The Master Swing Trader - Alan Farley
Ch1 Trading the pattern Cycle

• Swing traders seek to exploit direct pirce thrusts as they enter positions at support or resistance.  They use patterns to locate and execute short-term market inefficiencies in both trending and range bound markets.
• Stocks range bound 80% of the time, trending 20%
• Always check all time periods, especially the periods longer and shorter than your trading period.
• The most profitable positions align to support-resistance on the chart longer period and display low-risk entry points on the shorter chart period.
• Few executions will align all these periods.
• Markets need leadership
• Try to identify the leader as early in the day as possible
• Sometimes its Dow, Nasdaq, SP500, or a specific sector
• When a macro event appears, think about taking the day off unless a clear strategy emerges
• Reward / Risk
• prepare to experience long periods of boredom between frantic surges of concentration
• trade execution will release adrenaline regardless of whether the position makes money or loses.  the primary motivation must be to aggressively take money out of someone else's pocket
• careful stock selection controls risk better than any stop loss system
• every setup has a price that violates the pattern.  the measurement from this breach to the trade marks the risk.  look for levels where price must move only a short distance to show that the trade was a mistake.  limit execution to positions where risk remains below an acceptable level and use profit targets to enter markets that have high risk reward ratios.
• Mastering the trade
• Both negative and positive feedback conditions produce rewarding trades, but confusion between the two can lead to major losses.  Classic swing strategies work best during negative feedback, while positive feedback supports profitable momentum entry. 
• Enter positions at low risk, exit them at high risk
• Multi trend technical analysis and cross-verification techniques identify probable reversal points well in advance of price action
• Avg win must be much greater than avg loss, or winning % must be much greater than 60%.  Improve by reducing losses first and increasing profits second.

Ch 2.-

• preparing for the market day
• The closing bell signifies the start preparation for the next day.  Adjust watchlists, add / remove opportunities, review your trading day with complete honesty
• Review economic calendar for important economic reports.  Exercise great caution on fridays that release unemployment report
• Avoid information overload
• Support / Resistance
• Can be a price that cannot be crossed, or elasticity that can be stretched but not broken.
• Swing traders earn their livelihoods as they find and execute setups along S/R lines
• cup and handle, triple top / bottom breakouts
• consider the benefit of contrary entry on classic S/R moves
• a trend line break only means the current trend is over, most likely leading to a range bound market
• The Charting Landscape
• Use 3D chartings (look at charts one period higher and lower than current chart to confirm)
• Trading indicators/oscillators are only useful after identifying price / volume bars patterns.  They serve as a confirmation that your price observation was correct.  If the oscillator does not confirm, then do not take the trade, unless you're very experienced
• MA Ribbons
• Use MA's for intraday, and EMA for daily or higher.  
• expect choppy actions when the MA's criss cross out of order.  Use the standard 20, 50, 200 for daily, use 5, 8, 13 SMA for 1min, 5min, and 60min charts
• Candles - Most reliable when near the outside of BB
• Chart Polarity - Identify the current environment bull, bear, neutral on every chart time frame
• Expansion / contraction -bars tend to expand rapidly into a climax through rallies and selloffs.  then congestion sets in and volatility drops as bar ranges contract along w/ ROC.  Often an impending price move is signaled by this, and many math indicators will be in neutral zones.
• These are high-reward, low-risk entry points and entry permits a fast stop loss
• Short covering - Consider closing positions when the market prints a wide range bar that departs substantially from routine price action, but does not occur at a breakout point.  
• Building Watchlists
• Keep a core group of 50 to 100 stocks, and follow them on a tick by tick basis.  Also review their charts on a nightly basis.  Put them in different groups.  If this is too big, cut it down to 20 to 30.
• Out of the 2000 liquid, moderately priced stocks, use a scan to filter your trade setups.
• Setups that look good the day before, must also look good as the market opens.
• Don't trade the most liquid stocks (INTC, MSFT, DELL, CSCO) .  They're notoriously hard to trade

Ch3. Analyzing the Market

• Bottoms - 
• Double bottom, but with 2nd bottom >= to current bottom.  Usually 2nd bottom will be higher than first, but will occur more slowly.  Often resistance occurs where the center top is, and price consolidates before breaking out.
• Rounded Bottom - Wait until momentum clearly shifts toward positive.  Best used to identify break markets that wash out and gear up for a bull leg.
• Big W pattern - double bottom, and price retraces between 62 and 38 fibs before completely retracing.   Often congestion develops once pattern has fully retraced.
• Stop set at first bottom.  
• Very hard to time bottoms.
• H&S bottom must be perfect - neckline must line up, shoulders must be same price, breakout must pierce known resistance(MA / gap) on high volume
• Breakouts - 
• Sharp breakout gap on heavy volume.  If not high enough volume, gap will quickly fill.  Non-gapping, high volume surges provide a comfortable  breakout floor but support is less dependable.
• Dip Setups - Moderate strength often setup good pullback trades.  Uptrend faces considerable obstacles and should force frequent dips that mark good buying opportunities.  Identify profitable resistance zones in advance.  Look for price to shoot past the top BB and this should provide a turning point to natural support.  Enter at support.
• Price surge on MACD / ADX, and vertical rallies erupt.  Dip setups won't work.  Shift to a lower time frame to find small support pockets.  Volume peaks as a smooth wave of increasing volume which draws to a climax often culminating with a price spike.
• Rallies - 
• Elliot Wave Theory.  Target the 3rd wave, it is the most powerful.  Use 3D charting to find multiple overlapping waves (ideally two 3rd waves)
• Price will reach into broad resistance and it should gap over resistance.  RSI and other strength indicators should be in the middle of their ranges
• 4th wave corrections setup the final 5th wave.  Both aborted waves and parabolic rallies occur in this wave and brings in a sense of invulnerability.
• New Highs -
• Let accumulation - distribution guide.  When it is lagging, price will move up in stepped ranges before surging upwards.  Other issues will go up vertically immediately on breakout if acc-dist confirms
• Use bottoms to congestion, for the measured move after a breakout.  Low to breakout to expected move is about 1.38.
• Use MACD histogram rising on price pull backs to enter long
• Avoid short sales until price and momentum peak.  Picking a top is a loser's game.  Short after momentum drops but prices stays high in a rangebound market (SPX rangebound?)
• Parabolic moves cannot sustain themselves, slow steady rallies last longer
• First major break of a trendline signifies end of the trend.  This just means it is possibly rangebound.  Exit positions until conditions favor rapid price gains again.
• Tops - 
• H/S patterns and double tops occur when crowds slowly lose their faith.  Volume should decrease in the 2nd shoulder, this increases odds of neckline break;
• Stay away from ascending H&S neckline breaks, descending is fine
• Healthy trends find support at 62% fib before continuing.  100% retracement violates the primary price direction.  Allow for whipsaws at all fib levels since they are well known.
• Shock events can kill enthusiasm 
• Reversals -
• Descending Triangle
• BB contract, scalpers are pushing around the stock, momentum is fading
• Use upticks to enter short sales and counter any weak bull response.  As horizontal support fails, sell stops trigger below support and price declines rapidly
• Double Tops - Often this is the exactly opposite of the Adam / Eve bottom pattern
• The more violent the sell off at the first top, the more likely it is the top cannot pass the support of the last high
• Buying interest wanes as price does not support new highs
• Swing traders can sell short into the 2nd rise of the double top if the exit when price violates first high
• triple tops should rarely be sold short because accumulation has built up (daily MFI 30)
• Declines
• Volume repeatedly surges through waves of selling pressure while false bottoms print and quickly fail.  Violent covering rallies erupt to shake out poorly time short sales and offer hope to wounded longs.  Price carries past rational targets, panic builds, and then a bottom is formed.
• Price Breaks
• All time high is different than retracing old numbers.  No built-in supply of losers exists within tha time frame.  During these momentum markets, swing traders, may need to enter near highs rather than pullbacks and manage risk without close support under positions
• 5min and weekly pattern - tight flag a the top of an expanding price right after a breakout (reverse wedge?).   Congestion at the top of the range generates strong demand that attracts the needed greed.
• Breakouts / breakdown attract dumb money.  Insiders initiate whipsaws after each volume surge to shake out weak hands.
• Trends -
• Volatility, bar width, and volume all decline as a range bound market nears its conclusion.  This empty zone(EZ) allow for a low risk entry where a small move against the position signals a violation
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