Top Trading Strategy For Swing Trading Stocks and ETFs

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A Stock Trading Strategy That Works - For US, European, & World Stock Markets

Since 2002, professional trader and author Deron Wagner has been generating consistent profits through a simple and proven swing trading system (click here to learn what swing trading means) for stocks and ETFs that works in up, down, and sideways markets.

Read on to learn more about this strategy or scroll down to watch the first video for a quick visual overview.

New swing trade entries are based on:

• Volume - In all cases, close analysis of volume patterns plays a key factor in our trading system, as sharply increasing volume while equities are moving higher indicates institutional price support.


• Growth Stocks - In bullish markets only, we primarily focus on buying individual small and mid-cap growth stocks (but never penny stocks) because they have the ability to move sharply higher within a short period of time.


• Breakouts - In uptrending markets, we buy stocks and ETFs breaking out to new highs, above tight bases of price consolidation.


• Pullbacks - If a stock has been trending steadily higher (in a healthy market), we buy pullbacks to near-term bases of support (such as the 20-day exponential moving average).


• Trend Reversals - Used primarily when the broad market is recovering from an extended downtrend, we buy stocks and ETFs showing early leadership by reversing above their downtrend lines, after breaking out above solid bases of consolidation.


• ETFs - We trade a mix of both stocks and ETFs, the ratio of which is dependent on market conditions. In flat to downtrending markets, we focus more on ETFs because we can trade ETFs with a low correlation to the direction of the broad market (currency, commodity, fixed income, and international ETFs). We also trade inversely correlated ETFs ("short ETFs") to achieve outperformance in downtrending markets.

Because approximately 80% of stocks follow the direction of the dominant market trend, all entries are also in sync with our rule-based stock market timing model. This enables us to achieve strong gains in healthy, uptrending markets, while seeking to avoid losses (or profit from short selling and inverse ETFs) in flat to downtrending markets (click here to see our actual trade performance history).

Our momentum swing trading technique is taught via our nightly Wagner Daily newsletter, where we also provide detailed entry, stop, and target prices of our best stock and ETF picks. We also share our years of trading experience through our free trading blog and "no hype" online trading course.

To help you get a better understanding of our overall trading methodology, check out the short 7-minute video below, which uses annotated charts of actual past swing trades to summarize our simple trading strategy. The video is best viewed in full-screen HD mode (click the icon on bottom right of window):

Momentum trading simply works

As shown in the video above, stocks and ETFs in strong uptrends, which have outperformed the market over a 6 to 12 month period, have a high probability of continuing the trend for the next few months. As Sir Isaac Newton once proclaimed, "an object in motion stays in motion until a greater force acts against it."

Stocks trading at or near their 52-week highs have the least amount of overhead resistance to work through, and can therefore stay in uptrends longer than anyone expects. Ideally, the best swing trading candidates will be trading at 52-week highs and fresh all-time highs, as they have no overhead supply (resistance) to work through. For this reason, we always focus on buying stocks and ETFs trading within 20% of their 52-week highs (in flat to uptrending markets only).

Cheap stocks are cheap for a reason

One common and deadly mistake new swing traders make is "bargain hunting," which is going after stocks and ETFs that have fallen out of favor in the market and are usually trading at or near their 52-week lows. The (faulty) thought process is to "simply" buy the lows, wait a while, and sell higher. However, although it is human nature to desire to buy low and sell high, this is a flawed plan for traders because market trends frequently last much longer than anyone expects, and it is human nature is to underestimate how long a trend can last. For this reason, it makes no sense to fight a downtrending stock.

With our trading system, we seek to buy high and sell higher, not buy low and sell high. The proper way to trade or invest is with the momentum of the trend (buy high and sell higher). In weak or downtrending markets, we go to cash, selectively trade inversely correlated "short ETFs," and/or sell short stocks with relative weakness trading near their lows.

What is a swing trade buy setup?

A buy setup refers to an ETF or stock that has passed the filters of all our rule-based technical criteria, and has a high probability of resuming its uptrend within a few days. To identify these setups, we must first locate a proper "basing" formation.

What is a base? A base is formed when a stock has consolidated in a fairly tight sideways range lasting a few months to a year. A quality basing pattern, on average, corrects 10-30% off the most recent "swing high." The 3-minute video below demonstrates how we quickly and easily identify the strength of market trend that precedes a quality "basing pattern:"

A "base" (as shown in the video) is crucial to an uptrend, as the stock or ETF builds a strong foundation to launch the next advance. Before a stock can launch a big price run up, it must first have a solid base pattern to build upon. It's sort of like the foundation for a house; if it's not solid, the levels above can become unstable. For stocks, base patterns serve as that foundation. They occur when a stock's price falls, then consolidates over a series of weeks or months. This is called a "setup." When technical trading conditions such as this present themselves, it may cause the stock or ETF to meet our rule-based criteria for potential swing trade buy entry in our Wagner Daily swing trading newsletter.

Bases typically form after an ETF or stock has already experienced a nice increase in its share price (also known as an uptrend) of at least 30%. That uptrend is important because it shows the stock has built up a track record of price growth already, and has gained support from big professional investors. There are several kinds of bases that winning stocks frequently form prior to a big price run-up, and these were shown in the trading strategy video above.

Have a clearly defined exit strategy

Knowing the right time to buy stocks and ETFs is only one part of the equation to becoming a successful swing trader. Obviously, knowing when to sell is at least equally as important. Generally, the main goal of our exit strategy is to sell winning trades into strength when they have achieved a reward-risk ratio of at least 2 to 1. That means the trade has gained at least double our initial capital risk.

In healthy markets, we generally focus on reaping a 15% to 20% gain from the best individual stock swing trades (or 10% to 15% for ETF trades). But when the trade doesn't go as expected, we calmly exit into weakness because not all trade setups work and we always employ firm risk control. With each and every trade setup, having a protective stop is the last line of defense that cannot be argued with! Our exact, preset stop prices are provided with every ETF and stock pick entered in our Wagner Daily swing trading newsletter.

Who can participate in this swing trading system?

Our subscribing members are a diverse group of market participants, including semi-retirees looking to preserve and build their wealth, part-time traders seeking to supplement the income of their day jobs, and even professional financial advisors looking for solid technical guidance. Because our swing trading newsletter service is fully designed as an "end-of-day" trading system, even part-time investors and traders with daytime jobs may completely follow our strategy and swing trade picks by simply setting their buy and sell stop orders with their online brokers before going to work.

The average holding period of our stock and ETF swing trades typically ranges from 1 to 5 weeks (depending on market conditions). Daily analysis of chart patterns and basic technical trading indicators enable us to determine the most ideal entry and exit points for each trade, which is always clearly indicated in advance to newsletter subscribers.

Because our strategy for trading stocks and ETFs is based on technical analysis and price momentum, common techniques known to work all over the world, our swing trading strategy works equally well for US, European, and Asian stock markets, providing members who subscribe to our trading system with unlimited opportunities for profiting in various world stock markets.

Our top 5 money management rules for consisently profitable trading

Having a reliable strategy for picking the strongest equities to trade is important, but any trading system lacking clearly-defined money management rules is doomed to eventual failure. Since 2002, we have tracked and reported the exact entry and exit prices of every stock and ETF trade entered in our newsletter. A quick look at these consistent trading profits since 2002 clearly shows we have discipline and firm rules in the money management department.

Here are the top 5 "golden rules" we teach our subscribers when it comes to money and risk management for trading:

1. Never risk more than 2% of total account value on any individual trade (no matter how "great" the setup looks).
2. Average risk per trade when conditions are optimal is 1-2%. This should prevent the experienced trader from ever losing more than 15-20% of his account value.
3. New traders should risk a maximum of 0.5% per trade to prevent getting into trouble while learning.
4. Do not take capital exposure of more than 25% to 30% of account per trade.
5. Risk control should always be a trader's foremost concern. Losing trades are part of the business, but failing to honor stops will quickly knock you out of the game.