Cut your losses early and let your profits run

Before trading, always have a trading plan.

Our swing trading plan:

 

Transaction entry with 2 units

  • Suggested stocks belong to the investment universe (fundamental criteria).
  • Stock price must stand above its 20-day moving average.
  • 20-day moving average must have a positive slope.
  • A calibrated oscillator must be in oversold territory, which indicates the likelihood of a price recovery.
  • A modified MACD type indicator must not perform a bearish divergence which might indicate the end of the upward trend.
  • There should be no earning release in the next 10 trading days as it can generate an important adverse gap.
  • Stock is purchased if it takes previous day’s high after a retest of its 20-day moving average.
  • Two units are open, they will get closed at different moments.

 

Unit 1 exit rule

  • When the oscillator performs a bearish reversal, stop of unit 1 is moved under previous day’s low and trailed until exit.

 

Unit 2 exit rule

  • When the 20 day-moving average is retested, stop of unit 2 is adjusted under previous day’s low.

 

Tools and illustrations


FIG 1: A series of buy signals with successful retests of the rising 20-day MA while oscillator was oversold (under 25). Multiple stop adjustment of unit 2 could be performed after each retest.

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FIG 2: The modified MACD indicator makes a bullish divergence in A, which activates a green light for a following buy signal. However, the bearish divergence in B unauthorizes an imminent purchase.

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