Swing Trade Setups That Don't Trigger For Entry
Yesterday (November 7), I was asked why I was targeting Market Vectors Coal ($KOL) for potential swing trade buy entry (as of the November 6 close). Specifically, this individual asked why I was looking at buying KOL when “Obama hates coal.” My reply was two-fold. First, I reminded him that my short-term trading system is based on technical analysis of price action, NOT news events. Although it is a common conception that stocks are driven by news, this is rarely the case; rather, the price action typically occurs first, and then the financial media subsequently comes up with whatever reason they can think of to justify the reason the stock went up or down for the day. Basing trading decisions on anticipated reactions to news events is rarely a profitable strategy because the expectation of the news is usually already built into the price, which therefore frequently leads to the opposite the price reaction one might expect.
But more importantly than this, the second part of my reply was an important reminder that KOL did not even hit my exact trigger price for swing trade buy entry (buy trigger was above the intraday high of November 6). Given that KOL tumbled more than 3% yesterday (November 7), it served as a great reminder of the danger of jumping the gun in trading by buying a stock or ETF before it actually hits the preset trigger price. Since my trigger prices for entry of swing trades are based on technical levels of near to intermediate-term support or resistance, trying to save a few pennies by entering a trade before it actually trades through the exact, preset trigger price is a foolhardy mistake swing traders can easily make, but one that can easily be avoided by checking your greed at the door.
Given that KOL is now well below the potential breakout level above horizontal price resistance, I have simply been removed it from my ETF Watchlist as a potential buy candidate. No harm, no foul. Always staying grounded in reality, rather than in “hope” mode, is the key to being a consistently profitable swing trader over the long-term. Although active traders who are patient, disciplined, and grounded in reality will NOT make profits every single month, they will consistently end up with a better performance than the overall stock market over the long-term because they will miss the substantial losses of the big down years. A good example of this is when I made a small profit on my ETF and stock trade picks during 2008, at a time when the major indices fell more than 30%.
It was my intention that this short post serves as a useful reminder to fellow swing traders to always be patient and follow the rules of your trading strategy.
AI
