Trading the Swing Timeframe for Positions Traders AND Day Traders, By Dr. Ken Long

Ken explains how understanding the swing timeframe can be useful to almost any trader. Day traders and position traders can incorporate swing price movement information into their preferred holding period.

My general approach to swing trading begins with the context of three general time frames that I use to govern all my trading. The three time frames relate to how often I have to make decisions to be effective: monthly, swing trading and intraday. I think of these as three separate and distinct environments with some overlap between them whereby one timeframe can provide actionable information to the adjacent timeframe and provide an additional edge.

I base my long-term, monthly rebalancing strategies on my research into relative strength and momentum among broad asset classes. By studying relative strength, I believe I can position the portfolio to take advantage of longer-term momentum.

I think of swing trading as positions I expect to hold from approximately 2 to 10 days. In this amount of time, I believe the buying and selling action of market participants creates short term momentum in order to establish a new consensus fair value, when price behavior returns to normal. These opportunities appear at various times in the market and can be defined by price patterns, statistics, and trade location.

I view intraday trading as tactical, statistics-based trading that takes into account trade location, critical states, price confirmation and a realistic assessment of typical reward to risk ratios. This is a style of trading that requires self-discipline, impulse control and a healthy appreciation for the primacy of risk management.

I believe that each of these time periods has information value that can contribute an advantage to trading in the other time periods. For example, broad index ETFs that are experiencing a healthy relative strength advantage over other indices in the monthly systems can be framed as swing trades in the shorter time — when we observe a continuation of the outperformance in that shorter time frame. Similarly, intraday trades that close well can often earn enough money to support a low risk speculative overnight trade which may develop into a multi-day swing trade if the momentum carries over from day one. We call this approach swing trading one day at a time. These swing trades are funded with markets money earned from the initial successful intraday trade. This position sizing strategy protects our seed capital.

It’s fair to say then that I think of swing trading first as short-term, opportunistic, statistics-based trading which can be supplemented by information coming from the longer-term and shorter-term time frames.

It can work in the other direction as well, with some swing trades that continue to outperform the market becoming longer-term holdings because of their continued relative strength. Other swing trade positions can be added to intraday when they are outperforming the market in the same direction as the primary trade.

This diagram represents this idea visually:

Learning Swing Trading

I have developed and actively trade multiple systems and strategies for each of these three time frames. I teach these to other traders to improve my understanding of the markets and to sharpen my own thinking. In my teaching, I apply the principles of effective adult education based on current academic research. As a result, I’ve developed accelerated learning strategies for use in workshops that have four learning components and four categories of information.

First, let’s look a the components of learning before, during, and after the workshop:

The workshop pre-work contains all of the formal system descriptions and definitions needed to understand the systems at a granular level. We provide that as early as a month ahead of time so that participants can come to the workshop prepared with their best questions after studying the material carefully.
The workshop starts with confirmation briefings and back briefings to ensure that we have a common understanding of the system theories before we begin our detailed hands-on practice. After reviewing rules and doing test case studies in the large group we proceed to small group and individual hands-on practice with the trade simulator.
The trade simulator is the hands-on practical experiential learning laboratory that allows us to manifest the rule sets through repetition and discussion. It’s in these hands-on, peer-assisted case studies that we really discover a deeper understanding of the systems and strategies.
After the workshop, we provide a year’s worth of an online live chat room participation where workshop graduates continue to develop their understanding and application of the systems in real-time trading collaboratively with other experienced traders with a common frame of reference. The mutual support and insight developed in this ongoing live learning laboratory makes the systems your own in a way that suits your objectives and skills. In addition, traders have access to previous years of archived chat room transcripts.

Second, it’s useful to understand the four categories of information which we cover through the workshop structure. These are: systems, strategies, techniques and tips. Briefly, we define these as:

Systems: well-defined rule-based processes that can be traded mechanically according to an objective set of rules based on evidence, which have been back tested and forward traded.

Strategies: logically consistent frameworks of beliefs and indicators that support a variety of systems from a common frame of reference which allow a trader to apply a measured amount of discretion to sound systems. Taken together, systems and strategies offer a robust portfolio of ideas.

Techniques: common actions such as universal entries and exits, position sizing strategies, risk management, and market conditions that apply like building blocks to different systems and strategies. Good techniques help us refine and improve our routine trading actions.

Tips: good rules of thumb we have learned along the way while trading and doing research which help support our risk management and opportunity finding strategies. An example — when the weekly RSI(14) drops below 30, reverses, and crosses above 30, you should be especially alert to what may have just been an important intermediate-term market low. This may indicate a long-term long-side swing trading opportunity in the broad market. (Note: this is not trading advice. Do your own due diligence before you take any action.)

Summary

Swing trading is a reasonable approach to trading a manageable time frame which allows end of day traders and weekend traders to take advantage of persistent and repeating opportunities. Swing trading supports longer-term and shorter-term trading objectives. We think our package of educational and support materials are an effective way to rapidly develop your swing trading skills and we invite you to explore these areas with us.

About the Author: Dr. Ken Long retired from the Army as a Lieutenant Colonel and teaches at the U.S. Army Staff College. He is a proud father of three, a husband, teacher, student, martial artist and active trader. Ken also instructs dynamic trading workshops for the Van Tharp Institute, including Adaptive Swing Trading, Day Trading Systems, and two video workshops covering swing trading and long-term core systems.

Ken is currently supervising several Masters theses this year on applying AI to military decision making.