Technical Swing Trading Techniques that Work
Over the past few months, the blog has covered 3 basic strategies that have worked for us after testing dozens of day trading and swing trading strategies over the past 15 years. We talked about the poor results with penny stocks, basic gap and go strategies, bullish divergences in long-term downtrends and other technical swing trading techniques.
We also covered in detail the most effective strategy for those with limited time to spend on technical swing trading techniques. Its basically a ranking strategy where you hold the top 3 stocks at any given time. There is a lot to it but you can learn the basics on our sister site, investtobefree.com, in a free video course.
Today I want to share with you what worked best for active technical swing trading. If you want to build a small account quickly, these swing trading techniques have proven to be the best shot to us after over 10,000 live day trades and swing trades over more than 15 years.
Technical Swing Trading Techniques
So what is a technical swing trading strategy anyway?
A technical swing trading strategy is just a set of technical conditions that need to be met before considering a long or short trade. A technical condition can be a characteristic of the stock itself such as the float (number of shares available to trade in the open market), average volume, current price, etc…
Another technical condition might be a fancy indicator that you may have heard about online. Another technical condition could be whether a stock is above a rising 200 day moving average or not. It may be an overbought or oversold condition as measured by RSI. It could be a moving average crossover or stochastics coming out of oversold range, etc…
Usually, its a combination of technical factors that need to occur before considering a trade.
There is no magic indicator that will lead to excess profitability over the long-term in my opinion. However, there are technical swing trading techniques on certain stocks with a catalyst that can work quite well when trading.
A Favorite Technical Swing Trading Technique on a Great Stock
In the last blog post we wrote about how SMCI, an AI stock, may reach a good technical entry point after earnings. We wanted to see the report first, ensure it was a strong report and outlook, and look for the price to reach a good technical entry point soon after before even considering a trade.
Unfortunately, the set of conditions for the technical swing trading technique did not happen. It usually doesn’t in fact.
However, there have been many stocks that have crushed earnings, raised guidance and reached a good technical entry point soon after this quarter and we will go over a couple below.
Why do we wait for just these opportunities that reach a good technical entry point? Because the price tends to move quickly right after a big catalyst if the technical conditions all occur which means we can get in, get out near our profit target, and get into the next trade quickly.
During earnings season, you have hundreds of earnings reports hitting the market each day so there will be another great stock that will surge soon after. Earnings season is where retail traders can do well.
Try to buy ahead of the quarter and they could miss, reduce guidance, and get crushed the next day. Meanwhile, those stocks with the huge bullish catalyst often run for 3 to 5 days. Less in this market, so you have to adjust your target to the current tendencies in the market.
Swing Trading Key to Success
The key to this strategy is to first find a great stock in the first place in a long-term uptrend or large bottoming pattern.
So how do you know if you are looking at a great stock in a long-term uptrend after a big earnings beat or other bullish news?
You first look at a five or 10 year chart. If the chart looks like the side of a mountain going higher from left to right, you may have something.
Swing Trading Big Trends
If the long-term chart looks like the other side of the mountain, you may slip and fall down the side of the mountain with the other investors and traders. Long-term trends tend to continue in the same direction. Either the business model, product, service or management is not up to the task to build long-term value for you and me. Maybe they can pay themselves well using proceeds from secondary offerings but that is not going to necessarily help investors and the big money knows this.
When I say “big money”, we are talking about large institutional money managers that are investing for thousands or more other investors. They have to put much more money into stocks because they are investing for so many other individuals.
So if the fund has 10s of billions of dollars, they may have to put 100s of millions into a particular stock. They know a good bet is a stock making higher lows and higher highs over the long-term. In other words, stocks and management teams with a great track record of creating value for shareholders.
They also typically do not buy all at once. If they have enough liquidity in the stock, they will start buying and keep buying for days, weeks or months. So, instead of a pump and dump low priced stock you have a stock that can keep going higher over time.
Swing Trading Trend and Consolidations
On a stock chart, we want to see the stock above a rising 200 day moving average in most cases. You can use any charting service and look at a five year chart and put the 200 day moving average on it. This is a good first step.
Then we would like to see a good base pattern over the past five weeks or more. Some good base patterns are cup with handle patterns, flat bases, descending wedge or a long flag within a multi-year, upward sloping channel.
Lets take a look at our top swing trading opportunity in the Weekly Alert service last week as an example. The stock was ANET which is one of the best growth stocks in the current market.
ANET just reported a great quarter with a good outlook. The stock was already gapping much higher after hours which is a good sign. Here is how the daily chart looked prior to the breakout.
Charts courtesy of StockCharts.com
Although not shown above, the stock is above a rising 200 day moving average. We can also see that the 50 day moving average is sloping higher in the chart above. The stock is in a double bottom consolidation on an intermediate-term timeframe over the past couple months.
Below is the weekly chart over the past 4 years. The chart going back to the IPO date in 2014 looks very good as well.
Swing Trading Technique Right After Earnings
After hours, we saw the price starting to approach the technical entry point in the double bottom pattern on the great news. A great stock, long-term trend, consolidation pattern and the price reaching the entry point on a strong catalyst. Just what we want when using this technical swing trading technique.
ANET is also one of the best growth stocks in the market with sales growth averaging 38% per year over the past three years. Earnings growth has averaged 44% per year. Return on equity is very high as well. Estimates are now rising after the big beat and raise quarter also.
After reaching the technical entry point the next day the stock surged about 7% in just 3 trading days. A great range to start taking some profits and raising our stop for short-term swing traders that are trying to compound their money quickly through earnings season.
Charts courtesy of StockCharts.com
Most of the move comes right away which is key when trying to have enough trades in a year and a great average profit per day to compound an account quickly. Longer-term swing traders can go for a multi-month trade which could turn out great if we do not see another market correction over that time.
DECK made a very similar move a couple days prior after a great earnings report out of a bullish chart pattern within a long-term uptrend. They come up nearly every day during earnings season.
This is just a couple examples of the type of trades where we find success. A great stock, long-term trend, consolidation pattern, and good technical entry point with a strong catalyst.
The Best Technical Swing Trading Chart Pattern
The most bullish chart pattern is multiple bullish chart patterns. If you can find a stock that meets the criteria in 2 or more great swing trading technical strategies, its even better.
A good recent example we mentioned recently in the Daily Alert is the pattern on bitcoin. A large double bottom with handle pattern with a smaller double bottom within the handle of the larger pattern. Once the price reached the entry point in both patterns, bitcoin surged over 20% in just a few days right afterwards.
This is Not Enough to Trade a Live Account
Hope this makes some sense and helps you get started if you want to max out the potential when using technical swing trading techniques. However, what you learned here is a partial strategy. The complete strategy is more detailed than this but this should be enough to get your research started to develop your own strategy.
Risk management is critical with any technical swing trading technique. So be sure to be very prepared in this area as well.
And, as always, be sure to practice on a simulator while working on your technical swing trading techniques.
The best strategy is one on a high tight flag with a big earnings gap and flat top breakout. These are rare but a lot of high tight flags could come up in the months ahead and our high tight flag course is a great, complete strategy for the current market conditions if and when they surface.
The earnings eruptions course is also a great technical swing trading technique you can add to your arsenal for those looking to build an account quickly.
In the next blog post we will talk about the third strategy where we found success after trying dozens of day trading and swing trading strategies over the past 15 years.
