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 Chart by www.freestockcharts.com What is the current short-term trend, which is often defined as the 30 day trend? It just angling up just a bit, but it's mostly neutral. As a Swing Trader, you want to screen stock graphs and find graphs that show promising recent swings. This is exactly such a stock, nice deep swings up and down with the stochastics and MACD in perfect sync. This is different from what longer term traders look for, they look for strong trends up where the retracements are only 38% or less. Notice in this case, the last retracement is more like 75% - 80%, which makes for great swings. According to trend people, retracements less than 38% (or so) favor that the current trend continues, more than 61% (or so) favor trends reversing. Well, 80% means a neutral trend reverses into another neutral trend! Short-term neutral trends with shallow ups and downs? Not good for Swing Trading. Short-term neutral trends with deep swings up and down? Good for Swing Trading. Stochastics is very overbought. In a neutral trend, you can trust stochastics to give accurate signals for overbought and oversold. So stochastics favor the short term trend to go up. Notice how price is making a nice little plateau after a gap down, and that plateau is at support from a previous low. The price is itching to go back up and fill that gap. The candlestick confirms this, it has a tall wick and short body meaning bulls tried to gain control, but just couldn't hold on (yet), called an Inverted Hammer. Volume is steady at the local bottom, and volume was slightly up during the previous local high. All bullish signs, people are more enthusiastic when price goes up compared with if price goes down. MACD is confirming that the price is at a local bottom. -DI just made a pivot high that is lower than the previous +DI pivot high. +DI is turning back up while -DI is turning down. This shows promise for +DI to go back up above -DI indicating uptrend. Conclusion: Neutral trend with large up and down swings, stochastics overbought, price forming a plateau at support, MACD indicating local bottom? Buy long! What is the exit strategy? I look at the range of the swing, in this case from $51.50 - $56.00. I target a retracement of about 50%, which would be $53.75. I watch the stochastics and MACD and when they start to turn down, it's time to sell, but if price starts to break down sooner, I might go out sooner. In Swing Trading, the old saying 'let your profits ride' has less force. What you're trying to do is buy when price is low and sell before/while price reaches the next local top, basically profit from the swing up. What's the loss point? Set it around the previous low, meaning around $50.40. You're risking around $1.20, trying to make around $2.25 for a 1.88:1 profit/loss ratio. Given the favorable odds of entry, this is pretty good. How many shares do you buy? Given that you want to risk 1% or less of your capital, if you have $50,000, you want to risk 1%, which is $500. At $1.20 risk per share, that makes 500 / 1.20 = about 400 shares for a total buy-in of 400 * $51.60 = .$20,640. If it makes you uncomfortable using 40% of your capital, use 20% and buy 200 shares for a risk of 0.5%! |