| Posted in PREPARING FOR THE MARKET DAY | Posted on
Effective swing trading begins with identification of the current market phase. But strategies require
more detailed information before trade execution. Start with the following questions: How quickly
are conditions changing? Do they represent broad or narrow events? How will volatility affect the
trading environment? The answers may mark the difference between a simple price correction and a
market crash.
Bull markets represent periods in which strong buying pressure characterizes price movement. Bear
markets represent periods in which strong selling pressure characterizes price movement. These
graphic images have no correlation to a specific time frame but commonly represent action on daily
charts. The most popular view establishes the 200-day moving average as the interface between bull
and bear markets within individual equities.
Swing traders can apply this concept to any time frame by establishing an appropriate bull-bear
axis. Fibonacci retracement provides a more powerful tool for this purpose than standard moving
averages. First establish the major uptrend or downtrend that guides the trade setup. Then draw a
Fib grid over the extremes. During relative uptrends, avoid short sales when price remains at least
38% above the low. Through relative downtrends, avoid long entry when price remains at least 38%
below the relative high. Alternatively, look at a violation of any 62% retracement as a shift through
the bull-bear axis.
This simple concept may confuse at first glance. Trends and bull-bear sentiment actually represent
separate forces. An uptrend can exist within a bear environment and vice versa. In fact, early phases
of new trends often travel in a hostile atmosphere and without recognition by the crowd. Trend
relativity also allows strong contrary movement in smaller time frames than the major bull-bear
interface. Use this polarity to prepare pullback entry strategies. Identify the current sentiment and
active trend within the market of interest. Watch for countertrend pullbacks when both forces line
up. Follow price until it reaches a strong S/R level and then execute a position as it realigns with the
primary force. The active trend should reassert itself quickly and carry price back in the other
direction.
more detailed information before trade execution. Start with the following questions: How quickly
are conditions changing? Do they represent broad or narrow events? How will volatility affect the
trading environment? The answers may mark the difference between a simple price correction and a
market crash.
Bull markets represent periods in which strong buying pressure characterizes price movement. Bear
markets represent periods in which strong selling pressure characterizes price movement. These
graphic images have no correlation to a specific time frame but commonly represent action on daily
charts. The most popular view establishes the 200-day moving average as the interface between bull
and bear markets within individual equities.
Swing traders can apply this concept to any time frame by establishing an appropriate bull-bear
axis. Fibonacci retracement provides a more powerful tool for this purpose than standard moving
averages. First establish the major uptrend or downtrend that guides the trade setup. Then draw a
Fib grid over the extremes. During relative uptrends, avoid short sales when price remains at least
38% above the low. Through relative downtrends, avoid long entry when price remains at least 38%
below the relative high. Alternatively, look at a violation of any 62% retracement as a shift through
the bull-bear axis.
This simple concept may confuse at first glance. Trends and bull-bear sentiment actually represent
separate forces. An uptrend can exist within a bear environment and vice versa. In fact, early phases
of new trends often travel in a hostile atmosphere and without recognition by the crowd. Trend
relativity also allows strong contrary movement in smaller time frames than the major bull-bear
interface. Use this polarity to prepare pullback entry strategies. Identify the current sentiment and
active trend within the market of interest. Watch for countertrend pullbacks when both forces line
up. Follow price until it reaches a strong S/R level and then execute a position as it realigns with the
primary force. The active trend should reassert itself quickly and carry price back in the other
direction.
