On any given day there are so many potential news events that can affect market direction that trying to keep track of them and analyze how they may change the market direction is a waste of time.
There is ALWAYS some emergency or world crisis just waiting to erupt at any time. How can we as swing traders stay one step ahead of the markets? The markets which are digesting and reacting to all these news events constantly and almost instantly.
Over the years, swing traders have consistently realized excellent returns because they make their trading decisions based on one core piece of information, The Ultimate Technical Indicator.
There are innumerable indicators measuring everything from volume, rate of change, sentiment etc. The problem is every one of them is subject to interpretation which can result in an incorrect decision being made.
The MACD crossover can give two correct signals in a row and seem like you cant lose using it. Then be wrong several times in a row, leading you to second guess future crossovers. What works perfect for awhile, is not so perfect over a longer period of time.
This is true of all the indicators that swing traders tend to use.
Fundamental analysis can be used to select the perfect stock or sector of the market but that doesn’t mean the stock or sector will go up now matter how great the fundamentals are!
There is however, one indicator, one incredibly important piece of information, that is always right and NEVER gives false signals. Sounds to good to be true doesn’t it? That piece of information, is price of the stock. In particular, the closing price at the end of the day.
Everything is in it, all knowable news, economic data, inside information etc, is reflected in the closing price.Price really is the ultimate indicator.
The Combined Opinions Of Millions Of Traders
The price can be best described as, “The combined opinion and intelligence of millions of traders.” It doesn’t matter what is happening in the world, it is instantly reflected in the current price.
Doesn’t matter if you are looking at stocks, commodities or currencies the current price reflects all the news in real time.
Market traders are constantly inundated with tons of economic studies, news releases, indicators, sentiment and fundamental data, not too mention own emotions.
Everything You Need To Know
There is more then enough information available to make your eyes cross. Not a single one of them tell you when its a good time to buy or sell.
The idea that price offers everything you need to know and tells you when to enter and exit the market, is very disturbing to an analyst who have spent their lives studying the markets. It doesn’t seem possible that something as simple as price is all that we need.
Here Are A Few Examples
Let’s say that the stock of CRRS has gone from $5 to $10. When the stock was at $5, do you think anyone knew it was going to $10? Probably not, but swing traders using price to determine when to buy the stock would have been buyers as the price went up because as price increased the market was telling them they were correct in their decision and kept buying.
It makes no difference what Jim Cramer or any other talking head says or what the prevailing opinion of the stock was. The price was increasing so the trend was up.
If you had a chance to buy that stock at $10 a share, would you have bought? Probably not. The stock was up 100% at that point. Most traders would wait for a pull back before buying it.
But not a swing trader. The trend is up, you go with the trend. The price has told you the direction of this stock in unmistakable terms. It was a buy at $5, $7, even a buy at $9.
When Enron (NYSE:ENRN) was at $90 a share in year 2000 and dropped to $70 a share, most everyone held onto this cant lose “blue chip” stock, the talking heads were screaming you need to buy shares at this new “bargain” price.
There were people were buying at $50, $30, $10, $5. Anyone buying on the way down lost money. There were probably people buying when it went under a buck and became a penny stock.
Swing traders were shorting the stock because the trend based the price was down. It made no difference what the talking heads on TV said, the price was declining so the trend was down.
When Enron was trading at less than 40 cents only a year later, swing traders were buying new houses and Aston Martins, but those who bought Enron as an investment had lost all their money. This included some hedge funds, pension funds, money managers, the supposedly “smart money”.
Enron is old news now, but what happened to that stock and the traders and investors who bought it, applies now just as it did then.
Had traders considered the changes in price in their trading plans they wouldn’t have lost a dime.
Swing Traders Exit When Price Tells Them
In the example above would you have taken profits at some point?
A good swing trader never exits at a fixed profit target. They know there is no way to know ahead of time when a trend will end, so they ride it until it the price tells them to get out.
Suppose you bought the AAPL stock at $15 and took profits at $30, you would have a nice 100% gain, but would have missed the 10,000% total gain of the entire trend. If you had exited your bearish position in Enron at $50, or at $40, you would have missed the gigantic profits that you could have made.
NOBODY knew that Enron would trade for less than 50 cents a share. But those swing traders who allowed price to dictate when it was time to exit a position, held on for huge gains.
Nobody knows when a trend will end. Swing traders rarely enter at the exact bottom, or exit at the exact top but they can profit from the majority of every trend. All generated by that one simple piece of information, price.
Swing traders do not believe that anyone has the ability to consistently pick tops or bottoms. Nor do they believe that reversals can be consistently traded either. Some people may get lucky but mostly they do not as that’s a losers game.
If you trade trends letting price tell you what it is, you don’t need any luck. The price of the stock will tell you when to get in and when to get out.
Swing traders who use price to determine trends have been beating the markets for years and will continue to do so.
When your a beginning trader its best to use the services of a swing trading service. They are going to put you on the road to being a profitable trader. Learn from them before attempting to go it alone.
Here are the two stock picking services I use for almost all of my trades; Microcap Millionaires and Jason Bond Picks
If Penny Stocks are your thing, then you should definitely check out Microcap Millionaires.
You can read all my reviews on stock picking services here:
If you are looking to open a brokerage account or looking for a better one, I wrote some reviews of brokers I have used and currently using.
OptionsHouse Review (Currently Using)
Scottrade Review (Used when I first started)
If you have any questions feel free to contact me.