Use Resistance & Support Levels for Stock Runs
Before you ever enter a Swing Trade whether it is buying or selling short, you must evaluate the Market Condition and the strength of the action. Velocity moves are ideal for Swing Trading in an Uptrending Market.1. As a Swing Trader you want price to move rapidly with sufficient room before a retracement will occur. Swing Trades will retrace at moderate to strong resistance, and will bounce at moderate to strong support.
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2. The only time a
Swing Trade will move beyond moderate support, is when the Price action has
plenty of Velocity. How to anticipate if Price will retrace, bounce, or move
beyond resistance or support is by using price action to volume action
analysis.
The chart example
below shows a Swing Trade candlestick pattern.
As Price rises in
this Momentum Run then Volume Bars should run up also, so that they are rising
above the previous day’s Volume Bar as Price moves up.
3. A Swing Trader in
this stock would want to check intraday charts, to find a tight intraday stop
loss. This would protect profits on these long white candlestick days, with
increasing Volume that signals there is Velocity in the Price action. As a
stock nears resistance, Volume plays an ever increasingly important role. To
overcome strong resistance, Volume needs to continue to increase.
4. A good Swing
Trading Exit strategy would be to keep tightening up stops as Price moves
up, if Volume is not dropping back and the market is still moving up overall.
As long as Volume is
increasing, tightening stops is a good exit strategy for Swing Traders. If a
Resting Day Candlestick forms, then continuing to hold with a tight stop can
reap more profits. If Volume begins to taper off, then a Sell At Market SAM
order is something to consider.
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Summary
Each Swing Trade is
different as each stock moves differently depending on the Market Participant
Groups trading that stock. If the market is trending strongly after a period of
Platform building, then stocks can blast through weak to moderate resistance on
a momentum move. If the market is weak or uncertain, then Swing Trades will stall
or retrace at moderate resistance.
Remember that the
goal of Swing Trading is fast in and out, and not holding through any kind of
retracement at all. If the stock is not moving as expected, the rule is not to
hold but to exit the Swing Trade. Resting Days are fine to hold through, but
retracements are not.
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Market Education
Trade Wisely,
Martha Stokes CMT
TechniTrader technical analysis using a TC2000 chart, courtesy of Worden Bros.
Chartered Market Technician
Instructor & Developer of TechniTrader Stock and Option Courses
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