Swing Trade Warrior Chapter 4. Fundamentals & Technicals What You Need to Know!

One is not more right than the other, but they both DO matter when swing trading, and can even matter when day trading (think oil reversals) Fundamental vs Technical analysis - Fundamental: A method for evaluating securities by attempting to measure intrinsic value using qualitative and quantitative metrics. Fundamental analysis includes everything that affects the security including micro and macro economic factors. One of the most successful fundamentalists of all time is Warren Buffett. - Common fundamental metrics include: debt-equity, balance sheets, book value, free cash flow, P/E (price to earnings) and P/B (price to book) ratios, valuations, PEG (price/earnings to growth) ratio, etc.

Technical Analysis: A method for evaluating securities by utilizing statistical analysis of market activity from past behavior, price action and volume. Technical analysis does not focus on intrinsic or fundamental metrics, but instead uses charts, tools and other indicators to identify patterns that can help suggest future behavior. Common technical analysis terms and tools: moving averages, charting, candles, price action, volume, indicators, historical trends, volatility, etc.

Fundamentalist vs Technicalist: Who is right?

How to find trades capitalizing on both? Scanners of course! I use Trade Ideas Pro to scan the market for stocks meeting certain technical and fundamental requirements. It saves a TON of time and is highly efficient. We are able to back test our results We can screen more trade ideas quickly We can adjust our eyes in the market on the fly to compensate for varying market conditions **Everyone attending this course gets my swing scanner for FREE**

My swing scanner looks for 3 types of trade ideas - Stocks that are breaking through moving averages on high relative volume (technical) - Stocks that are in an accumulation phase below a major breakout level (technical) - Stocks that have had recent fundamental news and are technically setup for continuation (technical & fundamental) - 2015 Swing trade win percentage is at 90% currently, and largely in part due to the scanners that I use.

My primary choices of technical indicators for swing trading: 20 EMA, 50 EMA, 200 EMA, ATR and Volume The average true range is a moving average (generally 14-days) of the true ranges. No reason to clutter up a chart with fancy indicators if you know what you are looking for I will draw trend lines to help me identify channels and areas to put my stops or to exit positions. If I used the trend lines properly on OPK, I would have made 3x more on that trade! Trend lines are drawn by connecting two lows/highs in the line. This depends on the direction of the trade/trend you are looking at. Either wait for a break There are different ways to draw trend lines, and no one way is absolute. or close below the trend line to signal an exit. I got scared away on the first dip below

Exponential Moving Average vs. Simple Moving Average Used for smoothing out price action data Measures the past XX time period (20, 50, 200) to calculate an average price. Why these time periods? Everyone s doing it! SMA gives equal weight to each price in the time period EMA gives more weight to more recent prices in the time period

How to read the moving averages Notice the accelerated selloff Notice the flag/consolidation under the MAs Notice the tap on the 20ma before breaking through Why do we respect the MAs for entry/exit? This is why

Who has heard, the trend is your friend it really is until it isn t Once we are in a trending trade, how do we know when to get out? Exit indicators? - There are several ways to accomplish this - Just like in day trading, we can use new daily candle lows as a bearish reversal indicator, a change in the buying and selling has occurred - Channel or trend line breaks - TAS indicators - Violations of key technical levels, dojis and prior any earnings releases or conference calls! We NEVER hold through earnings. - Always pay attention to the economic calendar (I use Benzinga Pro s) for upcoming data that can impact your trade (inventories, unemployment, GDP, etc.)

Volume and chart reading work the SAME WAY for swing trading as they do day trading. A combination of both charts (intraday and daily) helps to pick our entry. Everything is connected. Day traders need swing traders and vice versa. The patterns between the two are largely the same, it is the execution, exposure and time frames that are different. As a result, risk has to be managed differently as well. Knowing basic chart setups will help you understand why price behaves the way it does at certain levels at times, and what to expect at future tests of those levels. If you have not done so already, I HIGHLY recommend every trader read Steve Nison s book, The Candlestick Course. Or one of his other books on basic chart pattern recognition.

Candle Sticks - Recap What does each Candle Stick Tell us Open Close High Low The shape of candle can also give us information about the market sentiment The open on Green candles is always the low, opposite for Red Candles

Basic chart patterns repeated over and over! This is what we want to see!

Negotiating entries and exits look for high relative volume breaks of key levels High volume can signal an entry, declining volume can signal a sell opportunity News can move a stock quickly, evaluating the news is critical in deciding whether to enter/exit a trade Level 2 is not as important for swing trading as it is day trading, however, we can still use it to help us determine our entries/exits Just like we look at intraday charts to find support and resistance, we can get better entries and save some $ if we plan ahead. We know ahead of time that breakout areas, moving averages and 52w highs/lows are going to be areas of support and resistance. It is where prices have failed to move through in the past. We use history to guide the present/future.

Note the major S/R levels Buy above/short below? This is why we we wait for setups to trigger. Technicals fueled by fundamentals.

Order types that I use, and when - OCO (conditional; One Cancels the Other): A pair of orders where if one is executed/triggered, the other is automatically cancelled. (limit order/stop order) - Trailing Stop: Stop that follows the price up using % or $ change, protects gains by allowing the trade to continue to move up, and by trailing up the stop proportionately. Useful for trades deep in the profit zone or poised to make another move up. Can be tough to use on wide moving stocks/high ATR - Limit: An order to buy/sell at a specific price or BETTER - Stop: An order to sell a security when it reaches a certain price - Stop limit/buy stop: A combination stop order and limit order, where a buy/sell order is triggered at a certain price, but capped at a different price (limit) This gives the investor precise control over entry and exits, however, can result in lower quality fills.

The basics on SEC filings (fundamentals): Form 4* - Insider buying or selling - Tells us if insiders are bullish or bearish on their company Form 8-K* - Report of unscheduled material events (things that will impact the stock price) - Changes in controlling ownership, bankruptcy, M&A, and any materially important events Schedule 13D - Reveals who owns the most shares in the company - Filed within 10 days of any new 5% stakeholder - Explains more about the people behind purchase of controlling shares 10-K Report (annual financials) - Similar to a prospectus, contains detailed financial analysis for a company. - Provides financial outlook/guidance - Provides cash flow, balance sheet, debts - Also discloses any legal proceedings/lawsuits that may affect valuation *Represents most important of the filings There are a TON of forms and reports that get filed, but these are the most common we see and act on.

HOMEWORK! I want everyone to find at least ONE daily setup that you think would be a good swing trade candidate. We will go over them tomorrow and evaluate the ideas presented. We may even put one put one on the watch list. There is no right or wrong way to do it, so, show me what you ve got. Any questions or concerns on today s material?