Texas Swing Traders: Strategies For Success In The Forex Market – Swing trading broadly refers to a segment of trading strategies that combine technical momentum and pattern recognition with a lesser emphasis on fundamental analysis. In general, swing trading is a good strategy for individuals who are not willing to spend the time and energy required for successful day trading, while seeking to be more active in managing funds than simply buying and selling. -holding strategies to participate. This strategy is largely employed by speculators and retail investors looking to profit from the confluence of short-term price momentum and economic fundamentals. This requires some flexibility not available to large institutional investors who are tied to large trade sizes and are often less adaptable to evolving short-term conditions. The time horizon for swing trades is typically a day to several weeks, depending on the investor’s strategy and risk tolerance.
Two very well-known technical patterns that fall under the category of swing trading strategies include the “golden cross” and “death cross”. Each of these strategies depends on the trends of moving averages, specifically the 50-day and 200-day moving averages (taken from closing prices). These technical patterns rely on more medium-term charts, mainly 4-hour to 1-day charts. Periodicity is particularly important as shorter term charts are not relevant and useful for assessing these patterns.
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The golden cross is a technical pattern where the shorter-term 50-day moving average crosses a longer-term 200-day moving average to the upside. This is a bullish pattern, indicating a situation where upward momentum is expected to increase, marked in conjunction with higher than average volumes. The 200 day moving average also becomes a support level for prices. This pattern is currently visible in the US Dollar Index (DXY) which has seen a meteoric rise of 6.87% since the 50-DMA crossed the 200-DMA on July 16 to the upside.
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The death cross, although dark in name, is simply the opposite of a golden cross, with the shorter-term moving average crossing the longer-term moving average to the downside. This is typically an indication of a possible bear market on the horizon and is usually confirmed by higher than average trading volumes. After the crossover, the longer-term moving average acts as a resistance level for prices and is a great area to short the instrument on momentum pullbacks. A good contemporary example of the death cross is in the West Texas Intermediate crude oil benchmark where the 50 dma crosses the 200 dma on July 22nd.
The earlier the entry into a momentum trade the better the risk-reward conditions. As the phrase goes, the early bird catches the word. Fast entry also means more security to exit a position without worrying about momentum rushing by picking a bad entry point.
A careful exit and entry strategy is essential for any successful trade, especially in the shorter term time horizons. Instruments that do not trend for long periods and do not have liquidity to enter / exit position are not useful in this particular strategy, no matter how beautiful the setup is. In thinly traded stocks, s can experience a sharp price impact due to entry/exit which is likely to create problems for strategies that require agile maneuvers.
Avoid fundamental analysis. Although swing trading typically relies heavily on carefully reading the technical indicators, fundamental analysis can still have a dramatic impact on an instrument’s price. To stay up to date with the news, to be familiar with the economy when trading currencies, or earnings when trading shares is indispensable when swing trading and cannot be ignored. Remember, information is power.
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Although not necessarily a trend-following strategy, swing trading requires careful examination of the prevailing trend for metrics with which an instrument can be closely correlated. For example, if a golden cross is found in a stock that is a component of a broader index that is trending lower, the relationships between stocks may negate the pattern. Situational awareness is key.
If you are late for a trade, wait for a pullback or retracement before entering. Buying highs and selling lows is every investor’s worst nightmare. Timing is everything, so be wary of eagerness to enter a trade. Anyone reasonably interested in trading and speculating has probably heard of Ed Seykota. He was first seen in Jack Schwager’s Market Wizards. This is, in my opinion, the most memorable interview in the entire series, not only because he is very direct, but also because he is unique in his thinking and how he expresses the most important elements of trading.
Ed Seykota is known for his trend-following strategies – he is considered the trend-following wizard and father of computerized trading. In this article you will find a short story of his life and some of his most interesting quotes (taken from different sources). Unfortunately, Seykota has been quite secretive about his trading strategies, other than being a trend follower.
. In the latter book Covel covered Seykota in detail and is mentioned throughout the book. Seykota may be a very good trader and investor, according to Covel he made 60% annually from 1990 to 2001, but Seykota has a knack for expressing the important part of trading in very amusing metaphors. Moreover, Seykota is also versatile – just check out some videos on YouTube where he sings and plays the guitar.
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Ed Seykota, born on August 7, 1946 in the Netherlands, pioneered the trading system (computerized trading) for the futures market in 1970. Most of the concepts he used in trading were taught to him by his father, a stock trader .
He graduated from MIT and MIT Sloan School of Management, earning S.B degrees in Electrical Engineering and Management, both in 1969. Seykota used early punch card computers to test his ideas of computerized trading in the market. He is often considered the “father of commercial computerized trading.” He was one of the pioneers in mechanical trading and developed his trend-following systems in the 1970s:
He became interested in computerized trading systems after reading a letter by Richard Donchian on five- and 20-day moving average strategies and on the use of mechanical trend-following systems for trading. From then on, Ed Seykota’s trading strategies were about following trends.
By Edwin Lefèvre was another source of inspiration for him. Seykota developed his first trading system based on exponential moving averages. He would spend evenings at the local computer service reproducing the results Richard Donchian had achieved. It would go on to become an exciting tool for technical analysis.
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In 1970 he got a job at a brokerage firm; it was the beginning of great history for him. Seykota honed his trading system over time by adopting a more flexible approach rather than the rigid system he started with. He introduced more rules and criteria into the system in addition to money management algorithms and pattern triggers.
Even though the brokerage firm adopted his research and built a model on it, he was in dispute with top management. Therefore, at the age of 23, he left the brokerage firm. Seykota walked away with nearly a dozen accounts ranging from $10,000 to $25,000. He turned $5,000 into $15 million over twelve years in his account.
His genuine love for trading and his optimistic demeanor sustained his success which continuously improved his trading style. However, he did not change his approach to indicators. Instead, he filters out the market noise.
In the famous book Market Wizards, Ed Seykota was interviewed and this is what he had to say:
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Systems do not need to be changed. The trick is for a trader to develop a system that he is compatible with.
In 1992, Seykota organized a group of traders to evaluate their emotions – to verify that traders often allow their emotions to interfere with their trading decisions. They began meeting regularly, and Seykota used data collected to develop methods to support personal development. And in the years that followed, this gathering expanded to include people from other professions as members.
As a trend trader, Seykota prefers technical analysis. He noted that he looks for three fundamental components in his trading style: identifying the right time to buy and sell, long-term trends and chart patterns which he says are the basis of analysis. He places his stop losses immediately after opening a position and takes profit if there has been a downturn in the market.
Seykota lived in Incline Village, Nevada, on the north shore of Lake Tahoe, but recently moved to Texas. Apart from commerce, Seykota was interested in science and mathematics.
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Throughout his career he kept a low profile and only occasionally managed money for other people. He is a proponent of process over outcome, as you will see from the quotes below. We’re sure he likes Annie Duke’s Thinking In Bets.
Ed Seykota’s trading strategies use mechanical trading rules (backtesting) with no human discretion whatsoever. He described himself as a trendsetter, but of course this is a very broad and vague description.
He started using moving averages in the 1970s and we suspect he still uses them. However, we have not been able to find any meaningful resources on what his main strategies are today.
I feel my success comes from my love for the markets. I am not a casual trader. It’s my life. I have a passion for trading.
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