Swing Trading Terms & Definitions for Chemistry Study

All charts come down to WHAT TWO POINTS?

Price and Volume ((Pg 63))

Between Price and Volume, which one is most meaningful to chart patterns?

Price ((Pg 63))

A price rise on light volume may signal what about buyers and sellers?

An absence of sellers, not the presence of buyers. ((Pg 63)

What may heavy volume signal about buyers and sellers?

Bulls or Bears are committed to the calling. ((Pg 63))

If you're swing trading trends, regardless of the chart pattern observed, insist on seeing WHAT TYPE OF VOLUME?

Heavy Volume ((64))

What multiplier is heavy volume based on average daily volume over the past 30 days?

1.5 times the average daily volume is considered heavy volume. ((Pg 64))

How does Volume help you determine when to exit?

A decline of heavy volume may signal that the stock has farther to fall. ((64))

What may light volume indicate?

Lack of interest by bulls and bears. ((Pg 64))

What is an old saying on Wall Street about amateur and professional trades?

"Amateurs trade at the open and professionals trade at the close." If a security closes high than it opened, it represents a victory for the bulls. If a security closes lower than it opened, that represents a win for the bears, who were able to overwhelm buyers during the day. If a security closes at the same price it opened at, bulls and bears area at a stalemate. ((Pg 64))

Who accounts for the majority of volume on exchanges?

Major institutions that control billions of dollars are in the markets day in and day out. ((Pg 64))

What about major institutions do you want to learn about their exchanges?

Learn about how they're investing their dollar and ride the inevitable wave that follows as more institutions get into the bathtub. ((Pg 64))

How Ian Woodward (Investment Wizard) explain volume?

An institution getting into a security is like an elephant getting into a (very large) tub of water. You know the waters going to overflow. Similarly, volume overflows when institutions buy into or sell out of a security. ((Pg 65))

What type of chart do most swing traders look at?

Candlestick Charts ((Pg 65))

What important information does candlestick provide to its reader?

A security price's open, high, low, and close. ((Pg 65))

What two components make up candlestick charts?

The range between open and close (called the real body) and price movement above and below the body (called shadows). ((Pg 65))

What do you call a security that closes higher than its open?

Green (a bullish sign) ((Pg 65))

What do you call a security that closes lower than its open?

Red (a bearish sign) ((Pg 65))

What does a horizontal line represent in a candlestick chart?

The security's price opened and closed at the same level. ((Pg 65))

Do traders only rely on candlestick charts?

No, candlestick charts assist trader when entering and exiting securities. ((Pg 65))

Candlestick chart pattern helps to provide what confirmations?

Trend or reversal ((Pg 65))

Securities go through what type of cycle?

Natural Occurring Cycle, although not all securities follow this cycle religiously ((Pg 68))

What are the four phases of a Normal Occurring Cycle?

Accumulation, Expansion, Distribution, and Contraction ((Pg 68))

Why is it helpful to understand the Normal Occurring Cycle?

Different phases of the Normal Occurring Cycle requires different strategies.

Swing Trading trends are best for what phase of the Normal Occurring Cycle?

Expansion Phase ((Pg 68))

Trading ranges is best achieved in what phases of the Normal Occurring Cycle?

Accumulation and Distribution Phases ((Pg 68))

Describe the accumulation phase of a Normal Occurring Cycle?

Longest phase a security goes through; a security's price neither rises nor declines meaningful. Instead, the price moves sideways through time. ((Pg 68))

What phase occurs when supply and demand are roughly in balance for a Normal Occurring Cycle?

Accumulation phase, institutional managers or "smart money" often accumulate shares of an UNDERVALUED security. ((Pg 68))

What is "Smart Money?"

"Smart Money" is typically institutional dollars that are informed by extensive research. ((Pg 68))

How is the volume during an accumulation phase of a Normal Occurring Cycle?

Light Volume, reflecting a general consensus that the security's price is right. Buyers are unable to push prices higher than a ceiling (resistance level), whereas sellers are unable to push prices below a floor (support level). ((Pg 68))

Can you know in advance with any precision where the ceilings or floors for a security will be found?

No, but you can easily identify them by viewing a price chart and looking for price levels that a security is unable to climb above or fall below. These support and resistance areas are usually driven by fundamental reasons. ((Pg 68))

Describe an example of when support and resistance areas are driven by fundamental reasons?

Microsoft stock may not be able to rise above $100 per share because that movement represents a valuation of $900B, and market participants (smart money) may not feel the company is worth more than $900B. Thus, support and resistance levels vary by security and can't be determined until you examine a price chart. ((Pg 68))

What is an important way of thinking about an accummulation phase?

A period where most market participants agree on a security's value. Because price isn't moving dramatically, profiting off of securities in the accumulation phase can be difficult. ((Pg 69))

If you are a swing trader, how do you want to swing trade TRENDS during an accumulation phase?

Look for securities moving out of the accummulation phase and into the expansion phase. ((Pg 69))

If you are a swing trader, how do you want to swing trade RANGES during an accumulation phase?

Trade them until the security ends its accumulation phase. ((Pg 69))

As a swing trader, what time period (plot) should you be looking at?

Days, not Intraday.

When looking at the Daily Price Chart for a Security, an accumulation phase occurs over what time period?

Several weeks, if not months, to be considered a true accumulation phase. Otherwise, you may be dealing with some other phase of the cycle of the security. ((Pg 69))

How should you think of support and resistance, rather than strict and to the cents?

Think of support and resistance levels as zones that may cover 2 to 3 percent of a security's value (for instance, 2 percent above and below its price) ((Pg 69))

What is another name for the expansion phase?

Markup Phase ((Pg 70))

What phase follows the accumulation phase?

Expansion Phase ((Pg 70))

If the movement out of the accumulation phase is truly an expansion period, the security's price will do what?

The security's price will not reenter the accumulation phase. ((Pg 70))

If you swing trade trends, what phase is where you want to go long as soon as possible?

Expansion Phase ((Pg 70))

What phase marks the beginning of a positive change in perception among shareholder and outside investors?

Expansion Phase ((Pg 70))

A stock expansion may occur for a company when what happens?

The earning outlook for a company improves. ((Pg 70))

Shares may begin to rise steadily out of an accumulation pattern after what happens?

The successful launch of a product. ((Pg 70))

Which phase of the Natural Occurring Cycle is ripe with profit opportunities?

Expansion Phase ((Pg 70))

When should a swing trader enter an expansion phase of a security?

Beginning, and ride a strong trend for several days or weeks. ((Pg 70))

What happens if you buy late on an expansion period for a security?

Risk a large loss if shares of the security rapidly fall to the breakout price level - or worse - fall back into the previous accumulation range. ((Pg 70))

What type of volume should you look for to verify that an expansion phase is genuine?

Heavy/Strong Volume at beginning of expansion phase. ((Pg 71))

What is indicated if a security emerges from an accumulation phase on weak volume?

A lack of conviction on the part of buyers. Hence, the rally may be short-lived. ((Pg 71))

What phase occurs after the Expansion Phase?

Distribution Phase ((Pg 71))