Swing trader tries to catch the move in a stock from the start of a trend (swing low) to the

end (swing high), or the reverse. The trades usually last for weeks to months, but not years.
There are two types of swing trading styles. The first is to range trade, that is, buy
and sell as price bounces between a low and high price. If you know what a
rectangle chart pattern is or a channel, then you can buy near the bottom and sell
near the top repeatedly. I find that the profit potential of range trading is not
exciting enough for me

A trend trade buys near the swing low and sells near the end of a short-term trend (or the
reverse: sell high and buy low).
Swing trading is trying to catch price as it moves between peaks and valley
Look at Figure 1.1. If investors bought the stock at A and sold it at E, they would
have made almost nothing since price did not change between those two points.
However, perfect swing traders would sell short at A, cover at B and buy long, sell at
C and go short, and so on, profiting from each swing of the stock. They could have
captured roughly $3 per share on each of the AB and BC moves, and $2 on each of
the CD and DE moves for a total of $10 per share. That is not bad for a stock that
ends where it begins

FIGURE 1.1 This trade shows a perfect entry and sale on the day the stock peaked. Trailing
stops mark the way higher.

The number one rule for trading HTFs is to wait for price to close above the top of
the pattern.
My first three losing HTF trades were caused by not knowing that I should wait for
price to close above the top of the HTF. I bought on the breakout from the flag, or
earlier, and price stopped me out. Do not let that happen to you. Never buy a stock
showing an HTF until price closes above the top of the chart pattern.
If price forms congestion regions and pauses during formation of the flagpole, there
is a good change it will wobble after the breakout. Avoid the stock if the flagpole is
not a straight-line run

If price drops below the flag low before the breakout, then look elsewhere. Figure 3.1
shows an example of this. The HTF begins at A and climbs to B, which is the top of the flagpole.
Then it forms a tight flag, to C (in the shape of a pennant chart pattern). Price drops out of the
pennant and drops to D, below the low price posted in the flag portion of the HTF. Price moves
horizontally before finally making a drive higher, rising just 17 percent above the top at B and
then declining almost 35 percent to F.

If price forms congestion regions and pauses during formation of the flagpole, there is a
good change it will wobble after the breakout. Avoid the stock if the flagpole is not a straight-line
run.

Avoid HTFs in which price is trending lower for the long term, as in a bear market.
Figure 3.2 shows an example of this situation. Price bottoms at A and rises to the flagpole high
at B. Then price makes its way higher to C, rising 25 percent above B.

Avoid situations where the HTF looks as if it is a retrace in a downward price trend.
Figure 3.2 gives an overview of the setup in the left inset. Price trends downward then retraces
(moves higher) and forms an HTF before resuming the downward plunge. The HTF in the price
chart is an example of the pattern shown in the inset.

Avoid dead-cat bounces (an event pattern that I discuss in Chapter 5) where price may
double in the bounce phase after a substantial decline. The dead-cat drops price between 15 and
70 percent (or more) in one session and then the stock bounces, forming an HTF before pooping
out and sinking. Do not be caught expecting an extended upward run after the HTF completes in
a dead-cat bounce scenario. Price might do that, but the probabilities suggest otherwise.

In a similar manner, avoid inverted dead-cat bounces (another event pattern). The stock
may double on good news, forming an HTF. Those owning the stock will sell it, and traders will
short it, putting more downward pressure on price.

Avoid HTFs that appear as the second leg in a measured move up chart pattern. I show
that scenario in the measured-move inset (right) in Figure 3.2. Price moves up in leg 1 (perhaps
forming an HTF), retraces its gain in the corrective phase, and then forms the HTF as it zips
higher in leg 2. The leg 2 HTF tends to underperform, especially if leg 1 also shows an HTF.

If price moves horizontally and then drops down to form the HTF, it could fall short of
the post-HTF target. Imagine a pothole in the road. The bottom of the pothole is where

the HTF begins life. Price may double just to return to the surface of the road, but more
often, it rises above the surface to complete the HTF. Then price gets run over by a semi
and dies (meaning it does not climb much after the HTF completes). It is like a tire
bouncing out of the pothole. The bounce is not very large.

Avoid buying an HTF if price two months before the beginning of the HTF is above the
starting price. For example, if the bottom of the flagpole is at 10, and two months before
that price was at 11, avoid that setup.

I tested combinations of price 1, 2, 3, 6, and 12 months before the start of the HTF versus
the closing price at the bottom of the flagpole. The results say that if price is below the
flagpole two months before, then the HTF stands to outperform (average gains of 33
percent versus 25 percent).

Throwbacks to HTFs happen 57 percent of the time in a bull market. When they occur,
performance suffers (54 percent average gain for those HTFs without throwbacks versus
43 percent for those with throwbacks). The median drop after a throwback is below the
top of the HTF by 10 percent. Those with throwbacks having price drop less than 10
percent gain an average of 52 percent post breakout. Those with throwback drops equal to
or larger than 10 percent gain 34 percent post-breakout.

1. Symmetrical triangles

A symmetrical triangle can be a vicious bloodsucker of a chart pattern. Why? Because it tends
to breakout in one direction, reverse, and breakout in the other direction only to reverse again.
This double busting gives new meaning to the word whiplash.

2. Ascending triangles
once thought that the ascending triangle chart pattern was
the Holy Grail. Instead, it is the devils triangle
I still trade ascending triangles, but do so with caution. If the market trend is up,
and the industry trend is up, and all the other signs are pointing up, then up it is.
Lacking any of those scenarios, then this pattern could do a better job of destroying
your bank account statement than a paper shredder

Ascending triangles often see price rise by small amounts before reversing.

As a swing trader, I use a congestion breakout frequently. My job is to catch the breakout,
ride the emerging trend until it stops, and then jump off before price reverses.

Look for a tight congestion area, one with a lot of price overlap. Those types of
congestion areas can lead to powerful breakouts

Select stocks that show many long, straight-line runs instead of horizontal consolidation
regions.

A descending triangle is another congestion region variant that I show in Figure 3.8. A
classic descending triangle has price trending lower, following a down-sloping trendline
along the top, but underlying support builds a floor that seems impenetrable.