Thursday, March 29, 2012

Two swing trades a day

A swing setup is one where after filling your scalp target, the price does not come back to test your entry price. This enables you to move your stop to breakeven and let the market take you to higher profits.

In general, there is a swing setup in the early part of the day and one in the late part of the day. Often one or the other could be missing. If both setups are in the same direction, its a trend day and could consist of multiple small with trend entries where you could enter and ride the trend. If the setups are in opposite directions such as today, its a trend reversal day.

Its a valid trading plan to only enter on these two setups and hold for 4 points or more after taking a scalp profit of 2 points.  The trick to doing this consistently is to ignore reversals and only take the first pullback after a proven reversal.

For example, if you had to guess that b2 was a reversal, you would be sorely disappointed. b5 also would knock your breakeven stops out. The first pullback to a LH at b8 is the high probability swing setup.

Similarly, if you guessed b14 was a reversal, you would be disappointed. Even if you correctly assessed that b30 marked the low of the day, a buy above it failed to give 2 points and your stops below the entry bar were taken out. If you had the patience to wait for the first viable signal bar b53 at the HL, you would be able to swing till the end of the day.

In summary, a great way to take swing setups is to take the first pullback after a trend breakout or reversal and to ignore the actual lows and highs of the day.

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