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It is a deliberate attempt to impose a rule-based system on the market. This is an excellent idea, because it leaves less room for the foibles of individual traders to intrude. But whereas some rule-based systems are weak on logic, and appear to work only because empirically they can be shown to have worked in the past, swing charts have considerable logic underpinning them.

They delineate exactly where supply and demand dominated the market on previous occasions. Insofar as that is an inadequate guide to the future, it is a fault common to all charts. Moreover the swing chart fits very well the rhythm of the market which everyone can see unfolds in swings of various lengths and amplitudes. In my opinion, provided one is dealing with high volatility stocks or equity indices, the swing chart is by far the best chart available to traders.

I understand that many accomplished swing traders will already be using their own favourite chart. But most swing traders will not have tried seriously to harness the power of swing charts. I assure you it is worth the effort. In any event, you can use swing charts in conjunction with your own favourite chart. I use two different types of chart. Timing the broad and the lesser swings of the market as a whole is what motivates me. You, the reader, could go further.

It is entirely possible to time the markets, and to trade index futures and options by using swing charts only. The swing chart is a winner all by itself. Interpretation and trading can be done from an ordinary bar chart. It is the highs and lows recorded by the bar chart which are important.

The closing price is not relevant to this definition, although of course in general terms the close is an important tool from which useful inferences may be drawn. Inside days lower high, higher low are generally ignored.

Outside days higher high, lower low , which do represent significant price action, receive variable treatment explained in the glossary. They form a reference point both for trading and for determining the trend. Gann regarded a one day rally in a downtrend as irrelevant, however substantial the rally. What his method seeks to do is to focus on those corrections in a short-term trend which portray an important level where supply exceeded demand or vice versa.

The problem is how to define the important, and exclude the unimportant in a way which allows for as little subjective opinion as possible. In a downtrend, the standard Gann swing chart turns up and registers a countertrend rally, a swing high, only when there are 3 consecutive days of higher highs.

I regard that as a bit of a fault. But much, much worse is the notion that the countertrend rally is over and the main downtrend has resumed only when there are a further 3 consecutive days down.

The standard Gann chart gives one a very good idea of direction, but the stipulation that the main downtrend 32 Modified Swing Charts has resumed only if there are 3 consecutive days down is not only unwieldy for traders, it is counterintuitive. It is obvious, on a glance at the past history of any chart in a downtrend uptrend , that the main trend has resumed as soon as the countertrend rally dip , the correction, is over.

Of course, the tricky bit is to determine in real time exactly when that has happened. I do not believe that task is aided by the inflexible requirement that the main trend resumes only when there are 3 consecutive down days after the countertrend rally. Swing High 1 Sell 2 fig 4. The market made a swing high on 24th May. It is obvious with hindsight from the chart that the correction, the countertrend rally, ended after the high was made that day, but - 2.

The standard Gann swing chart would signal that the main trend had resumed only on the third day down, by which time most of the move was already over, and it would give a repeat sell signal only on the breach of the previous swing low which happened on the fourth day down, the 28th May which was the very day the downswing ended.

Shortly before he died, Gann wrote in longhand, across his typed notes about trading grains, that a 2 day swing chart was more useful.

Whether he meant that generally or in respect of grains only is not clear. In other words, instead of insisting on 3 consecutive days down or up , Gann was apparently suggesting that 2 consecutive days were sufficient. But even a 2 day swing chart would have turned down only on 26th May, by which time the market had fallen substantially from its actual swing high.

Of course, breaching the previous swing low is indeed important confirmation that the downtrend is continuing, and if it were practical to wait that long before selling short in a downtrend or buying in an uptrend, I would be delighted to do so. But the stop loss involved would be crippling at any rate for a trader with my risk profile. Look at fig 4. Standard Gann practice when pyramiding, as he called trading the intermediate swings is to sell short at when the swing low is breached and place the stop loss above the swing high established on 24th May, namely at A standard 3 day swing chart would have turned down on 27th May, so the stop loss required would be points if you sold on the close.

A standard 2 day swing chart would have turned down the day before but the stop loss required would be still be points. These stop losses would be ruinous. As you will see in due course, the profit from each successful intermediate swing trade in the FTSE typically falls in the bracket of points, although profits are occasionally larger, particularly in linear phases.

Sometimes I forgo a trade if the potential stop loss is too large. Using my modifications a short position would have been established on 24th May at , an improvement of points at least on the 3 day swing chart and points on the 2 day chart. With my modifications, the stop loss here would have been points which is high-ish but acceptable. Even without pyramiding trading the intermediate swings , you will find that the standard Gann swing chart looks superb and is occasionally superb to trade, but often produces steep losses, which negate much of the worth of the chart.

Not everyone will agree with my modifications to Gann swing chart theory, but here they are. In short, I use a 3 day swing chart to set up the trade and a 1 day swing chart to activate the trade. This may sound complicated, but it is not. It is simplicity itself. It is merely complicated to describe. The swing trader is looking for a countertrend rally to add to a short position or to initiate one. The decline ends on 2nd March and there is a 3 day rally on 5th, 6th and 7th March.

On 8th March I place a stop sell order underneath the lows of 7th March. But nothing happens, because on 8th March, the market makes a higher high and a higher low. It is the fourth up day of this countertrend rally.

I am now short. I place a protective stop loss above the assumed swing high the high of 8th March at It works perfectly. The market falls points in 4 days. Have I chosen a good example to impress you? Of course! Once again a 2 day and 3 day standard Gann chart would have got one short, this time successfully, at much worse levels, and the size of the potential stop loss would have been a big deterrent.

Please see the glossary for a fuller treatment of outside days. What happens if it has a higher high but a lower low?

Does that count as part of the rally or not? Place a stop sell order below the low of 27th January, and later on 28th January, the stop is hit and a short position is established. This is not too large a modification. Effectively one is trading an outside day which in standard bar charting terms is indeed regarded as bearish.

This modification also explains the short position established on 24th May in the first chart in this chapter. Naturally the same principles hold true in an uptrend, when the third day of a countertrend dip is an outside day, and the market, having first moved lower, later takes out the highs of the previous day. What was Gann trying to say when he insisted on 3 consecutive days up? It seems to me one can fairly conclude that Gann was saying that a one day rally, however strong, is unimportant.

The same is true of two consecutive days up or down although late in life, Gann apparently recanted, at least in part, on this point. But you will often find that the market is not quite so accommodating as to go up and down in consecutive three day spans.

Can it really have been that important for the swing chart to turn up only when the up days are consecutive? It seems to me that this is the over-rigid application of mechanical rules. Surely Gann was saying that to be significant, a corrective rally or a dip had to last at least three days. If the market goes down on two consecutive days and then up on the third day but then falls again on the fourth day, that seems to me to be a valid swing low in the making.

Assume the trend is up. The standard 3 day countertrend pullback is shown in i. A swing low is established at point A. According to Gann, point B in ii does not qualify as a swing low, because the down days are not consecutive.

I suggest there is no substantive 3. Waiting for Godot by Samuel Beckett 38 Modified Swing Charts difference between i and ii when it comes to defining a swing low. And it is important to be clear about what is and what is not a swing low, because it represents the trend change point. So in i and ii above, if the market should later fall through points A and B, Gann would see a change in trend in i but no change in trend in ii. That cannot be right. A low is made on 13th August at The next day Friday 14th August is an up day.

The 17th is a down day because both the high and low at , 2 points lower than the previous low of are lower than on the 13th. The next 2 days are up days. It seems to me that a valid swing high has been created. It meets the heart of the principle employed in swing charting to permit more haphazard rallies to be counted as part of a swing high. That is easy to apply. Complex swing highs and lows Look at any bar chart and you will see that sometimes the swing high or low is a rather complex affair.

What I look for is a total of 3 days up or down, whether or not they are consecutive, provided they occur in a relatively short space of time.

In other words I disregard the fact that there may have been even 2 days or more interrupting the correction. Look at the chart for Barclays in October Barclays makes a high of p on 11th October. The next 2 days 12th and 15th October are down days. Perhaps Barclays is not going to make a swing low at this point. Already 5 days have elapsed since the swing high, but I regard only 2 of them as relevant. Monday 22nd October is also a down day, helpfully with a low below the low of 15th October.

I am also encouraged by the fact that the range for the day i. Place a stop loss below the low of 22nd October p , on the assumption that that point represents the swing low. The assumption is borne out as p is not breached and Barclays trades up to over p by early January. Note that the up day on 17th October must not exceed the swing high of p.

If it does, a new swing high will have been created and I will wait for a new 3 day retracement. Deciding whether or not the low of 22nd October should be characterised as a swing low is no mere academic debate. The whole basis of trading with swing charts depends upon identifying swing lows or highs , the later breach of which is regarded as significant. So for example in the above case of Barclays, if the price had fallen after 24th October, my modification would mean that a stop loss would be activated at p, and crucially that the trend would be regarded as having changed from up to down at that point.

A short position could then be established at that point. The standard Gann swing chart would not call a change in trend even if Barclays went down as low as p because no consecutive 3 day swing low had been breached. Look at the above chart. How is it sensible to regard Barclays as still in an uptrend if it had fallen after 24th October to the p level? Purists will say that the identification of this kind of complex swing low is no longer entirely mechanical.

An element of judgment has crept in. I agree. I think the swing chart is all the better for this modification. Mechanical rules need to yield to common sense sometimes. An example of a share not making a complex swing high is Marconi in January On 3rd January Marconi makes a low at p in the course of its downtrend. That evening Mr Greenspan makes a surprisingly aggressive inter-meeting cut in interest rates, which 2. The next 5 trading days are messy. There are 2 down days followed by one up day followed by 2 down days.

Note: I do not count this as a 3 day rally for 2 reasons. First, there are a lot of days between the first up day and the third day. This is not conclusive, but I am not convinced this is all part of the same rally. It may be, but why take the risk? Secondly, and more importantly, the putative swing high on 15th January is well below the high of the first up day 4th January. Where do I place my stop loss? Too many imponderables.

On 17th January Marconi storms higher, exceeding the 4th January high of p. Now there is a decent 3 day rally, and one can prepare to go short. Marconi never sees this level again and never will. At this point in the book, we are looking at matters only from the perspective of swing charts.

I would have been in two minds what to do, and I would therefore have chosen something easier. Combinations An example of a complex swing high combined with an outside day was provided in January The much-hyped Y2K fears turned out to be largely groundless. In the first 3 trading days of the year the market crashed through the swing lows made in December and so one was looking for an opportunity to add to or to initiate a short position.

Optimally the high on the third day should be higher than the day you are counting as the second up day, but if it is nearly the same, I will count it as the third day up because I will have a clear place to put a stop loss. The 14th January makes a new high for the rally. In fact, the market completes another up day on 17th January, so even a standard Gann swing chart would have turned up at this point.

The narrow daily range encourages me. It is suggestive of no real buying pressure. On 18th January my stop sell order is below the low of the 17th at The market trades up initially, and then collapses, triggering my stop sell order on an outside day. Note once again that my modification means that the short position is established early. Compare a 2 bar swing chart and you see that it would have turned down only on the 19th, and a sell signal on a 2 day or 3 day swing chart would have happened only on a breach of the lows of 6th January at , requiring one to risk points by placing a stop loss above the 18th January highs at It is impossible to list here all of the possible variations which a bar chart might throw up to determine whether a market has made or is still making a complex swing low or high.

In essence I am trying to import the spirit of some of the mechanical rules applied by Gann, whilst still leaving open the use of some judgment. Wait for it to prove it to your satisfaction. If that means missing a good trade, so be it. There are many good trades waiting for you in the future.

It follows that every time there is a one day countertrend move on a Friday, the 3 day swing chart turns up or down. I fail to see the sense in this. I could be persuaded that Friday ought to carry more weight than any other day of the week, but not 3 times the weight. I count only trading days, not weekends. As will be seen, my modifications do have some disadvantages but the balance I have struck suits my risk profile, and, I suggest, the risk profile of most swing traders.

Gann was interested primarily in change of trend signals, but you miss too much if you ignore the continuation of trend signals. Change of trend signals Whenever a security which has been in an uptrend, falls and breaches a previous swing low, there is a deemed change of trend.

A new downtrend is established. A change to a new uptrend occurs whenever a market, which has been in a downtrend, rallies above a previous swing high. Twelve trading days later, it crashes through the swing low of 5th February That is the signal that the trend has changed from up to down.

A short position should be established when p is breached. Note how the lower high at point E , followed by the lower low of 21st February is a classic microcosm of Dow theory.

From that point onwards, buyers dominated sellers, driving prices up. When that same low at p was breached 12 days later, it is an obvious inference that the market consensus had altered. What was formerly considered too cheap at that level had become too expensive as sellers dominated buyers.

I hear the sceptics say suppose the market just bobs a little way below the first swing low and storms upwards again. Well that does happen sometimes. He assumes that there is probably a good reason for the breach of the previous swing low, and that it will take time for a new consensus to emerge.

That assumption is often borne out, but plainly not invariably so. I do follow this as regards indices. You may think that a single tick may not be that important, but it has the value of certainty. Some false signals trade 2 or 3 ticks through the key level, some trade 5 to 10 ticks through, and some 20 or more. When I traded Treasury Bonds I used a stop 3 ticks away, because that did seem to avoid a number of occasions when the market traded through a previous high by 1 or 2 ticks without the breach having any enduring significance.

As regards individual equities, it is much trickier. It is often as much as 0. So for example with the short sale of HSBC, I would have entered the position only when the swing low was breached by 5p i. A sensible idea is to back test a security which you want to trade.

Does it give many false signals and, if so, is there a certain point at which one might place a stop loss in order to avoid a reasonable percentage of the false signals?

The lower high made by HSBC point E also provided a convenient place to put a stop loss against the short position established at p. The bearish conclusion that one had drawn when HSBC made a lower high at p and then crashed through p would be invalidated if thereafter the share price reversed and rose above that selfsame lower swing high.

The stop loss should be placed at p. That made it relatively clear that the 5th February was a swing low, and that the days following it constituted an attempt to resume the main trend, an uptrend.

They were not a continuing attempt to form a swing low. We will see in due course situations which are not so clear. But the swing chartist does not actually believe that each and every time a swing low or high is breached, there is a major new bull or bear market underway. For example, in the FTSE gave 8 change of trend signals, of which 3 were false and 2 led nowhere gain of only pts before reversing.

In , there were 10 change of trend signals of which 1 was false and 1 led nowhere. In , there were 7 change of trend signals of which 2 were false. If these numbers make unhappy reading, worry not. It all works out in the end. They all portray continuation of trend signals. Once a change of trend has been signalled when the market breaches a previous swing high or low, the swing trader should be watching and waiting for a countertrend swing which lasts a minimum of 3 days.

I attempt to use market corrections to buy low and sell high. Naturally, I want to sell as high and buy as low as it is possible to do without taking an undue risk. I assume that the first sign that the rally dip has failed means that the market is ready to resume the main trend. What is the first sign of failure of a rally? I regard it as a sign of failure when the market breaches the low of the previous day. So as soon as there has been a 3 day rally in a downtrend, I place a stop sell order below the low of the previous day.

The sell order may be placed during the third day see page 36 on outside days , or before the market opens on the fourth day if there have been 3 consecutive days up or before the market opens on the fifth, sixth, seventh or eighth day because the market may have made a complex swing high, during the course of which a number of inside days and down days may have intervened.

If this is unclear please re-read the section on complex swing highs and lows. Each day that the rally fails to break down, I move my stop sell order up to just below the low of the previous day.

The ideology underlying the continuation of trend signal is clear. During a downtrend, sellers are dominating buyers by definition. So it is significant when buyers muster enough buying power to reverse that domination. It is even more significant when that reversal proves temporary. Vice versa for uptrends. Problem areas There are two main problem areas: false starts and false signals.

False starts occur only with continuation of trend signals. False signals occur mainly with change of trend signals. In each of the above examples that assumption was borne out, and the main trend did resume. But occasionally, that first up day or down day turns out to be a false start and the market continues to rally fall the very next day.

It is plain that the assumption that the swing low or high was already in place has proved incorrect. It usually means that its resumption has been postponed. Look at the chart for BSkyB in February A high is made on 9th February after a steep run at the height of the dot.

The breather has ended. There are 2 more down days after which the swing low is in place and the main uptrend resumes. The result is that a few times a year, I take what appears to be a needless loss.

But I prefer the swing low to prove itself rather to hang on merely in the hope that the market will stabilise. A standard 2 day or 3 day swing chart would not have generated a buy signal on 18th February and therefore no loss would have to be taken.

But I have considered this disadvantage and I find that in the securities which I trade, the advantage of getting in early, and having a reasonable stop loss, outweighs the irritating disadvantage of these false starts.

In , the FTSE produced 4 false start signals out of a total of 17 continuation of trend signals, in it was 2 false starts out of 16 and in , 1 false start out of Such a method would have much in common with Kagi charting although those charts work off the closing price only.

As a matter of impression, false starts in individual equities appear to reduce as the gradient of an ascent or descent steepens. There is a trading strategy to minimize the effect of false starts in individual equities: Trade an individual equity with call or put options.

In the above example of BSkyB, on 18th February, buy a call option outright or a bull spread. That way your potential loss is fixed. When BSkyB continues making its swing low on 21st and 22nd February there is no need to stop yourself out. You hold on in the belief that the swing low will soon be formed and so it proves. If your belief is not borne out, your loss is fixed anyway. False starts and equivocal change of trend signals Since this topic is the trickiest part of my modified swing charts some recapitulation is warranted.

In a complex swing low there may be 2 or more such days, but they are not difficult to deal with because they all occur before the third day down. Until a third red bar appears there is no possibility of confusion. The typical false start occurs the very day after the market appears to have given a buy signal. I superimpose a false start on the above diagrams. In figs. The right thing to do would be to liquidate your long position as the market breaches the putative swing low, and wait until it forms a new swing low.

Frustratingly that often happens the very next day i. We put the titles out to vote and Swing Trading by Marc Rivalland won by a nose. It was first published in , and I like the look of that. NOTE: The author refers to a certain piece of technical analysis software throughout the book. Broadly, it fits between day trading and long-term investing, in terms of time horizon and in other respects.

A swing trade is one which seeks to capitalise on the short-term downswings and upswings in share prices. Top reviews from other countries. Verified Purchase. A very good clear exposition of the topic, with well explained real life examples of how to use his method.

Mr Rivalland also very honestly explains when his method of swing trading is not especially effective, something wihich I am afraid not all authors are so forthcoming about. I have taken off one star because some of the charts are not as well labelled as they could be and so can be a little hard to read. Report abuse. Appears to be an effective book for swing trading providing you have some trading experience, capital and patience.

Hope the charting and indicator strategies work in the future. Marc is a South African Lawyer, who appears to make most of his money as a lawyer and writer rather than a trader. Marc has modified standard methodologies and charting techniques to suit his own stratergies, unfortunatly he is not prepared to be transparent about his trades and too often gives partial info I only picked this up from inference in the rambelling text.

Also the book has lost some of the punctuation marks in its publishing there are no ' and the degree sign is misrepresented as a! I would not expect to pay 39 pounds for a book that does not appear to have been proof read.

Then as you proceed to the second section of the guide, you're introduced to the advanced skills, tools, and strategies. Swing Trading by Marcus Baumann : It is one of the best book. This book might be worth reading.

It talks about the basics of swing trading for beginners. It introduces practical ways to make money online i. Swing trading is a style, not a strategy. Swing trading works in a short to medium time frame.

It lies between the very short time frame of day trading and the long-range of position trading. It is not so small that it takes all your time to monitor the financial market, yet it provides many trading opportunities. Many books have already been suggested by the authors, I am adding the book which is recommended by most of the people regarding swing trading - Swing Trading Technical Analysis In this book, the author has told how to earn money from trading in short term with the help of swing trading.

In swing trading, investing only for a few days or even for a few weeks, the biggest advantage of swing trading is that you are prone to lose. This will help you master the short-term trading technique of swing trading. It also gives you an understanding of when to invest in the stock market and when to exit.

Candlestick also helps in analysis. Identification of intraday trading This book will help you in how to invest in the stock market. This book is written by Ankit Gala and Jeetendra Gala. It will provide all the important information like risk control, mind games, strategies for stock selection, source of information, technical analysis, entry, and exit with intraday The Option Trader Handbook Strategies And Trade This book contains very good knowledge related to Options Trading.

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