Since last month's update the S&P 500 held above the midpoint of the sustained trading range and has been inching towards the upper end of the trading range.  The 200 day moving averages is now hugging the mid-point of the range so I don't expect a breakout of the range to occur anytime soon.   Look for profits to be taken by traders if the market tests the upper resistance line of the trading range. 

The S&P 500 has exceeded the mid-point of the range it has been in for the past several months.  Time will tell if the mid-point support line holds.   Right now, the market is mixed with the daily trend indicators turning bullish and the weekly trend indicators remaining bearish.   Sentiment indicators such as the new highs vs new lows ratio is also bullish so we could see the market test the top side of the trading range in the coming weeks.

This is a detailed review of  Worden’s Telecharts Stock Charting and Screening Package, a tool that I actually used for years. (using my own custom software these days) I was a member of the Telecharts community for over 10 years from a wet behind the ears beginner to an experienced Trader.  Through this maturing experience I have used Telecharts religiously to provide a view of the US Stock Markets that I do not believe is available anywhere else.

I have reviewed many Stock Charting (Technical Analysis) Packages over the years but in my opinion NONE offer what Telechart offers, a fantastic price with an excellent array of features, but Telechart offers you much much more.

• Easy updating of stock prices
• Powerful screening and sorting
• A huge user community
• Individual Stock Analysis by Don & Peter Worden
• The Daily Worden Report, by Don Worden
• Support for custom indicators
• Proprietary Indicators (TSV, Money Stream & Balance of Power)
• “The Knights of the Round Table”

Telecharts not only allows you to plot charts, but it allows you the limitless ability to create custom indicators and formulas.   Ever try apply Stochastics to volume?  You can do it with Telecharts.  It also enables you to learn from the best members and see how they analyze stocks and do what they do.  Even better they encourage you to “Think for yourself” and this is after all one of the goals of the liberated stock trader, “enabling you with the tools and the knowledge to make your own decisions, to impact your future”.  I hope this review of  Telecharts is useful to help you assess what charting package is right for you.

Click Here For a FREE 30 Day Trial Of Telecharts

The market has been in a prolonged trading in a broad trading range for some time.  I’ve drawn horizontal lines to identify the range on the chart below.   Currently, it is approaching the 200 day moving average as well as the mid-point of the range from the bottom.  Both could prove to be extreme resistance levels for the market to overcome in the short-term.  The expectation is that it will be a while before the market breaks out of the existing trading range so traders should anticipate taking smaller profits and placing tighter stops.

During times of uncertainty in the market, your broker or financial adviser may offer words of wisdom or advice.  There are standard calming phrases you will hear over and over again.  But how true are they?

Here are 10 that need extra scrutiny.

1. “This is a good time to invest in the stock market.”

Really? Ask your broker when he warned clients that it was a bad time to invest. October 2007? February 2000? A broken watch tells the right time twice a day, but that’s no reason to wear one. Or as someone once said, asking a broker if this is a good time to invest in the stock market is like asking a barber if you need a haircut. “Certainly, sir — step this way!”

2 “Stocks on average make you about 10% a year.”

Stop right there. This is based on some past history — stretching back to the 1800s — and it’s full of holes.

About three of those percentage points were only from inflation. The other 7% may not be reliable either. The data from the 19th century are suspect; the global picture from the 20th century is complex. Experts suggest 5% may be more typical. And stocks only produce average returns if you buy them at average valuations. If you buy them when they’re expensive, you do a lot worse.

3 “Our economists are forecasting…”

Hold it. Ask your broker if the firm’s economist predicted the most recent recession — and if so, when.

The record for economic forecasts is not impressive. Even into 2008 many economists were still denying that a recession was on the way. The usual shtick is to predict “a slowdown, but not a recession.” That way they have an escape clause, no matter what happens. Warren Buffett once said forecasters made fortune tellers look good.

4 “Investing in the stock market lets you participate in the growth of the economy.”

Tell that to the Japanese. Since 1989 their economy has grown by more than a quarter, but the stock market is down more than three quarters. Or tell that to anyone who invested in Wall Street a decade ago. And such instances aren’t as rare as you’ve been told. In 1969, the U.S. gross domestic product was about $1 trillion, and the Dow Jones Industrial Average was at about 1000. Thirteen years later, the U.S. economy had grown to $3.3 trillion. The Dow? About 1000.

5 “If you want to earn higher returns, you have to take more risk.”

This must come as a surprise to Mr. Buffett, who prefers investing in boring companies and boring industries. Over the last quarter century, the FactSet Research utilities index has even outperformed the exciting, “risky” Nasdaq Composite index. The only way to earn higher returns is to buy stocks cheap in relation to their future cash flows. As for “risk,” your broker probably thinks that’s “volatility,” which typically just means price ups and downs. But you and your Aunt Sally know that risk is really the possibility of losing principal.

6 “The market’s really cheap right now. The P/E is only about 13.”

The widely quoted price/earnings (PE) ratio, which compares share prices to annual after-tax earnings, can be misleading. That’s because earnings are so volatile — they’re elevated in a boom, and depressed in a bust.

Ask your broker about other valuation metrics, like the dividend yield, which looks at the dividends you get for each dollar of investment; or the cyclically adjusted PE ratio, which compares share prices to earnings over the past 10 years; or “Tobin’s q,” which compares share prices to the actual replacement cost of company assets. No metric is perfect, but these three have good track records. Right now all three say the stock market’s pretty expensive, not cheap.

7 “You can’t time the market.”

This hoary old chestnut keeps the clients fully invested. Certainly it’s a fool’s errand to try to catch the market’s twists and turns. But that doesn’t mean you have to suspend judgment about overall valuations.

If you invest in shares when they’re cheap compared to cash flows and assets — typically this happens when everyone else is gloomy — you will usually do very well.

If you invest when shares are very expensive — such as when everyone else is absurdly bullish — you will probably do badly.

8 “We recommend a diversified portfolio of mutual funds.”

If your broker means you should diversify across things like cash, bonds, stocks, alternative strategies, commodities and precious metals, then that’s good advice.

But too many brokers mean mutual funds with different names and “styles” like large-cap value, small-cap growth, midcap blend, international small-cap value, and so on. These are marketing gimmicks. There is, for example, no such thing as “midcap blend.” These funds are typically 100% invested all the time, and all in stocks. In this global economy even “international” offers less diversification than it did, because everything’s getting tied together.

9 “This is a stock picker’s market.”

What? Every market seems to be defined as a “stock picker’s market,” yet for most people the lion’s share of investment returns — for good or ill — has typically come from the asset classes (see No. 8, above) they’ve chosen rather than the individual investments. And even if this does turn out to be a stock picker’s market, what makes you think your broker is the stock picker in question?

10 “Stocks outperform over the long term.”

Define the long term? If you can be down for 10 or more years, exactly how much help is that? As John Maynard Keynes, the economist, once said: “In the long run we are all dead.”

Traders often ask me if it is necessary to short stocks to be successful.  My resounding answer is NO but you leave a lot of money on the table by just trading Long.  After inquiring deeper I usually find that most traders just have a lack of understanding regarding how shorting stocks works than a philosophical or patriotic issue. So, here’s a quick overview of how it works.

A trader who sells a stock short borrows shares from a broker’s inventory and sells them to another buyer. Proceeds from the sale go into the trader’s account. The trader must buy those shares back (cover the position) at some point in time and return them to the broker.

Thus, if you sell short 1000 shares of IBM at $20 a share, your account gets credited with $20,000. If the stocks price subsequently declines, then you will start thinking about "covering" your short position for a profit. Here's the record of transactions if the stock falls to $8.

Borrowed and Sold Short 1000 shares at $20: +$20,000

Bought back and returned 1000 shares at $8: -$8,000

Profit: + $12,000

But what happens if the stock begins to takes off, from $14 to $19 to $26 and then to $37!  You finally decide that you'd better swallow hard and close out the transaction so you buy back shares of IBM at $37.

Here's the record of transaction:

Borrowed and sold short 1000 shares at $20: +$20,000

Bought back and returned 1000 shares at $37: -$37,000

Loss: -$17,000

Ouch. So you see, in the second scenario, you lost $17,000…which you'll have to come up with. There's the danger….you have to be able to buy back the shares that you initially borrowed and sold. Whether the price is higher or lower, you're going to need to buy back the shares at some point in time.

I hope this was a helpful overview. To learn more about short selling, try reading the following books:

"Tools of the Bear: How Any Investor Can Make Money When Stocks Go Down" – Charles J. Caes;

"Financial Shenanigans: How To Detect Accounting Gimmicks & Fraud" – Howard M. Shilit;

"When Stocks Crash Nicely: The Finer Art of Short Selling" – Kathry F. Staley;

Dummies?…While I love the series of "dummies" books.  (they have helped me on more than one occasion) I can't say that the title or application fits when it comes to the business of swing trading.  I point out on my homepage that bookstores have thousands of books available on the topic of stock trading…yet 90% of traders continue to lose money.  That can't speak well for the content of those books but in all fairness, you could give most traders a solid trading system on a silver platter and they still couldn't make money with it because of their own internal issues as it pertains to fear and greed.  Now, that being said, I don't think it is possible to boil down all of the intricate pieces of stock trading into the typical "dummies" format.   Traders tend  to be some of the most intellectual and analytical people in the world so at the very least I think the book title is a sleight to them as a group. As a matter of fact, after reviewing the book, I would have titled it, "The basics of stock trading and swing trading theories".  If you are a newbie to trading then this book can help you with the basic but "theories" won't get you anywhere.

If you really want to learn the ins and outs of trading I invite you try my swing trading course.  You'll be glad you did.

This is by far my most favorite trading tool and I am pleased to share it with you.  It provides empirical proof that profitable trading is not solely dependent on a high winning percentage. This tool is one of the features included with the desktop software that comes with my swing trading course. Try it out, I am sure you will agree it is an eye opener.

How to use this tool.

1. Enter the values for Win/Loss ratio and Win Probability (3.0 would be a 3 to 1 win/loss ratio and .50 would be a 50% win probability)
2. Enter desired "Lines Qty" to draw multiple equity curves
3. Click the "Generate" button to generate simulated equity curves

These are the very same interactive stock charts I now use for my swing trading commentary and examples. There's lots of flexibility with indicators and multiple time frames. Enjoy!

Today the market failed to close above the almighty 200 day moving average.  The abrupt about face shows that this moving  average could now be a substantial resistance line.  I’ve drawn a fibonacci fan for the latest down move to show how prices have been hugging those levels.  Since Monday is a holiday, Tuesday (6/1/10) should be an interesting day as the 200 day moving average will converge with the upper most fan line.  As some of you know I am not a huge fan of using fibonacci analysis because prices can deviate from this method quite a bit but it is interesting to see how prices behave when they do adhere to it.  In this market condition, I would recommend either sitting on the sidelines or trading primarily short.

This is a great tool for calculating financial goals for your trading business in increments of days, weeks, months or annually. Enjoy!

I am continually surprised to find that there are some traders who do not keep full and accurate records of all their trades. Whether this deficit is due to laziness, or a genuine belief that such accounting of their activities is really not required I do not know.  However, I am quite certain that proper record keeping is very much part of the business of being a successful trader.

Making money consistently, is a question of trading in a consistent manner. If a trader does not keep full and complete records of all their trades, how can they determine whether or not they are attaining such consistency?  Certainly not by looking at the bottom line; we all know only too well that the markets being the fickle entities that they are, doing the right thing does not always guarantee the right result, and so the result in itself is not necessarily an indication that we did the right thing!

Keeping good trading records then, helps us to maintain a consistent approach in our trading, but the benefits go well beyond that. How many times have you placed a trade, believing that everything you are doing is absolutely correct, only to see the trade turn into a miserable loss? It happens to us all. After taking the loss, there is a natural desire to look back at the trade and try and figure out what went wrong. However, immediately following the losing trade is not the best time to analyse it; the trader is still too “close” to the action to look objectively. If they have been keeping quality trading records, they can go back and re-examine the trading session at a much later time, and view what went on from a more detached perspective.

Personally when I log trades, I tend to note down quite a lot of information. I don’t just record entry and exit prices, times and so on, but also the setup type, a rating of how closely the setup matches a textbook example, and even how I am feeling before, during, and after the trade. Before each trading session, I review the previous days trades, and I review the whole weeks worth at the end of the week, and longer timeframes periodically beyond that. In this way, patterns of what is working and, equally importantly, what is not, very quickly become apparent and so I can work on eliminating bad habits or losing setups, and concentrate on what is working.

There’s one extra benefit of keeping accurate trading records as you go along, and that is that you have much less work to do when the tax man comes knocking on the door wanting to know what you’ve been up to all year!

I can’t imagine trading without candlestick charts.  Though I do not use the classic patterns for my analysis,  I find they they offer a greater depth of information than traditional bar charts – where the high and low are emphasized – candlesticks give emphasis to the relationship between close price and open price. This is a guide that explains most of the most common candlestick patterns for reference.

Get it now for FREE!

The History of Japanese Candlesticks

In the 1700’s a Japanese man named Munehisa Homma, a trader in the Osaka rice futures market, developed a method of technical analysis to analyze the price of rice contracts known as candlestick charting. Homma used Sakata’s Five Methods, patterns derived from rules used by local traders from his hometown of Sakata, as the foundation for his Candlestick Charting analysis.  Candlestick analysis had been developed over the years simply due to the tracking of rice price movements. However, in the mid 1700′s they were really fully utilized. “The god of the markets” Homna came into the picture. Munehisa Homna, the youngest son of the Homna family, inherited the family’s business due to his extraordinary trading savvy. This at a time when the Japanese culture, as well as many other cultures, thought it common that the eldest son should inherit the family business. The trading firm was moved from their city, Sakata, to Edo (Tokyo). Homna’s research into historic price moves and weather conditions established more concrete interpretations into what became known as Candlesticks. His research and findings, known as “Sakata Rules” became the framework for Japanese investment philosophy.

After dominating the Osaka rice markets, Homna eventually went on to amass greater fortunes in the Tokyo exchanges. It was said that he had over one hundred winning trades in a row. His abilities became legendary and were the basis of Candlestick analysis.

Japanese Candlestick analysis was never a hidden or secretive trading system. It was successfully used in Japan for hundreds of years. It has been only recently, about 25 years ago, that it first made its way into the U.S. trading community. Until then, there just wasn’t any interest from Western cultures to investigate the Candlestick Technique. Even then, it was not noticed all that much. The perception has been that it was difficult to learn and very time consuming. That may have been true until recently. The first books introducing it into the U.S. trading arena would describe how to make wooden boxes that were backlit. Then the chart graphs could be better viewed. Fortunately, the advent of computers and computer programming has taken Candlestick analysis ahead by leaps and bounds.

Until recently, the investment community knew about Candlesticks, they just didn’t know how to use them effectively. Interest has been increasing dramatically now that the roaring markets have collapsed. Investors, new and old, are now trying to investigate methods that protect them from the severe losses that occurred from March 2000 until now.

Hundreds of years of analysis and interpretation can be much more easily extracted through computer programming. Huge fortunes were amassed with simple charting techniques. The same will be true with all the benefits that computer software provides the investor today.

Technical Analysis of Stocks and Commodities Magazine is the premiere magazine for traders.  Get a free trial copy of the latest edition to review with no obligation or credit card required. Every month, they provide serious traders with information on how to apply charting, numerical, and computer trading methods to trade stocks, bonds, mutual funds, options, forex and futures.  STOCKS & COMMODITIES also examines and explains both old and new trading methods, techniques and products, and brings the best to you every month. Whether you're a beginner or a seasoned veteran, you'll always find the information you need to become a better trader.  Get your free copy now!

Yahoo Finance maintains a calendar for corporate earnings announcements that may be browsed at a daily or weekly level.  You also have access to recorded earnings conference call archives.  In addition, this section of Yahoo Finance also has Mergers, stock splits, as well as IPOs.

There are a few special rules that apply to stock market holidays:

• Although the day after Thanksgiving (Friday) is not an official holiday, the market has a tradition of closing at 1:00 p.m. ET.
• When any stock market holiday falls on a Saturday, the market will be closed on the previous day (Friday) unless the Friday is the end of a monthly or yearly accounting period.
• When any stock market holiday falls on a Sunday, the market will be closed the next day (Monday).

Some market holidays are observed on different dates each year:

• Martin Luther King, Jr. Day is always observed on the third Monday in January.
• President’s Day is always observed on the third Monday in February.
• Memorial Day is always observed on the last Monday in May

• The New York Stock Exchange is open from Monday through Friday 9:30 a.m. to 4:00 p.m. ET

• The NASDAQ Stock Market regular trading hours are from 9:30 a.m. to 4:00 p.m. ET.After Hours trading is from 4:00 p.m. to 6:30 p.m. ET.

• The Amex Stock Market is open from Monday through Friday 9:30 a.m. to 4:00 p.m. ET.Holiday – Market Stock US – SelectNet Pre-hours Trading Session From 8:00 a.m. to 9:30 a.m. ET

Yahoo Finance is updated regularly for the current week’s economic indicator releases.   You also have the ability to view reports for upcoming weeks.

Here's an interesting overview of what happened on the fabled May 6th drop in the stock market where the Dow Jones dropped almost 1,000 in mere minutes.  The largest intra-day drop in history.

I'm excited about the update of Swingtraderguide.com.   There were a lot of resources added for traders to include:

• Video tutorials
• Free interactive stock charts
• A trading system simulator
• Traders glossary, and now
• Ongoing market analysis

You also can now connect and interact with me a variety of ways to stay updated to include

• Blog comments
• Twitter
• Facebook
• RSS
• Email

I hope all visiting traders like the improvements.  Enjoy!

You can use a variety of buy or sell orders to take more control over how you enter and exit trades. Some of the orders restrict the transaction by price, while others constrain it by time.

Let’s go over some of these orders, which work whether you are dealing with an Internet-based broker or an actual human.

Market Order
The market order is the simplest and quickest way to get your order filled (or completed).

A market order instructs your broker to buy or sell the stock immediately at the prevailing price, whatever that may be.

If you are following the market, you may or may not get the last price listed. In a non-volatile market, you will probably get a price close to that, but there is no guarantee of any specific price.

One final thing, but important note: Market orders will likely be the most inexpensive of the orders you place.

Limit Orders
Limit orders instruct your broker to buy BELOW or sell ABOVE a stock at a particular price. The purchase or sale will not happen unless you get your price.

Limit orders give you control over your entry or exit point by fixing the price, which can be helpful.

However, you may want to do some math first. Check with your broker to see how the commission on limit orders compares with what you pay for market orders.

If there is a significant difference, you may be better off with a market order (assuming the volume provides adequate liquidity and price is at or near your target) and saving on commissions.

Stop Orders
Stop orders instruct your broker to buy once price is AT OR ABOVE or sell AT OR BELOW a particular price. The purchase or sale will not happen unless you get your price. NOTE: Once your price is reached a stop-order converts to a Market Order so there is no guarantee of the price you will get. (See Stop-Limit Order below)

Much like limit orders, Stop orders give you control over your entry or exit point by fixing the price, which can be helpful.

Once again, do some math first regarding the price you want and the commissions.

Stop Loss Orders
A stop loss order is basically a way of using a stop order to protect an existing position from a large loss.

You enter a stop loss order at a point below the current market price if your are Long or at or above the current price for a Short position. If the stock moves to this price point, the stop loss order becomes a market order and your broker sells the stock. If the stock price continues to move in your favor, the stop loss order does nothing.

Stop loss orders are cheap insurance that protects you from a loss.

Trailing Stops
The trailing stop order is similar to the stop loss order, but you use it to protect a existing profits, as opposed to protect against an initial loss.

If you have a profit in a stock, you can use the trailing stop order to follow the price as it moves in your favor. You enter the trailing stop order as a points or percentages away from the market price. If the stock’s price moves against you by that number of points or percentage, the trailing stop becomes a market order and your broker sells the stock.

If the stock’s price continues in your favor the stop-loss order price moves with it and protects your additional gains.

Good Till Canceled
A Good till canceled order instructs your broker to keep an order active until you cancel it. Obviously, you use this order with other order types to specify a time frame for the order.

Some brokers have limits on how long they will hold a GTC order.

Day Order
A day order is any order that is not a good till canceled order. If your broker does not fill your order that day, you will have to re-enter it the next day.

All or None
The all or none order states you want the entire order filled or none of the order filled. You would use this type of order for thinly traded stocks.

Conclusion
You may find these orders called slightly different names at some brokers, but the concept will be the same.

TradeLog – Capital Gains Software

www.armencomp.com

GainsKeeper – Capital Gains Software

www.gainskeeper.com

A number of calculations for the methods I use are best created with a software package that is designed specifically for trading.  I have listed a few of the most popular software packages with which I have some experience.  NOTE: I DO NOT provide support for any of these vendors.

TradeStation Securities

www.tradestation.com

Telecharts (My personal favorite!)

www.worden.com

MetaStock

www.metastock.com

StockCharts.com (Another favorite)

www.stockcharts.com

Incredible Charts

www.incrediblecharts.com

BigCharts

www.bigcharts.com

AmiBroker

www.amibroker.com

eSignal

www.esignal.com

Yahoo Finance

finance yahoo.com

I am not affiliated with any of the brokers listed here. They are included only as a helpful reference. Traders should perform their own due diligence before deciding on a broker.  (no affiliates links here)

Zecco

www.zecco.com

No minimum amount required to open an account, FREE online stock trading, 10 free stock trades per month

TradeKing

www.tradeking.com

No minimum amount required to open an account. – Remarkable customer service and discounted trades.

TradeStation Securities

www.tradestation.com

A former technical-analysis software vendor turned discount broker. They now lease their software platform and have a large following of developers and programmers.

Interactive Brokers

www.interactivebrokers.com

A discount broker that has a good overall reputation. Highly automated; good commission prices.

Scottrade Securities

www.scottrade.com

A bit overpriced on the commissions, but they do offer the same price for limit and market orders. The website is very easy to use for placing orders, and the customer service is excellent.

Fidelity

www.fidelity.com

This is an excellent choice if you want to house your trading account with other traditional investments. Offers lots of ancillary services, such as check writing and debit cards for your trading account. Also, the trading platform features advanced order handling, which makes things a lot easier.

CyberTrader

www.cybertrader.com

This is a division of Charles Schwab. Offers online trading for active traders and lots of tools to choose from, but the commissions are still a bit high.

Think or Swim

www.thinkorswim.com

Rated #1 overall online broker, “best for frequent traders,” and “best for options traders” in Barron’s ranking of online brokers.

This is a nifty tool that tells you how likely you are to reach a defined equity growth or decline based on historical trade statistics.  Optimal F is defined as the “optimal” amount you should risk on any trade to maximize your profit potential.  The Probability of Ruin is defined as the probability of the account reaching a defined point of ruin before reaching a defined point of success.

Below is a screenshot of the output from this tool.  It shows that based on the historical trade win/loss data entered, the optimal amount to risk per trade is 39%.  The probability of ruin for the account  (in this case defined as a 50% loss of capital) is 24%.

Download Now for Free!

Today the market is brimming with negative financial news.  Everything from Greece’s issues to Goldman Sachs.

The below chart of the SPY shows how the market appeared to be in a healthy up trend but one of my trading indicators predicted that the rally was in trouble and that the market decline was imminent a full 7 days ahead of time!.

Understand, this is the exact type of information that gives you an edge as a trader.  If you want to finally join the ranks of profitable traders, I invite you to get my trading course today.  You can make your investment back with a single trade…not too bad of a deal.

I have just released version 5.0 of my popular swing trading course.

The updated version has been updated with more trading examples as well as modifications to some of my favorite trading methods.

Get it today!

This is an exclusive tool from SwingTraderGuide.com that allows you to extract the stock symbols from Google Finance's stock screener when using the methods described in my swing trading course.

Directions: Simply browse to Google's stock screener and create a screen based on your preferred criteria. Next copy the entire URL (usually very long) from the browser window and paste into the input box below and click submit.  You will then be presented with a list of all of the symbols from Google's stock screener which can then be imported into a stock charting package of your choice.   Enjoy!

Below is a daily updated chart that tracks the new 52 week highs vs. new 52 week low prices for the stocks on the New York Stock Exchange.  If the ratio is rising that means there are more new highs than new lows. This is an excellent barometer of both market health and direction.  The indicator below it is an oscillator that measures oversold and overbought territory.

This is an overview of the Ultimate Trading Calculator.  Exclusively from SwingTraderguide.com.  This desktop tool is included for free when you purchase my swing trading course.

Below is an overview of my Trade Tracker Spreadsheet. You get this as a free tool when you purchase my swing trading course.

The goal of all swing trading strategies is to enter high probability trades based on an anticipated direction of price.  Swing traders can trade either counter-trend, or trade with the trend.  By going with the major trend, you are following the smart money.  Following the smart money greatly increases your chances of placing winning trades.  There are four main processes of any swing trading strategy.

Step 1:  Identify the Trend

The price trends for a specific time frame can only exist in one of three scenarios;  up trend, down trend or sideways trend. Trades should ideally only be placed in the direction of the main trend.  Trends can be identified using a variety of different tools from price action to indicators.

Step 2:  Wait for a Price Retracement against the Trend

Once the main trend has been identified, you should be waiting or looking for some kind of "pullback".  Pullbacks against the trend are representations of profit taking taking place before another move in the direction of the trend occurs. By trading pullbacks to an area that offers lower risk, swing traders once again increase their odds of entering a profitable trade by making sure they get in at a good price.

Step 3:  Identify Risk vs. Reward

You should only trade when the anticipated profit is two to three times the amount you are willing to risk. By having a 2:1 or 3:1 profit/loss ratio for your trades you only have to win a 35-40% of your trades to make a profit. If the risk/reward ratio is not adequate you should pass on the trade.

Step 4:  Place the Trade

With the trend correctly identified price at a level which is in your favor, you can now place your trade knowing the EXACT possible outcomes.

Learn more about my swing trading course >>

Glossary ( A-C )( D-F )( G-J )( K-M )( N-S )( T-Z )

 

 

A Priori

Known ahead of time.

Abandoned Baby Pattern

A rare candlestick pattern in which an upside gap doji star (where the shadows do not touch) is followed by a downside gap black candlestick where the shadows also do not touch; considered a major top reversal signal.

ABC

Also known as TRading INdex (TRIN):

A statistical test to determine if the patterns exhibited by data could have been produced by chance. The chi-square test with Yates’s correction using two-way statistics for decline vs. advance is: where: oj = actual observed frequency of test ej = expected or theoretical frequency of test.

When two random variables X and Y tend to vary together. The measurement is given by the ratio of the covariance of X and T to the square root of the product of the variance of X and the variance of Y.