Playing our Swing Trading Picks
We have 2 basic types of long setups in the Weekly and Daily Alert newsletters: our classic swing trading or channeling stock setup as well as momentum trades. This page covers our swing trading setups.
One of the great aspects of our swing trading system is that its designed for those who work for a living. You do not need to jeopardize your day job to use our proven swing trading strategies in both up and down markets.
You simply wait for a stock to reach our ideal technical entry point, place a market order or buy-stop order in the comfort of your home anytime after 4pm and then place a limit order for the target price after you enter the trade.
Then you just check for any sell signals after work each day and then change the limit order to a market order if any sell signals have emerged. If you subscribe to our newsletter, we do all the hard work finding ideal trading setups with the right technical AND fundamental factors.
We find great swing trading setups WITHOUT relying heavily on risky penny stocks. This greatly reduces downside risk.
With our swing trading setups, you will generally see 2 lines with each stock featured in the Weekly and Daily Alert. One is the short-term downtrend resistance and the other is the uptrend support level or horizontal support if the stock is in a horizontal trading range (classic channeling stock)
The entry/buy signal for our system is a close above the stock's short-term downtrend (downtrend resistance line).
About half the time, the stock has already broken its short-term downtrend when its featured in the Weekly or Daily Alert. Using our system, we would buy at the open the following trading day as stated in the alert.
In the case where the downtrend has not been broken with a closing price, you would wait for this to occur (also stated in the alert underneath the chart).
Subscribers can simply click the chart within the newsletter to see when this occurs. When you click the chart, the latest chart comes up with the downtrend reistance line already drawn for you. You can see when the price closes above the downtrend with a quick glance each day.
Here is a good example that illustrates when the target entry signal has been reached:
The chart above graphs the stock price through Mar. 20th of 2008. The trading day prior to March 20th, the stock closes strongly above the downtrend resistance line as circled on the chart. (On the subscription site, you can see an updated chart each day by clicking on the chart on the members site. The latest chart comes up with the trendlines already drawn.)
Using our swing trading system, we would simply place a market order sometime between 4pm on the 19th and 9:30am the next day. Whenever its convenient with plenty of time to analyze the trading setup. The order would then fill at the opening price on March 20th.
If the entry point is a “move above” a certain price for more confirmation that the trend is changing back to the upside, you would put a buy-stop order a penny or so above the price listed.
For those unfamiliar with candlestick charts, an example of each type of candle is shown below. Candlestick charts are awesome.
The colors, candlestick body and the top/bottom lines quickly communicate the action of the stock that day. Each type of candle is explained below. Its quite simple to learn:
Once we enter a trade, the system calls for entering a limit order for our target sell price. In this case, our target sell price was $51.90 which was reached just a few days later.
Once the price has risen about 4% to 8% above the technical entry point, we generally sell a portion and stop the remainder at our entry point. Selling maybe 25% if it gets off to a strong start or 50% or more if it gets off to a weak start. We use a “mental stop” and have our online broker message us if the price comes back to the entry point and then decide whether to give it a little more room. Or you can use a hard stop-loss order with your limit order (using an OCO or one cancels the other order) for your target sell price if you are at work.
With stocks that show a strong initial move like this and have strong fundamentals, we would keep up to half our position after hitting the first target listed in the newsletter and let it ride until a confirmed uptrend support has been broken with a closing price or another sell signal emerges discussed in our PowerInvesting ebook . For the best opportunities and breakouts on very strong volume we often add to our position at other good technical entry points as the move unfolds over the days and weeks ahead.
As can be seen on the chart above, the stock closes below our original uptrend support in late June. However, you will notice that a new higher trajectory uptrend has developed since our entry in March. The stock breaks this uptrend at a much higher price after we reported a bearish reversal signal for the overall market in late May.
That was the time to sell the rest of our position at around $58. The stock quickly reclaimed its uptrend support but then waivered and closed below it again a few days later which is typical behavior once a confirmed uptrend has been broken the first time. A “confirmed uptrend” is one that has had at least 3 successful tests where you can draw basically a straight line connecting the 3 lows.
After the uptrend support has been broken, the stock will normally come back up and touch the uptrend support, at least briefly, but not always. If fundamentals weaken or the market is peaking or now in a new downtrend, its a clearcut signal to exit the trade once the uptrend support is broken with a closing price.
Now if the stock closes below the uptrend support prior to reaching our target sell price, this is a clear sign that the uptrend has been broken. We then cancel our limit order for our target sell price and change it to a market order for the market open price the next day.
This occasionally results in a slight profit but normally at a price somewhat below our entry price. If another sell signal discussed in the PowerInvesting ebook emerges, at any time after entering the trade, we sell immediately.
- Practice trade without using real money until you are comfortable with our system. If you start during a bull market and a bear market develops, be sure to practice trade your first market downtrend as well.
- If a stock closes below its uptrend support before reaching its target entry, we generally take the stock off our radar and look for the next trading opportunity.
- Sell a couple weeks prior to the earnings release for your stock during a trade. The only possible exception is during a bull market when the stock has a tendency to beat earnings estimates by a wide margin.
- Check the risk-reward ratio at the point of entry. Occasionally, the price jumps much higher shortly after being featured in the Weekly Alert. The short-term downtrend may be broken at that point but the stock may be at a price where the risk-reward ratio no longer justifies a trade.
(In these cases, you can wait to enter after the first pullback in the stock when the risk-reward ratio is favorable. Typically, this ratio is at least 1.5 to 1, meaning 1.5 times as much potential profit as potential loss with the trade.)
- Diversification is an important consideration. We always diversify our trading capital among at least 4 stocks, sometimes keeping a substantial amount in cash during a market downtrend. Talk to your financial advisor about how much of your portfolio to put into individual stocks.
- Follow the other rules discussed in the PowerInvesting ebook.