Market Timing For Swing Tradersby Craig Ferguson
Your market timing strategy is critical your success as a swing trader. When the stock market rallies, 3 out of 4 stocks will move up with the market. On the other hand, when the market sells off, 3 out of 4 stocks will decline with it. Knowing this, doesn't it make sense to time your trades to the market? YES!
Market Timing Using Moving Averages
The first thing you want to look at is a chart of the S&P 500. Look at the 10 period simple moving average (sma) and the 30 exponential moving average (ema) to determine if you should be focusing on long positions or short positions. Here are the rules for timing your trades to the market using moving averages (daily chart):
If the 10 sma is above the 30 ema, you should be focusing on long positions only.
If the 10 sma is below the 30 ema, you should be focusing on short positions only (or stay in cash).
This simple technique will tell you what type of trades (long or short) you will be concerned with right now. It identifies the underlying trend to keep you on the right side of the market. This part of your market timing strategy answers the question of WHAT types of trades to focus on.
Ok, now we know whether or not we will be trading on the long side or the short side. Now we need to answer the question of WHEN to buy and when to sell. That is where Williams %R comes in...
Market Timing Using Williams %R
I'm not really a big fan of technical indicators but Williams %R is useful to get a "general idea" of when the market has reached a short term extreme and is likely to reverse. It calculates the close in relation to the range over a set period of time. The default setting in most charting packages has it set at 14 periods, but we would like it to be a little more sensitive than that so we will use a 3 period setting. Here are the rules for timing your trades using Williams %R.
When the 10 sma is above the 30 ema, we will look to go long when Williams %R is less than -80.
When the 10 sma is below the 30 ema, we will look to go short when Williams %R is greater than -20.
See how we are NOT predicting what is going to happen in the future. That is a waste of time. Instead, we are reacting to whatever the chart tells us to do.
Use this market timing method to identify when to establish long or short positions. Once you are in a stock, trade the chart of the stock itself and forget about the market. Often times, stocks will trade contrary to the market. Use your specific entry and exit strategy to get into and out of individual stocks!
For more information on this topic including example stock charts visit:
About the Author
Craig Ferguson is a part-time swing trader. Visit Swing-Trade-Stocks.com to learn his complete swing trading strategy using technical analysis.
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