T2W Trading Community

Additional Considerations

No matter what time frame you trade – intraday, daily, weekly, etc. – always look for indications of supply near potential selling points, and signs of demand near potential buying points.  Supply and demand shows itself following a successful test in the form of rapid directional movement in the direction of the trade. Conversely, a lack of supply or demand at a previous low or high, results in a penetration.  Valid penetrations are accompanied by an increase in volume and greater trading activity.

On average, expect trends (both up and down) to last between 2 to 3 weeks. The following conditions are fairly reliable indicators for the start of a trend.  Personally, I skip the first buy or sell swing when one of these indications occurs, because the ensuing move is often quite strong.

• The narrowest daily high to low range in the last 7 days
• 3 consecutive days with small range
• The point of a “wedge” pattern
• A breakaway gap from a chart pattern such as triangle.
• A rising ADX (14-period) above 32

Practice

Because a certain amount of confidence is required to trade any technique consistently, paper trading helps cultivate the faith necessary to recognize and trade the Taylor pattern. Although the temptation to try too many different styles and patterns always exists, one must strive ultimately to trade in just one consistent manner.

Method Characteristics

Certain points about trading short-term swing trading deserve note. Understanding the nature of the method and its return characteristics will help you recognize and deal with the psychological aspects of trading this method.

When consistently following a short-term system, you should expect a high win to loss ratio. Though the objectives with this style trading are conservative, you will almost always incur “positive slippage.”  For example, buying into a test of the previous day’s low, or selling into a test of the previous day’s high gives you an edge in the slippage department that trend followers do not often enjoy.

In all systems, winners are skewed. Though swing trading is designed to make small but steady profits, 3-4 really big trades may actually make your month. Thus it is vitally important to “lock in” your winning trades. Simply put, do not give back open profits when short-term trading.  You may be surprised at just how large some winners are from catching the swings just right. 

Decision-Making

It is important to remember that every time you make a trade, you are making a decision. The more decisions you make, the more you increase your self-confidence.

You grow with each decision, yet each decision has a price.  For example, you must discard a choice, and you must commit.

Remember that conditions are never perfect. You must allow yourself to fail. Allow for human limitations and wrong choices. Reserve compassion for yourself and your limitations.

There is almost too much instantaneous information available to traders today. It is really OK to use intuition and to respect the voice inside your head, “Does the trade feel right?” If not, get out.  Learn to respect your intuition.

Golden Rules

Finally, I want to leave you with what I believe are two Golden Rules, applicable to all traders but, of essential importance to short-term swing traders:

• Never, ever, average a loss. Exit if you think you are wrong. Re-enter the trade when you believe you are right or the picture become clear again.
• Never listen to anyone else's opinion.  Only you know when your trade isn't working.