Friday, July 22, 2011


Don asked about Swing points yesterday and whether or not I use these types of things. The answer to that is yes. The above chart has 3 different time frames of Swing points, and this is the best way of getting a quick overall view of what the structure of a market really is. In this case, the Blue points are the shortest time frame swings. You can see in this case with the Gold market, all three time frames show the trend up, so that is in general the direction that should be traded. It is always clear after the fact just like anything else, but I do find it helpful if I get a short term swing point in my direction on an entry bar.

I have researched these just straight up buying and selling whenever a new higher low or lower high was made. This results in a about a 50% win percentage in most markets, so it is not the holy grail. It is a very noisy way to trade, but there is one thing it does accomplish. You will catch most of the big moves in the markets if you do it. I tried it with real money in the Bernanke 100 about 6 months ago with just one contract playing around, and of course it lost 5 straight times getting whip sawed back and forth during a trading range. It was just bad luck that I happened to start right when that happened, but it was ok because I wanted to get a true reality of what it would be like to trade like that to see if I could do it. At the time I was using this as a primary entry technique with just one other thing and the test results were very good. I wanted to see if I could actually execute what would be a ton of trades since often the short term swings change daily. I just could not do it, and I left with a mixed impression of how important this was.

However, that does not mean there is not an edge to swing points. That was one specific way I chose to trade them mechanically, it is not the end all. I think they are important particularly in assessing longer term trends. Also, just in looking at charts over and over it is clear they matter. I do want the swing points in the direction I am looking to trade whenever possible, and most of the trades I make that do well do have this going for them. Trap trades, which are those that make new highs or lows and immediately reverse, obviously do not have Swing points in sync with the entries.

I would welcome any research that anyone has done on these, because I find I just do not have the time to research them the way I would like to. Don, if you have done any please let me know.

Here is the current Swing Picture in the Bernanke 500, as you can see if today's low gets taken out Monday, that would confirm today as a lower short term high than the highest Swing Point. This is interesting to me in that my weekly trend stuff is still showing the trend has turned down, so I really am looking for a short up here but don't have enough to go with it yet.

This is certainly not the ideal swing point formation, but you can nit pick anything. Technically it will be one if today's low is taken out on Monday. That is still not going to be enough for me it appears at this moment but as we know things can change quite a bit in a few hours.

One thing I am incredibly tired of now is this proclamation of this end of the world disaster if the debt ceiling is not raised. Can you remember the last time everyone told us about a disaster in the making and they were correct? None of these guys told us in 2000 or 2007 about the stock crash coming. None of them told us about the Real Estate Collapse in advance. Remember Y2k anyone? What a joke that was. Yes there were a few people here and there that were right about these things in advance but certainly the majority of "experts" were not. Medicare payments would not be withheld unless Barry decided to do that even in a shut down. I am so sick of these liars telling us about this incorrectly to further a political agenda. Some otherwise credible people have fallen into this trap which is disappointing. You believe the Treasury secretary who is a tax cheat?

Ignore all that crap because that is what it is, crap. It appears the Sugar sell setup is now messed up with today's large up move, although a trap pattern could now be at hand.

Have a nice weekend


Anonymous said...

In answer to your question I do not have any research on Swing Trades. It’s something I have learned to look for when my former broker, who is a cycle trader, turned me on to it.
I find it useful as another tool to use in taking a trade.
That said, I have never seen the graphs you posted for gold and the Bernanke’s. Are they manually drawn using your software or are they the result of a software formula?
I ask because all the points drawn do not represent Swing Trades as I was taught. It’s easy to see the high and low points but after the fact as you stated and maybe that is why they are only a 50% win percentage as you stated.
A Swing High as I was taught is a high bar for which both the bar before and the bar after are lower highs AND both of these two bars are also lower lows than the swing high bar. The opposite would be true for a Swing Low: the low bar is both preceded and followed by bars that are higher lows AND both of these two bars are also higher highs than the Swing Low bar. By that definition they do not occur near as often as you indicated on the Gold chart particularly the points drawn via the blue lines. Even the low on the green and red lines near Feb 11 is not a Swing Low in the classic sense because the high of the bar following the spike low is not higher than the spike low bar. It is as they say, close enough for government work especially when it broke up 4 days later. I am not knit picking, just pointing out a difference in interpretation.
But the real beauty of a Swing trade bar is it tells you exactly where to set your stop. For a SH it is 1 tick above the high of the high bar and for a SL it is one tick below the low of the low bar. If and when they are taken out you know you were wrong. Sometimes that swing set up bar can be too wide a range for your money management rules and in that case I look to the 60 or 90 or 120 min bars where that set up occurred.
As I look at that Gold chart I find it confusing but if you eliminate the blue points, most of which as I said do not fit the classic definition of swing highs and swing lows then the chart shows far fewer trades but a higher percentage of winners and much larger wins as well depending on how you adjust your stops along the way.
(what month is that gold contract anyway?)
Does all that make any sense?
Getting back to the Bonds we did have a daily swing high on July 12 at 127-15 and a sell short at 125-31 on the 13th. However the SH on the weekly did not trigger as the low of last week missed the low of the High week by 4 ticks. But it was probably “close enough for government work” if we take out 124-19 low of two weeks ago sometime this week.

Chris Johnston said...

Those swing points are drawn by the Genesis program, you can change the settings to shorten them which is what is required to get them to what you are talking about. I did not bother for the example, I was just talking in general terms. The 50% win/loss was done based on the definition you use, it is the correct one in my mind. As much as they appear to be great, if you trade off them alone, you will only win half the time, sometimes a little less, there were some markets that came in with a high 40's win rate. The bottom line to me is that basic market structure is a truism of the pricing, how to best use it is up to the individual. Just using them straight up does not have a big edge.

I am still bullish on bonds based on the COT stuff, and the seasonal low being due right here. I am also bearish on stocks right here which is consistent with a bullish view on bonds since they will move opposite.

Anonymous said...

I totally agree and never use Swing trade setups as a stand alone indicator. It has to work in conjunction with others. To me it is just another piece of the pie.
I have a question about your COT info. Do you have to plot it on the charts or does Genesis do it for you as a subscription service?
What service do you us to supply that info.
I have a few more questions on your charts but will hold for another time.

Chris Johnston said...

Genesis software does it all, it is the best there is for analysis. It is terrible for live trading their interface with brokerage firms sucks. However, for end of day analysis, there is nothing close to it.