Swing Trading and Market Timing Knowledgebase

By: John Crane, swing trading guru

What is a reaction swing?

Turning a theory into a reality can be a daunting task. When one is introduced to the theory of Action/Reaction, the first question that probably comes to mind is, “This all sounds great in theory, but can it be applied to real futures market timing situations?”

When attempting to solve a problem, the most difficult task is finding where to start.  In this specific case, the problem was to identify what Action would lead to the equal and opposite Reaction. Markets will always have short-term fluctuations within a longer-term trend as buying and selling influences price action. It is within this price movement that I found the means to identify where the Action ends and the Reaction begins. Each time the futures market timing corrects (a short-term move in the opposite direction of the prevailing trend) and then resumes the current trend, an old cycle ends and a new cycle begins. This pattern occurs over and over again in every futures market, whether one is looking at individual stocks or commodity futures. I call this pattern the Reaction swing strategy. See Figure # 2.1 

what is a reaction swing
Figure # 2.1 – Action/Reaction

The Reaction swing strategy is a reoccurring pattern that identifies the center of a cycle that divides the action segment from the reaction. Once this pattern is identified, all I need to do is look at the past futures market timing action and use that information to project the future futures market timing reaction. This represents the balancing point in the cycle; therefore, I can use this pattern to predict a future reversal – support or resistance - in the futures market.Using this technique, I can use the futures market’s own price action to predict and identify future support and resistance levels that act as price targets and possible turning points. This is important because, once a position is entered, I can project, with a high degree of accuracy, how long the current trend will continue. This advance knowledge of when a price move will most likely hit support or resistance will help me determine the best time to adjust stops or exit at or near the completion of the price move. I call this my swing trade date Indicator (RDI).

The swing trade date Indicator differs from many other technical trading methods because it uses the futures market's own predictive patterns to identify future futures market timing swings. Thus, it is a leading indicator that allows traders to trade from one futures market swing pattern to another with a high degree of confidence. Lagging indicators are based off past futures market timing action, but tend to confirm turning points after a pivot point has been confirmed.

Having foreknowledge of a potential reaction point or Reversal date can give a trader a huge advantage in any type of futures market. The Reaction swing strategy is the key to my methodology and it’s where it all begins.  If you can find the exact center of a cycle, you can look back at the beginning and then, based on this information, determine where the cycle (futures market price) will most likely go in the future and how long it will take to get there.

A general observation of the futures markets shows that they do not trade in a straight line. There is always a struggle for control between the bears and the bulls. In this struggle, each side enjoys victories and suffers defeats, but one or the other will always win in the end.

For example, if a futures market makes a bottom formation after an extended downward move and then trades up to a price where many chart readers believe the futures market timing will run into resistance, the bearish traders will move in and sell. The bearish traders believe that the trend is still down and this correction provides a good selling opportunity. This, in turn, pushes the futures market timing down against the new upward trend.  The result is a price correction also known as a retracement. When a new up trending futures market corrects or retraces, the price will pull back to predetermined natural support levels. These price levels tend to support any futures market within any time frame. By using these support and resistance levels, I can determine when and where a correction will most likely begin or end before resuming the prevailing trend. It is this futures market action that forms a Reaction swing strategy.

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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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