Not unlike other forms of trading, successful swing trading is dependent on picking the right stocks. The best candidates are usually the large-cap stocks since they are among the most actively traded stocks and their shares will swing between broadly defined high and low extremes. The investor involved in swing trading will ride the wave in one direction for a few days or weeks and then switch to the opposite position when the stock reverses direction.

The Timing Of Swing Trading
Understanding the timing of swing trading requires an understanding of market conditions. Trading during bull or bear markets is different than trading during interim periods. Because of the longer periods of trending in bear and bull markets, the investment strategy of swing trading is different than in times of stock volatility. When the bears or bulls are running, swing trading occurs over weeks and not days since the trends are longer.

What this means is that the best condition for swing trading is when the markets are making very few gains or losses, but they are experiencing a great deal of movement. This allows investors to look at the stock prices and make more trades, since there is a great deal of entry and exit points.

Establishing The Trend
Since the key knowing where to enter or exit a trade depends on understanding the direction of the market, it is important to establish a baseline for your analysis. Most investors use the stock price history that exists in exponential moving averages (EMA). The EMA allows investors who are swing trading to see exactly what a stock is doing over a period that they define. EMA is also used in other investment philosophies such as the Sidus method as investors look for a non-emotional method to evaluate “buying normalcy and selling mania”. This means that for every investor that reacts emotionally to the market, those that are swing trading are looking at the trends and charts and relying in this information to determine the direction that will go. As we have seen all along the way, not reacting emotionally gives investors the freedom to invest wisely.

Investing wisely doesn’t mean that swing trading requires buying at the ultimate low and selling at the ultimate high. While this is the goal of how to invest in stocks, a wise trader with look to be close, but not on the absolute top or bottom of a trend. By not going for the ultimate peaks, swing trading ensures that the investor won’t be damaged by a drastic, unexpected change of direction.

Conclusion
Swing trading is a lot like surfing. Catch a wave, ride it until you see it is changing then get out and catch another. The investment timing of swing trading allows investors to do the same thing in the stock market. Using the EMA as a baseline, you can spot directional changes and successfully invest. With swing trading, it’s time to catch a wave!

This is clearly illustrated in our recent IOC recommendation. Stochastics can be seen in the oversold condition. A Hammer/Doji, as well as Spinning Tops, start to appear. Stochastics start curling back up. These signals alone provide for a good potential reversal move. However, the fact that this reversal occurred at the same level as the price bottom of late June produces additional relevant information. A double bottom is in progress. A buy recommendation can easily be facilitated. All the elements for a high probability trade are setting up and a double bottom can be forming. The first target can be anticipated, the 200 day moving average. From the $21 area to the $26 area is a reasonably good percentage move. The stop loss level is obvious, the recent lows.

IOC

Will every move produce a 15%, 30%, 60% return? Definitely not!  But the utilization of candlestick signals puts an investor in the positions where those types of moves could be occurring.

The Dow has been demonstrating some very obvious bottoming signals in the past few days. A Bullish Harami indicated that the selling should have stopped. Two days later a Bullish Engulfing signal appeared. Both of these signals occurring when the stochastics were starting to show oversold conditions produces the evidence that has been repeatedly revealed for centuries. The buyers were stepping in at these levels and reversing the trend. What is required after a bullish reversal signal? Confirmation that the Bulls have taken control of the trend. The probabilities indicate that at least a short-term uptrend should be in progress.

DOW

Now the analysis becomes what are prices going to do at the next potential resistance level, the 50 day moving average. The major advantage of candlestick analysis is being able to instantly see what investor sentiment is doing at important technical levels. 

Commodity trading - One of the important elements of commodity trading is setting stops immediately upon placing a trade. A question often asked is what if they come right back down and hit your stop? That is the biggest fear most traders have. The best answer for that is what were the candlestick signals telling you to instigate the establishment of that trade? The signal should have been revealing which direction the price should be moving. Where you have placed your stop should have been based upon the price moving in the other direction. If it came back down and took out your stop, then you should not be in the trade. They are not going to come down and take out your position because 'your' position is sitting there. The price moved in that direction because that was the direction the price was moving, and you should not be in that trade anymore. Having a stop in place eliminates having to make a decision when the trade is already in progress. Prices can move very fast in commodities. Many times if you're stop is not in place, by the time you can execute the order the price has moved way past where you should be out. Candlestick analysis demonstrates when it is time to be in a trade. Candlestick analysis also reveals when it is time to be out of a trade.

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