Now that you have chosen your timeframe, chosen your market and created your swing charts, it’s time to conduct your analysis on your market. (Prior to this video in the course you will have worked through the process of Constructing Your Swing Charts on a variety of time frames) Over the next few videos, Mat will take you through a series of scenarios you’re likely to come across and step you through how you tackle each one.
Introduction
Welcome back. In this video, we’re going to look at the Fourth C of Swing Trading, Conduct Your Analysis.
By now you should have chosen the timeframes that are most suited to you and chosen a market that you can trade during those timeframes. Then you would have put together some swing charts either by hand or by using some software. Now it’s time to conduct some analysis on those swing charts, and there are two different scenarios that you might find yourself in when it comes to conducting your analysis.
Two Common Scenarios
The first scenario is when you’re dealing with a trading setup such as an ABC trade or maybe a double top or a double bottom. The market has given you a setup and you want to analyse that setup. So that’s one scenario in which you might find yourself conducting analysis, the other scenario is where you don’t have a setup at all and you’re just looking at a market and you want to break it down and work out where it’s going next so that you can work out where your next trade is coming from and which direction that trade is going to be.
In the next video, we’re going to take a look at an ABC trade and we’re going to rate the strength of that trade using the techniques that David has given us in both the Smarter Starter Pack and the Number One Trading Plan.
Please keep in mind that even though ABC trades are a mechanical standalone system, they’re not the end goal that David has in mind for you. They’re a starting point or a stepping-stone on the way to your advanced swing trading. By the time you’ve completed the Active Trader Program you’re going to be putting together Price Forecasts on markets that are going to give you some big picture turns and then you’re going to be using some advanced swing trading skills to trade into and out of those big picture turns.
The Importance of your Reward to Risk Ratio
Now you might be wondering why we would go to all that trouble when ABC trades are relatively simple? Well, the answer is in the reward to risk ratio that you can get from each style of trading. If you take an ABC trade, the reward to risk ratio is going to be somewhere in the vicinity of 2:1 or 3:1 which means if you risk $1,000 on the trade you might make $2,000 or $3,000 profit If you’re correct on the trade.
On the other hand, if you’re taking an advanced swing trade out of a big picture price pressure point you can expect a reward to risk ratio in excess of 10:1 which means that for a $1,000 risk you’ll be making $10,000 or more on that trade. So, you can see why David was more interested in trading these bigger picture turns than simply trading ABC trades.
Having said that, it’s still vitally important for you to understand exactly how an ABC setup works because that’s how the market actually moves on the big picture. Whenever I’m taking a big picture swing trade there are always ABCs present, just not necessarily in the form of an ABC trade on the daily swing chart, but more on that in a moment.
Once we’ve looked at an ABC setup, we’ll then go through a double top setup and rate the strength of that setup using some of the key indicators David gives us for trading double tops and double bottoms.
Finally, we’re going to take a look at a scenario in which there is no ABC setup and no double top or double bottom setup and we’re going to analyse the swing charts and put together some analysis that’s going to prepare us to move on to the Fifth C of Swing Trading, Confirm Your Directions, where we work out where your next trade is coming from and whether it’s going to be a long trade or a short trade. The work that we’re going to do in the remaining videos in these Five Cs of Swing Trading is going to set you up for a lot of your trading opportunities in the future, so it’s important that you get it right.
As always, remember that the Trading Tutors Support Service tradingtutors@safetyinthemarket.com.au is here to help you. So if you get stuck at any point, always remember that you can send them an email to ask them your question.
Let’s get started.