What is a discretionary swing trader

Swing trading for professionals, theoretical part

Transcript

1 Swing trading for professionals, theoretical part Author: Michael Hinterleitner, Technical Analyst and Managing Director at Brokerdeal: 45 Copyright BörseGo AG My comfortable trading with stocks outside of opening hours is ideal for beginners, as a diversification alongside other strategies or simply when you don't have time for trading during the day Has. With this and the following article I would like to bring you closer to one of my comfortable and time-saving trading methods. In essence, it is about short-term equity strategies (holding period no more than five days) in the daily chart for stock exchange trading outside of trading hours. In other words, in the case of European stocks, we don't look for attractive signals for the next day until after 5:30 p.m. and place suitable orders in the market. It is therefore ideal for professionals, newcomers to the stock market and / or traders who are looking for something to add to the mix. Some variants and ideas can also make it necessary to set actions intraday. But even then we are still miles away from the hectic everyday life of a day trader. Anyone who knows me knows that my love always belongs to the practical aspects of trading. One or the other theory may have to be explained for a better understanding. The focus, however, is clearly on working on and with the charts and the resulting findings and signals. Mantra My approach to signal detection can be summed up with just two essential questions. 1. Is a new swing likely? And 2. can I get into this cheaply? You can see such a current signal for June 17th in the Heidelbergcement share chart. GodmodeTrader - Page 1/9

2 The most recent swings are shown separately in color for orientation as I see them, together with the specific planned entry and exit levels. In the following practical part, we will see in detail how to get to these price marks. At Heidelbergcement, the bears are currently dominating the action. That means we just wait for a correction and look for the cheapest possible short entry. The Friday candle could be the starting shot for a new swing to the south. Sounds wonderfully simple, doesn't it? However, there are also numerous pitfalls and hurdles lurking here, which we will have to go through step by step. So there has to be some theory, specifically we look at the advantages and disadvantages of after-work trading, the choice of the right stocks, the trade management, the tools required and the trend assessment. Then I present my basic strategy and how it can be put into practice every day with just a few minutes of effort. Disadvantages of after-work trading 1. Uncertainty about the execution price The biggest drawback of this type of trading is that I don't know my entry price in advance. It's different with day traders: they are under enormous stress because the prices are constantly changing. But I can decide in real time whether I like the current price or not. After-work traders like us, on the other hand, have to fall back on stop or limit orders. And so do not know beforehand at which course we will run the next day. We can only set certain parameters: If you work with stop-buy and stop-sell orders, you will usually be executed at the desired price. But never better, worse, on the other hand. In the case of gaps or high spreads, usually in the first few minutes of the day. On the other hand, you also miss some losing trades with stop orders. Namely, those that would only have developed against us from the opening. GodmodeTrader - Page 2/9

On the other hand, 3 limit orders are regularly not executed at all, and you then have to look after these stocks that open immediately with a gap and run towards the price target without us. Because I can only place a limit buy order at or below the closing price. On the other hand, limit orders sometimes lead to better execution than planned, for example when I plan a long and the opening starts very low the next day. With bullish stop orders, I buy long positions AB a certain price which must be higher than the closing price. With limit orders I buy BIS at a certain price which has to be below the closing price. For shorts, of course, the reverse is true. In the end, when using limit orders, executions are much more frequent. I myself worked with this type of order for a long time, but now I know better. In Figure 2 you can see a combination of backtest and actually executed trades from the year. On the left you can see the performance when using stop orders, on the right of limit orders. Roughly speaking, stop orders performed better by a factor of 3. With stop orders you never know which price you will get the next day. But at least you don't miss any winners and leave some losers by the wayside. In addition to stop and limit orders, there is theoretically a third possibility, the simple market orders. But these are not an option for me anyway. First of all, you cannot give them up outside of the opening hours of the stock exchange. And secondly, you deliver yourself mercilessly to the first ticks of the day. And with it the often cruel spreads at this time of the day. Which brings us to the second major disadvantage: 2. Arbitrary spread delivered A share can basically be as liquid, especially in the turbulent opening minutes you have to reckon with a widening of the spread. In the case of blue chips, this is not that bad, and is usually negligible. But that's a big problem with small caps. Quite a few stocks that deliver excellent signals in theory are unreasonable in practice. We'll look at an example of this shortly. 3. Intraday hands tied For traders who sit in front of the courses all day anyway, having to keep their feet still intraday can be a psychological burden. Many believe they have to close out their long positions after bad news, only to be annoyed about higher prices again in the evening. Discipline is the be all and end all if you want to become a successful trader. GodmodeTrader - Page 3/9

4 4. Sluggish learning curve After-work traders definitely need to be more patient when it comes to feedback from the market. As a rule of thumb, I need at least 50 signals in order to be able to draw conclusions through optimization. These 50 or even better 100 are easily possible in day trading within a month. For swing traders, however, a few months can go by. Without careful backtesting, I would definitely get gray hair, simulated portfolios help enormously here. Of course, it's important to be aware of these drawbacks. And adjust accordingly. Fortunately, the benefits outweigh the benefits. Advantages of after-work trading 1. Careful decision-making base It is simply damn pleasant not to have to make stressful decisions in fractions of a second in contrast to day trading. Everyone makes mistakes under stress. Without the hustle and bustle and time pressure to look for the most attractive signals in peace, to decide on the optimal number of items, and to conveniently fill out the order masks, that's pure trading luxury. We often have discussions in the forum like so many nice short signals today, which one do you choose? As a day trader, you often don't even see that there are nicer setups in other values, and you often trade questionable signals. We, on the other hand, simply choose the 1-2 most sympathetic signals and ignore the middle class. 2. Expenditure of time And the whole thing with considerably less expenditure of time. Where day traders spend ten hours or more in front of several monitors, the swing trader with daily charts only needs a few minutes a day. An extremely efficient affair, certainly with the highest cost / benefit ratio. You can either trade practically on the side, or swing trading as an admixture. Personally, for example, I am sometimes on the FDax during the day, and after the market closes I look for the most attractive stock candidates. 3. Part-time trading and swing trading outside of trading hours does not exclude all those interested who have to pursue another job during the day. Or simply don't feel like day trading, or are just getting started with trading. Hopefully, the benefits outweigh this not only in my eyes. If you don't fall for the stocks with high spreads, because most orders are executed in the turbulent opening phase. And that brings us to the second theoretical section, choosing the right underlyings. Choosing Underlyings As you can see, my swing trading focus is on stocks. There are several reasons for this: - large selection, i.e. you can actually find at least 1 attractive signal every day - quieter price trend than foreign exchange or, for example, the Dax in the daily chart. Certain underlying values ​​such as gold or the S & P500 are also excellent for swing trading 3-5 days visibility. But due to the multitude of signals alone, the stock market is our target area. Liquidity I can tell you a thing or two about keeping your hands off illiquid second-tier stocks if you don't really work long-term and with generous stops. Sufficient volume is never an issue for anyone who trades in blue chips, but for everyone else it is. Why you shouldn't ignore small caps anyway GodmodeTrader - Page 4/9

5 is their higher volatility. Which brings us all the faster to our planned course goals. But that doesn't help if the stock is illiquid and no good execution can be guaranteed. The daily traded volume is a good indicator of this, but a simple look at the intraday chart of the stocks is better. For example, if a stock has a continuous 5-minute chart with a large number of beautifully pronounced candles, there is always enough action to be able to expect clean executions. When I wasn't paying enough attention to this, stocks like the Austrian Zumtobel were also traded. Because it shows extremely attractive price movements in the daily chart, trendy and yet not too unpredictable. But if you zoom in on the 5min chart, the problem becomes obvious: there is simply not enough interest in the stock to get fair explanations. You often have hours with just a few ticks, so you shouldn't be surprised if a profit on paper leads to a loss in practice. In Figure 3, a comparison between Zumtobel and Commerzbank in a 5-minute time window. Spread goes hand in hand with our greatest enemy, high or widened spread. Which lead to poor or even unnecessary execution. The most convenient way to research stocks in this regard is when the broker has both bid and ask charts on offer. Or with software such as TradeSignal, where you can simply place the bid-ask trend over the chart as an indicator. Swing behavior If a share meets the two criteria of liquidity and spread, it comes into question for us in the first place. Assuming we now get a signal, the swing behavior now counts. The name swing trading already reveals that we are looking for volatile stocks, not those that starve to death in a sideways phase. So if we receive a signal from a stock that shows signs of a sideways phase, this is all GodmodeTrader - Page 5/9

6 always subordinate to others. Diversification If, after considering the selection criteria swing behavior, liquidity and signal quality, we still have more candidates than we need for one day, then one should still think about diversification. So pay attention to the choice of different countries of origin and different sectors. Instead of buying two French financial stocks, you just choose one of them and, for example, a German industrial stock and a utility company. Now we want to go through briefly which technical requirements must be met for swing trading. Tools It is not difficult for the after-work trader to choose his work tools. Neither expensive hardware nor software is required. Of course, it doesn't hurt to spend money on programs like TradeSignal or Teletrader. Simply because you can achieve a tremendous amount with it in the course of backtesting and the observation of many values ​​at the same time. If you don't need intraday charts, there are even some free versions. As a daily trading vehicle, I prefer CFDs, as these are extremely transparent and inexpensive instruments, and shorting is uncomplicated. Here, however, only a broker with stock exchange prices comes into question. Speak to those who quote their prices 1: 1 to the original exchange. All brokers with their own quotes are generally to be forgotten, at least in relation to shares. Here you often experience your blue miracle with fantasy courses. At this point, some questions about the optimal broker usually arise in the webinars. At this point I am therefore including a short excursion to the new innovative broker comparison site. This new platform, which I am personally responsible for, allows you to put together your own personal criteria, i.e. what your ideal broker must be able to do. And you will already be limited to the brokers that are suitable for you. With the most interesting providers, you can even further reduce your trading expenses by receiving a credit for every order. Members can also enjoy other trading-related benefits. Such as discounts on trading services from Godmode-Trader, the chart software from Teletrader or a TRADERS subscription. And we also get involved in charitable causes. Real customer ratings and anonymous real money tests that will be introduced shortly will also show which brokers are really good at what. Trade management So much for the ideal broker, let's move on to swing trading. We have now passed the rough waters and cliffs, but now we want to start placing real orders. But before I even open a trade, I have to have a plan for how the trade should work. Whoever has to think about where to put the stop after the order has been executed and does not yet know how to realize profits is one of the losers in the long term. I always risk the same percentage of the capital per trade, the simple and effective fixed risk model. And in order to be able to calculate the number of pieces allowed for this, it must be clear before execution where my stop will be. I prefer tight stops that result in high volumes. Because the winning trades usually move in the desired direction from the start anyway. My stop and target prices are always based on the current volatility of the last 10 daily candles, that's GodmodeTrader - page 6/9

7 exactly two trading weeks. The corresponding indicator is almost everywhere referred to as Average True Range and should be available in all platforms (sometimes also referred to as Volatility). The ATR simply tells me how volatile a stock is right now. If I have an ATR of 2, then a share fluctuates by this amount on average over the course of the day from low to high. I currently use 0.6 times the vola (ATR) as an initial stop. It is interesting that even a doubling of the stopping distance hardly brings better hit rates. This perhaps 5% is more than offset by the much worse risk-reward ratios that result. Ideally, the trades will come to an end at the price target, but only if a time stop does not have to come into action beforehand. Specifically, I use a price target based on 1.8 times the vola. And after four days, my patience runs out, and this is where the time stop takes effect. This is implemented either in the last trading minutes of the day. Or you just pull the stop close below the closing price. This Fire & Forget methodology without trailing stops also makes a great contribution to comfort. Because all you have to do is look for your current candidates and then send off the orders using If-Done Orders. Every evening you check what is happening and see if a share is due for the time freeze. Sounds easy, it is. In theory. In practice, however, you still have to time the entry correctly. Frei Schnauze I refer to my trading style simply and simply as Frei Schnauze. But this is by no means to be taken too literally, because the trade management is cast in absolutely fixed rules. Sensitivity, instinct and routine are only required when starting out. The trend assessment is purely visual, as is the selection of the most attractive candidate. For a long time, trend assessment with the help of Fibonacci retracements was a set of rules cast in concrete. This is of course very helpful for beginners, but personally too boring for me and too many useful signals have to be ignored. Of course, we at Frei Schnauze have to struggle with the problem that the same signals are never 100% identified in our small trading community. But 90% agreement is already a good value, and after all, we don't want a rigid black box system, but rather train ourselves and our charting eye. Or should I say our market-technical eye, because after all we forego all indicators and otherwise often common aids. Basically it's the purest form of trading, just the chart and us.For beginners this may sound very complex and difficult to learn at first glance, but basically it all boils down to our mantra: 1. Is a new swing likely? And 2. Can I get into it cheaply? To do this, let's look at the daily chart from July 5th from ST Microelectronics from the French main index CAC40 as an example. I have marked the last swings in color with arrows in the chart. So it's nice to see that a new downward swing is likely. And a favorable entry price results from the nice correction since the last low, as well as the small bearish candle of the day on Friday. Which provides us with a nice stop-sell order at the low of the day. GodmodeTrader - Page 7/9

8 In general, we only sell bearish day candles and only buy bullish ones. For the very simple reason that a new upswing usually starts with a bullish candle. By concentrating on these logical setups, we further restrict the daily selection and can concentrate on the essentials, the trade management. For some, ST Microelectronics may be too sluggishly stuck in an extended sideways phase. Indeed, this was the case until early June. But as the three swings shown should show, the necessary volatility has returned, and has already given the share lower lows and highs. I would also sell if there was at least a double top. Or even in a broad sideways phase at the upper limit, if the price target easily has room to the other side. But trend continuations are clearly preferred. Only then do aggressive trades with double tops / double bottoms follow, and only if there is still no signal for the next day can be found in these categories, range trades come into question. But now we want to go into detail: Trading plan 1. Trend assessment: we never act against a clear trend. At least a double floor for long signals or a double top for short signals must be visible. The easiest are of course classic continuation signals, but they are just not as frequent as you would like them to be. 2. We don't chase trends. In other words, we are waiting for corrections and try to catch the start of the next swing point there. 3. We are looking for small bullish day candles for long entries and small bearish day candles for short entries. These mark the start of a new swing more often than not. 4. We want to get in as cheaply as possible, so there have to be small candles near the extreme points. And that's why we don't run after new daily highs for planned long entries (i.e. the daily high for a potential long signal must be <= the high of the previous day). Furthermore, the daily high must not be too far away from the closing price so that the stock does not have to shoot too much powder before the order is even executed. 5. Once we have found our candidate, we place the stop entry order slightly above the GodmodeTrader - page 8/9

9 Powered by TCPDF (daily high for long orders or below the daily low for short orders. I usually choose 1-2 cents, for more expensive stocks over 50 sometimes 5 cents, that's not so accurate. It just depends, never to choose exactly the extreme points of the day, because intraday stops are often fished. 6. Next, we apply the stop loss 0.6 times the volatility (Average True Range or ATR) of the last 10 days. 7. At a price target of 1.8 times the ATR 8. And as an additional protective measure, a time stop takes effect on the 5th day of the trade shortly before the close of trading. Should neither stop nor target have been triggered by then. 9. And we risk 1% of ours on every trade Capital And that would be the trading plan for a simple discretionary strategy for working swing traders. If you have any questions, just write to me at Then I will answer them directly or incorporate the answers into future articles. In a few days you will find in Te il 2 but already practical examples including charts, everything should then be explained sufficiently and above all in an understandable way. One more thing, because this question actually always comes up in the webinars: the ATR or volatility is not an indicator, but a purely technical measurement. In our example, this simply means how volatile a stock has been in the last 10 trading days. If this has been very volatile, the stop and price target are automatically a little further away than with a stock that causes your feet to fall asleep. There the exits will then automatically be closer, especially to give the price target the chance to be triggered. You should find the Vola or ATR in any even free chart software. We don't need any special requirements for this, so swing trading for professionals remains very easy to implement. And how that looks in practice, we'll see in the next part, I'm looking forward to it! Any questions? You can reach us on +49 (0) or at The document with images is protected by copyright. The rights established as a result, in particular reprinting, storage in data processing systems and display on a website, even if only excerpts are used, are held by BörseGo AG. All rights reserved. BörseGo AG Aktiengesellschaft based in Munich - Register court: Munich District Court - Register number: HRB Management board: Robert Abend, Christian Ehmig, Johannes Pfeuffer, Thomas Waibel - Chairwoman of the supervisory board: Dipl.-Kff. Jutta Hofbauer - VAT identification number according to 27a UStG: DE Munich, 2019 GodmodeTrader - page 9/9