Do swing traders have more fun?

There are three time periods for traders, short-term day trading, intermediate-term swing trading, and longer-term buy and hold.

We have found swing trading to be a financially rewarding and worthy intellectual exercise. Unlike day trading, swing trading does not demand constant movement in and out of the market and does not require being tied to a desk during market hours.

The shares of companies that are good for this kind of stock trading tend to exhibit consistent rhythmic patterns and travel ranges within those swings. They also tend to be older, more seasoned issues with long trading histories.

Let’s examine one such stock that has shown consistent swings and travel ranges over the last few months, IBM. Please pull up a chart, and let’s look.

Since the beginning of the year, IBM has shown eight tradeable swings in price. On January 5th, IBM peaked at 142.20, then started a downtrend culminating at a low of 124.19 on January 24th. That swing alone was 18 points in 19 calendar days. Using a technical confirmation of a change in trend, one could have benefited by short selling IBM at several points in that downtrend and covering the short stock later within that time period.  

Over the next 11 days, IBM advanced to 138.82 on February 4th, a 14-point swing in price. From there, the shares declined to 118.81 on February 24th, a decline of 20 points in 20 days. The next swing took IBM stock to 128.35 on March 8th, almost a 10-point swing in 13 days. The next swing was shorter in time duration, and the price movement was commensurately more minor, but IBM shares found a low on March 14th at 122.69, a swing of almost 6 points in 6 calendar days. The next advance took the shares of IBM to 133.08 on March 30th, a nearly 11-point move in 16 calendar days. Next, the following decline brought the shares of IBM to a low of 124.91 on April 13th, close to an 8-point drop in 14 calendar days. The next swing in IBM shares topped at 141.88 on April 21st, an almost 17-point move in 8 days.

So we have a total of 8 swings with an average of 13 points per swing since January (not including this week’s downdraft) for a total of 104 point travel range. Do you see the potential for this style of stock trading? With the right technical system, one will be successful if one is using stop orders and trailing stops. No one ever captures the entire range, but a trader would still be pleased to achieve half of the travel range in profits.

As to our master cycle on the S&P 500, we had anticipated a high on Friday the 6th, but the high came in two days earlier on Wednesday the 4th (Fed Decision Day). The timing was off, but the direction aligned with expectations after Friday as the market turned quite negative. In the short term, we anticipate a low on Friday the 13th (+ or – one trading day) and then a sharp rally of one to two days. After that, the cycle turns down until May 29th, which is the Sunday of Memorial Day Weekend. So a trading low just before the weekend or that following Tuesday looks possible. Remember, cycles can and do invert from time to time. This method is a roadmap; nothing is infallible. It’s the dates that are most important. One should take the time to analyze and then stick with a strategy and plan that works. Trade well. JHS


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