Stillkicking's Rules for Swing Trading

[stillkicking]

I will be updating this from time to time. Enjoy!

- know the business you are buying or do not buy it

- wait for your opportunity to buy... you do not need to trade every day

- only buy at the perceived normal price and not any higher
(apply a TPO* profile to a five day chart and take your entry point at the lower price mark from that study)

- add in batches, not all at once

- stick with thinly traded, highly liquid stocks or the price will never move.

- plan to exit your position within 3 to 5 days or you might get stuck

- take your profits like you buy... in batches... and try hard to avoid the greed factor

- never tie up all your cash in trades (I do not have or want a margin account) or T+2 will hang you up

- the average return on a mutual fund is 12% annually so if you cannot do much better than that, give up trading


*Time Price Opportunity

Updated: 12/26/18

Attached is my Excel spreadsheet layout. I use this to keep track of my stock purchases, sales and profits. Helps me greatly to have this information. Feel free to download and modify to meet your needs.

 

[stillkicking]

I use a simplistic version of market profile by applying the TPO profile I mention in my post.

 

[stillkicking]

Here is a sample TPO profile for a stock I follow.

The bottom price in yellow ($5.12) is the entry point. That point or lower is a safe price to buy this stock at this point in time. Remember, this is a five day chart. The price you see in red ($6.20) is called the POC or Point of Control. This is the price where 70% of the trading took place, again, over the past five trading days. Finally, that top yellow price ($6.44) is the highest price traded during the same time period.

So, assuming you can get in at that $5.12 price on the day after this period you have a fairly certain (if there is such a thing with trading) opportunity to take some profit before the price reaches that 70% trading level of $6.20 in the next two to three days. After that, all bets are off and you will need to create a new TOP profile going back five days from there.

This profile (this is the one generated by ThinkorSwim) can be applied to any stock you wish to trade. Not all of them will have such a wide spread and in that case you need to decide if there is enough movement to warrant entering a trade. In other words, will there be enough up side* to justify tying up your capital for only a small potential gain. Either way, the TPO profile is a great way to see what the potential is before going any further.

With TOS, I can set up multiple five day charts each running a TPO price profile. They will each advance automatically on the next day so I always have the most current five day profile to read. From those screens I can select one to place in a larger screen (I use Alt + 1, Alt + 2 to switch between screens as I have only one monitor) running as a one day, one minute chart. This one has the Level II and Time and Sales running, as well. I use this as my trading (buy/sell) screen. The TPO will not show up there (unless I want it) so I can expand the chart to make it easier to see the candlesticks.

I'm sure some of you more experienced traders will think this is just too simplistic of a system to actually work. All I can say is try it. You may be surprised. For the new traders coming in to the market, this is a great way to test your paper trading ability before paying hundreds of $$ for the many get-rich-quick systems out there.

*up side: I do not short stocks. I feel it is anti-American to bet against a business. All my trades are positive.

NOTE: The stocks I trade I have been watching for several weeks so I know them fairly well. I use this method for swing (multi-day) trading. I would not suggest using this technique for a day trade on a stock that may be gapping up or is showing increased volume unless you know that stock's price history.

 

[stillkicking]

The two hour widow of opportunity:

Most of the movement for the stocks I seem to follow happens in the first two hours of the morning between 9:30 am, when the market opens, and 11:30 am. After that the stocks tend to trade sideways. Since I do not try to day trade, the rest of the day offers me little real opportunity.

I will place multiple price alerts on TOS and have them sent to my phone just in case.

 

[J_C_Anderson]

Sometimes there are interesting mid-day opportunities.
If it is the first day the news/earnings released, the perfect entry point would be in the morning, but there could be some low-risk entry points in the middle of the second or the third day (near the support level).

 

[NVP]

hey there

I must admit i do use POCs at times in my trading ...it can be useful

 

[stillkicking]

Sometimes there are interesting mid-day opportunities...

I agree completely. For me, though, it comes down to the best use of my time. I run a business from my home (not trading related) so spending all day staring at my screen takes me away from my other work. I also found that the longer I sit here the more chance I will trade out of boredom and buy a stock I have not researched.

I have a few of those I'm sitting on now : (

 

[stillkicking]

I found a financial news agregator site the other day that I like very much. It is made specifically for us traders by a trader in the UK. Has a ton of news sources that they pull in via their RSS feeds. You put in your stock watch list and instantly you get back all the news coverage for those equities in order of the time they were released. Certainly much easier than having to go to each site on your own.

The program updates automatilcally so no need to keep hitting the page. The best part is, it's free.

http://www.cityfalcon.com

For the record, I have nothing to do with this web site.

 

[stillkicking]

Let me offer up a great example of using the TPO I wrote about, above.

If you had bought NBEV yesterday at the end of day when the price had hit the lower yellow TPO price line, you could have sold it for a profit of 60 cents per share less than 24 hours later. Not a bad deal.

Now, do they all work as nice as this, of course not. However, it appears to me at least, when they hit that lower TPO price line it's as if they do not want to be there and they tend to move up soon enough.

BTW: I detail my trading system, here: Swing Trading System

 

[stillkicking]

Been trying my hand at scalp trading of late. Was getting as bit bored watching my swing trades so I took the plunge. Been doing very well so far so will share what I'm doing in case others have any interest. Your feedbck is appreciated.

I described my trading system above so you know I have a rather simple but, I feel, very effective little setup that works and works well at minimal expense. More $$ in my pocket at the end of the day.

Scalp trading involves making a quick move in and out of a stock under momentum. Since I have a cash account with Ameritrade I'm stuck with this crazy T3/T2 delay in having access to my cash after the trade is closed. Total BS in my opinion but it means I cannot make trades unless my money has cleared and is back in my account. I will live with that, for now.

I use Finviz Elite (the paid version) to find my two or three penny (under $5) stocks to watch for the morning. After 9:00EST the screen will update with the volume and percentage movers for the day. I'll take the top three and load them into ThinkorSwim using their multiple chart screen layout. I tend to lean towards biotechnology stocks as they usually have some news catalyst that is making them pop this morning.

So, then I wait for the bell and watch those three stocks to see which one is most likely to be the one to take off, first. This will take some time but usually by 9:45 it is fairly clear to me which horse I should put my money on. I move that stock to the full screen view in TOS, where I trade from. I have the chart set to 1 minute bars.

I'm most concerned about the volume at this early point. I want to be in that one stock that all the other small time traders like me are going to be in for today. I want to see some decent green (positive) volume bars so I have a confirmation this is where I want to be. I wait for the first (or second) pullback in the price. I'm looking for that first green bar to break the high of the nearest prior red bar. That's my entry point. I place my trade and wait.

I am also closely watching the S&P futures chart... called the /ES chart in TOS. Which way the leading tail of that line chart is pointing tells me the direction the stock will be moving.. or just trade sideways for a bit. You need to be able to see the real time charts, not just the price.

I'm not greedy. If I can get 20 cents I'll take that. On 1,500 to 2,000 shares that's a cool $300 to $400 for about 30 minutes of work. I'm in and out by 10:15 or so.

Here is my one scalp trade for today.

Let me add... you cannot see it on this truncated chart... but you will generally see a pop up after 2:00 on these momentum stocks. This one took off slowly up to just under a dollar but some others I checked made a dramatic shot up right after 2PM.

Make sure to watch for that! You may have another shot later in the day for some very quick profits. I'd set a sell stop, if I was you.

 

[stillkicking]

Dollar Cost Average your way out of a bad trade:

So, you bought 100 shares of stock XYZ for $3.00. The stock has since gone south on you and is now trading between $1 and $2. While it has some history at price levels greater than what you initially paid you'd rather try and get out as best you can and put your money elsewhere.

If you are a cash trader, as I am, you have three choices.

1) Sell the stock at a loss and lick your wombs

2) Sit on it and hope it comes back at some point down the road

3) Dollar Cost Average your way out of this mess

Dollar cost averaging simply means taking the total amount you invested in the stock and applying that against what you finally paid for it. Right now, you paid $300 (plus commissions, but we will forget that for this exercise) for the 100 shares you now own. The stock is trading much lower. You can purchase more shares at the lower price level in the hopes of selling all of them at price somewhere in the middle.

Example:

You have 100 shares at $3 for a total investment of $300

You wait for the price to drop to, say, $1 and buy 200 shares bringing your total investment to $500

Your dollar cost average for the purchase of XYZ is now $1.67 and is now below the the recent range of $1 to $2.

You wait for the price to exceed your $1.67 per share price and get out.

You might even turn a small profit or at least cover your commissions.

I have a free phone app called Stock Target Calculator that computes this for me but you can find calculators on-line that do it, as well.

The advantage of not selling at a loss protects you from any potential wash sales should you decide to buy the stock back at later date.... in less than 30 days.

 

[NVP]

its called a stop loss............a bit like condoms ...

anyone not wearing one had better be ready to expect the inevitable consequences over time

N

 

[malaguti]

Here's a real scenario..a little over 10 years ago a few people i know owned shares in RBS. It was their retirement fund. it was the royal bank of scotland what could go wrong? It started going down, so they bought some more, it went down some more, they bought some more..
basically what you've just suggested. now they still have their shares, the market has somewhat recovered RBS never will. they are now still working because of an incredibly ill conceived thought process that because it was high once, it will be high again

i really hope this isn't your retirement plan, and i hope these few words might spark a change in your "strategy"

 

[stillkicking]

Typical TPO Profile Swing Trade

Here is a chart for VTVT, a bio-tech company I have bought and sold before. Today, the stock dropped below the TPO low "BUY" price of $2.50. I bought 500 shares at $2.47.

I have my sell set for $2.67, the high level of the TPO. I also have an alert set for $2.60. When the stock's price reaches that level I will be notified. At that point, I can choose to move the sell price higher or leave it where it is. As you can see from the chart, the stock was above $2.75 only 5 days ago so not much of a stretch for it to get back to my sell point. It has done so, time and time again.

Normally, I would enter with a much higher share size. That way, as in this particular case, the sell point of only .20/share would net me a much higher pay out. As a cash trader I'm always having to wait T+2/T+3 for my sells to clear and the money to be available, again.

This is a simple way to take advantage of the TPO Profile with a better than average of success in the short term. As I have stated before, you need to know your stocks. Only follow a few that you know you can trade into and out of.

I always have one or two I can be in at any given time while the others I follow retreat back to their TPO low point.