„Swing trades“ in this case refers to trades that will typically last from 2 to 5 days. You should be looking to take several points of profit out of the market with each trade. Since holding overnight can be risky, you may wish to hold fewer shares. If you normally day trade 1000 shares at a time, consider trading only 200 to 500 shares on these setups. This limits your loss potential if after-market news on the company causes it to gap open against you. Fewer shares also allow you to use a wider stop-loss (typically I to I&I/4 points) so that you don't get hurt. This also allows more room for price to move around without stopping you out of a good trade. As the stock moves in your favor you can trail the stop-loss anywhere from 1 to 1 & 1/2 points behind it.

At some point the stock may trade in your favor to a price level where you want to go ahead and take your profit. Some reasonable exit points are a price support or resistance level, the other side of the channel on a trend channel trade, or if you get a daily „reversal bar“ setup counter to the trade direction. Your risk/reward ratio should be good (i.e. 1 to 3 or better). In other words, take the best setups that have the potential to give you 3 to 5 points. This way you are risking just a few hundred dollars for a profit of 1 to 2 thousand dollars (and sometimes more). Trade these setups along with your regular day trading to add SSS to the bottom line. A worksheet of potential setups is provided later in the manual. It includes both a day trade and swing trade section for your analysis and stock picks for the upcoming trading day.

TREND CHANNEL (and trendlines)

A trend channel (for an up trending stock) is constructed by drawing a trendline through or very near 2 or more swing lows on a daily bar chart, if a line parallel to the initial trendline can be drawn through at least 2 swing highs on the chart then you have a trend channel. The tighter and more defined the channel is, the better. A stock often continues to trade within the channel if the trendiines are projected into the future on the chart, [n an up trend you can buy subsequent dips down to the bottom of the trend channel. Using confirming factors increase the odds of success. For instance, if the dip to the bottom of the trend channel also coincides with a bounce on the 50 day moving average, and / or a bounce on a price support level, and / or you get a „reversal bar“ pattern setup to buy, then the odds are stacked strongly in your favor. In a downtrend channel you would sell price rallies at the upper trendline. After entry, expectations are for price to attempt to trade to the other side of the trend channel. Near this area may be a good place to take your profits. Actual examples are presented later, but an up trending channel should look like the diagram:

1–2 MONTH BREAKOUTS

If a stock enters into a relatively tight trading range for 1–2 months, be prepared for a breakout to the upside. This is especially true if the prior trend was up, and you are in a bull market environment. The breakout day should close above the highest high of the consolidation range and trade on heavier than average volume. You should expect a several day follow-through in the direction of the breakout. This trade setup is even stronger if the stock price recently bounced up off of the 50 day moving average. Also, if the top side of the price range has a well defined resistance area, then the penetration to the upside will often be even more dramatic. This is a rough sketch of what the setup should look like.

CUP with HANDLE

This name was coined by the founder of Investor's Business Daily, William O'Neil. The chart pattern resembles the profile of a coffee cup. The cup pan of the pattern can last anywhere from several weeks to several months. The stock initially puts in an intermediate term price high, then begins selling off. After a while, buying comes back into the market pushing price up to, or very near, the earlier intermediate term hieh. This completes the right side of the cup. At this point the stock sells off again only slightly, trading sideways to down. It then trades back up to the right edge of the cup pattern to complete the handle. Be looking for a day that breaks out of the horizontal resistance area across the top of the cup and handle. This breakout begins an often substantial move up in price. Also keep an eye on volume. The setup is stronger if volume tends to decrease when price is selling off and increase when price is rallying. Here is a diagram of how price might look.

50 & 200 DAY SIMPLE MOVING AVerages

Many times the 50 and 200 day moving averages will lend to halt price. As mentioned earlier, fund managers key off of these indicators. This is where the „big money“ can come into the market and affect price. If a stock is trading above the 50 day moving average and is selling off, often it will bounce up off of the moving average line (and vice versa). Conversely, a stock that has a day which strongly penetrates up or down through one of the moving averages Typically follows through in that direction, at least for the short term (several days or longer). Knowing where the 50 and 200 day lines are for stocks that have trade setups can only help. It may be just one other confirming reason to take the trade, or it may help rule the trade out.

A CURRENTLY PROFITABLE DAY TRADE

As you near the end of a trading session you may have one or more open day trades with profit in them. Before closing them out, evaluate each of them to see if they have a strong chance of continuing their move for several more points over the course of a few days. If so, then consider selling only 700 of your 1000 shares to book the bulk of the profit. This puts money in your pocket but also allows you to participate in more of the price move.

SUMMARY

These setups for multiple day trades should be considered separate from your day trading. Sometimes, if you are taking losses in your day trades, you may want to cash in an open and profitable swing trade. Resist the temptation. Let the swing trades stand on their own, and manage them that way. In the long ran this will only add to your income. NOTE OF CAUTION: Although day trading can be risky, holding stocks overnight can be even more so for a short term trader. A 10 or 20+ point gap against you on the open just once, can really ruin a day, or a week, or a month. Trade only as many shares as you are comfortable with. Always be aware of any upcoming news or earnings on a stock that you are holding for more than one day. Also, know when economic data is being released or when the Fed meets, etc. They can cause significant market gaps that may so against your position.