Swing Trading and Market Timing Knowledgebase

By: John Crane, swing trading guru

3 to 7 Day Market Timing

The first thing I watch for is how many days it takes to form the new Reaction swing. Strong trending futures markets will not pause or correct for a long period of time. The strongest continuation swing patterns will typically retrace between three to seven days from the pivot high or pivot low. However, I don’t consider the three to seven days correction as a hard and fast rule, it is more of a “rule of thumb”.  There are always exceptions to the rule, such as where the correction extends for eight days or so, but still offers excellent trading opportunities. Anything longer will characteristically form a longer-term zigzag corrective pattern. This type of corrective pattern is also called an A-B-C pattern and is a key component of the Elliott Wave Theory. While I will not get into an in depth discussion about the Elliott Wave Theory at this point, it may be helpful to explain that the Elliott Wave Theory suggests that a futures market trend should unfold in five identifiable waves. Each price move, in the direction of the dominant trend, is followed by a price retracement or correction. Once the futures market has completed the fifth wave and final wave, the futures market will either experience a substantial correction that consists of three waves – also known as an A-B-C correction - or begin a new trend consisting of five waves. Zigzag or A-B-C patterns usually connect two longer-term reaction cycles. In other words, there is frequently a TR pattern at the beginning of the correction and another TR pattern at the end of the correction. Although, the zigzag pattern is usually short-term, it can still offer some good trading opportunities.

The second clue to watch for is where the corrective swing pattern ends. For example, a strong upward trending futures market will make shallow corrections with the pivot low bottoming above the high of the previous swing pattern. Once the pivot low has been established the futures market will normally break above the previous high within the same number of days as the correction. In other words, if the current correction has lasted three days, once the futures market moves off the pivot low it should reach or break above the pivot high within the next three days.

A weak futures market will typically drop below the high of the previous Reaction swing and correct 60% or more of the previous price wave. Although this is still a good trading futures market, it will take longer for the correction to end and will typically form the zigzag pattern in the process.

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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.

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