, LLC, Investment Advisory Services, Cary, NC

Top Performing Swing Trading Strategies after 10s of Thousands of Live Trades

 In Swing Trading


Over the past decade, I have had the good fortune to have the time to research, test and use some of the most popular trading strategies talked about online and in top selling books covering trading.


This passion for trading has led me to try dozens of strategies which were back-tested, researched, optimized and used in a live account.  After many 10s of thousands of trades, I found most did not work very well.  In fact, most strategies are difficult at best especially as you work down the food chain to lower priced stocks.


Day trading strategies on the overall market indices, trading gap and go patterns on penny stocks, playing a bullish divergence on stocks in long-term downtrends.  A lot of them just produced losses overall when adding up all the wins and losses.


Fortunately, there are several strategies that worked much better and some which are very successful long-term.  In this blog post, I will share with you what worked and what did not after 10s of thousands of live trades.


First lets go over the ones that did not work as well for us.



Trading the Overall Market


The only time trading the overall market (futures, spy, emini, index options, etc…) seems to produce a profit overall is when the market is trending strongly in my experience.  If you study the day trading patterns closely during weeks when the market is trending, certain intraday patterns work great.  As soon as they start to work, the same patterns fail over and over once the market starts to stabilize and go into a consolidation phase the next week.  This will fool a lot of new traders.


It can be really frustrating as suddenly gap fills, opening range breakouts and breakdowns and other supposedly good strategies have one false signal after another.  The better strategies seem to occur over longer time-frames.  But, again, only when the market is trending with a fresh, strong catalyst.  Last year, we had many periods where the future fed funds rate increased significantly to offer the catalyst where trading the overall market suddenly worked well.


Fast forward to a lower volatility market environment and suddenly the same patterns are fraught with false signals.  So in my experience its a waste of time unless the market is trending with a strong bearish catalyst (fresh news) and the news is not fully priced in.  The market will likely overshoot to the upside or downside but once the market shows signs of stabilizing its time to look to close the trade.  If you feel like you missed out on a move, its time to be very careful and look for a very strong oversold or overbought reading in the market and the next catalyst to go along with a good technical entry point.


Not to say you cannot do well trading futures or the overall market, but be prepared to outcompete a very crowded trading playing field.  Perhaps not enough time was devoted to develop a good strategy but a solid earnings flag breakout such as NVDA a couple weeks ago after being featured in the daily alert is far easier to trade in my opinion and more profitable in my experience.


After all, the S&P 500 is not going to have a 35% earnings growth rate for years and suddenly accelerating growth that can sustain for a time to push the price much higher.  However, the best growth stocks can and sometimes do pull this off.



Trading Penny Stocks


The only certainties in life are death, taxes and losing a trading account as a newbie penny stock trader.


Ok, so this may be a slight exaggeration.  But trading penny stocks to me is like swimming in a sea of hungry man-eating sharks while bleeding.  You will either get eaten or have one of the more scary experiences of your life.


Just when a microcap rally gets going to suck you in, the stocks start dropping like flies.


I remember a great high tight flag pattern on a penny stock that reached the entry point and then dropped 15% within a few minutes.  I have never seen this on higher priced stocks in long-term uptrends with a bullish catalyst if the high tight flag meets our high tight flag strategy rules at the entry point.


Not sure how you can sleep at night or be able to focus on other things in life while holding a large position on a penny stock that routinely drops 30% or more in minutes, but many people feel this is their only option for some strange reason.  Look at the search traffic for penny stocks versus other types of stocks and you suddenly understand how so many people are lured into the notion that trading penny stocks is a good thing.


Believe me, trading penny stocks is not your only choice when starting to trade stocks.  For most people, there are much better options especially if you are starting with a small account and have a full time job.


Building a Small Account Without Penny Stocks


If you are in a hurry to build a small account quickly, take a look at a compound interest calculator and plug in what happens if you do 120 trades and make 4% per trade with a $10,000 account.  Each trade being made on a higher quality growth stock in a high tight flag, earnings eruptions pattern, or great channel trade with a catalyst.


If you compound the returns and average 4% account growth per trade while aggressively compounding those returns, $10,000 turns into a million dollars in less than 120 trades.  It requires you to review each trade, ensure you are following rules in a great strategy closely, and trade in at least decent market conditions, but it at least gives you a shot while using a tight stop-loss on each trade.


Every back-test I have done on stocks less than $10 shows a lower win rate with much more risk and I just saw this again while reviewing all the best earnings gaps over a 2 year period.  The win rate drops with stocks below $20 and gets worse the lower you go.  The bid/ask spread is often wider on a percentage basis as well which is another challenge.


I have seen penny stocks promoted by seemingly reputable experts on-line that were halted soon after being recommended and at least one re-opened down about 90%.


If you lose 90% of your money, you now need a 1,000% return on your next trade just to get back to even.  Good luck with that and being successful long-term trading penny stocks.  If you have a huge following on-line and can manipulate a low float penny stock after getting in before the herd, you can do that I suppose.  Not really ethical and it will require several years to build a large enough audience so you can be first in but its apparently legal to front-run low float penny stocks that fall like rocks after the moderator “calls out” that they just sold the stock.


I have yet to see a US stock over $20, in a multi-year uptrend, have really bullish news just released and then get halted and re-open down more than a few percent.  On the other hand, I have seen it many times on stocks under $10 or stocks that have just been artificially pumped over $10.  You probably have a better chance to do well shorting penny stocks after the pump but this has a lot of risk also during a short squeeze.


Strategies that Worked Much Better


The best way in my opinion to try to build a small account quickly is to trade the best high tight flags, earnings gaps and channel entry points with a catalyst.  Most of these trades come up during earnings season which lasts several weeks each quarter.


Not every “good earnings gap” or “beat and raise quarter” but the ones that meet the specific criteria in the strategies developed after 10s of thousands of trial and error trades over more than a decade.  These ideal earnings gaps and high tight flag breakouts have a higher win rate, tend to run further on average and work well while using a tight stop-loss as long as market conditions are good enough.


When I don’t follow my own rules?  Not so much.  Force trades and you lose is one of the key lessons over the past decade.  Stick with the highest percentage trades on the best stocks especially in more challenging market conditions.


Trading comes down to math.  You need a certain win rate while using a tight stop-loss and you need to make your target average profit on winning trades within a certain time-frame.  The average time in the trade in our high tight flag strategy is only about 3 to 4 days.  Earnings eruptions patterns play out within 3 days generally.


This allows you to get out of one trade and into the next one to get closer to that 100th trade.  When the market is in a strong bull market especially, this can be really effective and double an account quickly.  Trade a typical bull flag breakout or other “good” trading setup during bear market conditions and that will lead to losses.


Earnings eruptions trades, high tight flags and other good technical strategies only with a good catalyst are the best shot in my opinion after studying and trading for over a decade.  Again, this is if you are in a hurry to build a small account quickly and willing to take more risk and spend a lot more time each day trading.



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You can do very well with those strategies but they require a lot of time.  You have to do watch lists every day, you have to check for news, you need to have your price alerts in place before the market opens and you have to manage each trade well and work hard to review all your trades and clean up mistakes as much as possible (all traders make mistakes and can improve after careful analysis.  This is the key to success in just about anything including trading.).


Not to mention you have to learn the strategy in detail to begin with and ensure you understand it completely which takes time.


The other great strategy that worked really well is what I call the “3 Stocks to Wealth” strategy.  Another good name for it is the “3 Top Trending Stocks”.


In this strategy we just hold the top 3 stocks in terms of the following key characteristics and measurements:


  • Earnings estimate revisions.  Stocks with consensus earnings estimates that are rising that tend to beat those estimates by a good margin historically.


  • Growth.  Companies that are growing strongly in terms of sales and earnings over time.  Accelerating growth is even better.


  • Trends.  Stocks in strong long-term trends, intermediate-term trends and short-term trends.  Both the stock itself and the industry.


  • Stocks with fewer bearish technical factors.  The strategy has more of a fundamental focus while using the technical analysis to weed out stocks with red flags such as a tendency to fall sharply in the current market environment.


The strategy calls for re-ranking all the stocks in the market once per week and then coming up with the top 3 while taking into account the current market environment.  If the top 3 list changes, you would sell the ones coming off the list the next day while adding the ones coming on the list so you roughly have an equal amount in each of the 3 stocks.


This has been very effective over the long-term due to its focus, simplicity and ease of which you can remain consistent each week.  Its only a few weeks/months out of the year that really make a big difference in the outperformance.  It also only requires action on 1 day per week and you can always put in an optional stop-loss as well on each stock.


Other Advantages of the 3 Stocks Strategy


Another big advantage is that you always have money in the top 3 stocks.  Technical analysis is typically about some form of A-B-C-D up pattern where you are trying to catch the next leg higher in a stock after it shows signs of wanting to trend higher for a while.  The 3 stocks strategy catches the next leg higher earlier but also without a tight stop to avoid the strong drawdowns.


Sometimes the market goes higher on sudden, bullish news.  The gap higher will often be missed with most technical trading strategies.  If you are holding the top 3 stocks, you can capture these market gains and much more.


Because it has been so effective over the long-term, you can hold a lot in cash and still do very well.  As always, you need to define your risk level to what is best for you but it only takes a small portion of an overall portfolio to really make a difference in overall returns over the years.


The difference between .8% per month in the overall market versus over 3% in an aggressive strategy is immense with compounding over the long-term.  This can turn $30,000 into a million in about 10 years if you have all the money invested each week as can be seen on the performance chart since the 3 Stocks to Wealth service was first offered to customers in 2012.


Personally, I like the best stocks/swing trades and cash.  But that is only after more than a decade of experience working fairly diligently at it.   It generally takes a few years of hard work to develop the expertise to do well swing trading and I normally trade multiple strategies as well in case one underperforms during a given year.


Latest Round of Improvements


The strategy is continually being improved over the years and the latest round of improvements to the 3 Stocks to Wealth strategy are now live.


One of the big improvements is including more stocks that just reported a big earnings surprise and guidance raise.  In a lot of market environments the biggest earnings surprises, improved guidance and gaps tend to cause stocks to trend higher for about 3 to 5 days before the first pullback or consolidation.


All of the largest earnings beats on quality stocks over the past 2.5 years were carefully analyzed by checking headline numbers, intraday charts and longer-term charts.  Also, fundamental quantitative data was taken into account and, most importantly, which stocks tended to run the furthest after the open the first trading session after the report and what fundamental and technical characteristics these stocks had before the move.


After a careful analysis of 10s of thousands of earnings headline numbers, these explosive reports tend to launch an uptrend more often on a certain day of the week where the earnings event occurs most often.  This information will guide the new day of the week the top 3 list will be updated to include more of these during most earnings seasons.


A lot of these stocks tend to run 10% to 30% within a few days after they open the next trading session.  In some market conditions this is not the case and this will be monitored as well over time to help guide the selection of the top 3 each week during earnings season.


Other Improvements Launched last July


In the next blog post we will be discussing one of the best trend following systems in history and how we will be incorporating a method similar to their strategy to reduce drawdowns which can be optionally used in the latest round of improvements.


The trend following strategy studied is closely related to the S&P 500 itself which is another good trend following strategy in my opinion.  After all, if a stock in the S&P 500 is not trending higher over time it will eventually be replaced by another company whose price and therefore market cap is increasing over time.


The round of improvements are already significantly improving the entries/exits and the new videos have already featured stocks that soared 100% or more within a few months of being featured in the 3 Stocks to Wealth service.  This could be the best approach to swing trading for those with busy lives that want performance while saving a LOT of time trading each week.


After a strong 2023, the 3 Stocks to Wealth strategy is off to another great start in 2024.  This could be the biggest year ever for the strategy with the latest round of improvements.


Right now we are offering a discount to try it for the first 3 months.  You also receive 3 months of the Daily Alert and can pick your favorite video course after your first renewal.   This saves you more than 50% over purchasing these proven and time saving services separately.



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