Swing Trading and SGB

Swing charts represent a powerful tool in entering and exiting the market. Much has been written this year about ABC trading and the simplicity of trading with the trend. Swing charts give a very clear indication of trend and trading with the trend is the most effective way to gain profits in the market. There are other elements that an ABC trader should expand on and it comes from mastering the swing charts and understanding its subtleties. It’s really an extension of the basic concepts of ranges and direction.

Looking at the recent move of St George Bank(SGB) there were no opportunities to enter using ABC trading rules alone. However, understanding swing charts and the trading rules associated with them you can expose yourself to more trading situations. Looking at the previous swing ranges through October we see a sideways market with ranges on the upside and downside staying very consistent. This signals a market that may potentially breakout one way or another, eventually. Those key words are the important point to consider when trading purely off the swing chart. We cannot assume any direction or movement in the market and we must wait for the swing chart to signal its intention that this may take some time. In many ways the timing of trades is vitally important.

As SGB moves below the swing bottoms of mid October we are seeing expanding ranges on the downside. Coupled with the first lower swing top circled in blue we are on red alert for a possible trade on the short side. If the price action can break the swing low at $20.88 you may look to take the trade as it is taking out the current swing low, with expanding ranges on the downside and consistent ranges on the upside.

Entry orders to trade short would have been placed at $20.87, with the initial stops placed above the previous swing top at $21.24. Trading in this style can increase the distance between your stop and entry raising the risk in the trade. You may also note on the chart that I have applied the weekly trend filter to my chart - (refer to last week’s article for further clarification). This filter confirms the view that a short trade may be appropriate as all the recent bars are in red.

The entry orders were triggered on October 31, on the breaking of the previous swing bottom. The following day we saw a lower top, lower bottom day moving our swing chart lower again. This was followed by a 1-day reversal, November 4 when we saw an extremely low volume day, giving us the signal that this retracement was weak and maybe short lived.

This retracement was followed by a gap down the next morning confirming the lower swing top and once again confirm that we are trading with the trend. Managing stops in a trade like this can be done in a number of ways and I will save that for another time. Looking to establish an exit point is highly important to ensure a road map for the trade is in place and also that greed or fear don’t dominate your expectations for this trade.

The use of milestones has been demonstrated to be invaluable when trading on swing charts. In the case of this trade I took a broader view to establish where this short term run may pull up. Using the manual ABC drawing tool in the Starter Pack Software I looked at the major swing tops and bottoms since June 2003. This runs progressive milestones in price on the downside signalling areas that may signal some resistance to the move.

The 100% milestone or a range repeating is an excellent target to set and a safe place to exit with good profits. Therefore the exit target of $19.73 could have yielded a move of $1.14 in five days. This trade could be also managed by running progressive stops above the market so in fact some may still be in this trade. The choice of exit targets and stop management is an aspect that can differ according to each trader’s risk profile.

The idea of Swing Trading Mastery by watching ranges, direction and the breaking of key areas adds a significant tool to your trading. This important lesson will be covered at the upcoming Safety in the Market Annual Traders Conference so if you are looking to expand your knowledge on the potential swing trades available in the market I would encourage you to get along.

Good Trading

Aaron Lynch