Swing Trading and Market Timing Knowledgebase

By: John Crane, swing trading guru

Market Timing Stocks

Figure # 2.14 - After several days of choppy trading, Trident Microsystems peaked at 31.47 before it closed at 31.07 on April 19, 2006. Two days later, the stock found support at the 20-day SMA and bounced higher over the next two days, confirming the April 19 low as a pivot low and the beginning of a Market timing Reaction swing. The rebound reached a high of 31.23 - well within the sell window that began at 30.52 – therefore I was looking at a SWING TRADING STRATEGY-1 pattern. The sell signal would be triggered when the stock market traded below the low of the Signal bar that reached inside the sell window. In this case, the Signal bar it is the price bar of April 25 with a low at 30.03. On April 26, Trident Microsystems rolled over, traded through the trigger price of 30.00 and confirmed the sell signal that began a sustained price decline.

The reverse count, from the lowest close at (C) back to the lowest closing price at (A), equaled 12 days. The forward count of 12 days, from the highest close at (D), implied a futures swing trade date of May 11. TRID continued to trade lower and reached a close of 25.14 (E) on the May 11 swing trade date, followed by a six-day rebound to 28.07. Using the swing trade date Indicator the short position could have been closed near the low and before the sudden corrective rally!

Microsoft

Figure #2.15 – During the period between August 5, 2005 and November 18, MSFT offered two different views of the SWING TRADING STRATEGY-1 pattern. After peaking at 27.94 on August 5, Microsoft traded lower until it found support at the 20-day SMA where it posted a low close of 26.72 on August 19. Eight days later the stock market peaked at 27.44 on August 31. This price was slightly above the 60% retracement level (27.42), therefore it is a SWING TRADING STRATEGY-1 pattern. In this case the Signal bar occurred on August 31 with a low of 27.04 so the sell stop would be placed at 27.02.

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Figure # 2.14 – Trident Microsystems (TRID)

Two days later the stock market dropped below 27.04 and closed at 27.02. The SWING TRADING STRATEGY-1 pattern was confirmed and a short position triggered. Now for the reverse/forward count. The reverse count, from the pivot low at (C), back to the beginning of the SWING TRADING STRATEGY-1 pattern, marked as (A) (July 21) – equaled 21 days. Counting forward 21 days from the end of the Market timing Reaction swing (August 31) marked (D) projected a future swing trade date of September 29.

Microsoft traded consistently lower over the next 17 days, finally hitting a low of 25.12 on September 23. From this low, the stock market traded higher over the next four days and peaked on September 29…the date projected over two weeks earlier. This is a little different look than I have shown you with the other examples (I will address this pattern in more detail in the Trend Continuation portion of this book), but I wanted to show what happens when the correction or retracement ended on a swing trade date. (A stock market that makes a high pivot on a projected swing trade date will typically turn lower and a stock market that makes a low pivot on a swing trade date will typically turn higher. This can offer valuable information about the possibility of the trend continuing.)

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Figure # 2.15 – Microsoft (MSFT)

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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.