Trading System/Setup for Swing Trading
About Author,
This setup has been developed by Prashant Dwivedi. He is currently a student
pursuing Engineering in Computer Science. He has been a constant market
observer for over a year now. After months of back testing and paper trading he has
poured out his experience in developing this setup for swing trading.
Disclaimer
Even after following this setup there are chances your trade to fail and you end in
losses. The point is to understand the fact that, we must not look for certainty in
one of the most uncertain asset in world i.e stocks! Analysis and researches are
done just to take the proper entry into any trade; the money is made by stiff trading
psychology and strong risk management. If you’re ready to accept this only then
go ahead with this system.
Timeframes,
The three time frames which we use to enter any trade are Monthly timeframe,
Weekly timeframe and lastly daily timeframe. Occasionally or I must say very
rarely we can also use hourly timeframe if we are not getting any entry in other
timeframes.
The System:
Now, we will see how the system works and what the steps to be followed are. I
have kept this one super simple and that’s how the money is made. Complex things
don’t lead to money but simple things do, as they say, “It’s complicated to be
Simple”.
Approach to Study the Chart:
Monthly Weekly Daily
Sector Analysis: Look at the sector index of that stock. If the overall sector is in
bullish then it is good to have a bullish call on that stock and vice-versa. Apart
from the sector index; also look at the other stocks of that sector, how they are
performing and then make your interpretations. For example, let say you have a
stock of FMCG sector and you look that FMCG has been running past one week
then it is quite safe to take bullish call in our stock. Also any breakout at such times
becomes more reliable.
Monthly:
1) Note down the overall trend of the market at present, like long term bullish
or short term bearish, etc.
2) Study the history of price,
a) Have it been taking supports at 50 EMA,
b) How regular corrections have been responded to
3) Draw the Support and resistance ranges on monthly chart so that it can be
used further.
4) Look for following patters,
a) Double Top/ Double Bottom
b) Triangle Patter ( Including Wedges)
c) Channels
d) Head and Shoulder
5) Volume Action with chart.
Weekly
1) Already have the monthly levels. Understanding the trend is Key! Do not go
against the trend.
2) Look for weekly support and resistance levels
3) Look for patters in weekly charts
4) Look for the BREAKOUT/BREAKDOWN on weekly chart.
5) Rules for BO/BD
a) Order: A prior trend Congestion Area BO?BD
Rounding Bottom !
b) If trend is very steep then it is quite risky! For steep trends, the presence
of congestion area becomes important. If the stock breaks directly in a
straight line fashion then wait for pull backs as shown in fig.1 below.
Good Risky
c) Pull backs: The Pullback should not cross the level which it has already
broken to give the BO/BD
Good Risky ( as the level is
breached)
d) Volumes are always high at the time of breakout. This might be because
the people who have placed there orders would have put there TARGET
at such resistance levels, and all such orders will be executed there and
this will automatically create the Volume spike. Thus volume spike not
always means a BO/BD. Look at the BO rules above to confirm the BO
e) Volumes play a vital role in breakouts when they are interpreted by in
proper manner and not like the way discussed above. Breakout becomes
more and strong when the upcoming trend towards the BO line, is
accompanied by the strong volume actions as compared to the volumes
prior the trend. This indicated that, big institutions are in action and thus
breakout will be much more strong.
f) When there is a small pullback then we may see small contraction in
volume. Small-Small candle formation, a lot of congestion and then a big
green/red candel.
Daily
1) Use daily frame for the entry into any trade
2) Look for daily levels. These levels will give you the entry
3) Daily Patters
4) Daily BO/BD
Note on SR Levels:
1) The more times Support or Resistance (SR) is tested, the weaker it becomes
2) Support and Resistance are areas on your chart (and not lines)
3) Support and Resistance can be dynamic
4) Support and Resistance are the worst places to put your stop loss
Here’s how to do it in:
1. Identify the low of Support
2. Find the ATR value
3. Take the low of support minus the ATR value
5) Trading at Support or Resistance gives you favourable risk to reward
Some Good Example Charts:
1)
2) When there is an important zone in lower timeframe just below the
higher time frame then it is more likely that price will retrace upto that
level and then bounce back.
3) Cup-and-Handle pattern ( important pattern during breakouts )
5) Pre-Breakout Example
6) Price Interpretations
7) Simple Trending Stocks
8)
