| Home | My photos | Forex | My trading | Contacts |
|
|
You Can't Become Rich In Your Pocket Until You Become Rich In Your Mind | ||||
|
Don't be an investor and swing trader on the same positionTRADER vs. THE CROWD Profits come from the other traders’ pockets. While most participants realize that a winner stands next to every loser, few comprehend the true mechanics of this statement. The markets have never been a team sport. Swing traders must be predators ready to pounce on ill-advised decisions, poor judgment, and bad timing. Success depends on the misfortune of others. Who exactly is the crowd? Swing trading tends to focus on short-term positions and the other market players who execute trades in this time frame. This total congregation exhibits predictable herd behavior in response to news events and S/R violations. The crowd reacts rather than acts when given the opportunity. It feeds on itself as members notice bursts of activity and fall into line, one after the other, until supply dissipates. Just as a stampeding herd suddenly reverses course upon reaching a barrier, the crowd may show little loyalty to a single price direction. The trading core that acts on emotion rather than reason changes through every circumstance and defies accurate measurement. For obvious reasons, highly charged markets induce more herd instinct than quiet ones. Seek active conditions when looking for profit opportunities. Read the crowd’s excitement through total volume and the time and sales ticker. Watch the trade rhythm as price strikes key S/R violation levels. Are the players tripping over themselves to get in or out of a position? How willing are they to execute well above or below the inside market? Their intensity tells the swing trader how long price breaks may last and the best strategy for that particular setup. Trade ahead of, behind, or contrary to the crowd. Choose the strategy that aligns best with the current Pattern Cycles phase. Pick the ETs in advance based upon detached observation of the technical picture. Narrow-range executions work best to step in front of the crowd before a breakout. Stand behind the action on popular patterns such as the head and shoulders or symmetrical triangle and watch as insiders fade the masses that react to these well-known setups. Then look closely for the market’s true intentions and execute after the crowd shakeout when the underlying direction finally emerges. Never hesitate to go against crowd sentiment when the market telegraphs a reversal. But use careful timing and analysis before position entry. Crowds carry momentum that rarely allows instant directional change. Move down to the price chart below the time frame of interest and watch for small reversal patterns to print first. Then choose an ET that responds to that smaller pattern. Contrary tactics are not difficult to learn. Realize that greed-fear often motivates the crowd to act against its own best interests. Learn to recognize those profitable times and have a strategy ready to catch other traders’ money as they let it go. Just mimic the insider’s actions. Market makers take the other side of trades to ensure a liquid market. The swing trader should apply similar tactics when the crowd lines up on the wrong side at key reversal zones. Use the crowd’s excitement to exit trades on wide price bars before deep countertrends reduce profits. Reversals occur at peaks of crowd agitation. Sharp pullbacks trap players when they get greedy or wait too long for confirmation of a rollover. Safe exit requires that swing traders step in front of the crowd and close a position into its waiting hands. Get out quickly on bar expansion into major barriers such as prior highs or lows and Bollinger Band extremes. Monitor personal stock board behavior closely. Don’t identify with individual stocks or their related discussion groups. Board participants always have hidden agendas and will add a dangerous bias to detached execution. However, these virtual boiler rooms do fill an important data function: they assist in measurement of the crowd’s emotional intensity for that stock. They also represent the pocket that the swing trader wants to pick. Don’t be an investor and swing trader on the same position. Investment represents a belief in a stock’s underlying value or technical state. This bias will inhibit the ability to apply contrary strategies when the circumstances demand them. Investment relies upon wealth creation, while supply and demand drives trading. Don’t confuse the two. SHORT SALES Price momentum builds strongly in both directions, but different crowd mechanics drive the underlying trends. Greed fuels stock rallies, while fear and pain guide selloffs. Each trend direction displays special chart characteristics that elicit different formation types. In other words, don’t try to just flip a chart upside down to predict price movement in very active markets. But smaller thrusts through range constriction show less variation from uptrend to downtrend. Here the crowd behaves in a more rational manner as it moves in and out of positions. The smaller doses of greed and fear look alike through these zones. Consider the difference between uptrends and downtrends in the development of trading tactics. Stocks tend to fall farther and faster than they rise. Volume builds rallies, but markets will fall from their own weight. Greed burns out faster than fear, which must be healed over time. Fear induces panic selling more reliably than greed induces panic buying. Momentum traders duck for cover quickly at new highs, but value investors routinely exercise great patience at new lows. Many active traders never sell short. The upward price bias of the secular bull market teaches painful lessons to short sellers who don’t apply defensive strategies. And the esoteric concept of selling stock before ownership confuses narrow logic although it follows common tactics that buy low and sell high. Many neophytes attempt a few short sales, get burned, and never look back. They fall into popular upside momentum strategies and never play any other setup. Long-term market success depends on the ability to adapt to diverse trading conditions. Many Pattern Cycle phases signal profitable short sales opportunities. As with long positions, these setups align according to the trend-range axis. Classic strategies sell tests of old highs within ranges and use bear rallies to execute lower-risk entries in downside momentum markets. Smart short sellers also focus the ET through several time frames and build profits through 3D charting techniques. Direct access execution revolutionizes short sale swing trading. For years, brokers relied on inefficient inventory handling that forced delays while excellent opportunities were lost. Short sellers had to overcome slow service and long phone calls to get permission to borrow shares. New interfaces now display available shares in real-time, and modern ECNs trigger fast executions when placing orders above the current inside bid. Once these are filled, swing traders can manage short positions as easily as long ones. Swing traders must sell short within the context of the larger bull market. While the normal holding period will be short term, never underestimate the public buying power that drives modern markets. Always use 3D charting to examine major indices in the view above the intended execution. Avoid selling short near major market support levels. Also remember that indices tend to shift direction frequently as corrections build. An expanding selloff on a 5-minute Nasdaq chart rarely offers a safe environment for short sellers unless they operate through a very small execution window. Trends depend on their time frame. Swing traders can safely sell short into corrections that last only a few bars or days. But these brief entries require very careful planning. Review other time frames to avoid trend relativity errors, and examine the pattern closely to pick the optimum entry points. Once a selloff is set into motion, buyers pull away and make execution more difficult. Wait for a pullback entry or get more consistent results by taking a position in narrow-range bars just prior to the break. Classic contraction against a S/R barrier offers a great tool to locate short sales as well as long positions. Countertrend short sales require advanced trading skills. First build a profitable history of selling into downtrends and rangebound markets. Intermediate declines within uptrends can produce outstanding results. But the underlying buying power restricts safe execution to a few well-marked setups. Newer traders consistently sell short too early into these patterns and get ripped apart. Experience builds the required patience to wait for the perfect countertrend opportunity. Sell breakdowns from one S/R level to the next. This requires defensive execution, precise measurement, and immediate profit taking. Use a Fibonacci line tool after a sharp uptrend thrust to identify the 38%, 50%, and 62% retracements. Cross-verify with time of day, horizontal S/R, and Bollinger Band extremes. Move quickly and without hesitation. At times these pullbacks will turn into larger trend changes. For example, a sharp thrust through the 62% retracement signals a possible first failure opportunity. If still short, keep the active position into the 100% level. Bulls and greed live above the 200-day MA, while bears and fear live below. This popular reference level defines whether broad-scale strategies are trend or countertrend in nature. Rallies tap a larger pool of potential buyers above this important average, while corrections tap a larger pool of sellers below it. One-to-three day swing traders can execute long and short strategies through these broad conditions without special considerations. But longer-term position traders must exercise defensive tactics and precise execution if they choose to enter against this major average. Try instead to apply classic trend-following methods in this holding period. Sell the pullback, follow it down, and place cover stops to lock in profits during bear markets. Reverse strategy and direction in bull phases. Short-term participants have few commonly agreed-upon alternatives to the 200-day MA. Rely on Pattern Cycles rather than moving averages to identify the market stage for the time frame of interest. Then apply first rise/first failure and Fibonacci retracements to pinpoint multi-trend bullbear cycles. Simple 13- and 20-day MAs offer good trend analysis but don’t mark long-term resistance when broken. Use the 50-day MA to signal intermediate resistance for declining stocks. This common setting triggers excellent short sales on the daily chart, and the shorter time period ensures many more tests than the broader 200-day MA. Some stocks never participate in the market’s broad upward movement and can be sold short all the way to oblivion. These natural position trades provide excellent opportunities for swing traders as well. The most obvious strategy awaits bear rallies in sustained downtrends. Allow the stock to reach overbought levels on a 14-day RSI. As it tops out, watch for a reversal pattern to print on the chart below the time frame of interest. If the trade arises on the daily chart, look for a double top or similar breakdown on the 60-minute view and use that level as the trigger for execution. Chapter 13 discusses these short sale tactics in more detail. Short selling requires peaceful coexistence with the short squeeze. This time-honored practice relies on herd behavior. Position the sale ahead of, behind, or against the crowd to avoid these painful bear rallies. Squeezes erupt after downward price expansion invites latecomers with very bad timing to sell short. These volatile events end as quickly as they begin. They can carry further than routine pullbacks after upside breakouts due to the market’s long-side bias. Keep in mind that short squeeze tops offer one of the best sale entry levels available. Shorts can fuel rallies up to a point in downtrends. Further price gains then require real demand. Chasing downside momentum destroys trading accounts as efficiently as its long-side twin. Insiders generate squeezes very quickly to block natural trade exits and force serious damage. Participants who jump on board near the end of sharp selloffs have little experience and much fear motivation. Underlying retail optimism forces stomachs to turn more violently with ill-timed shorts than unprofitable long positions. They quickly cover in a panic that feeds on itself as price bars shoot skyward. Swing traders should capitalize on this popular insider shakeout and not suffer from it. Enter short sales on pullback rallies to reduce risk and increase potential reward. Sell into the end of a short squeeze just as buying power fades. The squeeze alone will not force a 100% retracement of the last downward thrust most times. That takes real buying demand. They usually fail below 62% of the prior decline unless real longs emerge. Observe major S/R as the squeeze progresses, and watch for reversals near the 50% and 62% retracement levels of vertical rallies. These can uncover excellent short sales, and upticks will always be easy to find. Channels and trendlines provide excellent short sale entry points as well. Draw a line across the top of declining lower highs to locate these important levels. Make sure to toggle between arithmetic and log scale—these lines appear on one or the other but not both at the same time. Watch as price moves up toward the line. Does the level converge with other key S/R or major moving averages? Does price strike the top Bollinger Band while it turns downward? If so, cross-verification signals a potential short sale ET. Intraday short sales require far more precision than longer ones. Fortunately, the time frame reduces the impact of investor participation. The swing trader can concentrate on S/R, TMs, classic patterns, and range bar examination. Find the best short sale ET available but also control risk by pulling orders that do not fill immediately. Use multi-day intraday charts for 3D examination and exercise strong defense during the first and last hours. These time zones trigger the majority of intraday squeezes due to the heavy volume participation. Cut losses immediately and recognize errors quickly when short. Use supplementary technical tools to choose wise exits. Thirteen- and 20-bar daily Bollinger Bands point to clean cover zones when price strikes or violates the bottom band but the barrier remains horizontal. Hammer and doji reversal candlesticks predict that the next bars will go against the position. For intraday shorts, use a 5-8-13 (Fig. 2.11) and follow the same bar-expansion strategy that exits long-side trades. |
|
|||||||||||||||
Previous Issues
|
| ©2007 Olesia | Home • My photos • Forex • News • My trading • Contacts |