How to Trade Pullbacks

Buying weakness and selling strength is the art of buying pullbacks. Stocks that are in up trends will pull back offering a low risk buying opportunity and stocks that are in down trends will rally offering a low risk shorting opportunity.

As a swing trader, you have to WAIT for these opportunities to happen because.

What is the Traders Action Zone?

The Traders Action Zone (TAZ) is a buy and sell zone on a stock chart that swing traders can use to identify possible reversals in a stock.

First of all, let's take a look at all of the different types of traders involved in the stock market when looking at a daily chart.

Then, we will look at where they buy stocks. We'll focus on the long side only.

The Complete Swing Trading Strategy

Now lets put everything together into a swing trading strategy. This trading plan is for discretionary traders. Your success will depend on how well you use your discretion!

After you understand the concepts, then modify this trading strategy into a strategy of your own.

How to Use Moving Averages

Moving averages help us to first define the trend and second, to recognize changes in the trend. That's it. There is nothing else that they are good for. Any thing else is just a waste of time.

I won't be getting into the gory details about how they are constructed. There are about a zillion websites that will explain the mathematical make-up of them. I'll let you do that on your own one day when you are extremely bored out of your mind! But all you really have to know is that a moving average line is just the average price of a stock over time. That's it.

The two moving averages

Learn the Basic Elliott Wave Pattern

The Elliott wave pattern is a structure that defines how a stock behaves. All stocks tend to move in a basic five wave structure that consists of a motive phase and a corrective phase.

For swing traders, the motive phase is what we are interested in. You will see that the Elliott wave theory falls neatly into my favorite type of trade: The First Pullback Trade.

First, look at the following graphic to get an idea of what the pattern looks like.