| Posted in PREPARING FOR THE MARKET DAY | Posted on
The complex interplay between different chart elements baffles many swing traders. They fail to evaluate all of the important S/R influences that predict directional price movement. The rational mind naturally rebels against detailed analysis as it reduces incoming data into manageable pieces. This works against the swing trader’s interest and may contribute to poor preparation. A lazy mind can catch a single S/R level but miss a minefield of obstacles that a new position must face. Cross-verification searches the charting landscape to locate the primary sign-posts of trading opportunity. Common sense dictates that multiple crowd influences favor certain price levels over others. Swing traders can identify these setup intersections when they uncover those points where different S/R types and time frames converge with each other. For example, a single level that points to a major high, a 50% retracement of a larger trend, and the 50-day moving average strongly implies that certain important events will occur when price strikes that point.
Prepare for the market day through a complete S/R analysis that looks for convergence at specific
price levels. The more elements that intersect through a single boundary, the higher the probability
that this chart feature will support or resist price change. Four or more cross-verification points may
appear at a single S/R intersection and signal an excellent profit opportunity. But don’t let fewer
cross-points discard promising trades. Many good setups exhibit less convergence but display one
significant entry with few barriers or points of interest in between.
Trade execution at or near new highs raises special S/R considerations. The high itself presents the
only resistance barrier within the larger time frame. If shorter charting periods don’t reveal smaller
obstacles, the only required strategy decides whether to buy, sell, or maintain an active position on a
test of that high. Of course, analysis of risk must also locate an easy escape route if the trade turns
sour.
Focus trade preparation on cross-verification to locate promising setups and measure reward:risk.
Look for price close to substantial support to identify low-risk long trades. Look for price close to
substantial resistance to find low-risk short sales. Measure the distance between the entry and the
next barrier within the holding period for the trade. This points to the intended exit and reasonable
profit target (PT). Measure the distance between the entry and the price that confirms that the setup
was wrong. This points to the unintended exit and reasonable failure target (FT). Execute only those
trades with high PT and low FT distance.
