The Best Strategy For Swing Trading Stocks and ETFs

Momentum strategies come in many forms and can be based on price or an indicator. Both price and indicator strategies are used to find momentum or a lack of it and can be applied to both bullish and bearish markets [see How To Swing Trade ETFs ]. The January 10 breakout from a bullish "cup and handle" chart pattern is shown on the first chart below:. We deliver real trades for newbies or professional traders with a very simple ETF strategy. As technical momentum traders, we do not believe in the Wall Street mantra of "buy low and sell high.

Almost every described strategy is based on simple basics of technical analysis. I use this style of analysis for my daily trading activities. Gold trading tutorial. I have created this small tutorial describing the trading of gold exchange traded funds. It is description of a really simple strategy that can be applied to other commodity funds as well.

1. Dollar-Cost Averaging

Such a huge gain on a sudden surge in volume indicates institutional demand. With this setup, the one-day volume spike should be at least 2. These stocks can be held for a few days to a few weeks as long as the price action remains overly bullish. With our trading system, we never try to catch bottoms, nor sell at the absolute top. Rather, we simply aim to catch "the meat of the move. As previously mentioned, an overwhelming majority of the stocks and ETFs we trade in strong, uptrending markets are breakouts one of the three types detailed above.

Click here to see several examples of actual pullback trades we have taken in the past, including brief videos that clearly explain our pullback trading strategy.

The next chart shows the subsequent breakout action after identifying this stock as a Trend Reversal buy setup:. Furthermore, the Trend Reversal setup should NOT be used in a healthy, bullish market because it would merely identify stocks and ETFs that are lagging the broad market relative weakness. Again, this type of trade setup is only used if the main stock market indexes are in the process of reversing a lengthy period of weakness. In flat or downtrending markets only never in an uptrending or bullish market , we also sell short stocks and ETFs with relative weakness, after they breakdown below support and subsequently bounce into resistance.

This is known as Short The Bounce. Details and a clear example of this strategy can be found on this blog post. If you prefer videos to demonstrate concepts, check out the 7-minute video below, which uses annotated charts of actual past swing trades to summarize our simple trading strategy. The video is best viewed in full-screen HD mode click bottom right of video player window:.

As technical momentum traders, we do not believe in the Wall Street mantra of "buy low and sell high. Stocks and ETFs in strong uptrends that have outperformed the market over a 6 to 12 month period have a high probability of continuing their bullish trends for the next few months. As Sir Isaac Newton once proclaimed, "an object in motion stays in motion until a greater force acts against it.

Similarly, stocks trading at or near their week highs have the least amount of overhead resistance to work through, and can therefore stay in uptrends longer than anyone expects. Ideally, the best swing trading candidates will be trading at week highs and fresh all-time highs, as they have no overhead supply resistance to work through.

One common and deadly mistake new swing traders make is "bargain hunting," which is going after stocks and ETFs that have fallen out of favor in the market and are usually trading at or near their week lows. The faulty thought process is to "simply" buy the lows, wait a while, and sell higher. However, this is a flawed plan for traders because market trends frequently last much longer than anyone expects, and it is human nature is to underestimate how long a trend can last.

Therefore, it makes no sense to buy a downtrending stock or sell short an uptrending stock. This enables us to achieve strong gains in healthy, uptrending markets, while seeking to avoid losses or profit from short selling and trading inverse ETFs in flat to downtrending markets.

In bullish, uptrending markets, our main focus is on trading small to mid-cap growth stocks because they have the best capability to outperform the gains of the broad market. However, in flat or downtrending markets, we shift our focus more to trading ETFs because they can provide us with a low correlation to the direction of the broad market currency, commodity, fixed income, and international ETFs.

Knowing the right time to buy stocks and ETFs is only one part of the equation to becoming a successful swing trader. At this point I would like to see if we can make some improvements in the trading model. It will be much quicker for me to test my changes using this service than using Excel. As a reminder, below is the original equity curve from the article. The trading model is the blue equity line. The green equity line is our trading model while the blue line is the SPY baseline.

As you can see the equity lines appear very similar. This gives me confidence that the Excel model and the ETF model are identical in trading logic. I will use the ETFReplay results as our baseline to compare our future results. To do this, we will need an in-sample data segment to test upon. Those dates will be through the year This gives us just over trades for our in-sample data segment.

When I look at the drawdown There are huge swings. Take a look at the huge peek in which falls dramatically. This is the same filter length used in the Ivy This will be our cash equivalent. The out-of-sample results will conclude on December 31, It appears we are making new equity highs. For the years and the trading model returned annual returns of We can see our final CAGR is With a few minor modifications it appears we can improve this trading model to the point where it actually might be tradable with real money.

How Our Simple Stock Trading Strategy Yields Consistent Profits (In Any World Market)

Smart beta exchange-traded funds (ETFs) have become increasingly popular over the past several years. In fact, BlackRock projects that smart beta ETFs will grow at a 20% annual pace to $1 trillion in assets under management by The second system, Dual Momentum Investing with Mutual Funds, purchases one mutual fund in 3 sub-portfolios and equal weights the three portfolios to create a “complete” portfolio. Purchases are determined by the one fund in each portfolio which has the highest trailing 6 month returns. Momentum strategies can be applied intra-day, capitalizing on trends that occur within minutes or hours, or the strategies can be applied to take advantage of longer-term trends. Both price and indicator strategies are used to find momentum (or a lack of it) and can be applied to both bullish and bearish markets [see How To Swing Trade ETFs ].