BPA trading room Q&A: May 29, 2015
Al, can you clarify how you use the term “swing” in the trading room?
In your books, I believe that you use the term when discussing trade probability, position size, and profit objective.
How should we view your use of the term in the room?
Video duration: 3min 30sec — Expand video to full screen
Video transcript
Swing trading definition and discussion
I have a couple thoughts about that. The simplest thought is a swing trade is any trade in which the profit objective is at least two times the risk on either the initial risk or the actual risk. That’s the first characteristic of a swing trade. That is the minimum definition. If you have that, you have a swing trade. You can say, “Well, Al, sometimes you get that five seconds into a trade, so that’s not a good definition.” Well, the other definition is at least two legs. Maybe 10 bars — but certainly at least two legs.
So if the market quickly goes up, like on 27. Your actual risk – if you bought, let’s say you bought one tick above 26 and fell one tick below, so your actual risk was three ticks. So then two times actual risk is six ticks, which is getting out right here. So you get out right here, that qualifies as a swing, using that definition.
Obviously not! That would be a scalp!
So, for me, a swing trade is a trade where I get in with the intention of either getting some minimum profit. In the Emini, the usual minimum objective for me is four points for a swing trade. So I want at least four points, and I expect at least two legs, which means that I’m willing to sit through at least one pullback. So a swing trader buying above 26, they see this, that’s good; they assume they’ll be a second leg up after a pullback. Pull back 29, then a second push up here. So if a person got out below 32, they would be meeting one of the minimum objectives — two legs up. They would be meeting another objective — four points. They would be meeting another objective — two times actual risk. Actual risk is three ticks, and we went up far more than six ticks.
In general, when I’m talking about a swing trade, I’m talking about a trade where I think traders are going for at least four points and they expect at least two legs. So if the market quickly goes four points, they’re still looking for two legs; one, two, or one, two.
So, obviously, most swing traders would get out above 65, but they would have more than four points; they would be testing the low of the day. There are a lot of reasons to get out, but, somewhere in here, you have to be expecting a second leg down.
So, when I think about a swing trade, I’m thinking of two legs, which means I sit through a pull back on route to at least a four-point profit. Or, you take it as an Always In swing trade, you just keep holding it.
So let’s say you’re buying, you just stay long until it’s Always In Short. Did it become Always In Short here, or here? No, but it probably became Always In Short 55 or 54 — 53, 54, 55. That’s when I mentioned it in the room that I thought it was Always In Short there. So a swing bull would then get out over here if you did not get out for any other reason. And a swing bear would go short there, and he would get out above 65, even though it’s not really clearly two legs down.
Swing or scalp?
So, I know it’s kind of vague. To me, a scalp, in general I don’t want to allow a pullback or only allow a very brief pullback. So that’s another distinguishing feature between a swing trade and a scalp. Scalpers want a quick profit with no pullbacks. Sometimes, they’ll allow a small pullback. Swing traders will allow one pullback, but not two. Let me give you an example. The bulls want the market to stay above the 22 high. We got one pullback 34. Once it turned up from there, the bulls would get out below 34, so they would not allow it to come back down there a second time.
Al Brooks
Information on Al’s Online day trading room
Wow you guys rock! Three days ago I requested an Ask Al on swinging and here it is already hahaha. Fantastic stuff!
Admin, not sure what you meant by “PS. If anyone else has suggestions for Ask Al, please drop a comment in the Ask Al blog area.” so I’ll request it here! Always worth an ask! I’d like to know more about scaling into pullbacks please.
Al, I trade a small account, 1 contract, two point max stop. So what I’ve been doing recently is this, when I see the PB 39, 40, I work out where the swing stop should be and work backwards from there. Let’s say I decide that below 35 is logical. So then I place my LO to buy two points above that! Let’s say I get filled on 44, hold for four points, maybe get filled on 49 with a bit of luck. So it’s like I’m scaling in but with only one entry if that makes sense!
Do you think a lot of traders scale in this way, with their last entry (or one of them at least) two points above where the swing stop is? I believe this may be the case as the price often seems to find buyers at this level…
I really feel that as a beginner this is a great way to trade! It takes a lot of the decisions out and stops me buying above bars where there are sellers above and getting stopped out all the time, which was a big problem before. Plus it forces me to use the correct stop or not trade at all, which is obviously vital. Thanks!
I think that most traders who scale in have become comfortable reading price action so that they do not worry entering as the mkt goes against them. Income averaging is a type of scaling in, and it is one of the most elementary suggestions that financial advisers give to their clients.
As long as a person is comfortable with using the appropriate stop and will not be upset when it occasionally gets hit, I think any of the many ways to scale in is fine. I go into it in more detail in the new videos, but they will not be out until this winter.
Hi Angus,
Yes, this is the correct area (ie Ask Al blog area) for Q&A queries and requests.
This particular query was focused on today’s market report so you could have dropped same message there, as you were referencing bars, and easier for Al to answer with chart above.
Wishing you good trading.
Hi, thanks, the same to you! Unfortunately it has been quite a while since I’ve been in the trading room so I can’t comment on the daily reports over at the forum. The bars I’m referencing in my comment above are from the video at the top of this page. Regards, Angus
Ahh… Ok, my mistake. 🙂
I was referring to Al’s daily reports on this site which you can see here:
https://brookstradingcourse.com/blog/market-update/
Al puts the same end-of-day chart up after the close.
Best regards,
Richard