Trend Trading Stocks Using Technical Analysis & Swing Trading Strategies


As they looked at the weekly chart, Peter continued, "We know that the monthly trend is down - this weekly chart shows the most recent leg down that may have brought in the low for this bear market. The

remaining 30% of my Stock market allocation is used to trade shorter term trends using both this timeframe and the daily chart.

"Bearing in mind that we are looking for trades with the major trend, we are looking to enter this market as soon as it confirms that the fast move down is indeed under way again after each of the bear market rallies that typically come along every few months. I have drawn a swing chart over the bar chart to highlight the swings of the market as it moved lower.

"Tell me what you see here," Peter asked. "Again I see a down trend - the moving averages are more often than not heading down and the swing chart you have drawn over the bars is making lower tops and bottoms - the trend is definitely down," Paul replied.

"And still you held on, while billions of dollars was wiped off the value of the Stock market all around you!" Peter said. "You knew the market was going down as you are somewhat familiar with charts, why did you not do anything to protect yourself?"

"I was always told that I should hang in for the long term - that the market always came back, and that it had never failed to make a new price high after every bear market. I guess I was too scared to do anything in case I got out right at the bottom. As it turned out, I did that anyway," Paul said.

Peter continued, "Notice on this chart that the rallies were also no more than one or two bars. This indicates a very strong trend - not something anyone should be buying into or holding if they want to protect their wealth.

"There were many people buying the dips as the down trend unfolded. This strategy had worked well in the bull market, but it failed miserably when the bear market came along. Every rally failed, forcing buyers to become sellers as the trend continued down.

"Trading the market requires us to adapt - the market has seasons - if we are out of season with the market, we get crushed.

"The rallies were just traps. Every bear market has them, and every time, traders think they have picked the bottom, only to find that they have not."

Paul looked at the chart and for the first time, with the help of the swing chart overlaid on top of the bars and the moving averages set as they were, he could see how simple it was to determine the trend. Especially the last few weeks - it was certainly a panic.

"Now, let's have a look at the last few weeks to see what we can determine." Chart available at Stock Trading Review.com.

"Again, I have drawn a swing chart over the price bars on this daily chart. Once you understand swing charts, you will be able to draw these lines in your mind and you will not need to draw them on your charts any more," Peter said.

"As you can see, the moving averages are again moving down at a fair clip and the reactions to the down trend are no more than 3 bars. With the Monthly and Weekly trends strongly down, and a daily trend that is showing very weak rallies in this fashion, what else is a trader to do but short sell this market?" Peter asked.

Paul could see it clearly now, the trend was blindingly obvious -why had he not taken any notice before? There had been a fortune for the taking and he had not seen it.

"But how did you know for sure the market would turn on that day?" he asked Peter. "Ah, that is a lesson for another day my young friend. For now, lets make sure you understand trend trading first. Once you know what a trend looks like, you will be in a position to make consistent profits from the market, not before."

With that, their first meeting was over. Peter had some important visitors waiting in the reception area to discuss a Joint Venture in a property development. It was time for Paul to go.

He thanked Peter for his time and left the office. As walked out through the reception area, Peter called out behind him, "When you get home, set up all the Stocks you owned in a watchlist on Incrediblecharts.com, set it to monthly, put some moving averages on them and work out where you should have exited - that is your homework for this week. I will see you next Wednesday at 8.00am. Don't be late..."

Paul arrived home with a renewed sense of purpose.

He did as Peter ordered and as he went through his previous portfolio, he saw that he should have sold every Stock he had owned by January 2001 at the latest. He felt disgusted with himself at having not been able to see this sooner, but he consoled himself that at least now he was on the right track.

He was still apprehensive, but he had a chance to put things right for his family. He was determined to make it as a trader, and with Peter's help, he felt he could indeed succeed...

To Your Trading Success,

Tony Spann and the Team

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