Thursday, November 3, 2011

Choosing Scalp and Swing entries

The first hour of the day is likely to produce the high or low of the day and trades made then are most suitable for swinging. Occasionally, the AM fails to produce any trend moves and on such days, there may be a PM trend but normally the higher likelihood is the AM trend.

A 1PB is the best option for an AM swing trade, but on some days such as today, the 1Rev is the clearest swing entry. If the early trend move results in a strong reversal, you should always swing the 1Rev entry.

If you miss the 1Rev and the 1PB, you should then look for the first deep pullback such as b20 today. Its a terrible signal (an overlapped doji), so its alright to skip it.

The first 2 legged pullback such as b31 or b39 often provide a decent late entry into the trend, even though it may look like you are buying the top at that point. Lunch hours in particular are dangerous and many traders will correctly trade smaller volume or take only scalps.

Shallow pullbacks are invariably scalp setups since your swing stops are likely to be taken out during the next pullback. A deeper pullback is more likely to have a strong entry bar, causing the next pullback to miss your breakeven stop.

As the time left in the trading day diminishes, so do the options for a swing move. Unless you are in a late hard trend, you should be satisfied with modest profits. This is especially true for trends that broke early in the day since they should be expected to show some volatility due to profit taking.