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Hello guys, I'm starting to swing trade commodities, especially soft commodities (corn, sugar, coffee, cotton, soybean, ...). I'm also checking gold and oil. My problem is I'd like to know what is the best broker for trading those markets (regulated, large commodity choice) ? For CFD trading. I'm thinking of IC MARKETS who are very good with forex and have good trading conditions. The concern I have is that I need a broker that offers MT4 as a platform, and also I'd like to be able to open mini lots positions for a better risk management. As a swing trader, I'm less concerned by the spread but looking at the financing fees. Wish you have a nice day, and thanks in advance. Alexandre.

Scanning for reliable chart patterns is obviously one of the most important factors that determines which stocks and ETFs traders should buy. However, just because a stock has a bullish chart pattern does not mean you should automatically consider buying it. In addition to assessing overall market conditions, you must also determine if every potential stock trade also has the proper amount of volatility and liquidity. Read on to learn how to consistently choose only stocks with ample volatility, liquidity, and reliable chart patterns (the “triad of trading profits”), which directly impacts your long-term trading gains. The Perfect Balance In our style of stock trading (short to intermediate-term swing), we look to trade with the prevailing trend, which is usually in the direction of the 50-day moving average. When the market is in trend mode to the upside, it is important to expose our capital to as many bullish situations/setups as possible, in order to maximize trading profits. To do so, we focus on swing trading stocks that are volatile enough to produce gains of 20% or more in a short period of time, which allows us to rotate the portfolio, and again, maximize profits. Nevertheless, the process is not as simple as building a portfolio of the most volatile stocks in the market and letting the chips fall where they may. The goal in selecting the best stocks to buy (in a bullish market) is to achieve the perfect balance between volatility, liquidity, and reliable chart patterns. Finding The Triad How we screen for a stock that has the winning triad of volatility, liquidity, and chart pattern reliability is actually easier than it may sound. Volatility To determine the true volatility of a stock, we utilize a simple and highly effective formula known as the Price/ATR Ratio. When using a trading platform like TradeKing or TradeMONSTER (get free trades for 60 days), we start by displaying the ATR (average true range) of a stock. An objective, technical measurement of a stock’s volatility, ATR is calculated as the greatest of the following: *current high less the current low *the absolute value of the current high less the previous close *the absolute value of the current low less the previous close Put another way, ATR basically measures the average intraday trading range of a stock. We use a 40-day ATR, which tells us the average daily volatility of a stock, as averaged over the past 40 days. To balance out the effect of higher priced stocks automatically having a greater trading range because of their high prices, we next divide the last price of a stock by its 40-day ATR (average true range). For example, if a stock with a $40 share price has a 2-point ATR, it trades at 20x its ATR ($40/2). A $40 stock with a 1 point ATR trades at 40x its ATR ($40/1). With this ratio, a lower number indicates a more volatile stock than a higher number (which is better for momentum swing trading). When dividing the stock price by its ATR (Price/ATR Ratio), 40-50 is roughly an average number where most stocks will fall. However, we prefer to trade stocks with a 20-50 Price/ATR ratio. A stock with a ratio above 60 is usually (not always) too “slow” to trade. Conversely, a stock with a Price/ATR Ratio below 20 means the stock may be a bit too volatile for our tastes. Liquidity The second component of scanning for suitable stocks to trade is liquidity. To qualify as a potential swing trade with full position size, individual stocks should trade with a minimum average daily volume of at least 1 million shares. Some stocks we trade have far less than 1 million shares per day changing hands, but we always reduce our position size in such a situation. Higher priced stocks are ideal, as they allow funds to maneuver in and out of trades with ease, and you should never avoid a high-priced stock, even with a small trading account. Note that our requirement for 1 million shares per day is only for individual stocks; we have a much lower requirement for ETFs, as high average daily volume is largely irrelevant when trading ETFs. Reliable Chart Patterns The final component in the triad of stock selection is subjective and deals with spotting good-looking charts that can produce low-risk, reliable buy entry points. Fast-moving stocks require low-risk entry points, which allow us to minimize risk and maximize the reward to risk ratio for each new swing trade entry. This article is not about how to find the best and most reliable chart patterns, but this article will point you in the right direction for the third element of finding the top stocks to buy. Volatility & Liquidity In Action Based on our system, Tesla Motors ($TSLA) is an ideal stock with a Price/ATR Ratio in the 30s and plenty of liquidity: Another solid stock to trade is SolarCity Corp. ($SCTY), which is nicely volatile with a Price/ATR Ratio of just 23: With a Price/ATR Ratio of more than 70, Cisco Systems ($CSCO) is too slow for us and is an example of a low-volatility stock we would not look to trade: With individual stocks, we usually pass on trade setups with a Price/ATR Ratio over 50. The ratio can be a bit higher for ETFs, which are generally slower-moving than stocks, but you should avoid ETFs trading with a Price/ATR Ratio of more than 80-90. The iShares Long-term T-Bond ETF ($TLT) is, for example, an ETF we would typically not look to trade. Although it is high-priced (which is generally good), it has a very low ATR. As such, the ETF trades at a price of 118 times its ATR. With a Price/ATR Ratio of 118, $TLT is simply too slow to trade: Are You Maximizing Your Potential Trading Profits? Unless you have the luxury of a trading account with virtually unlimited funds, it is crucial to scan for stocks that provide you with the most potential “bang for the buck” (highest profit potential when they take off). Although there may be hundreds of stocks with nice-looking chart patterns in a typical bull market, getting in the habit of checking for ample volatility (Price/ATR Ratio) and liquidity is an excellent way to further narrow down your arsenal of potential stock trades to consider.

Whenever I receive a question I think will be beneficial to other traders who may be wondering the same thing, I share the question and my reply with other traders. In this post, a trader is seeking advice on how to size positions within his portfolio, and also clarification on whether or not the share price of a stock is important. His questions are below, followed by my actual reply… Hi, I signed up for a 3 month stint with your company. I think it is worth at least three months to see if it fits my lifestyle. So far I like the approach you have. It is a cautious approach, which is what I need. I think the slow and cautious approach fits me well. I wonder if someone could share some philosophies with me and maybe answer some questions? I have been trading off and on for years so I have a decent understanding of how things work. I am not an expert. I do feel that the more money you have to invest per trade the better return you get on the investment. What I mean is that if you buy 10 shares of a 100 dollar stock, or a $1000 investment and that stock moves to $101 that is a 1% return or $10 which is a profit, but after trading fees that is a loss. However if you can invest $100,000 that same trade give you a $1000 profit. So the size of the portfolio does matter. I simply explain this to setup my questions. I know you guys understand the above. Honestly, my portfolio for this type of investing lingers between 25K and 30K. When I apply all your rules for the size of an investment I would typically be investing somewhere between $500 to $1000 per trade. So for stocks that trade around 10 or 11 dollars per share, I get more shares and a better opportunity to make a few hundred dollars if the swing trade is positive. Things become difficult when you suggest stocks that trade at 80, 90, or 100 dollars per share. Or even worse TSLA is above 200. Which is not a huge deal if you have a larger portfolio. Now with all of this being said, I guess I am simply looking for advice about how I should be approaching things? Or how would you approach things if you were in my position? The more money you have the easier things get, to a degree, and I do understand this. As I try to learn it helps to just hear from experts like yourselves about where my head should be at with respect to my level. Just thinking about it on my own I have wondered if I should make two or three investments that are worth 5K to 10K a piece and approach it like that. There is more risk, but with the stop loss approach I can minimize my risk to a degree. The larger investment give me a greater opportunity to make money, but it also has greater risk. Plus with my limited funds, I can’t always take advantage of a setup you suggest. Hopefully my minor confusion is something you can advise me on. Thanks, D.S. Hi D.S., Great questions. With 25-30k, you may have to stick with fewer positions to make decent gains. Maybe 4 to 5 positions at 5k each. Key here is that you want to take on more core trades when you can, which will enable you to hold stocks longer. You may still be able to take on a few swing trades, especially if you are not fully invested. So, for example, with 5 positions at 6k, you have 20% positions. Say we grab 3 full 20% positions; that will leave you with 2 empty slots. Now, those 2 empty slots can be 2 core positions at 20%…or maybe 4 quick swing trades at 5%. So you can grab 5 full, 10 half, or any sort of mix; it is a very fluid approach. When you have a full portfolio, you do nothing. If we stop out and you have a 20% position open, and the next trade is a swing trade with 33% size, maybe you take a 5-7% position. And you could even take another one until a new core position comes along and you need the money. Regarding cheaper vs more expensive stocks, it really should not make a difference [in your overall return]. Actually, if you stick with expensive stocks, you have cheaper execution cost due to fewer shares. With a $5 stock, you would need 1200 shares on a $6,000 position (resulting in $24 round trip at a broker like Interactive Brokers that charges 1 cent per share). For $TSLA [just over $200 per share], you would only need 25 shares, resulting in a $2 round trip commission fee. Now, if $TSLA were to go up 20%, then your $6,000 would increase to $7,200. Similarly, if the $5 stock rallied 20%, then your $6,000 would also become $7,200. It is the same difference [in profit]. Also, you get the added benefit of holding an “A rated” stock like $TSLA [accumulated by institutions] versus some junk stock that is cheap. Let me know if you have further questions. Regards, Rick It’s a common mistake among newer traders to shy away from expensive stocks, based on the assumption that not as many shares can be bought with a smaller account. But as explained above, this is a mistake because it does not make a difference to your bottom line; a 20% gain on a $100 stock is the same dollar return as a 20% gain on a $10 stock (actually, slightly more due to lower “per share” commission fees). Remember that expensive stocks are expensive for a reason — institutions are buying them (you should too). Also, if your trading account is not yet that large, you now have some ideas on how to be flexible with regard to buying stocks. In this case, focusing on our intermediate-term core trades may be more profitable than trying to enter all the shorter-term swing trades.

One of the main reasons we trade both individual stocks and ETFs in this swing trading newsletter is that trading the right combination of the two equity types increases our odds of being able to outperform the stock market at any given time, regardless of the dominant market trend. In strongly uptrending markets, we primarily focus on buying leading individual stocks (mostly small to mid-cap) because they have the greatest chance of outperforming the gains of the main stock market indexes. However, when the overall broad market begins to weaken, or enters into an extended period of range-bound trading, we reduce our exposure in leading stocks when they begin failing their breakouts and running out of momentum. Thereafter, we have several choices: 1.) Sit primarily in cash 2.) Begin initiating short positions in the weakest stocks 3.) Seek to trade ETFs with a low correlation to the direction of the overall stock market. Most the time, we do a combination of these three things in weak or weakening markets, the proportion of which is dependent on overall market conditions. Since our rule-based market timing model shifted from “buy” to “neutral” mode last week, we have immediately begun easing up on long exposure of individual stocks. With the NASDAQ Composite just below near-term support of its 20-day exponential moving average, and the S&P 500 right at key, intermediate-term support of its 50-day moving average, it is fair to say the broad market has NOT yet entered into a new downtrend. As such, we are not yet aggressively looking to enter new short positions at this time. However, when our timing model is in “neutral” mode, one thing we find works very well is trading ETFs with a low correlation to the direction of the overall stock market (commodity, currency, fixed-income, and possibly international ETFs). One such example of profiting from an ETF with low correlation to the stock market has been the recent performance of the US Oil Fund ($USO). Even though both the S&P 500 and Dow Jones Industrial Average fell more than 2% last week, $USO actually gained more than 2% during the same period. Because $USO is a commodity ETF that tracks the price of crude oil, the ETF has a very low correlation to the direction of the overall stock market. As banks, hedge funds, mutual funds, and other institutions were rotating funds out of equities last week, it is quite apparent these funds were rotating into select commodity ETFs such as $USO: As you can see on the weekly chart of $USO above, the ETF is now poised to breakout to a fresh 52-week high (from a five-week base of consolidation). If it does, bullish momentum should carry the price substantially higher in the near to intermediate-term. We are already long $USO from our buy entry last month, and the ETF is presently showing an unrealized share price gain of 6.5% since our original entry. However, if you missed our initial buy entry because you are not a newsletter subscriber, you may still consider starting a new position in $USO if it breaks out above the range (existing subscribers should note our exact buy trigger, stop, and target prices for adding shares of $USO in the “watchlist” section of today’s report). Two other commodity ETFs that definitely saw the inflow of institutional funds last week were SPDR Gold Trust ($GLD) and iShares Silver Trust ($SLV), which track the prices of spot gold and silver respectively. Of these two precious metals, silver is showing the greater relative strength. Check out the weekly chart of $SLV below: Notice that $SLV has convincingly broken out above resistance of a downtrend line (dotted black line) that had been in place throughout all of 2013. That breakout above the downtrend line also coincided with a sharp move back above its 10-week moving average (roughly equivalent to the 50-day moving average on the daily chart). Furthermore, last week’s rally in $SLV was confirmed by a sharp increase in volume. This, of course, indicates institutional money flow into the ETF. Like $SLV, $GLD has also moved back above its 10-week moving average (and 50-day moving average), but $SLV showed substantially more momentum and relative strength than $GLD last week. Moreover, last week’s volume in $GLD was only on par with its 50-week average level ($SLV traded nearly double its average weekly volume). Between $GLD and $SLV, the latter is definitely more appealing to us on a technical level. Now that $SLV has confirmed its trend reversal on the weekly chart, and has also formed two “higher highs,” we will be stalking $SLV for a low-risk buy entry in the coming days. Ideally, we would like to see $SLV retrace back down to near the prior downtrend line (which has now become the new support level). However, even if $SLV does not pull back that much, we will be looking for either the formation of a bull flag type pattern on its daily chart, OR a pullback that forms a bullish reversal candle (at which time we would look to buy above that day’s high in the following session). To reiterate, $SLV is NOT actionable at the moment because we do not chase stocks and ETFs that have already broken out too much above resistance. Nevertheless, most breakouts are followed by a pullback shortly thereafter, or at the very least, a short-term period of consolidation (such as a bull flag). As always, will be sure to give subscribing members of our swing trading service a heads up if/when we add $SLV to our watchlist as an “official” swing trade setup. In the meantime, don’t forget we are looking to add to $USO if it breaks out above the high of its recent consolidation. We are definitely seeing the rotation of institutional funds back into the commodities markets, which we plan to take advantage of and profit from.

On January 27, I said it was not yet time to sell stocks, but the technical situation has deteriorated quite rapidly since then. Yesterday (an FOMC day), stocks saw heavy volume selling action that produced another “distribution day” (a decline on increasing volume) in both the S&P 500 and NASDAQ Composite. In a healthy market, a few days of institutional selling over a 3 to 4-week period is normal and can typically be absorbed by demand. However, when the running count of distribution days reaches five or more, it nearly always signals a substantial correction is just around the corner. The 3-Part Test There are three main components that determine the mode of my broad market timing model, which determines whether I focus on the long or short side of the market, and how aggressively to do so. Right now, only one of those three tests is (barely) holding up. 1.) Volume Pattern Of Broad Market In the NASDAQ, yesterday was the seventh day of higher volume selling in recent weeks. As such, the volume pattern portion of my broad market timing model is now flashing a clear “sell” signal. 2.) Broad Market Trend In my January 27 blog post, I also mentioned one positive element of current market conditions was that both the NASDAQ and small-cap Russell 2000 were still holding above key support of their 50-day moving averages. But that is no longer the case. With all broad-based indexes now below their respective 50-day moving averages, the trend component of the timing model has shifted to a “sell” signal as well (though I would like to give it to the end of the week to see if the NASDAQ can bounce back). 3.) Performance Of Leadership Stocks The third and final component of our timing model, the performance of leadership stocks, is the only part of the model that is preventing the current “neutral” mode from officially shifting to “sell” mode. Still, even this portion is barely holding on. NASDAQ 4000 – Coming Soon? Taking an updated look at the daily chart of the NASDAQ (below), notice the tech-heavy index reversed lower after running into new resistance of its 50-day moving average yesterday (January 29). The index also closed near its intraday low, near the intraday low of January 27 (near-term support). If the price action follows through to the downside today (January 30), then bearish short-term momentum will likely take the index down to the 4,000 area (support of the December 2013 lows). However, a false move lower in the first hour of trading that subsequently reverses above the previous day’s high could lead to a short-term bounce: Although my newsletter is not yet in full “sell” mode, I have been laying low (in “neutral” mode) this week. But as a bonus, a positive earnings report from Facebook ($FB) has currently launched our existing long position to an unrealized gain of approximately 27% since our December 2 buy entry. The long side of the stock market is all about low volatility and steady/reliable price action. However, current conditions are quite volatile. Therefore, even if I spot new bullish setups on the long side of the market (such as $AMBA or $AL), the stock market is simply too unstable right now to add new exposure with confidence. Trade What You See, Not What You Think! Obviously, there are quite a few scenarios that could play out from here, and that is why we always shy away from predicting market action and worrying about where the major averages will go. Consistently profitable trading is all about reacting to price action, not predicting it. I can discuss different possibilities and have a plan in place, but I still have no clue what will happen tomorrow. If my timing model shifts into full “sell” signal, I will then start focusing on short selling stocks and ETFs with the most relative weakness. Nevertheless, with the market already down sharply in such a short period of time, there are simply no low-risk short entries at the moment. Chasing on the short side can be just as bad or worse than chasing longs. If you have ever been caught in a short squeeze, you know that the price action can explode higher for several days before taking a break. With the very real possibility of a significant correction just around the corner, this is a great time to review my preferred strategy for entering new trades on the short side. Upon doing so, you will surely see the importance of maintaining discipline and patience right now.

In the formative years of my trading career (late '90s), I frequently found myself scratching my head over an interesting problem. Despite analyzing the hell out of stock chart patterns, ensuring the technicals looked quite favorable before buying, I still found my trades completely going in the wrong direction way too often. Thanks to the help of a trusted trading mentor, I eventually discovered the problem; hyperfocusing primarily on the daily time frame. Although the daily chart has always been pivotal for locating low-risk buy setups, my extreme focus on that single time frame was causing me to ignore the power of confirmation from longer time frames (such as weekly and monthly charts). Put simply, I was missing the "big picture" and it was destroying my trading profits. Are you... Missing The Big Picture Too? Every technical trader has his own specific approach to scanning chart patterns and locating potential buy setups. Although I have my own, rule-based swing trading strategy, which has been thoroughly explained on my blog and nightly newsletter over the years, my trading system is just one of many types of successful trading methodologies out there. Nevertheless, there is one trading technique you (and every trader) should always use, regardless of your individual trading style: Multiple Time Frame Analysis Multiple Time Frame Analysis (let's call it "MTF" hereafter) is an extremely simple, yet incredibly powerful concept, that can be applied to analysis of stocks, ETFs, forex, futures, bitcoin, and any other financial instrument that can be charted. If you too have been making the same mistake of hyperfocusing only on the daily charts, read on to find out why you're missing the big picture of what's really happening with the stocks and ETFs you trade. Exploring For Oil On Multiple Time Frames One of the ETFs currently on my watchlist for potential buy entry is SPDR S&P Oil & Gas Exploration ETF ($XOP). Using MTF analysis, I will show you how this ETF actually landed on my swing trading watchlist. Starting with a long-term monthly chart showing at least 10 years of data or more (if possible), we see that $XOP stalled at resistance of its all-time high a few months ago. If you were buying $XOP based strictly on a daily chart with three to five years of data at that time, you probably would not have even seen the highs from 2008: Although $XOP pulled back after bumping into resistance of its 2008 high, the ETF firmly remains in an uptrend, above support of its rising 10-month moving average. Furthermore, the current base of consolidation is holding above the prior highs of 2011. The next step in my MTF analysis is to zoom in to the shorter-term weekly chart interval, where each bar represents a full week of price action: On the weekly chart, notice the 10-week moving average is trending lower, but the price is still holding above the 40-week moving average. The 10 and 40-week moving averages are similar to the popular 50 and 200-day moving averages on the daily chart. The current base of consolidation will take some time to develop, but as it chops around the 10-week moving average, the price should eventually flatten out and begin to tick higher. Finally, let's use MTF analysis to drill down to the benchmark daily chart time frame: The $XOP daily chart shows last week's price action holding above the prior swing low. If this low holds, the price action can begin to set "higher lows" with the base and form the right side of the pattern (learn more about base building patterns here). The next breakout in $XOP will likely be the one that launches the ETF to new highs on multiple time frames, which would be a very powerful buy signal. Still, if you were to only glance at the daily chart of $XOP, without taking into account the weekly and monthly chart patterns, you might understandably make the mistake of assuming this ETF is not in a steady uptrend. On the contrary, the "big picture" provided to you by MTF analysis definitely shows a dominant, long-term uptrend in place. Pullbacks and consolidations along the way, such as shown on this daily time frame, are completely normal. Why Longer Is Better Now that you understand the easy, yet crucial concept of MTF analysis, you may be wondering which individual time frame holds the most weighting, especially in the case of conflicting chart patterns. Remember, in the beginning of this article, when I told you about that problem I had when I first started trading? As I found out the hard way, a longer time frame always holds more weight over a shorter time frame. In the best, most promising stock trading setups, all three chart time frames (daily, weekly, monthly) will confirm the patterns of one another. But if that is not the case, just remember that a weekly trend is more powerful than a daily trend, while a monthly chart holds more sway than a weekly trend. Of course, you must also keep in mind that longer time frames also take a longer period of time to work themselves out. For example, daytrading based on a weekly chart pattern does not work. However, that same weekly chart is of paramount importance if you are looking to buy a stock as a core/position trade. There's no doubt in my mind that utilization of Multiple Time Frame Analysis will substantially increase your trading profits...but only if you make the decision right now to start applying this underrated technique to all your stock chart analysis.

Have you ever asked yourself, “What should be the minimum volume requirement for the stocks and ETFs I trade?” If so, you’re definitely not alone. It’s an important question, yet the answer is not black and white (despite what you may have heard from other traders). Read on and I will tell you why… What Is Average Daily Trading Volume? Why Does It Matter? Average Daily Trading Volume (“ADTV”) is a measure of the number of shares traded per day, averaged over a specific period of time (we use 50 days). While this is not a technical indicator that seeks to predict the future direction of an equity, it is nevertheless important because it helps traders to assess the liquidity of a stock or ETF. When a stock is highly liquid, you can easily enter and exit positions without directly influencing the stock’s price. Conversely, you can know which securities to avoid because they are too illiquid to trade. Knowing the ADTV of an equity is also important because it establishes a benchmark from which to spot key volume spikes that are the footprint of institutional accumulation. If, for example, a stock has an ADTV of 500,000 shares, but suddenly trades 2,000,000 shares one day, that means volume spiked to 4 times (400%) its average daily level. If such a volume surge was also accompanied by a substantial price gain for the day, it is a definitive sign that banks, mutual funds, hedge funds, and other institutions were supporting the stock. 4 Key Questions To Determine If A Stock Is Liquid Enough To Trade Although ADTV by itself could be used as a concrete “line in the sand” to determine if a stock is liquid enough to trade, there are too many other factors that play a part in that role. Following are four key questions that, when combined with ADTV, can help you to more accurately determine whether a stock can be traded or should be left alone. 1.) How Many Shares Will I Trade? (Size Matters) If you are only planning to buy 100 shares of a stock, the ADTV of an equity basically becomes a non-issue because it will be easy to liquidate such a small position, even in a very thinly traded stock. However, if you intend to buy 5,000 shares of that same stock, you need to more seriously consider whether or not it will be difficult to eventually exit the position with minimal slippage and volatility. Regardless of what you may have heard, size matters (at least in this scenario). 2.) How High Is The Average Dollar Volume? Average Dollar Volume (not to be confused with Average Daily Trading Volume) is a number that is determined by multiplying the share price of a stock times its average daily trading volume (ADTV). For example, a $25 stock with an ADTV of 800,000 shares has exactly the same dollar volume of a $50 stock with an ADTV of just 400,000 shares. In both cases, the Average Dollar Volume is 20 million ($25 X 800,000 or $50 X 400,000). For institutional investors and traders who rely on making big trades, Average Dollar Volume is a more important number than ADTV. In the example above, an institutional trader would consider both of those stocks to be equal with regard to liquidity. As a general rule of thumb, an Average Dollar Volume of 20 million or greater provides pretty good liquidity for most traders. If you trade a very large account (and accordingly large position size), consider an average dollar volume above 80 million to be extremely liquid. By knowing the Average Dollar Volume of a stock, you can lower your minimum ADTV requirement if the stock is trading at a higher price. 3.) How Long Will I Hold? Are you a daytrader, swing trader, or position trader? The length of time you typically hold stocks has a direct relationship to suitable minimum volume requirements. A daytrader who scalps for tiny 10 or 20 cent gains must limit himself to trading only in thick stocks where millions of shares per day change hands (equities with tight spreads and extremely high liquidity). On the other hand, a position trader who rides the profit in uptrending stocks for many months can trade in much thinner stocks because they can scale out of positions over the course of several days or weeks. Although I originally started as a daytrader (in the late ’90s), I now focus exclusively on swing and position trading stocks in my managed accounts and newsletter. 4.) Am I Trading Individual Stocks Or ETFs? In individual stocks, ADTV and/or Average Dollar Volume plays a big role in determining a stock’s liquidity. But with ETFs (exchange traded funds), average volume levels are largely irrelevant because ETFs are open-end funds. This means new units (shares) can be created or redeemed as necessary; supply and demand therefore has little effect. Even if an ETF has no buyers or sellers for several hours, the bid and ask prices continue to move in correlation with the market value of the ETF, which is derived from the prices of individual underlying stocks. As such, you should be much less concerned with the average volume of an ETF than with an individual stock. In my nightly stock and ETF pick newsletter, I generally use a minimum ADTV requirement of 100k-500k shares for individual stocks (depending on share size of the position), but may go as low as 50k shares for ETFs (in order to achieve greater asset class diversity). While liquidity is not of concern when trading ETFs, you should still be aware that ETFs with a very low ADTV may have wider spreads between the bid and ask prices. To remedy this, you may simply use limit orders in such situations. Since I trade for many points, not pennies, occasionally paying up a few cents does not bother me. For further details on the subject of ETFs and liquidity, check out Why ETF Trading Volume Does Note Determine ETF Liquidity. How To Easily Determine The Liquidity Of A Stock/ETF Although there are free financial websites that provide you with the ADTV and/or Average Dollar Volume of stocks, the fastest and best way to gauge the liquidity of a stock is by plotting the data on a stock chart of a quality trading platform. Below is the daily chart of SolarCity ($SCTY), which I bought in The Wagner Daily newsletter on December 19 (still long as of January 10, with an unrealized price gain of 26%): The chart above is pretty self-explanatory. The top section shows the price action (and a few moving averages), the middle shows daily volume bars and 50-day ADTV, and the bottom bars plot the Average Dollar Volume (in millions). With an ADTV of nearly 5 million shares and an Average Dollar Volume of 315 volume, $SCTY is a highly liquid stock that is “institutional-friendly.” It’s Important, But Don’t Get Hung Up If you want to avoid surprise price reactions when it comes time to close out your trades, pay attention to the ADTV and/or Average Dollar Volume of stocks. Doing so ensures there is sufficient liquidity to prevent your trades from directly affecting the stock prices. Nevertheless, you must realize that determining whether or not a stock has sufficient liquidity is not as clear-cut as merely picking an arbitrary number such as 500,000 minimum shares per day. Further, you should understand that Average Dollar Volume gives a more complete and accurate picture of a stock’s liquidity than ADTV alone. Your individual trading timeframe also plays a role in determining which stocks can be traded. Frankly, I feel many individual retail traders get too hung up about the average daily volume of a stock. Unless you’re a whale with a massive trading account, your individual transactions within a stock will usually have a minimal (if any) effect on the price. Of much greater importance is just focusing on buying leading stocks with strong institutional support (these stocks are typically quite active anyway). If a company has a history of outstanding earnings growth, or a revolutionary product that’s selling like suntan lotion at the beach, it’s even okay to buy thinly traded stocks. But just be sure to reduce your share size to compensate for greater price volatility (I always list our portfolio position size for each new stock/ETF pick.).

If you heard or read any financial news over the past few days, you inevitably found the talking heads rambling about the various implications of a potential U.S. government shutdown. As usual, the media is once again playing on the powerful human emotion of Fear, one of the 4 Most Dangerous Emotions For Traders. This newly-created investor fear over a potential government shutdown has caused the S&P 500 futures to slide about -0.8% lower as of this writing (pre-market on September 30). Understandably, several concerned subscribers to our nightly swing trading newsletter have just e-mailed us to hear our thoughts on how we would handle such news. Similarly, many traders wanted to hear our thoughts when the U.S. was on the brink of attacking Syria three weeks ago (click here to read our thoughts on that potential news at the time). So, if our fearless leaders fail to come to some agreement by midnight tonight, and the U.S. government partially shuts down for the first time in 17 years, you may be wondering… How Will We Handle The News? The answer is pretty simple; we ignore it. Yes, ignore it. During most bull markets, there is typically a “wall of worry” to climb. The details are different in every bull market, but there are usually one or two major “risk factors” that investors worry about when stock markets are trending steadily higher. At such times, traders and investors who focus on doomsday headlines from mainstream financial media sites are more than likely to be shaken out of their long positions…especially those who lack conviction in their trading system. Conversely, we intentionally distance ourselves from Wall Street chatter by focusing on individual price and volume action of leading stocks and ETFs (the only time we pay attention to news is during quarterly earnings reports). Holding through a stock market pullback is never easy, but it is NOT our job to decide when a stock market rally is over. If we approach trading with a clear and objective mindset, the stock market will always tell us what to do, based on the price and volume action of the leading stocks we are holding. If our swing trades are holding up and showing relative strength, great! We will continue seeking the best stocks to buy, while riding the gains of our existing winning positions (just as we are doing now). If, on the other hand, our ETF and stock positions sell off to trigger our protective stops, we will simply be forced into cash. The beauty of such a rule-based market timing system is that it removes all the human emotion and guesswork from trading. This increases our long-term trading profits, while also providing the added benefit of enabling us to be more calm and stress-free, regardless of what’s happening in the stock market. The #1 Habit New Traders Should Pick Up If you are new to momentum swing trading, or have had little success in the past, it is a great idea to get in the habit of planning your trades and trading your plan. You must continually attempt to identify all potential outcomes before taking on a trade. If you do, there should be no surprises once the trade is on because you realize that anything is possible, and you have already accounted for it. The idea is to worry before the trade, so that you can simply focus on executing the plan when you are in the trade. Above all, focus on the price and volume action, rather than the amount of profit or loss a trade is showing. Put another way, trade what you see, not what you think! If you make a habit of always doing the right thing, consistent trading profits will eventually and inevitably follow.

Many traders, particularly newbies, are on a continual quest to find the holy grail of trading. “If I could just find that one perfect trading system, the one that works every time, I’d be rich!” “Stock trading is too hard for me, but I know I will definitely make it big time if I start trading FOREX.” “FOREX is not working for me either, but I am certain I’ll make the big bucks once I switch to trading futures.” These and similar statements are signs that a trader is living in a fantasy world. Although Indiana Jones indeed found his holy grail (and a lion’s head), remember it was pure Hollywood fiction (albeit a fantastic work of art). I’ll talk more about the non-existent holy grail of trading later, but let’s get into the actual inspiration for this thought in the first place… A Sudden Flip Flop In Our Stock Market Bias After a few days of tight-ranged trading, stocks broke out to the upside on higher volume Wednesday (November 13), then built on those gains in the following session. The S&P 500, Dow Jones Industrials, and S&P Midcap 400 indices have all once again rallied to fresh all-time highs. The NASDAQ Composite has also broken out once more, and is trading at its highest level since the year 2000 “dot com” bubble. Although last week’s ugly selling action in leadership stocks and the main stock market indexes forced our timing model into "Neutral" mode on the close of November 6, the November 13 price and volume action in the stock market was convincingly bullish. While a few of the best leadership stocks were indeed hit hard last week, we have seen enough bullish price action this week to suggest that the market may still be able to push higher from here. The Trend Is Always Our Friend Because of the reasons above, we have placed our stock market timing model back into "Buy" mode. This does not mean the stock market will go higher from here, as the possibility for false breakouts in the major averages still exists. Nevertheless, with most leadership stocks still holding up well, we do not mind taking a few new shots on the long side. If new stock and ETF swing trade setups in our momentum swing trading newsletter trigger for buy entry and extend higher, then we will look to add more long exposure as new setups develop. If, however, our setups trigger for entry and quickly fall apart, we will simply be stopped out and forced back into cash. MTG Market Timing Model – Simple And Effective The core of our model for timing the stock marke (a key component of our Wagner Daily newsletter) is primarily based on the three elements below: * Accumulation/distribution patterns in the S&P 500 and NASDAQ Composite * The trend of all major averages – Are the S&P, NASDAQ, and Dow making ‘higher highs” and “higher lows” on the daily charts? Are they trading above their 50-day moving averages? * Price and volume action of leading stocks – This component is the heaviest weighting in determining our overall market bias * As you may have surmised, the composition of our market timing system is not fancy, but is quite effective and has a solid track record for accuracy. Still, determining the proper bias for the timing model requires a bit of elbow grease (scanning through tons of charts every night), as well as some discretion. Although many traders are on a quest to find the “holy grail” of trading systems, it simply does not exist. For example, absolutely no system in the world for timing the market works 100% of the time. Once a trader learns to accept that no trading strategy is perfect, and begins to understand that one only needs to slightly skew the mathematical probabilities in one’s favor to be a consistently profitable trader, only then can true progress be made.

After suffering a nasty, two-day decline on October 8 and 9, the stock market ripped higher on October 10, closing the day with massive gains of more than 2% across the board. Feeling a bit of whiplash lately? While the big gains with bullish closing action on October 10 were a positive sign for the market, that powerful and sudden reversal immediately put traders who just stopped out of stock trades into regret mode, one of the Four Most Dangerous Emotions For Traders. Driving A Car While Staring In The Rear-View Mirror Is Hazardous To Your Health Regardless of whether or not you sold your stocks at lower prices and are now feeling regret, let’s get one thing straight… This is not the time to be worrying about what happened in the past because you must be focused on what is happening NOW! Whenever traders mentally struggle over whether or not they made a correct trading decision, such as if they bought or sold at the right time, they will often be wrong…but that’s completely okay! What is not okay is to STAY wrong! If you’re wrong, simply move along. During the whipsaw action of October 8-10, you may have found yourself stopped out of a stock position that subsequently made an abrupt u-turn and once again looks to be in good shape. If this happened to you, the correct thing to do is to calmly and objectively jump back into the trade (even if you need to reduce your share size a bit to make that happen). The current daily chart of Michael Kors ($KORS) is a good example of a stock that can be re-entered, even if the trader was recently forced to sell: When $KORS sliced through key support of its 50-day moving average on October 8, it undoubtedly triggered many sell stops (which was the correct thing to do). However, just two days later, $KORS jumped back above support of 20 and 50-day moving averages, and back into its prior range. As long as $KORS holds the newly reclaimed support levels, it is valid to re-enter the stock (regardless of one’s previous outcome in the trade). Remember that each new trade entry is completely independent of itself. Furthermore, we have learned over the years that trade re-entries (after stopping out because we bought too early) are often the most profitable trades because the “shakeout” absorbs overhead supply that would have otherwise created additional resistance on the way back up. Just one note of caution, though, with regard to re-entering trades: Don’t confuse re-entering a bullish stock with “revenge trading,” which occurs when a trader re-enters a stock that fell apart, but still has not shown a valid technical reason to get back in (ego, be damned). Now What? Yesterday’s strong gap up was certainly a bullish sign, and we could see a solid, broad-based rally develop if the recent lows in the major averages hold up. Unfortunately, yesterday’s volume was lighter in both exchanges, meaning the rally was not led by banks, mutual funds, hedge funds, and other institutions. Nevertheless, with so many stocks changing hands the past few days, it’s quite apparent that buyers were stepping in to accumulate leading stocks off the lows. Just check out the charts of $LNKD, $KORS, and $TSLA to see what we mean. Although we reduced our long exposure on October 8, our remaining stock positions are still in pretty good shape. U.S. Silica Holdings ($SLCA), for example, has shown incredible relative strength over the past few days, as the stock basically ignored the October 8 sell-off. Below is an annotated chart of $SLCA that we recently posted on our new Google+ page: When a stock breaks out with strong price and volume action, it is always a very bullish sign. In fact, price and volume are the two most important and powerful technical indicators at a trader’s disposal. We all have the urge to lock in profits at times, but to make the big money in trading, one’s focus must simply be on consistently doing the right thing. If a trader does so, the large profits will eventually follow. Overall, we feel that $LNKD, $KORS, $YELP, and $TSLA are the top dogs in this market right now, and are “must own” stocks for institutions. As of now, we view the recent shakeout action as a buying opportunity (with stops placed beneath that week’s lows). Either the lows of October 8 and 9 hold up, or the market will end up going much lower over the next few months. As always, remember to trade what you see, not what you think!

Have you ever prepared to buy a momentum-driven breakout on a stock that formed a great chart pattern (such as a cup and handle), but for whatever reason you missed the entry point on the day the stock breaks out? If you are like most swing traders (including ourselves), that has probably happened to you on numerous occasions. Indeed, it can be frustrating to watch a stock on your watchlist rally sharply higher on the day of the breakout, without you in it. But since breakout stocks usually pullback just a few days later, there is no need to panic. Instead, patient and astute traders can profit from trading these breakouts by simply buying the first pullback. Read on to learn an easy, yet highly effective way of buying pullbacks of strong stocks. 3 Breakout Stocks We Bought On A Pullback In September of 2013, we posted two videos that clearly explained our winning strategy for buying pullbacks of the best stock breakouts. 1.) On September 10, we walked you through our recent pullback entry into Yelp ($YELP), which we are still long in the model portfolio of our Wagner Daily newsletter. Presently, the $YELP trade is showing an unrealized gain of 35.3% since our original buy entry point. 2.) Then, in our September 18 blog post, we detailed how we used the same trading strategy to buy LifeLock ($LOCK) on a pullback. That momentum swing trade has since been closed for an average gain of approximately 17% (trade was closed with two separate exit points). 3.) Now, we bring you a third video that explains how we recently bought Mercadolibre ($MELI) on a pullback, a few days after the stock broke out from a chart pattern that was similar to a bullish cup and handle. We’re still holding $MELI from our original buy entry and the trade is up just over 10% as of the October 25 close. Below is the link for the YouTube video. For best viewing quality, click the square icon on bottom right side of the video player window to view in full-screen mode: Compared to other breakout stocks we’ve recently bought (such as Silica – $SLCA), the price momentum in $MELI has not been overly impressive (so far), but we believe the video has high educational value regardless. What do you think? By the way, just to eliminate any possible confusion, the video above was actually uploaded to our YouTube channel back on September 30 (which is why the current price of $MELI is higher than shown in the video).

On July 2 of this year, we bought Guggenheim Solar Energy ETF ($TAN) in our swing trading newsletter. Three months later, we sold those shares of $TAN for a cool price gain of 44.3%. In this trading strategy article, we detail the top 4 technical tips that prompted us to buy $TAN when we did. Then, we walk you through to the day when we eventually exited the trade to lock in the profits. Here’s a snapshot of how the daily chart of $TAN appeared at the time of our initial trade entry. The 4 reasons we bought this ETF immediately follow: 4 Big Tips For ETF Traders 1.) Sector Relative Strength - As detailed in my first ETF book, one of the first steps of my ETF trading strategy is to identify the industry sector showing the most relative strength to the benchmark S&P 500 Index. In early May, the relative strength of the solar energy sector became very apparent to us, prompting us to add $TAN to our watchlist for potential trade entry. 2.) Uptrend Confirmed - When a stock or ETF breaks out to the upside, we have a basic trend qualifier that we utilize in order to confirm a valid uptrend is in place before tending to buy the stock. Specifically, the 20-day exponential moving average must be above the 50-day moving average, and 50-day MA must be above the 200-day MA. Additionally, all three moving averages must be trending upwards. Although $TAN initially pushed above its 50-day MA back on April 8 (the big green bar accompanied by the volume spike), it wasn’t until mid-May that $TAN met our trend qualifier requirement. 3.) Big Volume Breakout - The best breakouts are always accompanied by increasing volume in which turnover spikes to 2 to 3 times its average daily level. After mid-May, when bullish momentum really started pushing tan higher, notice how volume picked up as well. Such volume spikes are like stepping on the gas pedal for a breakout, and help to confirm the legitimacy of a breakout as well. Unlike other technical indicators that frequently give false readings, volume is the one indicator that never lies. 4.) First pullback to 50-day MA - Because of the relative strength in the solar energy sector, the high volume breakout, and the trend qualifier requirement being fulfilled, we knew we had to buy $TAN. It then became a matter of simply waiting for a proper, low-risk entry point. Rather than chasing the price of the ETF after the initial breakout, we simply waited for a pullback that would give us a low-risk buy entry point. Specifically, we were looking for an “undercut” of the 20-day EMA, or even a pullback to more significant support of the 50-day MA. After zooming to the $28 area, $TAN entered into a 4-week base of consolidation, then dipped to “undercut” key support of its 50-day MA for one day before heading right back up. Whenever a stock or ETF breaks out on big volume and leads the market, the first touch of the 50-day MA usually leads to a resumption of the new uptrend because many institutions (“smart money”) use the 50-day MA as an indicator for when to begin accumulating leading stocks and ETFs on a pullback. After $TAN successfully tested support of its 50-day MA, it would’ve been a valid buy entry the following day, when the price moved above that day’s high. However, we prefered to wait for the confirmation of the break of the 6-week downtrend line that formed off the highs of May. That downtrend line breakout occurred on July 1, and we bought the following day at a price of $24.20. So, What Happened Next? Below is a snapshot of the price action that followed our July 2 buy entry into $TAN: After our initial buy entry on July 2, $TAN acted as anticipated by subsequently cruising to a new high less than two weeks later. Thereafter, $TAN appeared to be forming a bull flag chart pattern, which prompted us to add to the position on July 22 (at $27.91). However, since the bull flag pattern did not follow-through to the upside, we maintained a very tight stop on the additional shares, which we closed for a tiny loss of 1.6% on August 2. After chopping around in a range for a few weeks, and again coming into support of its 50-day moving average several times, $TAN eventually broke out to new highs again. As we frequently remind traders, one important psychological aspect of profitable trading is having the discipline and willingness to quickly close out losing trades when you’re wrong, while still not being afraid to re-enter the trade if it still looks good. As such, we again bought additional shares of $TAN when it broke out on September 6 (bear in mind that we still held the initial position from our July 2 entry because those shares never went against us). After buying the breakout to new highs in early September, $TAN consolidated for a few more weeks, then ripped higher as volume began surging higher again. Rather than attempting to guess when a powerful rally will end, we often close winning trades by trailing protective stops tighter and tighter, until a pullback eventually causes us to lock in the profits. But in the case of $TAN, we instead made the decision to sell into strength of the rally due to prior resistance from back in February 2012 (visible on a weekly chart). Upon selling $TAN on October 1, the final tally was a 44.3% share price gain from our initial July 2 entry, and a 15.4% gain from our September 6 buy entry. Is 44% A Big Gain For An ETF Trade? When trading individual stocks, we typically shoot for an average price gain of 20 to 30% for short to intermediate-term momentum trades. Sometimes, bullish momentum propels stocks with massive relative strength 40 to 50% higher before we eventually sell and take profits. For example, in our Wagner Daily ETF and stock picking portfolio, we are presently sitting on unrealized gains of 49% in Silica ($SLCA) and 35% in Yelp ($YELP). On October 8, we also closed a swing trade in Bitauto ($BITA) for a price gain of 36.7% with just a 1-month holding period. However, because they are comprised of a basket of actual stocks, ETFs are generally much less volatile than the individual small to mid-cap growth stocks we trade in bull markets. As such, we consider a solid gain for an ETF swing trade to be in the neighborhood of 10 to 15%, rather than 20 to 30%. In addition to the various leveraged ETFs, $TAN is one of the few non-leveraged ETFs that trades with the volatility of a typical small to mid-cap stock. That’s why we managed to snag a 44.3% gain by trading $TAN, despite it being an ETF. In between, there was just a tiny 1.6% loss from our bull flag entry attempt on July 22. You can screw up a lot of things in trading, but still be profitable if you consistently get just one thing right: Let the profits ride when you’re right, but get the hell outta’ Dodge when you’re wrong!

After the October 17 breakouts to new highs in the S&P 500 and NASDAQ Composite, I got to thinking about bull markets. I was pondering over how much traders and investors must be loving and profiting from this powerful rally stocks have had in 2013. But then a worrying thought popped into my head. It occurred to me it’s quite possible that not all traders and investors have actually been raking in the trading profits, despite the major indices being at new highs. Why? Because I fear that many traders and investors have been feeling the pain of the biggest mistake traders make in a bull market. I’m speaking from personal experience when I say it’s a very real concern. I’ll tell you why in just a moment, but first take a quick look at the breakouts in both the S&P and Nasdaq. The October 17 rally in the S&P 500 Index ($SPX) put the index at a new closing high for the year, which is a great sign considering where this benchmark index was only six sessions ago: The tech-heavy NASDAQ continues to extend above its prior swing high, and has now gained approximately 6% since our September 6 market commentary that suggested another breakout to new highs in the NASDAQ was coming soon: With stocks on a seemingly unstoppable upward trajectory, it’s easy to get sloppy and make careless mistakes in the stock market without having majorly negative repercussions. Yet, there is indeed one mistake that has some pretty damaging consequences (in the form of opportunity cost), even in a bull market. Have You Ever Made The Greatest Mistake? In a raging bull market such as the present, approximately 80% of stocks and ETFs will be dragged alongside of the main stock market indexes and move higher. Small and mid-cap growth stocks with a strong history of solid earnings growth will typically outperform the percentage gains of the S&P 500 and Nasdaq by a wide margin. These are the same stocks we focus on trading in bull markets. But even if you fail to buy the best stocks in the market, you can basically throw a dart right now and still have a good chance that the stock you buy will move higher (note this only applies in healthy bull markets). Nevertheless, roughly 20% of stocks and ETFs will still fail to move higher in a bull market. Obviously, it is a frustrating experience if you make the unfortunate mistake of buying one of these dogs. Yet, this biggest mistake is surprisingly common among traders, especially newer ones. So, let’s talk about an easy way to avoid this problem. Failing To Overcome Gravity When I was a new trader many years ago, I’m not ashamed to admit that I intentionally focused on buying stocks and ETFs that were NOT rallying alongside of the broad market (showing relative weakness). Why? Because I wrongly assumed they would “catch up” to all the other stocks in the market. Furthermore, I mistakenly thought stocks and ETFs that had already rallied a large percentage would probably not go much higher. Damn, I sure was proven wrong! What was the outcome of buying these stocks and ETFs with relative weakness? I was painfully forced to watch (what seemed like) every other stock in the market rally, while my positions failed miserably to overcome gravity. Adding insult to injury, the leading stocks that I thought “couldn’t possibly move any higher” ended up being the same ones that once again made the biggest gains on their next waves up. The worst part is I also discovered that when a stock is so weak that it fails to set new highs alongside of the broad market, that stock is typically the first to sell off sharply (often to new lows) when the broad market eventually enters into even the slightest pullback from its high. Once in a blue moon, a stock or ETF with relative weakness will suddenly start to show relative strength. However, that typically only occurs with the luck of some major news event. Betting on future news that may or may not cause a stock to rally is akin to betting on red or black in a casino (maybe worse). It’s All Relative, And That’s All You Need To Know As momentum trend traders, we focus on buying stocks and ETFs that are making “higher highs” and “higher lows,” along with chart patterns that indicate relative strength to the benchmark S&P 500 Index. In a moment, I will show you about a great way to quickly and easily identify relative strength, but let’s first discuss what relative strength (don’t confuse this with the RSI indicator) actually means. Relative strength - Any stock or ETF that has broken out over the past few weeks automatically is showing great relative strength to the S&P 500 because it has rallied to new highs ahead of the benchmark index. One such example is Guggenheim Solar Energy ETF ($TAN), which recently netted us a 44% gain. On the individual stock side, we are currently showing an unrealized price gain of more than 55% in Silica ($SLCA) since our July 8 buy entry, so this is another great example (we will remain long until the price action gives us a valid technical reason to sell). Neutral - Stocks or ETFs that are breaking out right now (in sync with S&P 500) are also decent buy candidates and may eventually outperform during the rally. These stocks and ETFs may not be as good as buying equities with relative strength (on a pullback), but can still offer substantial returns. One such example is Direxion Daily Semiconductor Bull 3X ($SOXL), which we are currently long in The Wagner Daily. Relative weakness - While stocks and ETFs that broke out ahead of the S&P 500 are the best stocks to buy, and some equities only breaking out now may be fine, you definitely want to avoid stocks and ETFs that are lagging behind. I’m speaking from personal experience here. Any stock or ETF that is failing to even keep pace with the current breakouts to new highs in the S&P 500 and Nasdaq has relative weakness. However, don’t confuse this with stocks and ETFs that already broke out to new highs within the past few weeks (ahead of the broad market) and are now building another base of consolidation. A Tool To Stop Being A Fool The good news is there’s a simple tool that enables traders to quickly and easily spot patterns of relative strength and weakness. This tool is a great way to know which stocks and ETFs to avoid right now (the 20% mentioned earlier). Surprisingly, the tool is utilized by simply comparing the daily chart patterns of any stock or ETF versus the S&P 500 Index. The chart below, comparing the price action in a Real Estate ETF ($IYR) against the S&P 500 ETF ($SPY), clearly shows how this works: It’s as simple as that. If you thought our tool for spotting relative strength or weakness was going to be complicated, I’m sorry to disappoint you. However, our proven trading strategy has always been about keeping our analysis of stocks simple, and this tool is in line with that philosophy. Putting The Wind On Your Back Notice that we compared an industry sector ETF (real estate) to the S&P 500, rather than an individual stock. We did this because it’s a great way to determine if a particular industry group or sector has relative strength or weakness. This is important to know because you don’t want to buy an individual stock that has a great looking chart pattern, but belongs to an industry sector with relative weakness. If you do, the stock will struggle to move higher, despite its bullish chart pattern. In trading, you always want the wind to be on your back. Making sure the individual stocks you buy are part of an industry sector with relative strength (or at least not with relative weakness) is one of the most effective ways to do so. Now that you know this highly effective and easy way to eliminate stocks and ETFs with relative weakness from your watchlist, you have no excuse for continuing to make one of the biggest mistakes traders make in a bull market.

For the past six weeks, the NASDAQ Composite Index ($COMP) has been uneventfully oscillating in a sideways trading range (a 3% range from the upper channel resistance down to lower channel support). However, we have identified three highly reliable technical indicators that point to a strong likelihood of the NASDAQ soon breaking out to a fresh, multi-year high (despite continued weakness in the S&P 500 and Dow Jones). 1.) The Most Reliable Indicator You Probably Never Use We prefer to keep our technical analysis of stocks pretty simple. Although there are literally hundreds of technical indicators at our disposal, we rely primarily on price, volume, support/resistance levels (such as trendlines and moving averages), and the relative strength line. The relative strength line is a simple leading indicator that allows us to easily see how a stock or ETF is performing against the benchmark S&P 500 Index ($SPX). This is not to be confused with the RSI indicator (relative strength index). When the relative strength line is outperforming the price action of the stock (or the Nasdaq Composite in this case), it is a reliable bullish signal that often precedes further gains in price. On the chart below, notice how the relative strength line has already broken out to new highs twice, even though the NASDAQ has been trending sideways to slightly lower. This is a clear sign that institutional funds have been rotating out of the S&P 500 and into the NASDAQ: 2.) Salute The Bull Flag While the relative strength line is one of the most reliable technical indicators to predict future price action, the bull flag is definitely one of our favorite bullish chart patterns to identify and profit from. On the longer-term weekly chart, we clearly see the Nasdaq has been forming a bull flag chart pattern. This is annotated by the black lines we have drawn on the chart below: Notice that the rally off the lows in July created the flag pole part of the bull flag pattern, while the current sideways price action forms the flag. The tight consolidation of the past six weeks has retraced less than one-third of the last wave up. This is what we like to see, as the best-formed bull flag patterns should not pull back to more than a 38.2% Fibonacci retracement of last move up. Finally, since the flag pole and the flag are frequently symmetrical in time, we need to compare how long it took for the pole to form with the length of the flag. Since the pole was created over the span of six weeks, the anticipated breakout from the bull flag pattern should occur after the flag has formed for 5-7 weeks (we are currently on week 5). 3.) Already Leading The Market Higher When I began trading and studying technical analysis many years ago, I assumed that the main stock market indexes (such as the NASDAQ) led the way for the top-performing stocks to move higher. I was definitely wrong. The reality is the opposite situation; leading individual stocks set the pace for the broad market to follow. When the strongest stocks in the market (typically small to mid-cap growth stocks) are convincingly breaking out to new highs ahead of the broad-based indexes, it is a very bullish sign and the main stock market indexes usually follow suit. Conversely, it is a bearish signal when the major indices are trending higher, but without clear leadership among individual stocks. Right now, there is a plethora of stocks that are breaking out to new highs ahead of the NASDAQ. In no particular order, here are the ticker symbols of a handful of stocks breaking out right now, or have already broken out, to new highs: $QIHU, $LNKD, $TSLA, $NFLX, $KORS, $LOCK, and $YELP. We are presently long four of the above stocks in our Wagner Daily newsletter, and with the following unrealized gains since our original buy entries (based on Sept. 6 closing prices): YELP +23.2%, LNKD +10.0%, LOCK +9.1%, and KORS +7.1%. In case you missed it, you may want to check out our original August 21 analysis of Yelp ($YELP) (before it broke out and zoomed higher over the past few days). Death And Taxes – The Only Sure Things As my grandmother loved to tell me, “the only sure things in life are death and taxes.” I agree, especially when it comes to the stock market. Obviously, the Nasdaq has not yet broken out, and there is no guarantee that it will. Nevertheless, the combination of the three reliable technical indicators above suggest a strong likelihood that the tech-heavy index will soon break out of its range and cruise to a new, multi-year high (though the S&P and Dow are another story). If the Nasdaq suddenly rallies to new highs as anticipated, are you prepared to take advantage of the move? Do you know which stocks will offer the best odds for high profits? Be prepared.

Because fear is a more powerful human emotion than greed, stocks nearly always fall much faster and more violently than they rise. As such, there are key technical differences in our trading strategy between the way we analyze and buy stocks, compared to short selling stocks. First, it is crucial to realize that trading in the same direction as the dominant broad market trend is the most important element of our swing trading system because approximately 80% of all stocks move in the same direction as the major indices. This is where our objective, rule-based market timing model really shines, as it prevents us from selling short when the main stock market indexes are still trending higher (or going long when the broad market is in a confirmed downtrend). Although it may seem counter-intuitive to new traders, we do not sell short stocks as they are breaking down below obvious levels of technical price support, as they tend to rebound and rip higher after just one to two days of weakness. Rather, our most ideal short selling candidates are stocks and ETFs that have recently set new “swing lows” (or are testing prior lows), and have subsequently bounced into resistance over a period of three to ten days. Yet, even though we prefer to wait for a bounce before entering a new short position, we also do not enter a new short position while the stock is still bouncing (trying to catch the high of the bounce). Instead, we first wait for subsequent confirmation that the stock is about to stall again. This typically comes in the form of either a bearish reversal bar (such as a bearish engulfing or hanging man candlestick pattern) or sharp opening gap down, which signals the short-term bounce is losing steam. Similarly, we always take the same approach on the long side when buying pullbacks of strong stocks; we wait for a pullback to form some sort of reversal pattern before buying (rather than trying to catch the bottom of the pullback). The daily chart of O’Reilly Automotive ($ORLY) below is a good example of what frequently happens when attempting to sell short a stock as it breaks down below an obvious level of price support. Again, entering a new short position while a stock is breaking down below the low of a range is not something we are very comfortable doing: A lower risk way of initiating a new short sale, which also provides traders with a more positive reward to risk ratio for short selling, is shown on the following chart of Check Point Software ($CHKP). This is an example of what we look for for when entering a short position (although the declines are not always as dramatic): On October 17, $CHKP gapped down sharply, on huge volume, due to a negative reaction to its quarterly earnings report. This caused the stock to crash through a four-month level of price support at the $44 area (dashed horizontal line). But over the week that followed, notice that $CHKP climbed its way back up to test new resistance of its breakdown level. If $CHKP subsequently manages to probe above the intraday high of October 17, it would see some short covering, as most traders would not have expected the price action to climb back to that level. Further, the 20-day exponential moving average is also just overhead, which lends a little more resistance. It is at that point ($44.50 to $45 area) that we would look for the first bearish reversal candle OR opening gap down to initiate a very low-risk short selling entry with a positive reward-risk ratio. By waiting for a significant bounce into new resistance of the breakdown before selling short, we can “be right or be right out” by keeping a relatively tight protective stop. Finally, drill it in your head that having the patience to wait for the proper entry points is crucial when short selling stocks, as the short side of the market is less forgiving to ill-timed trade entries than the long side.

As you may recall from my August 18 blog post (How To Profit From Oil And Silver ETFs In This Stock Market Downturn), I have been bullish on both Oil and Silver ETFs (and, to a lesser degree, Gold) for the past week. Today, my patience is paying off because crude oil ($USO is the main ETF) has convincingly broken out above key resistance of an 8-week base of consolidation. Take a look: When the main stock market indexes are down sharply (as they are so far today), the benefits of ETF trading really become clear. Unlike stocks, most of which are correlated to the direction of the broad market, ETFs enables traders and investors to still profit in a down market because many types of ETFs have low to zero correlation to the overall stock market direction. Commodity ETFs such as $USO and $AGQ are two great examples of the above. Our current position in $USO is now showing an unrealized price gain of 7.7% since the swing trade buy entry in our nightly newsletter. Also, the position in our leveraged Silver ETF ($AGQ) is now up more 10% since our August 21 buy entry. If you have not yet added $USO to your portfolio, a secondary buy entry point into $USO would be a slight pullback to new support of the breakout level (consider a buy limit order around the $38.50 to $38.75 area).

We have been holding Guggenheim Solar ETF ($TAN) as an intermediate-term swing trade since July 2, when we bought in anticipation of another breakout to new highs. This momentum trade has been working out well so far, as this ETF swing trade is presently showing an unrealized share price gain of 13.8% (based on our July 2 entry price of $24.20). Over the past four days, $TAN has been consolidating a tight, sideways range near its all-time high. This is healthy price action and has led to the formation of a “bull flag” type pattern on its daily chart. This is shown on the chart of $TAN below: Because of the bullish pattern that has formed, odds now favor another breakout to new highs for $TAN in the coming days. Since we presently have only 50% of our maximum share size in this trade, we will be adding an additional 25% exposure if the ETF rallies above the July 19 high. Additionally, traders who missed our original entry point for any reason may now also consider establishing a new position in $TAN, based on our same entry and stop price criteria. However, in this case, no more than 25% to 50% of maximum position size would be recommended because the average entry price on this trade would be more than 13% above our original July 2 entry price. Another ETF we are already holding is Market Vectors Semiconductor ETF ($SMH), which we bought one week ago when it broke out above resistance of its prior highs. Since then, the ETF has pulled back and is trading slightly below our entry price, but the current retracement from the highs now provides a low-risk buy entry point for traders who missed our initial entry point. The pullback is also an ideal level to add additional shares for traders who are looking to increase their position size: Notice that $SMH gapped down last Friday (July 19), but found support at its 50-day moving average, which neatly coincided with the intraday low of the session. Furthermore, the ETF formed a bullish “hammer” candlestick after bouncing off key support of its 50-day MA. Because of the hammer candlestick that coincided with a pullback to the 50-day MA, the actual entry point to establish a new position in $SMH (or to add to existing shares) is just above the July 19 high of $38.58. A protective stop could be placed just below major support of the June 24 swing low of $36.08. Alternatively, momentum traders with a shorter-term trading timeframe could place a tight stop just below the July 19 low, which would put $SMH back below its 50-day MA if the stop is triggered. We are already at 75% maximum position size with $SMH, so we are NOT looking to add additional shares at this time. Nevertheless, we wanted to give you a heads-up to this low-risk buying opportunity in case you missed our original entry or are too light in share size.

Stock breakouts are about more than simply buying stocks that are trading at new highs. In order for a breakout to be valid and without a high risk of failure, a stock must first possess a valid base of consolidation on its chart pattern. In this educational article, we clearly show you how to spot two “basing” chart patterns that precede the best breakouts: Deep Correction (Cup and Handle) and Shallow Correction (Flat Base). We suggest studying these chart patterns closely, as it will enable you to develop your eye and eventually read stock charts like a pro. Deep Correction – “Cup And Handle” Type Pattern Following are the technical characteristics of a deep correction, along with an actual visual example. *The pattern must form within an existing uptrend, and stock must be at least 30-40% off the lows. This rule is very important. Do not go looking for cup and handle patterns with stocks trading at or near 52-week lows! The best cup and handle patterns form near 52-week highs. Stocks that are breaking out to new all time highs are ideal because they lack overhead resistance. *The 50-day moving average should be above the 200-day moving average, and the 200-day moving average should have already been trending higher for at least a few months. The base typically forms on a pullback of 20-35% off the highs, and is at least seven weeks in length. *As the base rounds out and the price returns back above the 50-day moving average and holds, be on the lookout for the “handle” to form. The handle usually forms 5-10% below the highs of the left side of the pattern. *The handle itself should drift lower, and is typically 5-10% or so in width. Handles that retrace more than 15% are too volatile and prone to failure. *Handles should be at least 5 days in length and not form below the 50-day moving average. Putting it all together, this chart of LinkedIn ($LNKD) shows a valid cup and handle type pattern, based on the technical criteria above: On the chart above, notice the 200-day moving average (orange line) is in a clear uptrend. The 50-day moving average (teal line) is above the 200-day moving average, and the 20-day exponential moving average has crossed above the 50-day moving average. When the 20-day exponential moving average is above the 50-day moving average, and the price action is above both averages, it is the ideal time for a handle to form. The key to the handle is that price action should drift lower to shake out the “weak hands.” The buy point for this type of swing trade setup is a breakout above the high of the handle. However, over the years, we have learned to establish partial position size at or near the lows of a handle, and add to the position on the breakout above the high of the handle. This enables us to lower our average cost and provides a better reward to risk ratio. Shallow Correction – Flat Base A shallow correction is also known as a flat base, and the pattern should possess the following characteristics: *As with the cup and handle type pattern, a flat base must form within an existing uptrend. Typically, it will form after a breakout from a deeper correction (like a cup and handle base). *The best way to identify a flat base is by using the weekly chart timeframe. The majority of the base should form above the rising 10-week moving average (or 50-day moving average on daily chart). *The 10-week moving average should be trading well above the 40-week moving average *A flat base should be at least 5 weeks in length. *Flat bases usually correct no more than 15% off the highs The following chart of Pharmacyclics ($PCYC) illustrates what a flat base should look like: Although the weekly chart above is a great example of a flat base, the pullback was just a bit over 15% at 17%. A flat base should form around 10-15% off the highs, but 16-18% is okay, especially if the stock is volatile. If the pattern is 25% wide, it is probably not a flat base. Please just use common sense with these rules. Also on the chart of $PCYC, notice the entire base finds support at the rising 10-week moving average, which is a very bullish sign. Further, the 10-week moving average is well above the 40-week moving average, and both indicators are in a clear uptrend. The buy point of a flat base is on a breakout above the highs of the pattern. As with cup and handle patterns, we usually try to establish partial size before the breakout if possible. Keep It Tight! When finding bullish stocks patterns, it is crucial to look for a tightening of the price action on the right hand side of the base. The left hand side is the initial drop off the highs, where the price action cracks and becomes wide and loose. For the first few weeks, the price action is volatile and there can be quite a bit of selling. But after a few weeks of bottoming action, the stock begins to settle down and push higher. When the majority of price action is above the 50-day moving average, and the 20-day exponential moving average is above the 50-day moving average, this is when the stock should begin to tighten up. The following daily chart of Tesaro ($TSRO) clearly shows a tightening of the right hand side of the basing pattern: On the chart above, the initial decline off the highs (around $20) produced volatile price action for several weeks. However, notice the price action never really broke below the 50-day moving average for more than a few days. In early January 2013, the price action tightened up. By later in the same month, an extremely tight range develops above the 20-day exponential moving average. This is a classic snapshot of tightening price action, which is something we always look for. The rules above may be rather precise, but the details are worth studying and memorizing because they have been developed through years and years of experience. Since the most profitable stock picks in our swing trading newsletter nearly always possess the above qualities, the proverbial proof is in the pudding.

Being a consistently profitable swing trader is a juggling act that requires one to constantly be focused on a variety of key elements of success: picking the right stocks, managing risk, determining when to sell, and even mastering the psychology of trading. In this educational trading strategy article, we will dive into the topic of knowing how and when to sell winning ETF and stock swing trades for maximum profit, using the example of an actual swing trade we are currently positioned in. As for when to sell losing trades, there’s frankly not much to say other than always have a predetermined stop before entering every trade and simply honor it. Since April 12, the model trading portfolio of our swing trading newsletter (The Wagner Daily) has been long Market Vectors Semiconductor ETF ($SMH). We initially alerted traders of the technical reasons we were bullish on the semiconductor sector (and $SMH) in this March 28 post on our trading blog. Since then, we have also reminded regular readers of our trading blog several more times about the increasing relative strength in semis. In the “open positions” section of today’s (May 13) Wagner Daily, subscribing members will notice we have trailed our $SMH protective stop higher for the fourth consecutive day. Because the ETF is already nearing our original target area of $40, while remaining on a very steep angled climb, we have been continually squeezing the stop tighter in order to protect gains, while still allowing for maximum profit. On the daily chart of $SMH below, we have labeled the increasingly higher stop prices we have used in each of the past four sessions: As you can see, our stop in each of the past four trading sessions has been raised to just below the low of the prior day’s session. Whenever an ETF or stock is nearing your target area and you wish to maximize profits while still protecting gains, setting a stop just below the previous day’s low (allowing for a tiny bit of “wiggle room”) is a great strategy. This is because basic technical analysis states the prior day’s lows and highs act as very near-term support and resistance (respectively). By using this method for trailing stops, you will be out of a winning position before the start of a significant pullback, while still allowing the gains to build as long as buying momentum remains. This system also provides an objective way for knowing when to close a winning swing trade, rather than guessing and potentially leaving significant profits on the table. Of course, there are many different ways to manage exits on winning momentum trades, and some of those methods are equally as effective as what is explained above. The reality is that any trading system can be a great one if the trader proves to be profitable with it over the long-term (even if the system involves trading by the cycles of the moon). As such, we would never imply that our system is absolutely the best way to manage stops on winning swing trades. But what we truly love about our exit strategy is its utter simplicity; simple trading strategies are the easiest to follow and thereby profit from. Why complicate a technique that has already been proven to work so well?

Watch out: TLDR material Hi, After being around for a while on this forum without any major contribution I thought I could share a little bit of my journey as a trader and exchange some information with other traders about swing trade ideas for the futures markets. Your own ideas are more than welcome in this thread as I'm always interested to see further potential opportunities. But let's first give briefly some background info on my path as a discretionary trader. After losing a lot of money through intra-day trading (winning periods of 2-3 months interrupted by major blow outs), I came to the conclusion that intra-day trading is not the right way to go as a retail trader. You might think that my psychology was the issue here, but I'm sure it's the method which led to my emotional response every 2-3 months - proof for that is that I do not have that problem when swing trading. Anyway, I believe that intra-day price movements are largely random; hence, the edge - if one is able to develop one - is very small in my opinion for retail traders (now, that will provoke one or two traders here, I guess... ;-) ). Just to be clear, there are for sure excellent traders out there making good amounts of money by trading short-term order flow or similar. However, those who are able to do that year after year after year - and especially when they approach their late thirties or fourties - are for sure one in a million. If you are one of them, good for you! If not, maybe you should try something different... In contrast to intra-day trading, I am certain that most people can learn and master swing trading strategies - i.e. trading higher time frames for larger movements - as this is a totally different animal. It is a lot less stressful than intra-day trading and requires a different skill set. Also, it is possible to have a day job and earn extra money on the side with swing trading, something that is impossible with intra-day trading. That way, you can reach your financial goals much faster, than with only one income stream. Anyway, before elaborating more on the pro's and con's of intra-day versus swing trading, let's get down to business. My discretionary swing trading strategy is based on classical chart patterns and I look only at price development (sometimes I take some clues from volume development as well, but that is more secondary), no fundamentals, no fancy stuff. I hold positions from one day to several months, depending on the situation. I try to look at various futures markets to generate trade ideas with no preference for any particular contract. I use fairly wide stops. In order to be able to do this, you have to be well capitalized. There is no way this strategy will work for you, if you have only USD 5,000 in you account and plan to hold a position requiring USD 3,000 overnight margin. This would kill you very soon. If you do not have enough money for this, paper trade, earn money somewhere else in the meantime and come back later to trade with real money if you have enough available. Furthermore, please note that I might change my mind on a scenario (and my position!) fairly quickly. So, if you plan to follow any of these ideas, please be aware of that. I try to post any changes of my position in time, but can not guarantee that. Finally, I do not know whether exposing myself and my trade ideas in such forum will harm my performance. But we will see. In the next posts I will explain my current trade ideas. The first two are ideas where I already have a position in, the third one is a breakout I'm waiting for to occur.

Long before bull markets end and the majorities are jumping in, the markets reach a point where the advance has been ongoing and starts to become unbelievable. By unbelievable I don't mean that the markets aren't moving higher, obviously they are. What is unbelievable is that the advance continues as long as it does. Bull markets do end at some point, but not until the majority of investors and traders do believe completely that the market will continue to move higher. Let's monitor this. At the start of a bull move, few believe it is the start because of the many failed rallies within the prior downtrend and the typical sharp, fast drops. Another reason is that, as prices are trending higher, most traders and investors using technical analysis are caught up in the indicator-based method. As prices trend higher, the indicators give overbought signals that create a belief that prices have moved too far and need to correct. Well, in a strong bull market corrections are typically shallow or even sideways. I like to tell students new to Pristine, who ask about overbought readings, what is overbought in a bull market is going to get even more overbought; forget the indicators, they are meaningless. What we do use are market internal breadth and sentiment gauges. In the above chart is the S&P 500 ETF symbol SPY and the CBOE Put/Call Ratio. Clearly, the trend is up and prices have moved further above the moving averages than they have in the recent past. For that reason, prices may move sideways or pullback a bit; however, just being further from the moving averages is only one piece of information, and limiting if used on its own. The other piece of information on this chart that we want to take note of is that option traders started to become more aggressive with their call buying (bullish bets) last week. While this increases the odds of the uptrend stalling, it won't be a signal of traders becoming too bullish until the 5-period moving average (blue line) moves between the red lines. Option traders have a great record of getting fully committed to the market's trend at the worst possible time. For that reason, I keep an eye on their trading and suggest you do as well. For market breadth internal gauges, I use the two measures of advancing and declining stocks. The top is the McClellan Oscillator, which is simply the difference between two moving averages of advancing stocks minus declining stocks. This gives us a short-term measure of when the broader markets (many stocks) have moved a bit too far. The lower is a 21-period moving average of a ratio of advancing stocks divided by advancers plus decliners and is an intermediate-term measurement. As you can see, both have moved to high levels. However, this isn't much of a concern at this time because those option traders we monitor have not jumped "all in" yet buying call options. When they do, and these breadth internals are at high levels, history tells us that a correction within the bull market is close. That being said, it does not mean the end of the bull market. There are other factors that would guide us to that bias. The next chart is nothing short of amazing to me and I think you will be amazed at this fact as well. As markets decline during a correction, it's normal for investor sentiment to become more bearish. When the majority becomes bearish, historically the odds are that a market low is close at hand. This can be monitored with the American Association of Individual Investors Survey. At the website http://www.aaii.com, the Association polls their subscribers each week as to whether they are bullish, bearish or neutral. The results are then published each Wednesday on the AAII home page. Let's take a look. The above chart displays a 4-week moving average of those investors that are bullish, divided by those that are bullish plus those that are bearish; a bull ratio. The historical data for this, and many other market internals, indices and currencies is available at http://www.pinnacledata.com. As I said, it's normal for investors to become overly bearish during a market decline, but they are too bearish now! This is amazing to see after the markets have been advancing and making all-time highs. What will it take for them to believe in the uptrend and become too bullish? Higher prices of course! The markets have been moving up since the 2009 low; and while it would be normal to think this bull market could be near an end, you should fight those bearish feelings. Human nature and common sense is not a good guide in the markets. For that reason, we need objective tools, like those shown here, to guide us. Greg Capra President & CEO Pristine Capital Holdings, Inc

Many active traders make the mistake of assuming that a winning system for swing trading stocks needs to be complicated. On the contrary, the best trading strategies are typically the most simple because they can be more easily and consistently followed. Our methodology for picking stocks is simple, as 99% of the stocks we buy in our model trading portfolio come from one of the following three setups: 1. Combo Setup – The stock must have a combination of great earnings growth and strong technical price action (some type of bullish chart pattern). Typically, these stocks are growing their earnings at a rate of 30 to 40% (or more) quarter after quarter. Furthermore, these stocks will usually have an IBD relative strength rating of 80 or higher. Since we consider these stocks to be A-rated, they can usually be held for several weeks or more. 2. Price momentum - With this swing trade setup, earnings growth is not important, but the stock must have a top relative strength rating (95 or higher) and belong to an industry sector group that is outperforming the S&P 500. These stocks can be held for a few days to a few weeks. Our recent trade in Celldex Therapuetics ($CLDX), a biotechnology stock with a relative strength rating greater than 95, is a good example of a swing trade setup based purely on momentum (bullish price action). Last month, we netted a 15% gain on our swing trade in $CLDX and will soon be posting an educational video review of that trade on our blog. 3. Blast Off - Neither earnings growth nor a top relative strength rating is necessary with this type of swing trading setup. We are simply looking for a monster spike in volume on the daily chart, combined with a 4% or more gain in that same session. This indicates huge demand. If demand is sharply greater than supply, the price has no choice but to surge higher (which is why volume is such a great technical indicator). With this setup, the one-day volume spike should be at least 2.5 to 3 times greater than the 50-day moving average of volume. These stocks can be held for a few days to a few weeks (as long as the price action remains excellent). A current example of the “Combo” setup (#1 above) can be found in Michael Kors Holding Limited ($KORS). So, let’s take a closer look at how this trade meets our parameters. For starters, the expected earnings growth of $KORS in the coming quarter is 81%, so the requirement for strong earnings growth is definitely covered. Its IBD relative strength rating is only 71, but that is compensated for by the monstrous earnings growth the company has been experiencing. Next, let’s take a look at the technical chart pattern. After several months of choppy price action, $KORS is starting to come together nicely. Upon completing a 20% pullback off its February 2013 high, $KORS found support at its 200-day moving average, then rallied to reclaim its 50-day moving average last week. Now, $KORS is working on forming a bullish chart pattern known as a “cup and handle,” which looks like this: As shown on the chart below, $KORS formed the left side of the cup and handle pattern from March to late April, and is now working on the right side of the pattern. The right side of the pattern will need several weeks to develop and form a handle with a proper buy point. During this time, the stock needs to hold above its 50-day moving average as well. This annotated chart of $KORS shows what we are looking for: YRC Worldwide, Inc. ($YRCW) is a great example of a “Blast Off” setup (#3 above). Notice the huge volume and sharp gap above resistance that occurred last Friday (May 3): As of the first 30 minutes of trading in today’s session (May 6), $YRCW is trading more than 20% higher than the previous day’s close. Obviously, such a huge follow-up price gap is not common; nevertheless, it shows you just how powerful the “Blast Off” setup can be: If not already holding this stock, the setup is definitely NOT buyable for swing trading right now (we never chase stocks). However, if/when it forms a proper base of consolidation from here, we can begin to look for a low-risk buy point (at which time we would notify Wagner Daily subscribers of our exact entry, stop, and target prices). As previously mentioned, we will soon be posting on our stock trading blog an educational review of last month’s winning swing trade in $CLDX, which will be an example of our “Price Momentum” setup.

Stocks continued to sell off on Thursday, with tech stocks getting hit the hardest. The Nasdaq Composite sold off 1.2%, while most averages closed lower by 0.6% to 0.7%. The Nasdaq sliced through key intermediate-term support of its 50-day moving average, joining the Russell 2000 and S&P Midcap 400. The S&P 500 closed just below (but not a decisive break of) its 50-day moving average yesterday, after undercutting its prior “swing lows” at the 1538-1539 support level: The 50-day moving average is a very important support level during a rally, as it is basically the line in the sand for the bulls. When the major averages all break below the 50-day MA within a few days of each other, it is usually a good time to raise cash and sit on the sidelines. The evidence below suggests that the market is now in a corrective phase, which forces our rule-based timing model into “sell” mode: There are at least 5-6 distribution days in the market (strike 1). Most of the main stock market indexes are trading below the 50-day MA (strike 2). We do not count the Dow. Leading individual stocks are beginning to break down below key support levels (strike 3). How long will a stock market correction last? No one knows, but there is one main clue to watch out for. Can leading stocks that have recently broken down find support and stabilize? There is a big difference between leading stocks pulling back 15-20% off a swing high versus completely breaking down and selling off 40% or more from their highs. If most stocks hold above or around their 50-day MAs and fall no more than 20-25% or so off their swing highs, then we would expect any correction in the S&P 500 to be limited to around 4-6%. US Natural Gas Fund ($UNG), a current holding in the model portfolio of The Wagner Daily, is in pretty good shape after yesterday’s (April 18) strong advance. The weekly chart below shows $UNG zooming above the breakout pivot, which is always a bullish sign: As annotated on the chart above, $UNG is holding support of a steep uptrend line (black dotted line), while the 10-week MA (teal line) is beginning to pull away from the 40-week MA (orange line) after the bullish crossover a few weeks ago. One great thing about $UNG is that it has a low correlation to the direction of the overall stock market because it is a commodity ETF. As you may recall, our actual swing trade buy entry into $UNG was based on the “cup and handle” chart pattern we originally pointed out in this April 2 post on our trading blog. Presently, $UNG is showing an unrealized gain of 6% since our April 8 buy entry, and is well positioned to continue higher in the near-term. In addition to $UNG, we also continue to hold Market Vectors Semiconductor ETF ($SMH). Presently, this ETF is holding above its prior swing low, but is struggling to reclaim its 50-day MA. Nevertheless, based on our March 28 technical analysis of the semiconductor sector, we are still bullish on the intermediate-term bias of $SMH. Alongside of $UNG and $SMH, our model portfolio is still long two individual stocks (bought when our timing model was in “buy” mode): Celldex Therapeutics ($CLDX) and LinkedIn ($LNKD). Despite yesterday’s decline in the broad market, $CLDX broke out to a fresh all-time high and is currently showing an unrealized gain of 8.9% since our April 9 buy entry. The daily chart of $CLDX below shows our recent breakout entry point: Our other individual stock holding, $LNKD, is roughly break-even since our swing trade entry point. However, we do not mind holding this A-rated stock through a corrective phase in the broad market, just as long as our stop is not triggered. If the price action can remain above the 10-week MA, then we may be able to hold through earnings in early May and potentially catch the next big wave up. As detailed in this article that explains our strategy for trading around earnings reports, we previously netted a handsome gain of 22% trading $LNKD before and after its January 2013 earnings report.

In uptrending markets, most of our swing trade setups are stocks and ETFs (with relative strength) that are breaking out above bases of consolidation. We also buy pullbacks of uptrending equities when they retrace to near-term support levels. However, another bullish chart formation many technical traders profit from is the “cup and handle” pattern. In this article, we use current annotated charts of United States Natural Gas Fund ($UNG), a commodity ETF that roughly tracks the price of spot natural gas futures, to show you how to trade the cup and handle chart pattern. Let’s begin by looking at the weekly chart timeframe of $UNG below: Notice that the left side of the pattern begins in November 2012, after a 60% rally off the lows. This is positive because proper cup and handle patterns should not form at or near 52-week lows; rather, there should already be an uptrend in place for at least several months in order for a correct cup and handle to develop. The selloff in December 2012, as well as the bottoming action in January and February of this year, combine to form the left side and bottom of the “cup.” The right side of the cup was formed when $UNG broke out above major resistance of its 200-day moving average and rallied to the $22 area. Zooming in to the shorter-term daily chart interval, note the “handle” portion of the pattern that is currently developing: The handle typically requires at least a few weeks to properly develop (sometimes more). While forming, price action will typically slope lower. In the case of $UNG, even an “undercut” of the March 25 low and 20-day exponential moving average would be acceptable. However, the price needs to hold above the $20 level during any pullback. Otherwise, a breakdown below that important support level could signal the pattern needs a few more months to work itself out. If buying $UNG, it is important for traders to be aware of possible contango issues that could result in an underperformance of the ETF, relative to the actual spot natural gas futures contracts. Nevertheless, contango is typically not a big deal if exclusively swing trading the momentum of $UNG over shorter-term holding periods (less than about 4 weeks). Conversely, the negative effects of contango become much more apparent over long-term “buy and hold” investing timeframes. For our rule-based ETF and stock swing trading system, the technical chart pattern of $UNG is not yet actionable. Still, the annotated charts above clearly explain the specific technical criteria we seek when trading the “cup and handle” chart pattern. As always, we will promptly alert newsletter subscribers with our preset entry, stop, and target prices for this swing trade setup when/if it provides us with an ideal, low-risk buy entry point in the coming days.

One ETF we have been watching closely for potential swing trade entry in recent weeks is PowerShares QQQ Trust ($QQQ), a popular ETF proxy for the tech-heavy Nasdaq 100 Index. Specifically, we have been monitoring a bearish head and shoulders chart pattern that has been developing on the weekly chart interval of $QQQ. If this bearish chart pattern starts following through to the downside, it may create a low-risk entry point for short selling $QQQ (or buying a short ETF such as $PSQ or $QID). In this article, we walk you through the details of this technical trade setup for $QQQ, and present you with the most ideal scenario for actionable trade entry. For starters, check out the annotated weekly chart pattern of $QQQ below: When determining the validity of a head and shoulders pattern, there are a few factors we look for to determine whether or not this bearish pattern is likely to follow through to the downside. One of the biggest technical considerations is the trend of the volume that accompanied the price. The best head and shoulders patterns will be marked by higher volume on the left shoulder and lighter volume on the right shoulder. Such a pattern indicates decreasing buying interest as the pattern progresses. As you can see by the 10-week moving average of volume (the pink line on the volume bars above), volume has indeed been declining during the formation of the right shoulder. Another element we look for is whether the neckline is perfectly horizontal, ascending, or descending. The neckline on the $QQQ chart above is ascending, which means a “higher low” was formed. This ascending neckline slightly decreases the odds of the head and shoulders following through by breaking below the neckline. Nevertheless, between the two technical elements of the volume trend and angle of the neckline, volume is considered a more significant factor in determining whether or not the price is likely to move lower after the right shoulder has formed. Since it’s always best to assess a potential swing trade setup on multiple chart time frames, let’s zoom into the rather interesting, shorter-term daily chart interval of $QQQ: Just as the “line in the sand” for price support of $SPY is last week’s low, the same is true of $QQQ, but even more so. Notice how support of last week’s low in $QQQ neatly converges with both the 50-day moving average (teal line) AND the intermediate-term uptrend line from the November 2012 low (red line). The more technical indicators that converge in one area to form price support, the more substantial and pivotal that support level becomes. As such, be sure to monitor the $67.60 area very closely in the coming days, as a convincing breakdown below that level could be the impetus that sends $QQQ on its way down to testing the neckline of its head and shoulders pattern. Despite the convincing head and shoulders pattern of $QQQ, it is important to keep the following two things in mind: First, due in no small part to recent weakness in heavily-weighted Apple Computer ($AAPL), the Nasdaq has been a laggard throughout the multi-month rally in the broad market. Rather, the blue chip Dow Jones Industrial Average has been leading, and that index still remains very near its multi-year highs. In a fractured market with significant divergence between the major indices, clear follow-through in either direction usually does not come easily. The second (and more important) point is that the head and shoulders pattern, like all technical chart patterns, obviously does NOT work 100% of the time. In fact, far from it. This means that blindly selling short $QQQ (or buying an inversely correlated “short ETF”) at the current price level of $QQQ is risky and not advisable. Instead of entering this swing trade setup based purely on anticipation of the pattern working, our technical trading system mandates that we first wait for price confirmation that indicates momentum has shifted back in favor of the bears. At a minimum, we would NOT enter a short position unless/until $QQQ breaks down below last week’s low, which we now know is a key level of price support. Jumping the gun by trying to get an “early” entry point is never advisable in swing trading. As always, we will give regular subscribers of our ETF and stock technical trading newsletter a heads-up in advance if/when $QQQ gets added to our “official” watchlist for short/inverse ETF swing trade entry.