Swing Trading Entry Strategy
How to Get a Good Entry on a Stock
Your swing trading entry strategy is the most important part of the trade. This is the one time when all of your trading capital is at risk.
Once the stock goes in your favor you can then relax, manage your stops, and await a graceful exit.
This is the basic price pattern that is used to enter stocks. Once you become familiar with it, you can try out more advanced strategies based on the specific pattern that you are trading.
More on that in the Chart Patterns section.
With your entry strategy, the first thing that you want be able to do is identify swing points. What’s a swing point you ask? This is a pattern that consists of three candles. For entries on long positions, you look for a swing point low. For entries on short positions you look for a swing point high.
For a swing point low, the first candle makes a low, the second candle makes a lower low, and the third candle makes a higher low. This third candle tells us that the sellers have gotten weak and the stock will likely reverse.
For a swing point high, the first candle makes a high, the second candle makes a higher high, and the third candle makes a lower high. This third candle tells us that the buyers have gotten weak and the stock will likely reverse.
Here are pictures of the candles to help you better understand swing points:
For our long entry strategy, we are trying to find stocks that have pulled back into the Traders Action Zone that have made a swing point low.
You can see on the chart above that this stock is in a nice uptrend with the 10ma above the 30ema. The stock has pulled back into the TAZ and made a nice swing point low (highlighted).
See how the pattern consists of a low, lower low, then a higher low? Great! Our entry strategy would be to enter this stock on the day of the third candle.
Now lets look at a stock on the short side. We are looking for a stock in a nice downtrend with the 10ma below the 30ma. Then we wait for a rally into the TAZ that forms a swing point high.
See how the pattern consists of a high, higher high, then a lower high? We would look for an entry on the third candle.
Consecutive Price Patterns
Ok, now check this out. Look back up at the first chart where the stock pulls back into the TAZ. You will notice that the pullback consists of three consecutive down days with lower highs and lower lows.
That is what you want to look for in a pullback. You can buy the stock the first time it trades above the previous candles high. This will complete the swing point low.
On the second chart, you will see that the stock has three consecutive up days with higher highs and higher lows. The fourth candles still makes a higher high and a higher low. The fifth candle finally makes a lower high and a lower low - completing the swing point.
Pullbacks do not have to consist of exactly 3 consecutive up days (for short trades) or down days (for long trades.) Sometimes you will run your scans and find stocks that have more than that.
One final note: When you are looking for swing points to develop, you always want to look to the left of the chart to see if the stock is at a support or resistance area on the chart. That will improve the reliability of this entry strategy.
Ok, now that we know how to get into a trade, how do we get out? We need an exit strategy.