Let’s say that you are receiving recommendations from MasterSwings or MrSwing
Lite and your trade is not executed on the day the order is placed. You can repeat
the process for up to 5 trading days. If the stock gaps up or down, wait the appropriate amount of time (30
minutes for a gap up and 5 minutes for a gap down) – determine the entry
and exit prices based on the current day’s prices. If the stock opens with 50 cents of yesterday’s close, the entry and exit prices
are based on the previous day’s prices.
The chart on the following page should make the trading rules clear.
After the Trade is Executed
Once the trade is executed, the exit orders are placed. The profit order – a sell limit order is placed at a price that is 7% above the
entry price. The capital preservation order – a sell stop (stop limit) order is placed at
4% below the entry price OR 6 cents below the low of the day that was
used for the trade (whichever is higher) – for a stock that opened without a
gap the previous day sets the prices; for a stock that opened with a gap, the
price action before the day (high and low) sets the prices.
As with when to trade and how to enter, the following day’s activity depends on
whether the stock gaps up/down or not. If the stock price doesn’t gap up or down,
the stop loss is changed based on the previous day’s prices. If the stock gaps up or
down, the stop loss is changed based on the current day’s prices. Whether based
on the previous day’s prices or the current day’s prices, stop loss rule is the same. When the stock opens within 50 cents ($0.50) of the previous day’s
close – if 6 cents below the previous day’s low is higher than yesterday’s
stop loss, raise the stop loss to this new price. This is known as raising the
trailing stop, which further limits the downside risk. When the stock gaps up or down 50 cents or more – wait 30 minutes
for a gap down or 5 minutes for a gap up – if 6 cents below the today’s
low is higher than yesterday’s stop loss, raise the stop loss to this new
price.
entry price. The capital preservation order – a sell stop (stop limit) order is placed at
4% below the entry price OR 6 cents below the low of the day that was
used for the trade (whichever is higher) – for a stock that opened without a
gap the previous day sets the prices; for a stock that opened with a gap, the
price action before the day (high and low) sets the prices.
As with when to trade and how to enter, the following day’s activity depends on
whether the stock gaps up/down or not. If the stock price doesn’t gap up or down,
the stop loss is changed based on the previous day’s prices. If the stock gaps up or
down, the stop loss is changed based on the current day’s prices. Whether based
on the previous day’s prices or the current day’s prices, stop loss rule is the same. When the stock opens within 50 cents ($0.50) of the previous day’s
close – if 6 cents below the previous day’s low is higher than yesterday’s
stop loss, raise the stop loss to this new price. This is known as raising the
trailing stop, which further limits the downside risk. When the stock gaps up or down 50 cents or more – wait 30 minutes
for a gap down or 5 minutes for a gap up – if 6 cents below the today’s
low is higher than yesterday’s stop loss, raise the stop loss to this new
price.
Enter the Trade
As with when to trade, how to enter depends on whether the stock gaps up/down
or not. Typically, the stock price doesn’t gap up or down and the entry price is
based on the previous day’s prices. When the stock gaps up or down, the entry price
is not based on the previous day’s prices, but on the current day’s prices. Whetherbased on the previous day’s prices or the current day’s prices, the entry rules are the
same. The most common occurrence – the stock opens within 50 cents
($0.50) of the previous day’s close – buy the stock the moment it trades
6 cents (1/16) above the previous day’s high. This can be accomplished by
using a buy stop order. This increases the likelihood that the price is moving
in the direction of the bullish (long) trade. Occasionally a stock gaps up or down 50 cents or more – buy the stock
the moment it trades 6 cents above the high of the new day. This would be
30 minutes after the market opens for a gap up or 5 minutes after the
market opens for a gap down.
or not. Typically, the stock price doesn’t gap up or down and the entry price is
based on the previous day’s prices. When the stock gaps up or down, the entry price
is not based on the previous day’s prices, but on the current day’s prices. Whetherbased on the previous day’s prices or the current day’s prices, the entry rules are the
same. The most common occurrence – the stock opens within 50 cents
($0.50) of the previous day’s close – buy the stock the moment it trades
6 cents (1/16) above the previous day’s high. This can be accomplished by
using a buy stop order. This increases the likelihood that the price is moving
in the direction of the bullish (long) trade. Occasionally a stock gaps up or down 50 cents or more – buy the stock
the moment it trades 6 cents above the high of the new day. This would be
30 minutes after the market opens for a gap up or 5 minutes after the
market opens for a gap down.
Profit and Preserving Capital
An important aspect of the Master Plan is setting a profit target and preserving
capital. The approach is fairly conservative – the profit target is approximately 7%
with a potential loss capped at 4%. The actual profit is likely to be more than 7%
while a loss is likely to be smaller than 4%. Here’s how it works. Once the target price is reached (7% above the entry price), half of the
shares are sold, locking in a 7% profit. The other shares remain invested to
benefit from any further increase in price. If the price moves against the trade, the maximum loss tolerated is 4%. This
preserves capital for future trades. Typically, more trades will produce a profit than a loss. The net result is
profit. The movement of the entire market is very powerful. When the market is
moving with your trades, a very high percentage of your trades will be
profitable. When the entire market is moving against your trade, a higher than expected
percentage of your trades will lose. The stop loss protects you from
excessive losses.
capital. The approach is fairly conservative – the profit target is approximately 7%
with a potential loss capped at 4%. The actual profit is likely to be more than 7%
while a loss is likely to be smaller than 4%. Here’s how it works. Once the target price is reached (7% above the entry price), half of the
shares are sold, locking in a 7% profit. The other shares remain invested to
benefit from any further increase in price. If the price moves against the trade, the maximum loss tolerated is 4%. This
preserves capital for future trades. Typically, more trades will produce a profit than a loss. The net result is
profit. The movement of the entire market is very powerful. When the market is
moving with your trades, a very high percentage of your trades will be
profitable. When the entire market is moving against your trade, a higher than expected
percentage of your trades will lose. The stop loss protects you from
excessive losses.
Swing Trading Patterns
To begin with, we typically restrict our selections to stocks that are at least $12 in
price, having an average (20 day) daily volume of at least 500,000 shares. Since
market makers can more easily manipulate low price, low volume stocks, we stay
away from them.
For long swings we are interested in identifying stocks that are in an uptrend. One
of the indicators we use is a simple moving average (SMA). A moving average is
simply the average closing price for a particular number of days. It’s called a moving
average because on each new day, the current day’s price is added to the average
while the oldest price is dropped. We typically focus on three moving averages,
those based on 10 days, 20 days and 50 days. All moving averages smooth the
price movement and make it easier to identify trends. It is also significant to know
where today’s price is relative to the moving averages and whether the shorter time-
frame moving average is above or below the longer time-frame moving average.
Two indicators that a stock is in an uptrend are:
Today’s closing price is above both the 10-day and 20-day moving averages The 10-day moving average is above the 20-day moving average
When looking for a long swing, we would like to identify stocks that are
experiencing a brief decline (pullback). We can identify a 3-day pullback as follows. Today’s high price is lower than yesterday’s high Yesterday’s high is lower than the high the day before
We also use a technical indicator developed by Dr. Alexander Elder called the Force
Index. This index combines the magnitude of the price change with the direction of
the change and the trading volume. In order to confirm the relative force behind an
uptrend and a pullback, we use a 3-day moving average and a 13-day moving
average of the Force Index. The following conditions demonstrate that the bears
have been winning the short-term battle while bulls are dominating the longer
frame: The 3-day moving average of the Force Index is less than 0, and The 13-day moving average of the Force Index is greater than 0
Another technical indicator we like to use is the Directional Movement Index (DMI)
that was developed by J. Welles Wilder Jr. It is used to determine whether a stock is
trending or not trending (i.e., moving sideways). In SwingTracker we provide the
two components of this indicator – the Positive Directional Index (+DI) and the
Negative Directional Index (-DI) – along with a 20-day moving average based on
these two measures (ADX). An uptrend is confirmed if … ADX is higher than 30 +DI is greater than –DI
Our most successful pattern recognition formulas are available to all visitors (free of
in the SwingLab section of the web site. You can
charge) at www.mrswing.com
copy the formulas into SwingTracker and scan all listed stocks at any time.. These
are the same formulas that provide the MasterSwings recommendations. The
formulas will be built into the next version of SwingTracker.
price, having an average (20 day) daily volume of at least 500,000 shares. Since
market makers can more easily manipulate low price, low volume stocks, we stay
away from them.
For long swings we are interested in identifying stocks that are in an uptrend. One
of the indicators we use is a simple moving average (SMA). A moving average is
simply the average closing price for a particular number of days. It’s called a moving
average because on each new day, the current day’s price is added to the average
while the oldest price is dropped. We typically focus on three moving averages,
those based on 10 days, 20 days and 50 days. All moving averages smooth the
price movement and make it easier to identify trends. It is also significant to know
where today’s price is relative to the moving averages and whether the shorter time-
frame moving average is above or below the longer time-frame moving average.
Two indicators that a stock is in an uptrend are:
Today’s closing price is above both the 10-day and 20-day moving averages The 10-day moving average is above the 20-day moving average
When looking for a long swing, we would like to identify stocks that are
experiencing a brief decline (pullback). We can identify a 3-day pullback as follows. Today’s high price is lower than yesterday’s high Yesterday’s high is lower than the high the day before
We also use a technical indicator developed by Dr. Alexander Elder called the Force
Index. This index combines the magnitude of the price change with the direction of
the change and the trading volume. In order to confirm the relative force behind an
uptrend and a pullback, we use a 3-day moving average and a 13-day moving
average of the Force Index. The following conditions demonstrate that the bears
have been winning the short-term battle while bulls are dominating the longer
frame: The 3-day moving average of the Force Index is less than 0, and The 13-day moving average of the Force Index is greater than 0
Another technical indicator we like to use is the Directional Movement Index (DMI)
that was developed by J. Welles Wilder Jr. It is used to determine whether a stock is
trending or not trending (i.e., moving sideways). In SwingTracker we provide the
two components of this indicator – the Positive Directional Index (+DI) and the
Negative Directional Index (-DI) – along with a 20-day moving average based on
these two measures (ADX). An uptrend is confirmed if … ADX is higher than 30 +DI is greater than –DI
Our most successful pattern recognition formulas are available to all visitors (free of
in the SwingLab section of the web site. You can
charge) at www.mrswing.com
copy the formulas into SwingTracker and scan all listed stocks at any time.. These
are the same formulas that provide the MasterSwings recommendations. The
formulas will be built into the next version of SwingTracker.
Master Plan
The Master Plan is a set of rules that determines when to enter and exit a trade. At
first, it might seem a little complicated, but once you have place a few trades using
the system, you’ll realize it’s really quite simple. The best part about the Master
Plan is that you don’t need to use judgment. The rules are mechanical. Two
obstacles to successful trading are the human emotions of fear and greed. By
following the Master Plan, these emotions will not influence your behavior, nor will
they interfere with your success.
To keep it simple, we’ll first focus on the long trade. The rules for a short trade are
simply the mirror image of the rules for a long trade. An example of a long swing
opportunity is shown below. The price has declined (pulled back) and you are bullish
on the stock.
first, it might seem a little complicated, but once you have place a few trades using
the system, you’ll realize it’s really quite simple. The best part about the Master
Plan is that you don’t need to use judgment. The rules are mechanical. Two
obstacles to successful trading are the human emotions of fear and greed. By
following the Master Plan, these emotions will not influence your behavior, nor will
they interfere with your success.
To keep it simple, we’ll first focus on the long trade. The rules for a short trade are
simply the mirror image of the rules for a long trade. An example of a long swing
opportunity is shown below. The price has declined (pulled back) and you are bullish
on the stock.
Risk Statement
HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS,
SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE
THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES
SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP
DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE
ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING
PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE
RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF
HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE
FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY
ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR
EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR
TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH
CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE
NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO
THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE
FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL
PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL
TRADING RESULTS.” TRADING IN COMMODITY FUTURES OR OPTIONS INVOLVES
SUBSTANTIAL RISK OF LOSS.
THIS RISK STATEMENT APPLIES TO ANY ILLUSTRATION OF PROFIT AND
LOSS CONTAINED WITHIN THIS PUBLICATION. IT SHOULD ALSO BE NOTED THAT
STOP LOSS ORDERS DO NOT NECESSARILY LIMIT LOSSES OR LOCK IN PROFITS.
DEPENDING UPON MARKET CONDITIONS, STOP LOSS ORDERS MAY BE
EXECUTED AT PRICES SUBSTANTIALLY BELOW OR ABOVE THE SPECIFIED STOP
PRICE.
SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE
THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES
SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP
DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE
ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING
PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE
RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF
HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE
FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY
ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR
EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR
TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH
CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE
NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO
THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE
FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL
PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL
TRADING RESULTS.” TRADING IN COMMODITY FUTURES OR OPTIONS INVOLVES
SUBSTANTIAL RISK OF LOSS.
THIS RISK STATEMENT APPLIES TO ANY ILLUSTRATION OF PROFIT AND
LOSS CONTAINED WITHIN THIS PUBLICATION. IT SHOULD ALSO BE NOTED THAT
STOP LOSS ORDERS DO NOT NECESSARILY LIMIT LOSSES OR LOCK IN PROFITS.
DEPENDING UPON MARKET CONDITIONS, STOP LOSS ORDERS MAY BE
EXECUTED AT PRICES SUBSTANTIALLY BELOW OR ABOVE THE SPECIFIED STOP
PRICE.
Large Block Index
The Large Block Index is calculated from the number of upticks and downticks in
large block transactions of single trades of 10 000 shares and over. An uptick is at a price
higher than the last previous trade and initiated by a buyer. A downtick is at a price lower
than the previous trade and initiated by a seller. The rationale behind the Large Block Index
is quite simple. It measures activities and extremes in institutional sentiment and behavior.
When the ratio of upticks rises to very high levels, it indicates that the institutions are buying
heavily, reaching a fully invested position and therefore lowering their cash reserves.
Conversely, when the ratio of downticks rises to high levels, it indicates that the
institutions are selling and are raising cash. When the institutional behaviour reaches
extremes, the market will turn in a contrary direction. This indicator has often signaled major
reversals and has also prevented investors from plunging into the market at the wrong time.
The chart below shows you this indicator on a 10-day moving average.
large block transactions of single trades of 10 000 shares and over. An uptick is at a price
higher than the last previous trade and initiated by a buyer. A downtick is at a price lower
than the previous trade and initiated by a seller. The rationale behind the Large Block Index
is quite simple. It measures activities and extremes in institutional sentiment and behavior.
When the ratio of upticks rises to very high levels, it indicates that the institutions are buying
heavily, reaching a fully invested position and therefore lowering their cash reserves.
Conversely, when the ratio of downticks rises to high levels, it indicates that the
institutions are selling and are raising cash. When the institutional behaviour reaches
extremes, the market will turn in a contrary direction. This indicator has often signaled major
reversals and has also prevented investors from plunging into the market at the wrong time.
The chart below shows you this indicator on a 10-day moving average.
Short Term Trading Index
The Short Term Trading Index was invented over 30 years ago by Richard Arms and
is also known as ARMS Index. It is calculated by dividing advancing issues by declining
issues and advancing volume by declining volume. The first result is then divided by the
latter and the result is the TRIN. If the index is above one, the average volume of stocks
that fell on the NYSE was greater than the average volume of stocks that rose and vice
versa. But it is most confirmative when it reaches extremes. This indicator rises sharply
when the market is most depressed and selling is climaxing, and falls to very low levels
during buying frenzies.
is also known as ARMS Index. It is calculated by dividing advancing issues by declining
issues and advancing volume by declining volume. The first result is then divided by the
latter and the result is the TRIN. If the index is above one, the average volume of stocks
that fell on the NYSE was greater than the average volume of stocks that rose and vice
versa. But it is most confirmative when it reaches extremes. This indicator rises sharply
when the market is most depressed and selling is climaxing, and falls to very low levels
during buying frenzies.