Swing Trading Concepts With InvestiQuant

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Swing Trading Concepts & Edges

Rob Hanna

Co-Founder & VP of Research, InvestiQuant

Copyright © 2015 InvestiQuant 1

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Disclaimer It should not be assumed that the methods, techniques, or indicators presented

here will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. There is a high degree of risk in trading.

Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not actually been executed, the results may have under- or over-compensated for the impact, if any, of certain market factors such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown.

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What is “Swing Trading”?

• A short-term trading approach that looks to take advantage of market swings that typically last from 1-7 days.

• Most swing approaches will look to buy short-term weakness and sell short-term strength.

• Often traders will use the intermediate/long term trend to further filter opportunities.


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A Simple Swing Trading Approach


Buy 5 Day Low & Sell 5 Day High

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Buy 5 Day Low & Sell 5 Day High


A Simple Long-Term Trend Filter Doesn’t Help


Few trades, fewer days exposed to the market, bigger average wins, smaller average losses, and more total profits

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IQ Swing Trading Concepts

•Acceleration

•Momentum

• Seasonality


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Acceleration

How fast is the market moving and from where?



A Strong Move Down From A High – No Edge

A Strong Move Down From A Low – Big Bullish Edge

A Strong Move Down Within A Range – Small Bullish Edge

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While Big Drop From A Low Point Suggests A Strong Bullish Edge, A Small Drop Does Not

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Acceleration Summary

Both the magnitude of a move and the place that move is occurring make a difference in price action moving forward.


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Momentum

How persistent has the move been over the last few days and weeks, how strong is the movement, and where are we trading in relation to the long-term trend?



Persistent drop from high – no edge

Persistent drop to a new low – bullish edge

Persistent drop within a range – in between (mild edge)

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Momentum Summary

Like fast moves, persistent moves can provide an edge but should be examined within the context of the longer-term trend.


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Seasonality

What long & short-term seasonal forces are in play, and how has the market performed during similar periods in the past?


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Seasonality – Fed Days


Fed Days have seen strong gains over the years.

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Seasonality – Non-Fed Days


All other days combined have managed very small gains.

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Seasonality Summary

• Certain days, times of the month, times of the year and other cycles can exert a seasonal influence on stock market prices.


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Acceleration & Seasonality Combo


When price & seasonality-based edges combine it can make for a very strong setup.

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IQ Swing Guides



IQ Swing Acceleration Ensemble (stand alone)


IQ Swing Momentum Ensemble (stand alone)


IQ Swing Seasonality Ensemble (stand alone)


The average of all 3 approaches is better than any one of them on their own.

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Summary

• Swing traders look to take advantage of short-term market imbalances & price extremes.

• Many techniques can be used to swing trade, but most involve combining short-term overbought/oversold indicators with long-term trend.

• IQ utilizes 2 price-based concepts (Acceleration & Momentum) along with Seasonality.

• Combinations of edges often provide better forecasting information than any individual component.

• IQ Swing Edges can be used on their own, or as an additional input/filter for other systems.


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Swing Trading Concepts With InvestiQuant