The Art & Science of Technical Analysis: Market Structure, Price Action & Trading Strategies

CHAPTER 10

Trade Examples

The main part of intellectual education is not the acquisition of facts but learning how to make facts live.

—Oliver Wendell Holmes

This chapter presents several examples of the trading patterns and ideas in this book applied to real-world market scenarios. Keep in mind that these examples reflect my trading style, which is a pure swing trader’s approach that can be summarized as follows:

• Understanding bigger picture money flows between markets. In stocks this might mean understanding the difference in performance between domestic and foreign indexes, and then understanding which sectors offer the most attractive opportunities. This concept can be adapted to other asset classes as well, but the key is to start from a high-level perspective and to work top-down.
• Waiting for precise patterns that indicate the presence of an imbalance. These patterns also give risk points (stop levels) for each position.
• Executing trades to position with the statistical tendency behind that pattern.
• Managing the risk in the trade appropriately, perhaps adjusting the position as the trade develops.
• In almost all cases, I am playing for one clean swing in the market.

The last part of that is particularly important: a swing trader’s job is to take money out of one swing, usually the next swing, in the market. Swing traders do not enter positions, add to them as they move against the entries, and hope for the best. Swing trading is a style of trading that requires precise ...