Alan Farley – Examples
Alan Farley – Three Swing Trading Examples
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The following examples cover common areas of swing trading that will provide insight into the mechanics of the swing trade. Following the three examples, I provide a glossary of terms that are essential to understanding the basics of swing trading. I hope the combination will set you on your way to success. Net stocks aren’t flying very high anymore, but they’re still setting up nice swing trades. After getting pummeled for months, many of these stocks are bouncing off multiyear lows. Driven by optimism that things can’t get any worse, market players have finally reawakened the Net rally. But pick your trades wisely. With few exceptions, Net stocks face an extraordinary burden of overhead supply. Vast legions of investors and institutions are still holding these stocks from much higher prices. They will sell out their diminished portfolios for years to come. Many of these stocks are now trading in the single digits – a situation that demands careful evaluation of position size and risk tolerance. The good news is the massive liquidity and small spreads of the sector’s largest stocks. These high-float issues can trade all day with a single penny marking the difference between the buying and selling price. This small transaction cost has another advantage. We can safely juggle in and out of a position several times to catch the best entry price. Most Net rallies are only bear-market bounces. This fact raises the odds that resistance at stocks’ 200-day moving averages will extinguish their progress. In fact, the king of the jungle we’ll look at today should encounter that gorilla very soon. So play the Net rallies and enjoy the good old days. But keep those stops tight and take what the market gives you. Fortunately, that could be double-digit gains at these discount prices.
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