Swing Trading and Market Timing Knowledgebase

By: John Crane, swing trading guru

Market Timing E-mini Dow

Figure # 4.6 - On October 24, 2005, the December e-mini Dow traded above 10,335 to trigger the buy signal and confirm the Reaction swing marked (C) and (D). The reverse count from (C) to (A) equaled 20 days. The count forward from (D) identified the future swing trade date as November 18. I had all the information needed to make the price projection.

Figure # 4.6 – December 2005 Dow Jones

I drew the Action line from the low at (C) to the high at (D), followed by the center line through the center of the (C) to (D) Reaction swing and extended it to the end of the chart. I then marked November 18, on the center line before drawing the Reaction line parallel to the Action line. The Reaction line crossed the center line and identified 10,930 as the first price target for the long position. If everything unfolded according to plan, the December Dow Jones would reach 10,930 on or before the November 18 swing trade date. In that case the buy signal suggested the potential price move of 590 points within the next 20 days!

Soon after the entry signal was triggered the Dow Jones experienced a two-day pullback before it began a steady climb over the next 20 days, but it was never able to break above the center line. Time ran out for the trade when the Dow Jones reached the November 18th swing trade date before it was able to reach the target price of 10,930. However, the Dow traded as high as10,795 before closing at 10,782 on November 18. Eventually, the futures market did pass through the Reaction line and reached 10,968 on November 23…three days after the swing trade date. Although the Dow Jones was able to hit the ultimate target price, the early exit still would have captured over 60% of the entire price move.

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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.