How to Avoid Swing Trading Whipsaws

Written on 15-11-2008 10:00 am by Craig

How to Avoid Swing Trading Whipsaws During Volatile Times

Getting stopped out too often?

With the market so volatile lately, it might be a difficult to avoid getting stopped out prematurely. Here is a little trick to avoid this.

Normally, we will look to short a stock the first time it trades under the "previous days low". This works fine if the market isn't too volatile or if you can't trade stocks during the day and have to put your order in ahead of time.

But, under these market conditions, you may get stopped out too often on your trades as the market whips around. So, here is a little trick that you can use to avoid these whipsaws.

Take a look a the following chart:

By all accounts this stock looks ready to tank.

It is in the Traders Action Zone, at resistance, has a doji, and has moved below the previous days low. This is typically where we would short this stock. But, look at what happened...

Not only did we get stopped out but the stock eventually went in our favor! Talk about frustrating. If this happens to you a couple times in a row, then you may just want to stop trading altogether!

But how could we have avoided this?

How could we have avoided the first entry and got in on the second entry?

Yes, we could have avoided this by using the hourly chart to better time our trades. How? By waiting for a 10-30 moving average cross...

As soon as you see a good swing trading setup on the daily chart, move to the hourly chart and wait for the cross.

Keep in mind that this won't work all the time (nothing works all the time). But using this method may help to avoid those nasty whipsaws. Don't forget to move your stop to break even as soon as the stock goes in your favor.

We have got be a little more defensive during these volatile times!

Written on 26-11-2008 3:35 pm by Craig

Happy Thanksgiving to You...

This year, I am thankful to have you as a reader of this blog and website! I'm especially thankful for all of the very nice comments that I have received from some of the visitors to this website throughout the year.

Thank you for the encouragement!

I'll be out of town for a few days so there may be a little delay in returning emails. Talk to you soon!

Have a great Thanksgiving!