| Posted in THE GATEWAY TO SHORT-TERM TRADING | Posted on
Fast-moving stocks attract attention and awaken great excitement. Many neophytes catch gambling
fever with these hot plays and never explore any other methods of speculation. The financial press
reinforces their dangerous illusion with frantic re porting of big gainers and losers. But momentum
profits require great skill and discipline. When the emotional crowd ignites sharp price movement,
greed quickly clouds risk awareness. Many participants react foolishly and chase positions into
major reversals. For most traders, momentum devours equity and destroys promising careers.
Price seeks equilibrium. When shock events destabilize a market, countertrend force emerges
quickly to return a stable state. This inevitable backward reaction follows each forward impulse.
Novices fail to consider this action-reaction cycle when they enter momentum positions. They
blindly execute trades that rely on a common but dangerous strategy: long side entry on an
accelerating price thrust. Reversals then appear suddenly to shake out the weak hands. The typical
momentum player lacks an effective risk management plan during these sharp counter-trends and
tries to exit with the herd. Bids dry up quickly on the selloff and force an execution well below the
intended price.
The momentum chase chews up trading accounts during choppy markets as well. This popular
strategy requires a strong trending environment. As noted earlier, periods of directional price
change last a relatively short time in relation to longer sideways congestion. But rather than stand
aside, many participants fall prey to wish fulfillment and see trends where they don’t exist. They
enter small price swings on the false assumption that the action represents a new breakout. While
these errors may not incur large losses, they damage equity and confidence at the same time.
Survivors of the momentum game begin to appreciate the market’s complexity and realize that
trading mastery requires many diverse skills. As price cycles through regular phases, strategy needs
to adapt quickly to capitalize on the current crowd. Swing trades that execute right near support or
resistance offer one powerful alternative. This classic execution style demands more precise
planning than momentum, but allows measurable risk and highly consistent rewards.
Trend-range alternation spawns different trading styles. When markets ignite into rapid price
movement, skilled momentum traders use the crowd’s excitement
TABLE 1.1
Momentum vs. Swing Characteristics
Trade Momentum Swing
State: Positive feedback Negative feedback
Strategy: Reward Risk
Basis: Demand Supply
Chart: Trend Range
Impulse: Action Reaction
Purpose: Thrust Test
Condition: Instability Stability
Indicator: Lagging Leading
Price Change: Directional Flat-line
to pocket large gains. The inevitable rollover into defined support and resistance marks the
dominance of precise swing trading techniques. But neither category actually stands apart from the
other. The need to adapt quickly to changing market conditions requires that all successful traders
apply elements of both strategies to earn a living.
Swing traders seek to exploit direct price thrusts as they enter positions at support or resistance.
They use chart pattern characteristics to locate and execute short-term market inefficiencies in both
trending and rangebound markets. This classic strategy closely relates to position trading tactics that
hold stocks from 1 to 3 days or 1 to 3 weeks. But swing trading actually represents a time frameindependent
methodology. Modern practitioners may never hold a position overnight but still apply
the exact same strategies as longer-term participants.
The origin of the swing stems from George Taylor’s The Taylor Trading Technique, a classic
commentary on the futures markets first published in the 1950s. His 3-Day Method envisions a
cycle that classifies each day as a “buy,” “sell,” or “sell short’’ opportunity. At its core, the narrow
swing tactic buys at support and sells at resistance through congested markets. It fades the shortterm
direction as it predicts that a barrier will hold and reverse price. Modern trading expands this
concept to locate the swing through many other market conditions and broadens the tactics that
build profits.
The equity markets present a natural arena for the swing trader. The symbiotic relationship between
futures and equities ensures that cyclical buying and selling behavior crosses all markets. Equities
have the advantages of massive liquidity and time frame diversity. In other words, participants can
scalp the same market at the same time that institutions take positions for multiyear investments.
Classic swing trading concepts must adapt to unlock their power in today’s markets. The revolution
in high-speed trade execution opens swing strategies that last for minutes instead of days.
Dependable price patterns appear on charts in all time frames. As modern traders work with realtime
charting, intraday swing setups offer the same opportunities that appear daily on longer-term
charts.
The ability to trade through diverse conditions marks successful careers. Swing trading provides a
natural framework to identify changing conditions and apply new methods to exploit them. This
exposes another outdated concept for this versatile approach. At its core, swing trading is not the
opposite of momentum trading. During those times when strong price movement characterizes a
market, disciplined momentum strategy becomes the preferred swing trade. In this way, modern
swing traders can apply the principles of risk management and price boundaries to the manic world
of the speculator—and use momentum’s greed to their advantage.
fever with these hot plays and never explore any other methods of speculation. The financial press
reinforces their dangerous illusion with frantic re porting of big gainers and losers. But momentum
profits require great skill and discipline. When the emotional crowd ignites sharp price movement,
greed quickly clouds risk awareness. Many participants react foolishly and chase positions into
major reversals. For most traders, momentum devours equity and destroys promising careers.
Price seeks equilibrium. When shock events destabilize a market, countertrend force emerges
quickly to return a stable state. This inevitable backward reaction follows each forward impulse.
Novices fail to consider this action-reaction cycle when they enter momentum positions. They
blindly execute trades that rely on a common but dangerous strategy: long side entry on an
accelerating price thrust. Reversals then appear suddenly to shake out the weak hands. The typical
momentum player lacks an effective risk management plan during these sharp counter-trends and
tries to exit with the herd. Bids dry up quickly on the selloff and force an execution well below the
intended price.
The momentum chase chews up trading accounts during choppy markets as well. This popular
strategy requires a strong trending environment. As noted earlier, periods of directional price
change last a relatively short time in relation to longer sideways congestion. But rather than stand
aside, many participants fall prey to wish fulfillment and see trends where they don’t exist. They
enter small price swings on the false assumption that the action represents a new breakout. While
these errors may not incur large losses, they damage equity and confidence at the same time.
Survivors of the momentum game begin to appreciate the market’s complexity and realize that
trading mastery requires many diverse skills. As price cycles through regular phases, strategy needs
to adapt quickly to capitalize on the current crowd. Swing trades that execute right near support or
resistance offer one powerful alternative. This classic execution style demands more precise
planning than momentum, but allows measurable risk and highly consistent rewards.
Trend-range alternation spawns different trading styles. When markets ignite into rapid price
movement, skilled momentum traders use the crowd’s excitement
TABLE 1.1
Momentum vs. Swing Characteristics
Trade Momentum Swing
State: Positive feedback Negative feedback
Strategy: Reward Risk
Basis: Demand Supply
Chart: Trend Range
Impulse: Action Reaction
Purpose: Thrust Test
Condition: Instability Stability
Indicator: Lagging Leading
Price Change: Directional Flat-line
to pocket large gains. The inevitable rollover into defined support and resistance marks the
dominance of precise swing trading techniques. But neither category actually stands apart from the
other. The need to adapt quickly to changing market conditions requires that all successful traders
apply elements of both strategies to earn a living.
Swing traders seek to exploit direct price thrusts as they enter positions at support or resistance.
They use chart pattern characteristics to locate and execute short-term market inefficiencies in both
trending and rangebound markets. This classic strategy closely relates to position trading tactics that
hold stocks from 1 to 3 days or 1 to 3 weeks. But swing trading actually represents a time frameindependent
methodology. Modern practitioners may never hold a position overnight but still apply
the exact same strategies as longer-term participants.
The origin of the swing stems from George Taylor’s The Taylor Trading Technique, a classic
commentary on the futures markets first published in the 1950s. His 3-Day Method envisions a
cycle that classifies each day as a “buy,” “sell,” or “sell short’’ opportunity. At its core, the narrow
swing tactic buys at support and sells at resistance through congested markets. It fades the shortterm
direction as it predicts that a barrier will hold and reverse price. Modern trading expands this
concept to locate the swing through many other market conditions and broadens the tactics that
build profits.
The equity markets present a natural arena for the swing trader. The symbiotic relationship between
futures and equities ensures that cyclical buying and selling behavior crosses all markets. Equities
have the advantages of massive liquidity and time frame diversity. In other words, participants can
scalp the same market at the same time that institutions take positions for multiyear investments.
Classic swing trading concepts must adapt to unlock their power in today’s markets. The revolution
in high-speed trade execution opens swing strategies that last for minutes instead of days.
Dependable price patterns appear on charts in all time frames. As modern traders work with realtime
charting, intraday swing setups offer the same opportunities that appear daily on longer-term
charts.
The ability to trade through diverse conditions marks successful careers. Swing trading provides a
natural framework to identify changing conditions and apply new methods to exploit them. This
exposes another outdated concept for this versatile approach. At its core, swing trading is not the
opposite of momentum trading. During those times when strong price movement characterizes a
market, disciplined momentum strategy becomes the preferred swing trade. In this way, modern
swing traders can apply the principles of risk management and price boundaries to the manic world
of the speculator—and use momentum’s greed to their advantage.
