Swing Trading Strategies for 2024
When trading, its important to note the tendencies of your swing trading strategies and how they fluctuate over time. This helps to identify the best stock trading strategies to use in 2024 and during any given time period.
What Not to Do When Swing Trading in 2024 and Picking a Strategy
If we learned anything from 2023, its that listening to financial media and using that to determine your swing trading strategy for the road ahead is a bad idea. It also reinforced the notion that macro experts and economists are right only about half the time at best. Another key lesson is that bad sentiment is often bullish and overly bullish sentiment can be bearish for the weeks ahead.
Another important idea re-learned is that if you are 6 months early, you lose money shorting. Its that simple unless you are using very wide stop-losses that are sure to catch up with you at some point.
To paraphrase Warren Buffet, you can be right longer than you can remain solvent. To me, this just means the current trend is powerful and something I want to harness when trading. He also says that short-term the market is a voting machine and long-term its a weighing machine. We want to trade when the voting machine (short-term trend) starts to head strongly in the direction of the weighing machine (where the stock is heading.)
Many also learned that the best forecaster is the market trend itself. In fact, even macro experts will tell you that the market itself is one of the best leading indicators for the economy (and, yes, its a component of the conference board LEI).
The market rallied despite the macro experts forecasting a recession by Q2 or late in the year. Meanwhile, we saw good growth in Q2 and 4.9% GDP growth in Q3 after the market rally really got going in late May.
These are some of the reasons and an example of why you use the market to forecast the economy while economic data does a poor job of forecasting the market.
Favored Stock Trading Strategies for 2024
That being said, its good to understand what is driving the market currently. And its clear to me that investors are concerned about re-accelerating inflation more than anything.
I say this because we are seeing more hesitation and softness right before key inflation readings. Fed meetings have been something the market has been rallying into recently so the market views the Fed more as a potential bullish catalyst rather than a bearish one recently.
However, the best stocks and trends tend to pull back or hesitate a day or two before CPI inflation data is released.
Another thing we are noticing is the plethora of high tight flags currently forming in the market. Crypto stocks, biotechs, other tech, a homebuilder, and even financials are forming this very bullish pattern.
Back-Testing the Most Bullish Chart Pattern for 2024
Many of the top traders online will tell you the high tight flag is the most bullish chart pattern. This was found in Bulkowskis book “Getting Started in Chart Patterns”. The successful IBD strategy talks about the high tight flag, power plays and the short stroke pattern which is very similar to how we define a high tight flag. Top individual traders who have taken $10,000 and turned it into many millions swear by the high tight flag and relative strength in general as a starting point to find great trading opportunities.
We just did a time-consuming survey of over half the US stocks over $5, with at least 350k average volume to find all the high tight flags and breakouts over the prior year. We looked at the stocks that met this criteria in alphabetic order.
We found 24 high tight flag breakouts that met the rules in our high tight flag strategy. Based on this study of over half the stocks (in alphabetic order), its likely there were actually around 35 over the past year that met the course rules just before the entry trigger was reached – nearly half over the past 2 months when the bull market strengthened.
The win rate was approximately the same as it was during the first back-test of the high tight flag strategy during a less than 1 year period that included 2 market corrections prior to the pandemic. A win rate that is off the charts when you consider that the average profit is nearly twice the average loss.
Its not a pattern you want to trade without a good set of rules as to when to enter and exit the trade. Only about 25% of high tight flag breakouts will meet the course rules pre-market on the day of the breakout. The ones that do not meet the rules at that point have a less than 50/50 shot of being successful after looking at over 100 high tight flag breakouts.
Top Stock Trading Strategies to Start 2024
One of the biggest advantages of the strategy is that 75% of the time the trade is over within just over 1 trading day if you take the entire position off at the first profit target. If you take the entire position off at the first profit target, the average is over 5% per trade averaging the wins and losses.
This is incredible performance in an average of about 1 trading day while using a very tight stop-loss.
Right now there are several hundred of these extremely bullish patterns setting up and nearing a good technical entry point. Over the past 2 months we are seeing at least about 7 per month on average. However, we only checked a portion of the stocks in the market for the pattern so it could be more like 10 per month.
At 5% per trade, averaging wins and losses, 15 is enough to double your account in a month and a half right now using the rule of 72. Pretty incredible potential.
Given the first back-test about matched the results in the second back-test and based on our own trading every day, we will definitely be using this strategy in a bull market as long as the market holds up well enough in the months ahead. Until the Nasdaq is back in a correction, this will be a go to strategy for us in 2024.
The strategy has a test for the current market trend and level of volatility that needs to pass in most cases before we use it. This test is being passed with flying colors recently.
Again, 75% of the time we will be back in cash in just over 1 trading day using this strategy per the recent test results.
This means we will likely be sitting in cash half of the time or more waiting for the next ideal high tight flag breakout if the strategy continues to perform about the same as during the prior 2 back tests that were performed over time periods with multiple market corrections. This reduces the time we are exposed to overall market risk while trading the most exciting opportunities with a ton of profit potential while using a very tight stop-loss.
Another Great Strategy for 2024
As most real traders know, the big money in trading is made during earnings season. This is when investors get the most information about the health of a company in an earnings press release and conference call that usually occurs right afterwards.
The biggest earnings beats and guidance raise on the top growth stocks will often produce a large gap and go pattern. These top echelon earnings gap trades are the next area of focus for us in 2024.
The earnings eruptions strategy goes over how we identify these ideal setups. Recently, IOT, ESTC and DUOL met the rules in the course and were big winners using this strategy. Again, its a strategy where you are targeting an ideal opportunity on a trade that normally lasts just a few days or less. Its also a very high percentage trade in our back-testing and in our own experience trading.
A Bread and Butter Swing Trading Strategy for 2024
Stocks setting up bullish chart patterns ahead of a big catalyst (such as earnings) are also an area of focus for us in 2024. Again, we are waiting until after the catalyst that is better than expected with a very good outlook before getting long.
Another focus is stocks in an industry where money is rushing to currently. So stocks with a high industry relative strength is another bullish factor we will be looking for.
Great double bottoms, cup with handles, flat bases, descending wedges, and flag patterns are on the menu right after a great catalyst. A new market catalyst, industry catalyst or even another drop in the risk-free yield with the labor market still holding up OK could be a catalyst.
We will be identifying ideal technical entry points on a daily chart and have the choice to take profits in the first wave higher or keep it for a longer-term swing trade. Or, do a combination of both as commissions are still free with most brokers.
These opportunities come up more often during earnings season which starts in a couple weeks. Even financials, which dominant the stage during the first couple weeks of earnings season, could produce some great trades this time around.
A More Passive Swing Trading Approach in 2024
The 3 Stocks to Wealth strategy on Investtobefree.com is our ranking system approach to trading. It had a great year in 2023 above its excellent long-term average over the past 11+ years.
We now use key moving averages to know when to move to cash if the market trend starts going south or becomes too choppy. So we will continue to use it as long as it remains above a key moving average.
This new approach worked great in the back-testing and is similar to an approach sometimes used for those just riding the S&P 500 over the long-term. This approach greatly reduced the average drawdown for the S&P 500 over the past 100 years while only giving up a little bit of the upside. We saw similar results in back-testing the 3 Stocks to Wealth approach to swing trading and we now use an optional key moving average stop with the 3 Stocks to Wealth strategy on investtobefree.com.
Shorting and Put Options in 2024
The long opportunities right now are doing too well to focus on shorting. However, the market trend could change at any time.
One of the best trades in my lifetime was essentially shorting fannie mae just before it was put into receivership in 2008. But this was only after the long-term downtrend in the market really got going with significant bearish news that kept getting worse.
Fighting the trend when shorting can be a real train wreck as we saw in 2023. However, if we see a strong bearish signal in the market, we will be looking for the best double tops, head and shoulders patterns and the best downward sloping channels to trade to the downside with fresh, surprising very bearish news.
Eventually the bearish signal will occur but bull markets often last many years as was the case in the late 90s after the last significant rate hike cycle that ended in mid-1995 with a mid-cycle slowdown and economic re-acceleration rather than a recession.
Perhaps they will re-write the economic and macro textbooks after this one. In the meantime, we will continue to trade the current market long-term trend. This is usually higher despite all the fear porn online that just seems to get worse every year.
