing trading is about making money in ANY market when the market is bullish, or bearish, or just going sideways. It's not just about theory. Our goal is not to teach you how to invest for the long term but rather the teach you highly effective short -term trading strategies. 4

www. candlecharts.com/special/swing-trading-2/ THE ESSENCE OF TECHNICAL ANALYSIS Without a doubt, the profitable use of technical analysis is dependent upon the following: Rules must be 100% objective Because technical analysis gives you buy, hold, and/or sell signals, these indicators of must be specific and not subject to any interpretation. All situations are either white or black. Either you are a buyer or a seller. If you are not a buyer or a seller, then you have no position. SWING TRADING In reality, swing trading characterizes a time frame independent strategy that execute single, direct price movement. In this era of massive market liquidity, the swing trader may find excellent opportunities on both five minutes and weekly charts. 5

WHY DOES SWING TRADING WORK? Because you are trading in the direction of the trend. You wait for a pullback before entering the trade, and you enter only if the chart shows a sign that it s price will continue in the direction of the trend. The main objective of a swing trader is to profit from swings in price movement over the course of several candles (weeks/days/hours, etc). While we might trade every day, we are not day traders. As swing traders, we have the patience to wait until our profit goals have been reached. Fortunately, the wait is not too long. A typical trade is only in play from a few candles (hours to days to a few weeks). When a trade is closed, the funds go into the next trade. LEARN HOW TO READ CHARTS Reading charts is an art form that can take years to fully master. Why do we read charts? Because, by reading charts, we can determine what the "big money" is doing! You have to be able to analyze a chart and come to a conclusion about whether or not to risk your hard earned money on a trade. That is really the bottom line. LEARN HOW TO READ CHARTS What stage is this chart in? Is this chart in an uptrend or a downtrend? Is the chart at the beginning, middle, or end of the trend? How strong is the trend? Where are the trend lines? What wave is this chart in? What do the moving averages tell me? Was there a breakout recently? Is the chart "smooth" or "sloppy"? Are there any chart patterns? Are there wide range candles in the direction of the trend? Are there any gaps in the direction of the trend? Are professionals selling strength or buying weakness? Where are the support and resistance areas? Is this chart at a Fibonacci level? What does volume tell me? 6

THE STEPS IN SWING TRADING STEP 1 Identify a chart that is in an uptrend or a downtrend. STEP 2 For charts in an uptrend, identify those that are experiencing a pull-back. For those in a downtrend, identify those that are experiencing a pull-up. STEP 3 Once an appropriate candidate is identified, place a limit order to buy (uptrend) or sell short (downtrend ). STEP 4 Once the candidate has been traded (a position opened), place a stop-loss order to limit downside risk and place a limit order to identify the price at which you will take profits. (Ideally, these two orders are placed together as an OCO (One Cancels Other) order; this is sometimes called an OCA (One Cancels All) order. STEP 5 At the end of each candle, adjust the stop loss prices based on your Plan. WHAT CAN YOU EXPECT? First only a portion of your trades will be executed. The plan is to only trade candidates that initially move in the anticipated direction. If the price moves in the opposite direction (continues pulling back or pulling up), the trade is not placed. Second you will be holding positions for a limited amount of time. While swing trading is not day trading, you are only holding positions until targets are met. Third some of your trades will result in losses, however losses are minimized as your plan raises the stops as the price rises; this is known as trailing stops. Being disciplined, and following your plan will insure that profits exceed losses which means you will make money. SWING TRADING COURSE PART 1 REVIEW What is Swing Trading? Market Cycles How to read charts and trends The Sweet Spot How to trade Pullbacks Support and Resistance Technical Analysis Moving Averages Candlesticks Entry Strategy Exit Strategy 4 Profitable Chart patterns www. candlecharts.com/special/swing-trading-2/ 7

SECURITY CYCLE OF LIFE 1. Waiting game: accumulation 2. Big bang: expansion 3. Aftermath: distribution 4. Downfall: contraction MARKET PHASES 8

9

ESSENTIALS OF TECHNICAL ANALYSIS SHOULD YOU USE TECHNICAL INDICATORS? Are technical indicators worth using? Which ones should I use? Is there one indicator that is better than another? MACD? Stochastics? RSI? AVAILABLE TECHNICAL INDICATORS Overlays Bollinger Bands Keltner Bands Linear Regression Moving Average On Balance Volume (OBV) Parabolic SAR 10

AVAILABLE TECHNICAL INDICATORS Average True Range Breadth Advance/Decline Commodity Channel Index (CCI) Directional Moving Index (DMI) Force Index MACD McClellan Oscillator Indicators Momentum Money Flow Relative Strength Index (RSI) Stochastics Ultimate Oscillator Volatility Volume and Volume Average William %R THE SWING TRADER S SWEET SPOT What is it? THE SWEET SPOT The Sweet Spot is a buy and sell zone on a chart that swing traders can use to identify possible reversals. First of all, let's take a look at all of the different types of traders involved in the market when looking at a chart. Then, we will look at where they buy. We'll focus on the long side only. 11

2. Momentum Traders Take Over 3. Swing Traders Enter 1. Position Traders Buy Breakout You can see the Sweet Spot is the area in between the 10 SMA and 30 EMA. This is where you, as a swing trader look for reversals back to the upside when going long and reversals to the downside when shorting. www. candlecharts.com/special/swing-trading-2/ 12

www. candlecharts.com/special/swing-trading-2/ SWING TRADING COURSES Swing Trading 1 Essentials of Swing Trading Chart structure and architecture Basic Setups and Strategies Swing Trading 2 Advanced Strategies Time your trades with the Market Find MORE opportunities for profits www. candlecharts.com/special/swing-trading-2/ 13

www. candlecharts.com/special/swing-trading-2/ /special/swing-trading-2/ 4 PROFITABLE CHART PATTERNS For Swing Traders 14

THE FOUR CHART PATTERNS 1. Shadow -30 2. Low Vol High Vol (Squeeze) 3. Swing Shakeout 4. Squeeze Shakeout 1. SHADOW-30 If you are new to trading, then start with this pattern! It is easy to identify, easy to learn, and easy to trade. What more could you ask for? 15

SHADOW 30 AFTER PART 1 SHADOW 30 AFTER PART 1 16

SHADOW 30 AFTER PART 1 2. LOW VOL HIGH VOL (SQUEEZE) Some potentially explosive moves can result from trading this pattern. The best thing about this pattern is that you can usually get a low risk entry. 17

LOW VOL HIGH VOL AFTER PART 1 LOW VOL HIGH VOL AFTER PART 1 18

3. SWING SHAKEOUT What happens when swing traders and momentum traders get trapped in a chart and have to take a loss? The price rallies! You will see this chart pattern ALL the time. It took all of about 5 minutes to run a scan and find an example for this page! Learn it. It is one of the most reliable patterns I know of. You'll see why in a second. SWING SHAKEOUT AFTER PART 1 19

SWING SHAKEOUT AFTER PART 1 4. SQUEEZE SHAKEOUT This chart pattern occurs when price trades side ways, breaks down, and then reverses. This chart pattern is a good example of why the majority of traders lose money. They get caught (trapped) on the wrong side of a move. This results in some potentially explosive moves in price. Also keep in mind that those traders that shorted this on the day of the breakdown probably put their stop loss orders above the consolidation. When price moved above that area, their stop loss orders were taken out - causing the gap up. Consolidation Breakdown Reversal 20

Here is another example Consolidation Breakdown Reversal An example where the consolidation doesn't last very long. Consolidation Breakdown Reversal Another example Consolidation Breakdown Reversal 21

SQUEEZE SHAKEOUT AFTER PART 1 SQUEEZE SHAKEOUT AFTER PART 1 22

6 SWING TRADE EXAMPLES For Swing Traders SWING TRADE EXAMPLES Here are a few example trades that you can use as a blueprint for your next swing trades. By going through these examples trades, you will get a very good idea of how I trade day in and day out. There are six example swing trades - four short and two long. Even if you do not swing trade the same way that I do, I'm sure that you will at least pick up some tips and tricks that you can incorporate into your own swing trading strategy. This stock rallied up into the Sweet Spot and formed a Bearish Engulfing pattern. But first let s look at the hourly chart. 23

The arrow is where I shorted it. The consolidation circled was going to protect me from a loss (my stop was above that.) This stock has rallied up into the Sweet Spot and has formed a bearish Dark Cloud pattern. Let s look at Hourly chart www. candlecharts.com/special/swing-trading-2/ The arrow is where I shorted it. But, more importantly is the area circled. That consolidation is what is going to protect me from a loss (my stop was above that.) It would be very difficult for traders to move the price above that resistance level. Why? Because prior to that consolidation was a huge run-up. So, the traders that were long during that run-up are now faced with an important decision. Should I sell? 24

And the answer is yes! They should sell because the previous momentum has stalled. So, this selling pressure is what moves the trade in my favor. GBPCHF was up against resistance and an upper trend line. And, it was reversing near the 38.2 percent retracement level. Not only that, but the hourly chart was perfect! www. candlecharts.com/special/swing-trading-2/ There is a triple top chart pattern. This was an ideal stop loss area. If this stock moved above this area then the trade would be invalid. So, I shorted GBPCHF near the end of the day. This stock had everything going for it. And, it was a perfect set up. But, trades don't always go in your favor - no matter how good the set up looks. Here is what happened: 25

GBP/CHF TRADE This stock moved above the triple top. There is always an area on a chart that invalidates the set up. In this case, that area was the triple top chart pattern. So, I got stopped out for a loss. There are three things I know about swing trading and the stock market: You are doomed without a money management strategy. Chart patterns can and will fail no matter how good they look There will ALWAYS be losing trades. This was a nice trade using another candlestick patterns: Dark Cloud Cover (hybrid) following an upper shadow, and MA swing point. 26

The arrow is where I shorted this stock and that double top is what is going to protect me from a loss (my stop loss will be above that). Now look back up at the daily chart. Do you see the double top now? Look for that when you are sifting through potential setups. This was an easy swing trade easy because the initial risk was easily defined. If this stock moved above the double top, then the trade would be considered invalid. This is a good example of a "first pullback" swing trade. 27

ZAGG Inc. had recently broken out through a significant resistance area (about $10.50, the black line) and it has now pulled back to that resistance area which has now become a support area (polarity). This stock has formed a near perfect double bottom and had just broken out! The significance is that the risk was easily defined ahead of time. It can be bought and the stop placed under the low of the double bottom. protecting from a loss. This is how the trade unfolded on the daily chart: The circled area is where the stock was bought and the arrow is the day the stock was sold. Why there? because it gapped up. When a stock gaps up like that after an already extended move to the upside, then you can safely bet that it will fall because this is a gap caused by amateur traders. These traders are almost always wrong. 28

Stock breaks out, then price retraces to Pivot / Sweet spot / 61.8%.yielding excellent support and opportunity for Swing Trade. Profits taken here, trailing rest 29

HOW TO TIME YOUR TRADES TO THE MARKET HOW TO TIME YOUR TRADES TO THE MARKET Your market timing strategy is critical to your success as a swing trader. When the market rallies, 3 out of 4 instruments will move up with the market. On the other hand, when the market sells off, 3 out of 4 instruments will decline with it. So, it makes sense to time your trades with the market because you want catch these rallies and avoid the declines! MARKET TIMING USING MOVING AVERAGES The first thing you want to look at is a chart of the S&P 500. Look at the 10 SMA and 30 EMA to determine if you should be focusing on long positions or short positions. Here are the rules for timing your trades to the market using moving averages: If the 10 SMA is above the 30 EMA, you should be focusing on long positions only. If the 10 SMA is below the 30 EMA, you should be focusing on short positions only. This simple technique will tell you what type of trades you will be concerned with right now. It identifies the underlying trend to keep you on the right side of the market. 30

10 Above 30 = Long 10 Below 30 = Short 10 Above 30 = Long Looking at the chart, you can see how these moving averages create focus. This part of your market timing strategy answers the question of what types of trades to focus on (long or short). Moving averages are trend following indicators. As such, they will only work well in trending markets - not when they are the market is trapped in a trading range. WHEN?? Ok, now we know whether or not we will be trading on the long side or the short side. Now we need to answer the question of when to buy and when to sell. That is where Williams %R comes in 31

MARKET TIMING USING WILLIAMS %R As far as technical indicators go, Williams %R is useful to get a general idea of when the market has reached a short term extreme and is likely to reverse. It calculates the CLOSE in relation to the range over a set period of time. The default setting in most charting packages has it set at 14 periods, but we would like it to be a little more sensitive than that so we will use a 3 period setting. THE RULES FOR WILLIAMS %R When the 10 SMA is ABOVE the 30 EMA, we will look to go long when Williams %R is less than -80 (over sold). When the 10 SMA is BELOW the 30 EMA, we will look to go short when Williams %R is greater than -20 (over bought). The more over bought or over sold Williams %R gets, the more likely a reversal will take place. Look for those times when Williams %R gets to -90 or below for long positions, and -10 or above for short positions. Notice how short positions are ignored when the 10 SMA is above the 30 EMA and only focus on the long side. Even though Williams %R is over bought (above -20) we only want to trade in the direction of the trend. 32

Also, notice how we ignore long positions when the 10 SMA is below the 30 EMA and only focus on the short side. Again we only want to trade in the direction of the trend. On the right edge of the chart the 10 SMA has just crossed down through the 30 EMA so we can no longer trade on the long side. Instead, we will manage our existing trades and wait for Williams %R to get above -20 to focus on the short side. MOMENTUM MODE Every now and then, the market will enter into what is called, "momentum mode". When this happens, there are very few pullbacks in the overall market itself. Williams %R will give you no signals at all. Looking at the right side of the chart, you will see that Williams %R hasn't moved into oversold territory (less than -80) in over a month. No signals! So, what do you do? 33

MOMENTUM MODE If you suspect that the market is in "momentum mode", you can do one of two things: Do nothing. Wait for the market to slow down and pull back. Move down to the hourly chart When the market is running on momentum you will find that there will be few trading opportunities. That's because, like the market, there are few charts pulling back enough to show up! MOMENTUM MODE How do you know if the market is in "momentum mode"? One easy way to determine this is to look at the ADX indicator. Reading above 25 indicate a strong trend that will likely offer few pullbacks. If you do find a chart that you like, and you want to time your trade to the market, use Williams %R on the hourly chart. 34

IN CONCLUSION... Use the market timing method described to identify when to establish long or short positions. But keep this in mind: Once you are in a position, trade the chart of the position itself and forget about the market. You are only using this method to establish new positions - not to exit positions. Also, keep in mind that moving averages and technical indicators are subjective - price is not. So, you should always be looking at support and resistance levels on the major indices. 11 SWING TRADING STRATEGIES NEW 35

5EMA AND 8EMA CROSS OVER 5EMA AND 8EMA CROSS OVER Overview Of The 5EMA And 8EMA Cross Over This is one of the very basic swing trading strategies that uses 5ema and 8ema indicators. The underlying principle of this system is that if the faster exponential moving average(5ema) crosses the slower exponential moving average(8ema) to the upside, its an indication of an uptrend. If 5ema crosses 8ema to the downside, its an indication of a downtrend. Timeframes: 4hrs, daily. Indicators: 5ema & 8ema 5EMA AND 8EMA CROSS OVER Long Entry Rules: Wait for 5ema to cross 8ema to the upside. Buy at the close of the candlestick that closes after the ema s have crossed. Place your stop loss 5-10 ticks below the low of that candlestick. Short Entry Rules: When 5ema crosses 8ema to the downside, sell at the close of the candlestick. Place your stop loss 5-10 ticks above the high of that candlestick. Take Profit: You can use a couple of options for take profit If you take trades based on the daily chart, exit on the 7th day. The 7th Day includes the entry candlestick day. Similarly if you take trades based off the 4hour timeframe, exit on the 7th candlestick after the entry. The 7th candlestick includes the entry candlestick. Or your profit should be set at least 3 times the risk on that trade 36

5EMA AND 8EMA CROSS OVER Trade Management : Managing a profitable trade placed with the 5ema and 8ema cross over. Here are a couple of options you can use: If trade moves in favor, and you want to lock in profits, the best option is to move stop loss and place behind the high(or low) of each subsequent candlesticks. That means for a short trade, move stop loss and place above the high the candlestick that continues to make lower highs. For a long trade, move stop loss and below the low of each subsequent candlestick that continues to make Higher Lows. 5ema crosses 8ema SELL signal SELL 5ema crosses 8ema BUY signal BUY Stop (Long) 5ema crosses 8ema SELL signal SELL Stop (Short) BUY (cover) 5ema crosses 8ema BUY signal 37

5EMA AND 8EMA CROSS OVER Advantages of the 5EMA And 8EMA Cross Over easy to understand and implement. in a strong trending market, there is potential to make a lot more profit when you ride out the trend with good trade management. 5EMA AND 8EMA CROSS OVER Disadvantages of the 5EMA And 8EMA Cross Over Gives a lot more false signals in a ranging market. Stop losses are quite big depending on the timeframe that is used so you need to adjust your position sizes to bring your trading risk to an acceptable level. Moving averages are lagging indicators and therefore every entry taken based on this swing trading system is effectively late. Which simply means that price had already made a big move and you would have not gotten into the trade at the start of that move because the entry of the 5ema & 8ema cross over is based on lagging moving average indicators. Therefore by the time it gives the signal to enter, the market may be due for a temporary reversal. 10 AND 20 SMA WITH 200 SMA 38

10 AND 20 SMA WITH 200 SMA The 10 and 20 SMA with 200 SMA Is A Very Simple Swing Trading System You Can Implement Without Any Difficulty At All. But First Lets Talk about Moving Averages 10 AND 20 SMA WITH 200 SMA WHY MOVING AVERAGES ARE USEFUL There are two main reasons why moving averages are useful in trading: Moving averages help traders define trend Moving averages recognize changes in trend. 10 AND 20 SMA WITH 200 SMA THE T WO SIMPLE MOVING AVERAGES(SMA): 10 & 20 SMA s With this swing trading strategy, when the faster SMA (10) crosses the slower SMA (20), it often signals a trend change. So when you see 10 SMA cross 20 SMA to the upside then you know there is a great possibility that the market is in an uptrend. If 10 SMA crosses 20 SMA to the downside, then you know there is a great likelihood that the market is in a downtrend. 39

10 AND 20 SMA WITH 200 SMA The 10 and 20 SMA with 200 SMA Trading Rules Trading Timeframes: Stick to 4hr timeframe and the daily Timeframe. After the faster 10 SMA crosses the slower SMA 20 look for reversal candlesticks to enter your trade. If 10 and 20 SMA are above the 200 SMA only take long positions. If 10 and 20 SMA are below the 200 SMA only take short positions. This ensures you take trades only based on the significant or main trend which 200 SMA gives you an indication of. 10 AND 20 SMA WITH 200 SMA The 10 and 20 SMA with 200 SMA Trading Rules For Selling, look for bearish reversal candlesticks and place sell stop order 5 ticks under the low of that bearish reversal candlestick For buying, look for bullish reversal candlesticks and place your buy stop order 5 ticks above the high of that bullish reversal candlestick. Place your stop loss 5 ticks above the high of the entry reversal candlestick if you are selling and 5 ticks below the low of the bullish reversal candlestick if you are buying. Set your take profits to 3 times what your risked or look for previous swing high/lows and use these price levels as your take profit target. SELL 10sma crosses 20sma SELL signal BUY Stop (Long) 10sma crosses 20sma BUY signal 40

10sma crosses 20sma SELL signal SELL Stop (Short) BUY (cover) 10sma crosses 20sma BUY signal 50 EMA SYSTEM 50 EMA SYSTEM The 50EMA System is also very simple and basic, easy to implement and can be applied to all timeframes and any market as well. Instead of 50EMA, you can also try other EMAs like 10, 20, 30 EMA s etc. The trading rules would still be the same. 41

50 EMA SYSTEM THE TRADING RULES OF THE 50 EMA SYSTEM Wait for price to break the 50ema to the upside or downside. The candlestick that breaks the 50ema either upwards or downwards is your entry candlestick. Place your buy stop order or sell stop order using this entry candlestick anywhere from 3-5 ticks above the low or high of the entry candlestick. Your stop loss should be placed anywhere from 5-30 ticks above the high or low of the entry candlestick. Take Profit and exit your trade 50 EMA SYSTEM HOW TO MANAGE A TRADE/EXIT A TRADE There are a few options which you can use to manage a profitable trade: move stop loss to breakeven when price moves by the amount you risked. Sometimes you may get stopped out easily with this option. or you can wait until price forms those peaks and valleys of price swings and use these price swings to move stop loss to lock in more profits as price moves favorably. SELL Price breaks below 50ema SELL signal BUY Stop (Long) Price breaks above 50ema BUY signal 42

Price breaks below 50ema SELL signal SELL Stop (Short) BUY (cover) 50 EMA SYSTEM ADVANTAGES OF THE 50EMA SYSTEM Easy to understand and implement In a good trending market, can give you a lot of profitable ticks easily. DISADVANTAGES OF THE 50 EMA SYSTEM Moving Averages indicators are lagging indicators which essentially means that price moves ahead and the EMA indicator responds to this price moves late. This system will not work so well in a non trending market. 200 EMA SYSTEM 43

200 EMA SYSTEM The 200 EMA Strategy is very simple and easy to follow Very appealing with the potential to bring your hundreds of ticks a month. The 200 EMA Strategy trades with the trend and effectively buys low and sells high. 200 EMA SYSTEM Helps identify the main trend - whether the market is going up or going down Why 200 EMA? Why not use other EMA s like 100 EMA, or 50 EMA or 20 EMA or 10 EMA? Because 200 EMA is one very popular indicator used by lots of traders. Here s what you need to know about the 200 EMA: when price is below the 200 ema, that s a downtrend when price is above the 200 ema, that s an uptrend. 200 EMA SYSTEM HOW IT WORKS The 200ema strategy is a multi-timeframe strategy The daily chart, the 4hr chart and the 1hr chart. First, after placing the 200ema on your daily chart, see if it s an uptrend or a downtrend. The daily chart determines the main trend. Next, switch to the 4hr chart and see where the 200ema is relative to price is it in the same trend as the daily chart? If so, switch to the 1hr chart and check if the 1hr chart is in the same trend as the daily and the 4hr charts. Your trade entries are executed when the trend in the 1hr chart is the same as the 4hr and the daily charts. Buy the dips and Sell the rallies in the 1hr timeframe. 44

200 EMA SYSTEM HERE S HOW TO DO IT: Step1: Check the daily time-frame: is the trend up or down? Step2: Check the 4hr timeframe: is the trend the same as in the daily chart? Step 3: Check the 1hr chart: is the trend same as in 4hr and daily chart? Step 4: Wait for price to come to the 200ema and trade the bounce of price on the 200ema line. 200 EMA SYSTEM How to trade the bounce on the 200ema line: the best way is to use price action by the use of reversal candlesticks. once you get confirmation with a bearish reversal candlestick, place a sell stop order 3-5 ticks below the low of the reversal candlestick(if this is a downtrend and you are selling short) Or once you get confirmation of a bullish reversal candlestick (for an uptrend trade), place a buy stop order 3-5 ticks above the high of that bullish reversal candlestick. 200 EMA SYSTEM How to trade the bounce on the 200ema line: your stop loss should be placed at a minimum 10-15 ticks outside of the 200ema line. use the previous swing high or swing low on the 1hr chart as your profit targets. Managing your trade when profitable: use the trailing stop technique: move your stop loss and behind each subsequent swing lows or high as your trades moves in favor so that you continue to lock in your profit as price travels towards your take profit target level. 45

Price below 200ema at start of December SELL signal? Price below 200ema SELL signal? Price retraces to 200ema and bounces SELL signal BUY (cover) 46

Price above 200ema at start of March BUY signal? Price above 200ema BUY signal? SELL Price retraces toward 200ema (touching prior PIVOT and bounces BUY signal 47

200 EMA SYSTEM SOME ISSUES WITH THE 200 EMA STRATEGY what happens if the 1hr trend is different from the 4hr and the daily timeframes? Well, wait until 1hr trend is the same as the 4hr and the daily and then trade the bounce off the 200 ema. what happens if the 4hr and the 1hr trend are the same and the daily is different? Same answer as above: every timeframe have to match and have the same trend. If one timeframe is different, you wait until all are the same trend. MACD CROSSVOER SYSTEM MACD CROSSOVER The MACD Crossover is a very simple. The MACD is one of the most popular indicators used by traders to determine trend. That being said, the MACD indicator consists of two lines, the faster moving line and the slower moving line. When the faster moving MACD line crosses the slower moving to the upside, that means the market is in an uptrend so you look to buy. If it crosses to the downside, it means the market is in a downtrend, so you look to sell. That is a very simple explanation of the MACD indicator. 48

MACD CROSSOVER THE TRADING RULES OF THE MACD CROSSOVER To enter into a trade using the MACD crossover: Wait for the MACD to cross Then Place your order - preferably a buy stop or sell stop order. Your stop loss should be placed significantly away from your trade entry point to avoid getting prematurely stopped out. To exit a trade or take profit, wait for the opposite trade signal before you exit. For example, if you were in a buy trade, then wait for a sell signal and when that happens, you exit your buy trade and enter a sell trade SELL HERE BUY HERE MACD Crossover to the Downside MACD Crossover to the Upside SELL HERE BUY HERE MACD Crossover to the Downside MACD Crossover to the Downside MACD Crossover to the Upside MACD Crossover to the Upside 49

SELL HERE BUY HERE MACD Crossover to the Downside MACD Crossover to the Upside MACD CROSSOVER DISADVANTAGES OF THE MACD CROSSOVER Because MACD is a lagging forex indicator, by the time when you are ready to enter a trade based on the MACD signal, the market at the stage would have moved a lot. So what happens is that you may be entering a trade at a time when the market may be due for a reversal so guess what happens? you get stopped out! If price consolidates or moves in a sideways trend, you will get too many false signals and may get stopped out a lot too! MACD CROSSOVER ADVANTAGES OF THERE MACD CROSSOVER in a nice trending market, the macd crossover will work perfectly that means nice big profits It s a very simple trading system-no complications. Consider trying other indicators to combine with the MACD to stay out (avoid trading) of those periods where the market consolidates. 50

20 SMA WITH RSI SYSTEM 20 SMA WITH RSI Very easy system to apply and follow, in a nice trending market, especially if traded on the 4hr or daily timeframes. The 20SMA used for identifying whether the trend is up or down: when the price is above the 20sma, the market is in an uptrend. when the price is below the 20sma, the market is in a downtrend 20SMA WITH RSI The RSI The RSI settings should be set to 5 days RSI. Put in the 50 RSI Level on your chart as well. The purpose of the RSI is to confirm the strength of the trend: when the RSI peaks above the 50 level and starts to turn down, it indicates that the uptrend (or minor rally) is weakening and it is a good time to be looking to go short when the RSI bottoms below the 50 level and starts to head up, it indicates that the downtrend(or minor pullback) may be weakening and it may be a good time to look for a trade entry signal to go long 51

20SMA WITH RSI THE TRADING RULES OF THE 20SMA WITH RSI When To Sell: Price has to be below the 20SMA -indicating a downtrend. Wait for price to rally back up to touch the 20SMA line. Once 20SMA line is touched, look down to see if the 5day RSI has peaked above 50 level and has started to turn down-confirming a weakening upward momentum. Place a sell stop order under the low of the candlestick (after it closes). This candlestick should coincide with the RSI starting to turn down. Place Your stop loss above the high of that candlestick. Your profit target: 3 times what you risked. Another option would be to exit with whatever profit you have when the opposite trading signal is given (which is when a buy signal is given). 52

20SMA WITH RSI When To Buy: The rules to enter long (or buy) are similar to the sell rules but the exact opposite. Price has to be above the 20SMA -indicating an uptrend. Wait for price to pullback down to touch the 20SMA line. Once 20SMA line is touched, look down to see if the 5day RSI has bottomed below 50RSI level and has star ted to turn up -confirming a weakening downward momentum. Place a buy stop order above the high of the candlestick (after it closes). This candlestick should coincide with the RSI star ting to turn up. Place Your stop loss below the high of that candlestick. Your profit target: 3 times what you risked. Another option would be to exit with whatever profit you have when the opposite trading signal is given (which is when a sell signal is given). 20SMA WITH RSI THE ADVANTAGES OF THE 20SMA WITH RSI simple trading system, easy to understand and implement. in a good trending market, this will be a very profitable trading system stop loss distances are quite small, thus minimizing your risks A great risk to reward ratio as well. 20SMA WITH RSI THE DISADVANTAGES OF THE 20SMA WITH RSI as with all strategies based on moving averages, this system performs really poorly in non-trending markets. sometimes price may not rally or pullback to touch the 20SMA line until very later on and by that time that price movement would have been already exhausted and the market may be looking to reverse direction. moving averages indicators are lagging indicators -you are waiting for price to come back to a 20SMA when price may have already made a big move. 53

20SMA WITH RSI HOW TO IMPROVE YOUR TRADE ENTRY TECHNIQUE Buy using reversal candlestick patterns that form when the price touches the 20SMA line. Look for reversal candlesticks like: Harami Engulfing pattern Dark Cloud Cover / Piercing Evening Star / Morning Star Shooting Star/Hammer 3 EMA S SYSTEM 3 EMA S The 3EMA s is a very simple trading strategy based on 3 exponential moving averages(ema). 8ema, 21ema and the 55ema. Alternative 10ema, 25ema and the 50ema A trade is initiated on the FAILURE of the retracement that happens after the 8ema crosses the 55ema. Why not initiate a trade when the 8ema crosses the 21ema on the very first instance? The simple answer is: the 55ema line acts as a support if price is above it and acts as resistance when price is below it, therefore, to make sure that price does not bounce off from this 55ema line, the 8ema must cross the 55ema before a trade can be taken. 54

3 EMA S Timeframe: 1hr and above Indicators: 8ema, 21ema and 55ema Markets: Any Trade Entry Rules: Place a buy stop order 2-5 ticks above the high of the candlestick which has a lower high than the previous candlestick after the 8ma crosses the 55ema to the upside. Place a sell stop order 2-5 ticks below the low of the candlestick which has a higher low than the previous candlestick after the 8ema crosses the 55ema to the downside. If the buy stop/sell stop order is not executed then continue to move the buy stop /sell stop order above/below each new lower high/higher low that forms until the retracement fails and the high/low of the candlestick is broken and trade is executed. 8ema = blue 21ema = red 5ema = fuschia Stop Loss Sell Stop (Short) 8ema crosses 55ema SELL signal Trail Stop on lower swing highs Swing Low = Profit Target Stopped out Buy Stop (Long) Stop Loss 8ema crosses 55ema BUY signal 8ema = blue 21ema = red 5ema = fuschia 8ema crosses 55ema SELL signal Stopped out Swing High = Profit Target Sell Stop (Short) Stop Loss Buy Stop (Long) Stop Loss Stopped out 8ema crosses 55ema BUY signal 55

3 EMA S Taking Profit You can use previous swing low levels as your profit target for a sell trade or previous swing high level for a buy trade. Or another option is not to have a profit target but use a trailing stop to place behind each lower swing high (for a short trade) as your trade moves in favor so that your can ride out that trend for as long as you can extracting maximum ticks out of the price swing until you get sopped out. Do the exact opposite for a buy trade. 3 EMA S Stop Loss Placement For a buy order, place your stop loss 2-5 ticks below the low of the candlestick that has its high broken which then activated your buy stop order. For a sell order, place your stop loss 2-5 ticks above the high of the candlestick that has it low broken which then activated your sell stop order. 3 EMA S Trade Management One of the best way of trade management is to trail stop behind lower swing highs (for a short trade) or trail stop below higher swing lows. This enables you to lock in profits as trade moves in favor until your profit target is hit or if you don t have a profit target, you can ride our the trend as far as it can go until you get stopped out. 56

3 EMA S Advantages of the 3EMA s A very simple, easy to understand and use. In strong trending markets, there is potential to make large profits very quickly. 3 EMA S Disadvantages of the 3EMA s Ema s are lagging indicators therefore any trade taken based on these indicators means that you are getting into a trade after price has moved, sometimes to a great deal already so you may not be entering a trade at right time If price moves a great deal, when you enter a trade, it may be due for a reversal and this would also get you stopped out. This system will perform poorly in ranging markets. BOLLINGER BAND TACTICS 57

BOLLINGER BAND AND STOCHASTICS In general, here is how the Bollinger Band and Stochastics System works: when price is touching the outer lines of the Bollinger band, it may be due for a reversal, so you look for a reversal candlestick signal to trade. for example, if the price has been going up and touches the upper Bollinger band line, you go short (sell). Do the opposite when price touches the lower Bollinger band line. The middle Bollinger band line can be used as a reference line to move a profitable trade to breakeven or also can be used as a profit target. The Stochastic indicator is used as a filter for the trades. BOLLINGER BAND AND STOCHASTICS Requirements (What You Need) What Markets Can you trade this system with? Any What is the suitable timeframe for this trading system? 4hr, anything less is not suitable. Indicators Required: Bollinger Band (set to period 20, standard deviation 2) & stochastic indicator (13,5,5) Anything Else Required?: Yes, ability to spot reversal candlesticks like doji, bearish and bullish Harami, Shooting star, Hammer, Evening Star, Morning Star, etc. Red circles indicate where price touches the upper line and starts moving downward Green circles indicate where price touches the lower line and starts moving upward Look to SELL only when the 2 lines are above 80 (OB) or look to BUY when the 2 lines are below 20 (OS) 58

BOLLINGER BAND AND STOCHASTICS The Rules of the Bollinger Band and Stochastics System To Buy: (1) price must be touching the lower Bollinger band line (and may close below it too) (2) look at the Stochastics indicator to see if the two lines are below 20 (oversold condition). (3) look at the closing candlestick to identify if it s a good bullish reversal candlestick a bullish reversal candlesticks like, hammer, bullish harami, etc. (4) Once you see a suitable bullish reversal candlestick pattern, place a pending buy stop order 2-5 ticks above the high of that bullish reversal candlestick pattern. BOLLINGER BAND AND STOCHASTICS (5) Place your stop loss 10-20 ticks below the low of the bullish reversal candlestick. You have to make sure your stop loss is not too close, otherwise you may get stopped out prematurely. (6) Profit target options: the middle Bollinger band line can be used are you take profit target, once price reaches it, you exit your profitable trade. the middle Bollinger band line can also be used as a Profit Target 1, meaning can close half (or whatever amount) of your trade when price reaches this and you keep the rest running until price reaches the Profit Target 2 which would be the Upper Bollinger Band Line. BOLLINGER BAND AND STOCHASTICS Or you can aim to exit your trade when price reaching the upper Bollinger band line so when price touches (reaches) this line, you exit immediately. (7) Trade Management: Move stop loss to break-even when price touches the middle Bollinger band line. You need to be aware this may not be suitable on certain times because the price may be too close and this may cause you to get stopped out only to find out later the price moves as expected. So keep 15-30 ticks distance when moving your stop loss to breakeven. 59

BOLLINGER BAND AND STOCHASTICS Sell Rules: (1) Do the exact opposite of the BUY rules. (2) Look for bearish reversal candlestick patterns like shooting star, bearish harami, doji, etc. BOLLINGER BAND AND STOCHASTICS Pitfalls to Watch Out For with the Bollinger Band and Stochastics System In a strong trending market, prices will be hugging the upper/lower Bollinger band lines and you may find out you will get stopped out frequently if you are looking for reversals of that trend. Do not enter using market orders. It is preferable to use sell stop or buy stop orders based on reversal candlestick patterns you see. 5 SMA, 10 SMA, STOCHASTICS & RSI 60

SIMPLE MOVING AVERAGE WITH 5 SMA, 10 SMA, STOCHASTIC & RSI INDICATORS Simple Moving average trading can be very profitable especially if the market is trending nicely. WHAT YOU NEED ON YOUR CHARTS Two Simple Moving Averages (SMA) values 5 & 10 Stochastics Indicator, settings 14,3,3 and level 20 & 80 marked RSI Indicator, settings period=9 SIMPLE MOVING AVERAGE WITH 5 SMA, 10 SMA, STOCHASTIC & RSI INDICATORS Important trading tips for the simple moving average trading strategy: the 5sma is a fast simple moving average the 10sma is a slow simple moving average so when 5 simple moving average crosses the 10 simple moving average to the upside, this may indicate that an uptrend has formed. SIMPLE MOVING AVERAGE WITH 5 SMA, 10 SMA, STOCHASTIC & RSI INDICATORS the opposite is also true: if 5 simple moving average crosses the 10 simple moving average to the downside, this may mean a downtrend has formed. the Stochastics indicator is used to indicate whether the market is oversold (if its below the 20 level line) or overbought (if its above the 80 level line). the RSI indicator is an indicator used to measure the strength of the trend. RSI should be above the 50 level for a trend to be considered strong. 61

Green circle indicates 5 SMA crossing above 10 SMA = uptrend Stochastics crossing up after being OS under 20 RSI near 50 www. candlecharts.com/special/swing-trading-2/ Red circle indicates 5 SMA crossing below 10 SMA = downtrend Stochastics crossing down after being OB over 80 RSI near 50 SIMPLE MOVING AVERAGE WITH 5 SMA, 10 SMA, STOCHASTIC & RSI INDICATORS HERE S WHAT IT MEANS the simple moving averages help us identify a new trend as soon as possible when it forms (when simple moving average crossover happens) the Stochastics indicator is for determining if its suitable to enter a trade after the simple moving averages have crossed, whether the market is overbought or oversold (remember the 20/80 levels) The RSI indicator is an additional confirmation tool which is used to determine if the trend is strong or not. If RSI>50, then the trend is strong. 62

SIMPLE MOVING AVERAGE WITH 5 SMA, 10 SMA, STOCHASTIC & RSI INDICATORS TIME FRAMES REQUIRED TO TRADE THE SIMPLE MOVING AVERAGE Suggested time frames are 4hr or the daily time frames. Remember that depending on the time frame you choose, your stop losses can be either smaller of larger. SIMPLE MOVING AVERAGE WITH 5 SMA, 10 SMA, STOCHASTIC & RSI INDICATORS SIMPLE MOVING AVERAGE TRADING METHOD S RULES Trading Rules For Short Entries (Selling) wait until 5sma crosses 10sma to the downside watch and wait for the next candlestick that forms after the simple moving average crossover. Once this candlestick closes Is the Stochastics indicator either above the 80 level or has started to head down below the 80 level, check the RSI indicator. Check to see if the RSI indicator is at or above the 50 level line. If both the Stochastic indicator confirms oversold condition and the RSI is at 50 or above 50 level then place a sell stop order at least 3-5 ticks under the low of that candlestick. Just wait for price to break below the low of that candlestick to trigger your sell stop order. SIMPLE MOVING AVERAGE WITH 5 SMA, 10 SMA, STOCHASTIC & RSI INDICATORS For stop loss place anywhere above the candle that triggered your Entry. For profits here s what you can do: keep holding your trade until an opposite trading signal is given so you exit your trade. or you can set your take profit target at 3 times what you risked in ticks, for example, lets say that you risked 50 ticks for a sell trade and when you reach 150 ticks profit, you exit. (150 ticks profit is 3 times the 50 ticks you risked) For trade management continue to move stop loss above subsequent lower peaks as price continues to move down so effectively locking in your profit as price moves favorably. 63

SIMPLE MOVING AVERAGE WITH 5SMA, 10 SMA, STOCHASTIC & RSI INDICATORS Trading Rules For Long Entries (Buying): the exact opposite of the Short Entries wait for 5sma to cross 10sma to the upside check your Stochastics indicator to make sure its in the oversold condition (below 20 or at least just heading above 20 level) then check your RSI indicator to confirm if its at 50 level or above 50 level which would indicate a strong trend. Once everything is all lined up place buy stop order 3-5 ticks above the high the candlestick. Stop loss should be place anywhere below the candle triggering entry. take profit is similar to that of selling but do the exact opposite. DAILY CHART SWING TRADING DAILY CHART SWING TRADING Another simple system Trade entries are based on the daily chart Many traders prefer to trade intraday which simply means opening and closing trades within a span of few hours or minutes. 64

DAILY CHART SWING TRADING Not many traders prefer trading off the daily charts because: There is not much action-the frequency of trades is less. It requires strong patience-to wait for the right trading setups to happen. You can wait for days or weeks! However, just remember that the daily chart is where the main trend forms and it can continue for week and months on end. Everything that happens in the seconds and minutes to hours (in the smaller timeframe trades you may be taking) is largely dictated by the big moves which happens in the daily timeframe. DAILY CHART SWING TRADING THE IDEA BEHIND TRADING OFF DAILY CHART SWING TRADING We know that when the market trends nicely in a daily chart, sooner or later, if its in a downtrend, it will rally up or if it was in an uptrend, it will retrace or pullback down. So when that happens you wait to get in at a Fibonacci level with confirmation from a Stochastics indicator. DAILY CHART SWING TRADING WHAT YOU NEED TO TRADE OFF THE DAILY CHART The daily chart, of course. The Stochastics indicator with default setting (5,3,3) You also need to know how to use the Fibonacci retracement tool. Know Reversal candlestick patterns - Used For Your Entries 65

DAILY CHART SWING TRADING RULES OF THE DAILY CHART SWING TRADING SYSTEM On the daily chart, if a downtrend or uptrend has begun, you wait until a rally on a downtrend begins or pullback on an uptrend begins. How do you determine if an uptrend or downtrend has begun? By Price Action. Wait until price pulls back to a Fibonacci levels- Like 38.2, 50, 61.8. When price hits those Fibonacci levels, check with the Stochastics indicator to make sure it is either in the oversold or overbought levels. Place your Entry based on confirmation of a reversal candlestick pattern Stop Loss should be place 4-10 ticks under the low/or high of that reversal candlestick. Profit targets: use 3 times your risk in ticks, place your profit target on the previous swing high point. Uptrend Target Entry Stop Loss Bullish Engulfing at 38.2% 66

Target Entry Stop Loss Doji at 50% DAILY CHART SWING TRADING ADVANTAGES OF THE DAILY CHART SYSTEM This is one of those strategies that would bag you hundreds of ticks easily because its based on the daily timeframe. GAPS (WINDOWS) 67

HOW TO TRADE GAPS ON A CHART Are all gaps created equal? Nope. There are really only two significant factors to consider when trading gaps. You have to be able to identify if the gap is caused by professional traders or amateur traders. WHAT IS A GAP? A gap is defined as a price level on a chart where no trading occurred. These can occur in all time frames but, for swing trading, we are mostly concerned with the daily chart. A gap on a daily chart happens when the stock closes at one price but opens the following day at a different price. Why would this happen? This happens because buy or sell orders are placed before the open that cause the price to open higher or lower than the previous day's close. Here is an example: Let's say that on Tuesday, Microsoft closes at $26.57. After the close they come out with their earnings report. They report higher than expect earnings that causes excitement among investors. Buy orders come flooding in. The next day Microsoft opens at $27.60. Since there were no trades between $26.57 and $27.60 this will create a gap on the chart. You can see on the chart that the stock closed at one price and then the next day the stock "gapped up" creating a price void on the chart (yellow box). 68

www. candlecharts.com/special/swing-trading-2/ FILLING THE GAP Sometimes you will hear traders say that a stock is "filling a gap" or they might say that a stock has "a gap to fill". Are you wondering what the heck they are talking about? In Japanese Candlestick Charting gaps are referred to as Windows. When we say that a stock is "filling a gap", the Japanese would say that the stock is "closing the window". They are talking about a stock that has traded at the price level of a previous gap. In this example, you can see that the stock gapped down. A few days later it rallied back up and filled in the price level at which there were previously no trades. This is known as filling the gap. Sometimes you will hear traders saying that "gaps always get filled". This just simply isn't true. Some gaps never get filled, and sometimes it can take years to fill a gap. 69

TYPES OF GAPS Traders have labeled gaps depending on where it shows up on a chart. It isn't really necessary to memorize all of these patterns but here is the breakdown so that you can impress your trading friends. Breakaway Gaps - This type usually occurs after a consolidation or some other price pattern. A stock will be trading sideways and then all of sudden it will "gap away" from the price pattern. Continuation Gaps - Sometimes called runaway gaps or measuring gaps, these occur during a strong advance in price. Exhaustion Gaps - This type of gap occurs in the direction of the prevailing trend and represents the final surge of buying or selling interest before a major trend change. Ok, now we are going to get into the really good stuff PROFESSIONAL VS. AMATEUR GAPS When you are looking at gaps on a chart, the most important thing that you want to know is this: Was this gap caused by the amateur traders buying or selling based on emotion? Was this gap caused by the professional traders that do not make emotional decisions? To figure this out you have to understand this one important concept first. Professional traders buy after a wave of selling has occurred. They sell after a wave of buying has occurred. Amateur traders do the exact opposite! They see a stock advancing in price and are afraid that they will miss out on the move, so they pile in - just when the pros are getting ready to sell. See how this stock gapped up after a wave of buying occurred? These amateur traders got emotionally involved in the stock. They piled in after an already extended move to the upside. These traders eventually lost money as the stock sold off over the next few weeks. Notice how the stock eventually did go back up - but only after a wave of selling occurred (professional buying). /special/swing-trading-2/ 70

See how this stock gapped down after a wave of selling occurred? These amateur traders got emotionally involved in the stock. They sold after an already extended move to the downside. Professional buyers step in PROFESSIONAL VS. AMATEUR GAPS If a stock gaps up after a wave of buying has already occurred, these are amateurs buying the stock - look to SHORT. If a stock gaps down after a wave of selling has already occurred, these are amateurs selling the stock - look to go LONG. These types of gap plays usually provide great opportunities because they represent and extreme price move. Gaps can provide nice swing trading profits but they can be a little more tricky to trade. The advantage is that you can sometimes make big profits, quickly, and with a little less risk......something every trader should strive for. BUYING THE PULLBACK THE GAP Don't trade a pullback against a gap. There are two types of gaps you need to worry about. The first shows up on a high-volume move near the end of the rally. This corresponds with an exhaustion gap that warns traders a reversal is near. It also marks resistance after a stock finds support on the pullback and starts to rally again. Second, don't buy into a gap down when the stock is pulling back unless it gets filled the same day. This is a tough one because falling stocks often find support right after the longs give up and sell into a gap down opening. The problem comes when the gap doesn't fill by day's end. This prints a bearish reversal on the price chart and attracts more selling. 71

Exhaustion Gap Continuation Gap BUYING THE PULLBACK THE GAP The simplest entry comes from a pullback into a strong support level. Trend lines, old highs and Bollinger Bands ease selling pressure, and allow buyers to carry the market back in the other direction. The biggest problem with these falling - knife entries is usually psychological. The trader loses confidence while watching the intensity of the selloff and fails to act when it's time to pull the trigger. Support Support 72

BUYING THE PULLBACK THE GAP A trip down to the 50-day moving average offers an excellent opportunity for dip buyers who want to hold positions for a few days or a few weeks. This price zone usually marks strong support after a rally. A market pulling back here also suggests early dip buyers got beat up on the ride down. Pullbacks tend to feed on traders who buy too early. In other words, they buy and the market drops, stopping them out and forcing prices even lower. This downward spiral continues until prices reach a large pool of buying interest. This fresh demand often sits right at the 50-day moving average. 73

SWING TRADING ADVICE INVEST IN YOUR EDUCATION To be successful, you'll need to study up on the various techniques and strategies involved in swing trading. Money management skills are essential, as is the ability to budget business expenses appropriately and understand relevant tax consequences. Additionally, it's important to realize that your education will be ongoing, so you'll need to stay curious, vigilant, and up-to-date. ACCEPT YOUR LOSSES AND MOVE ON If you've ever learned to ice skate, you know that one of the first lessons is accepting that falling is part of the game. Too great a fear of falling could prevent you from ever skating well. Similarly, if you want to be successful with your investments, you need to view swing trading as a business and accept that losses will happen. Don't be afraid to take a few hits. Stay calm and control any emotion -based urges you have in favor of rational, reasonable decisions. 74

USE PAPER TRADING Paper trading refers to a practice method in which aspiring investors only pretend that they're making real investments. They track their proposed trades on paper, noting all their losses and wins, and then analyze their success after a set period of time. Paper trading is a great way to practice your skills, and until you're confident in your abilities and have a proven track record of profits, paper trading is recommended. It will help you hone your technique while protecting your trading capital. BE PATIENT Success will take time. If you expect immediate wins, you will be disappointed; the market simply doesn't work that way. Most importantly, don't hinge your financial well -being on your new found interest in swing trading, even if your goal is to become a full-time swing trader. Patience is key. FIND WHAT WORKS FOR YOU The Internet is teeming with swing trading strategies, tips, and techniques. To be successful, you need to find the strategy that works for you, which is why education is so crucial. Explore the possibilities, but remember that sometimes the best strategy is to KISS (keep it simple, silly)! 75

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