Monday, September 19, 2016

How To Swing Trade A Falling Wedge

Hey folks,

I wanted to share a STEP BY STEP trade analysis on a swing trade we did at the ART OF TRADING service.

In this post I'll explain HOW and WHY we bought and sold XIV to book a nice +7.4% gain in only 3 days!

Last week was a volatile and rather bearish week for the overall stock market. Sentiment turned quite negative as market took a pretty good whack. My game plan for the week was to look to "BUY THE FEAR" but wasn't gonna "blindly" buy and hope I was right. I needed a good technical signal with clear ENTRY and EXIT levels in case the trade falters.

But first I wanna show you what a basic "Falling Wedge" pattern looks like:

I like to trade Falling Wedges in stocks or in this case ETFs that are overall TRENDING UP and are pulling back in the form of a "Falling Wedge" pattern. So I am NOT looking to buy falling wedges in stocks that was previously trending DOWN!! That's a big NO-NO!
Remember, swing traders want to buy pullbacks in stocks/ETFs that are TRENDING HIGHER, not DOWN.

So I spotted these nice intra day Falling Wedge patterns in QQQ, IWM and SPY on Thursday(Sept 15th) as "doom and gloom" was the theme of the day on CNBC/twitter etc, following an ugly 3-4 day selloff that was triggered from jaw-boning by a FED member.
Remember, ALL that is NOISE!
As traders, we must tune out this "noise" and ONLY follow the PRICE ACTION!

Here's the Falling Wedge I spotted and actually shared these charts on twitter as well ....

So I noticed the Falling Wedges started to emerge on the 5 minute charts after a 4 day selloff, but more than importantly, notice that the RSI and the MACD were making HIGHER LOWS as the PRICE ACTION was making a LOWER LOW.... This is a hugely bullish signal and i'm always very interested in LONGS when I see this. Remember this! Train your eyes to spot them HIGEHR LOWS on MACD/RSI versus price action... Practice makes perfect!

So seeing this wedge and the strong bullish signal, ART OF TRADING members were issued a BUY alert via email/twitter/SMS for XIV long.
We entered XIV long at $32.60 and used $31.20 stop loss(stop loss was placed just below the Falling Wedge lows). A break of these lows and the trade would have failed, hence we need to take a loss if it happened. Winning traders take losses when they have to, DISCIPLINE is the name of the game.

Note on the below 30 minute chart, the price action made a 'HIGHER LOW' around the same time QQQ, IWM, SPY were pinching at the apex of those highlighted Falling Wedge patterns.
That's important as we are already seeing hints that XIV wants to reverse...
HIGHER LOWS are often the start of a bigger upside reversal.

 Note : in the chart below, the Nasdaq also made a HIGHER LOW at the same time, indicating relative strength in the Nasdaq/QQQ. This was yet another very bullish signal.

Here's how the charts are looking 3 days later....

....(On Sept. 15th at 11:15AM)....

We entered XIV long at $32.60 and sold it today at $35.00 using a trailing stop method.

We closed XIV for a +$2.40 or 7.4% gain!!

We kept walking up our stop losses and allowed the price action to dictate our next course of action, NOT the noise.

I hope you found this post helpful!

All comments, feedback or questions are welcomed!

You can tweet me or email me :

Happy trading !!

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