Swing trades are short-term in nature, typically lasting between 2 and 5 days. The goal of a swing trade is to capture a profit of between $1 and $5 dollars resulting from the natural flow and movement in a stocks price.
Each day, after the close, we scan daily charts, looking for set ups and post the alerts prior to the open the following day.
Each alert include specific entry criteria, (which means the alert is not valid until the price crosses over the price mentioned) protective stop loss price, and target price.
Swing Trade Guidlines
To keep this easy, the guidelines are laid out in terms of a long trade, but the rules also apply to short trades. (just opposite)
Below you’ll find what we feel are the best set of rules for handling SWING TRADES.
A trade meets entry requirements ONLY if it trades over the required number and that price that prints was ‘in the market’ at the time (not outside the bid or offer).
If a stock breaks down and hits the stop price before hitting its entry price, the play is invalid.
If a stock moves beyond its entry price in the first 5 minutes of trading, it should only be entered when the 5 minute high/low is exceeded.
The following guidelines will be used to determine whether a gap or price move from the previous day’s close is excessive:
If stock price is greater than $49.99, then an excessive gap or price move is greater than 75 cents.
If stock price is between $30 and $49.99, then an excessive gap or price move is greater than 50 cents.
If price is between $20 and $29.99, then an excessive gap or price move is greater than 35 cents.
If price is between $10 and $19.99, then an excessive gap or price move is greater than 25 cents.
If price is $9.99 or less, then an excessive gap or price move is greater than 15 cents.
If the stock gaps excessively or moves excessively in the first 5 minutes, then an entry can still be made after a 30 minute high/low as long as the entry price has not moved more than one third of the distance between the posted entry price and the first posted target. If a stock gaps excessively or moves excessively in the first 5 minutes, then a 30 minute high/low is the ONLY entry that will be considered, even if the stock price later retraces into the original entry zone.
If the stock does not meet the required entry on the day the play is posted, it is invalid.
STOPS and Management
A trade is considered stopped ONLY if it trades under the required number and that price that prints was ‘in the market’ at the time (not outside the bid or offer).
All targets are to be attained without any interference. The stop posted is the stop for the play.
Exceptions – There will be two exceptions. For these two exceptions, the trade is divided into ‘halves’ or ‘thirds’ depending on whether 2 or 3 targets are called, and the partial trades are manage separately based on their own target.
Exception #1 – 85% rule. Upon trading above the 85% mark on the way to a target, begin using a bar by bar daily trail stop (on that portion of the trade), beginning on the current open bar. Set the stop to one-half of one percent below the bar (above on a short).
Exception #2 – Time stop rule. After five bars are complete, begin using a bar by bar daily trail stop, beginning on the sixth bar. Set the stop to one-half of one percent of the stock price (example, 15 cents for a $30.00 stock) below the bar (above on a short).
Earnings – If a trade is still active at the close of the day prior to an earnings report for the company, then the trade should be closed.
Disaster – If the stock gaps to or beyond its stop point on any day, a disaster plan needs to be followed, with half of the position being closed out after a 5 minute high/low and the remainder being closed after a 30 minute high/low. If the trade or any portion of it survives the disaster rules, then a daily trailing stop will continue from that point on.
If, however, the stock price opens without having violated its stop and quickly proceeds to trade through the stop price, then the play should be stopped immediately, even if this occurs within the first five minutes of trading.
Each target is either hit, or trailed out by one of the exceptions, and each target is managed independently with the proportionate trade size.