Swing Trading and Market Timing Knowledgebase

By: John Crane, swing trading guru

Major Market Timing

Reaction swings can be part of larger price patterns consisting of a series of pivot points that are found in two different places of a futures market trend - each are treated differently. The first pattern we’ll look at is the Swing strategy Trend Reversalpattern (TR) that occurs at major tops and major bottoms. The TR pattern consists of five pivot points occurring in a specific order with a Reaction swing being formed by the final two pivot points.

This pattern may look familiar to many and is sometimes referred to by other names such as, Head and Shoulders top/bottom, M top or W bottom, or even as a1-2-3 top/bottom. However, I use the TR pattern in a very different way than what you may be accustomed.

The second pattern I like to use is called the Trend Continuation (Swing Trading Strategy TC) pattern and appears inside a strong trending futures market and follows a TR pattern. As the names states, this pattern signals a continuation of the current trend, but it also tells me much more. For example, a Swing Trading Strategy TC pattern can project how long the trend will continue and how far it may go. Like the TR pattern, the Swing Trading Strategy TC pattern also consists of five pivots, with the Reaction swing formed by the last two pivot points. However, for right now I want to concentrate on the Swing strategy Trend Reversal (TR) pattern.

I like to break the TR-pattern into two different types, based on how the patterns unfold. This is important because they have different rules to confirm an entry signal. As you read through the rules that define the two patterns you will notice I use a version of Fib numbers to identify retracement levels. I am making the assumption that you are familiar with the concept of Fib retracement levels.

When a futures market is at a major high or making a major turn, it will typically be followed by a pullback to support. This is where bullish traders tend to enter the futures market expecting another bullish leg and a run past the recent high. However, if the futures market is forming a TR pattern it will run into resistance somewhere between the 60% and 78% retracement levels and fail to move past the recent high. This swing pattern failure is the first sign of a futures market losing momentum and could lead to a shift in the trend. I call this pattern the Swing strategy Trend Reversal # 1 pattern or TR-1.

The TR-1 pattern requires the futures market to retrace over 60% of the initial price move from (B) to (C). At the 60% retracement level, I consider the futures market inside the sell window. The price bar that enters the sell window is called the Signal bar. When the price reaches the sell window, I will enter an order to sell when the price drops below the low of the Signal bar that entered the sell window. As soon as the price trades below the low of the Signal bar, the entry price is triggered and the sell signal is confirmed. As soon as the signal is confirmed a protective stop should be placed above the (B) high. (The rules are reversed for a buy pattern.)

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**THE RISK OF LOSS IN TRADING CAN BE SUBSTANTIAL. YOU SHOULD, THEREFORE, CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER OR OVER-COMPENSATED FOR THE IMPACT IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT.NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES.