Swing Trading and Market Timing Knowledgebase

By: John Crane, swing trading guru

70% versus 30%

Markets have a tendency to only trend about 30% of the time while the other 70% of the time it is the accumulation phase of either consolidating in range or in a correction. I have never conducted a study of these facts, but I have been trading long enough to realize that it’s probably true or very close to these percentages. When you look at a chart, you will see periods of consolidation, corrections or sideways movement. In between those consolidations there are periods when the futures market will break out and make an upward price movement or thrust (in a bullish futures market) or a downward price movement (in a bearish futures market) and then move into another corrective or consolidation phase. It is between the futures market consolidations – during the thrust - that a trader has the best opportunity to profit. Whether you are a swing trader (a person who tries to capture short-term swings in the futures market) or a trend follower, this is the price move traders are trying to capture.

Have you ever heard the old adage, “If you snooze, you lose”? It really holds true when it comes to trading. A trader has to be positioned and ready when the futures market makes its move. If you are not ready you will have to join the multitude of traders chasing the futures market who usually catch up at the end of the move. The futures market will not wait for you!

Without the knowledge or the proper preparation, you will not be ready and the futures market will leave you behind. It waits for no one. That is why understanding futures market behavior is so important. It gives you the “heads up” on what to expect next and prepares you to move at the appropriate time.  I believe in trading the price action and patterns rather than the futures market news. I am always amazed by the ability of the futures market to respond to fundamental news before it happens or respond differently than anticipated because the report is already factored into the futures market. It seems the futures market has a sixth sense. So I make it a point to always remember, “What the futures market is doing is more important than what everyone expects it to do.”

Swing traders or day traders have to be very careful and very patient. If they decide to concentrate on one futures market they are forced to make their profits during the 30% of the time the futures market is trending between consolidations periods. This can cause problems, because most traders don’t have the discipline to sit and wait for the trade to set up properly. They feel the need for action and therefore tend to force trades that should not be taken. Trading is hard enough without adding this additional pressure and taking on unnecessary risks.

I have talked to many traders who think they are E-mini S&P traders and believe they can’t look at other futures markets, because they don’t understand them. I say, you don’t have to know everything about T-Bonds, or Japanese yen, or even Coffee to trade them, all you need to know is futures market behavior and understand how to use the reoccurring price patterns on a chart. This allows you to diversify and look for the best sets up in several futures markets. Why force marginal trades in one futures market when you can find high probability trades in other futures markets? There are always futures markets setting up that offer great opportunities, all you have to do is find them. That’s part of a trader’s job.

The traditional way to enter a futures market is to wait for a breakout and buy the new high or sell the new low and follow with a protective stop, giving the futures market enough room to fluctuate and hopefully catch a big movement. This works fine, except a large portion of the potential gain is lost at the beginning of the trade and another large portion is given up at the end of the trade when the futures market pulls back to the stop price. If the trader has an advance idea where the correction will end and the new price move will begin, they can be ready to enter near the beginning of the move and exit near the end, before the futures market retraces.

Back to homepage

 

**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.

Swing Trading, Market Timing, Swing Trading Strategies and Reversal Commentary ©2005-2009 reversaltracker.com All Rights Reserved.