> Trading System Scribblings - A Swing Trade

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Trading System scribblings

1.SWING TRADE/LONG DAY TRADE - Buy the Pullbacks in a Trend. Discretionary acting on trading signals with focus on price action, support & resistance and Volume (i.e. market psychology). Use Williams %R for entry. (TEST FEB/MAR 2012)

Pre-Market Select Procedures:
  • Scan for markets as in Module 4, filtering by volume. Keep to the larger volume markets to reduce volatility. Also look at ATR - If it's large as a percentage of price then the more volatile the stock will be and the higher the risk.
  • Are there any up and coming events that may affect the trade? Big events, rumours, earnings?
  • Stay tuned to CNBC, Bloomberg etc... for ideas, warnings, consensus of where market is headed etc...
  • *****DELETED***** HIS WASN'T TESTED. Market Timing - Look for supporting/correlating markets to confirm trend. i.e. S&P500 for US stocks, FTSE for UK stocks etc... Enter your chosen market when you see signs of the following in your market timing market - not all need to be in place.
    • look to buy when Weekly Price>10EMA>30EMA>200EMA, look to sell when Weekly 200EMA>30EMA>10EMA>Price
    • Daily - price of supporting market crosses to Trading Activation Zone (TAZ - between 10EMA & 30EMA) and W%R overbought or oversold, all the better
    • Reduced Volume going into retracement
    • Engulfing candles or swing turnaround on a daily support your trade.
    • Hourly and daily chart - look for supporting bullish / bearish candlestick patterns
    • How deep is the retracement? More than 50% previous peak to trough? Fibonacci can help. Less than 50% may be stronger for onward momentum
  • Only trade with the trend - study L.R. trend & Vol for trend dynamics and conviction
  • try to trade the 1st pullback. I.e, the retest of support or resistance - see module 6 - playing the re-test of support or resistance.
  • Use Vix to gauge volatility - the retracements may pull back over 30ema in some cases. test system on new markets before trading

Markets:
  • Liquid Markets and high volume. This makes it easy to buy and sell to others & means the market is less prone to volatile shocks.
  • Tested - Nasdaq Composite/GBPUSD/FTSE/Gold Futures(found retraced over taz 30-50EMA?)
  • NON-CORRELATED MARKETS need to be traded to reduce exposure.  Anything over 0.3 has insignificant correlation, but choose markets with under 0.25 over the last 30 days? (Open for discussion on the index and time variables) Check Correlation daily while in the trade. There’s a relationship between the VIX and correlation - a high VIX indicates greater correlation etc...

Determine the L.R.trend & support/resistance levels with 2 Weekly charts:
  • Set Up Indicators. 10EMA, 30EMA, 200EMA, Volume (or COT open interest & long short), Volume 3SMA & all support & resistance levels as far as you can go - 10 yrs?
  • Charts - 2Yr weekly chart & 10 Yr weekly chart for support, resistance & trend lines
  • Trend - Up Price>10EMA>30EMA>200EMA and down 200EMA>30EMA>10EMA>Price
  • Correlating markets match L.R.trend and move of your proposed trade? See currency correlation in mod 9.
  • Change in Fundamentals/Economic Releases affect trade?

Set up
  • Set Up Indicators. 10EMA, 30EMA, 200EMA, W%R (3) on daily,  ATR (14), Volume, Volume 3SMA, COT/open interest if you can get chart
  • Charts - Daily, hourly for entry
  • Remember all support and resistance and channels on all charts - remember indecision/balanced candlesticks can I.D. support/resistance
  • Trend ID- Up. Weekly Chart. Price>10EMA>30EMA>200, Down. 200>30EMA>10EMA>Price. Daily chart uptrend 10EMA>30EMA>200, downtrend 200>30>10
  • TAZ (Trading Action Zone). Price between 10 & 30 EMA's on daily chart. (or just above/below 30EMA. Think of them as zones). For instance some markets will retrace further than 30 EMA - Check recent daily history for this volatility. Gold was volatile like that, so make sure you historically walk thru’
  • Trade Confirmation 1 Daily. Oscillator - Williams %R crossing above -80 when going long & crossing below -20 when going short. Divergence with price? Think twice before taking the signal, especially if divergence is in overbought/sold.
  • Trade Confirmation 2 Daily & Weekly chart. Signs of retracement ending? Indecision & reversal Candlesticks - Doji, long legged, harami, incision, etc.. Any contradictions between daily and weekly candlesticks?. Any continuation or reversal chart patterns on daily and weekly charts. Don’t enter on a strong retracement candle. Does Fib retracement support end of correction?
  • Trade Confirmation 3 Daily & weekly chart. Increasing Volume or open interest & net positions with the trend. Reduced Volume into consolidation pullback. Divergence? don’t trade.
  • Trade Confirmation 4 Beware of looming Support, resistance levels, channels & trendlines and 100 & 200 SMA. If there's room for 2:1 reward to risk ratio before testing support/resistance then it may be worthwhile trading. If not then await break or reversal before continuing. Don’t enter on new highs. Inc. significant numbers here
  • Trade Confirmation 5 Top or bottom of trend channels?
  • Always do a historical walk thru’ on a new market - A simple signal walk thru’, just to get the feel of the market. Check for slippage frequency

Entry:
    • Enter trade on the close of the swing candle (higher highs and lows, or lower lows and highs) or as the engulfing or piercing swing candle passes the last periods high (when going long) or low (when going short). At the very least the Piercing/Dark Cloud Cover candles must encroach at least 50% into the last periods total range. You can also enter on the close of hammer and shooting stars (a bit more risky)..
    • Rem. Volume must be increasing in your favour - this can be determined by entering close to EOD trading.
    • An hourly chart will give you best entry time, especially when the hourly chart breaks trend resistance or support of the consolidation, or when the 10 & 30 EMA cross.  If this coincides with EOD then all the better.
    • Hourly charts also show recent support and resistance to manage risk better.
    • Look out for chart patterns to support your trade - i.e. double tops/bottoms etc...

Exit Criteria:
    • Set a stop/loss.  The greater of 1xATR (daily chart) or just below/above 30EMA (daily chart). Add or Subtract 1 x ATR from the entry price. Make sure ATR isn't too large. If you feel it's too large as a percentage of the current price, i.e. 15% then your risk is geater

IMPORTANT. The important thing is make sure your stop/loss is in line with short term support and resistance areas. In an hourly chart the consolidation of candles (spinning tops, doji, long shadows, harami etc...) confirming short term support and resistance is what is going to protect us from a loss (stop should go beyond this level). It would be very difficult for traders to move the price beyond this level - the traders that were long or short prior to the pivot now face an important decision. You may even get lucky and have a double top or bottom in an hourly chart to protect you, or gone through recent support or resistance which may act as new resistance or support.


    • Target price. 0.75:1 - see historical trading sheet. The spread cost hasn't been taken into account in calculating reward/risk ratio, so in reality reward/risk will be higher depending on the spread of the market (You need to pass the spread prior to break-even).
    • new stop/loss at 0.75:1 if possible, otherwise take profit. Manage new stop/loss positions on a daily basis just under/above previous day low or high.

Money Management
    • The usual - 2% Capital determines my position across correlated markets
    • Stop/Loss as above
    • Reward to Risk - As above
    • Must hit 59% win/loss ratio. Reassess if this target doesn’t happen. Win/Loss ratio tested at 70% to 78%

Notes



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Trading System scribblings

1.SWING TRADE/LONG DAY TRADE - Buy the Pullbacks in a Trend. Discretionary acting on trading signals with focus on price action, support & resistance and Volume (i.e. market psychology). Use Williams %R for entry. (TEST FEB/MAR 2012)

Pre-Market Select Procedures:
  • Scan for markets as in Module 4, filtering by volume. Keep to the larger volume markets to reduce volatility. Also look at ATR - If it's large as a percentage of price then the more volatile the stock will be and the higher the risk.
  • Are there any up and coming events that may affect the trade? Big events, rumours, earnings?
  • Stay tuned to CNBC, Bloomberg etc... for ideas, warnings, consensus of where market is headed etc...
  • *****DELETED***** HIS WASN'T TESTED. Market Timing - Look for supporting/correlating markets to confirm trend. i.e. S&P500 for US stocks, FTSE for UK stocks etc... Enter your chosen market when you see signs of the following in your market timing market - not all need to be in place.
    • look to buy when Weekly Price>10EMA>30EMA>200EMA, look to sell when Weekly 200EMA>30EMA>10EMA>Price
    • Daily - price of supporting market crosses to Trading Activation Zone (TAZ - between 10EMA & 30EMA) and W%R overbought or oversold, all the better
    • Reduced Volume going into retracement
    • Engulfing candles or swing turnaround on a daily support your trade.
    • Hourly and daily chart - look for supporting bullish / bearish candlestick patterns
    • How deep is the retracement? More than 50% previous peak to trough? Fibonacci can help. Less than 50% may be stronger for onward momentum
  • Only trade with the trend - study L.R. trend & Vol for trend dynamics and conviction
  • try to trade the 1st pullback. I.e, the retest of support or resistance - see module 6 - playing the re-test of support or resistance.
  • Use Vix to gauge volatility - the retracements may pull back over 30ema in some cases. test system on new markets before trading

Markets:
  • Liquid Markets and high volume. This makes it easy to buy and sell to others & means the market is less prone to volatile shocks.
  • Tested - Nasdaq Composite/GBPUSD/FTSE/Gold Futures(found retraced over taz 30-50EMA?)
  • NON-CORRELATED MARKETS need to be traded to reduce exposure.  Anything over 0.3 has insignificant correlation, but choose markets with under 0.25 over the last 30 days? (Open for discussion on the index and time variables) Check Correlation daily while in the trade. There’s a relationship between the VIX and correlation - a high VIX indicates greater correlation etc...

Determine the L.R.trend & support/resistance levels with 2 Weekly charts:
  • Set Up Indicators. 10EMA, 30EMA, 200EMA, Volume (or COT open interest & long short), Volume 3SMA & all support & resistance levels as far as you can go - 10 yrs?
  • Charts - 2Yr weekly chart & 10 Yr weekly chart for support, resistance & trend lines
  • Trend - Up Price>10EMA>30EMA>200EMA and down 200EMA>30EMA>10EMA>Price
  • Correlating markets match L.R.trend and move of your proposed trade? See currency correlation in mod 9.
  • Change in Fundamentals/Economic Releases affect trade?

Set up
  • Set Up Indicators. 10EMA, 30EMA, 200EMA, W%R (3) on daily,  ATR (14), Volume, Volume 3SMA, COT/open interest if you can get chart
  • Charts - Daily, hourly for entry
  • Remember all support and resistance and channels on all charts - remember indecision/balanced candlesticks can I.D. support/resistance
  • Trend ID- Up. Weekly Chart. Price>10EMA>30EMA>200, Down. 200>30EMA>10EMA>Price. Daily chart uptrend 10EMA>30EMA>200, downtrend 200>30>10
  • TAZ (Trading Action Zone). Price between 10 & 30 EMA's on daily chart. (or just above/below 30EMA. Think of them as zones). For instance some markets will retrace further than 30 EMA - Check recent daily history for this volatility. Gold was volatile like that, so make sure you historically walk thru’
  • Trade Confirmation 1 Daily. Oscillator - Williams %R crossing above -80 when going long & crossing below -20 when going short. Divergence with price? Think twice before taking the signal, especially if divergence is in overbought/sold.
  • Trade Confirmation 2 Daily & Weekly chart. Signs of retracement ending? Indecision & reversal Candlesticks - Doji, long legged, harami, incision, etc.. Any contradictions between daily and weekly candlesticks?. Any continuation or reversal chart patterns on daily and weekly charts. Don’t enter on a strong retracement candle. Does Fib retracement support end of correction?
  • Trade Confirmation 3 Daily & weekly chart. Increasing Volume or open interest & net positions with the trend. Reduced Volume into consolidation pullback. Divergence? don’t trade.
  • Trade Confirmation 4 Beware of looming Support, resistance levels, channels & trendlines and 100 & 200 SMA. If there's room for 2:1 reward to risk ratio before testing support/resistance then it may be worthwhile trading. If not then await break or reversal before continuing. Don’t enter on new highs. Inc. significant numbers here
  • Trade Confirmation 5 Top or bottom of trend channels?
  • Always do a historical walk thru’ on a new market - A simple signal walk thru’, just to get the feel of the market. Check for slippage frequency

Entry:
    • Enter trade on the close of the swing candle (higher highs and lows, or lower lows and highs) or as the engulfing or piercing swing candle passes the last periods high (when going long) or low (when going short). At the very least the Piercing/Dark Cloud Cover candles must encroach at least 50% into the last periods total range. You can also enter on the close of hammer and shooting stars (a bit more risky)..
    • Rem. Volume must be increasing in your favour - this can be determined by entering close to EOD trading.
    • An hourly chart will give you best entry time, especially when the hourly chart breaks trend resistance or support of the consolidation, or when the 10 & 30 EMA cross.  If this coincides with EOD then all the better.
    • Hourly charts also show recent support and resistance to manage risk better.
    • Look out for chart patterns to support your trade - i.e. double tops/bottoms etc...

Exit Criteria:
    • Set a stop/loss.  The greater of 1xATR (daily chart) or just below/above 30EMA (daily chart). Add or Subtract 1 x ATR from the entry price. Make sure ATR isn't too large. If you feel it's too large as a percentage of the current price, i.e. 15% then your risk is geater

IMPORTANT. The important thing is make sure your stop/loss is in line with short term support and resistance areas. In an hourly chart the consolidation of candles (spinning tops, doji, long shadows, harami etc...) confirming short term support and resistance is what is going to protect us from a loss (stop should go beyond this level). It would be very difficult for traders to move the price beyond this level - the traders that were long or short prior to the pivot now face an important decision. You may even get lucky and have a double top or bottom in an hourly chart to protect you, or gone through recent support or resistance which may act as new resistance or support.


    • Target price. 0.75:1 - see historical trading sheet. The spread cost hasn't been taken into account in calculating reward/risk ratio, so in reality reward/risk will be higher depending on the spread of the market (You need to pass the spread prior to break-even).
    • new stop/loss at 0.75:1 if possible, otherwise take profit. Manage new stop/loss positions on a daily basis just under/above previous day low or high.

Money Management
    • The usual - 2% Capital determines my position across correlated markets
    • Stop/Loss as above
    • Reward to Risk - As above
    • Must hit 59% win/loss ratio. Reassess if this target doesn’t happen. Win/Loss ratio tested at 70% to 78%

Notes



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