Introduction: Learn the Art of Swing Trading #5

Tip #5. Find rejected price levels

On candlestick charts, lower or upper shadows on candles usually means that there is a hammer candlestick pattern or a shooting star candlestick pattern (if the shadow is long enough). Regardless of the name, these shadows mean one thing: A price level has been rejected.

Imagine what this hammer candle looked like during the day (before it became a hammer). It was really bearish! But, at some point during the day, the bulls rejected the lower price level. I can imagine the bulls saying, "Hey wait a just a second. You bears have taken this too far. This stock is worth much more than the price that you moved it to."

And the buying begins.

Introduction: Learn the Art of Swing Trading #4

Tip #4. Narrow range candles lead to explosive moves

Narrow range candles can also tell you that a reversal is imminent. This low volatility environment can lead to explosive moves.

Narrow range candles tell you that the previous momentum has slowed down. Buyers and sellers are in equilibrium but eventually one of them will take control of the stock!

Introduction: Learn the Art of Swing Trading #3

Tip #3. Look for wide range candles

Wide range candles mark important changes in sentiment on every chart - in every time frame. They mark important turning points and can often be used to identify reversals. Take a look at the following stock chart:

This stock was moving lower in October (highlighted) and then suddenly it dropped more significantly than on previous days. This created the wide range candle and it marked an important turning point (actually the bottom!).

You can also use wide range candles to identify when a stock might reverse. Looking at the same chart...

This stock reversed inside of prior wide range candles. Why would a stock do this? Because all of the traders that missed out on "the big move" now have a second chance to get in. This buying pressure causes the reversal. Simple, huh?

Introduction: Learn the Art of Swing Trading #2

Tip #2. Analyze swing points

Swing points (some call them "pivot points") are those areas on a stock chart where important short term reversals take place. But not all swing points are created equal. If fact, your decision to buy a pullback will depend upon the prior swing point. Here is an example:

Look at the area that I have highlighted in green. You may have considered buying this pullback. Now look at the prior swing point high (yellow highlighted). There are two problems with buying this pullback. First, there isn't much room to work with! The distance between the pullback and the prior high is too small. You need more room to run so that you can at least get your stop to break even.

The second problem is this: The prior high (yellow area) is composed of a cluster of candles. This is a strong resistance area! So, it will be very difficult for a stock to break through this area. Instead, look to trade pullbacks where the prior high is only composed of one or two candles.

Introduction: Learn the Art of Swing Trading #1

What is price action?

Price action for swing traders is the art of looking at individual candles to determine the probable direction of a stock - without using any technical indicators.

Ultimately, analyzing price action tells you who is in control of a stock. It also tells you who is losing control: the buyers or the sellers. Once you are able to determine this, you can pinpoint reversals in a stock and make money.

Learn the price action tips on this page and I guarantee you that you will be a better swing trader.

Let's begin.

Tip #1. Identify support and resistance levels

This is a no brainer. Identifying support and resistance levels is one of the first things you learn in technical analysis. It is the most important aspect of chart reading. But, how many traders really pay attention to it? Not many. Most are too busy looking at Stochastics, MACD, and other nonsense.

Some traders think that a support or resistance level is a specific price. Wrong. It's an area on a stock chart. Let me give you an example.

The areas that I have highlighted are the correct support and resistance levels. Often times you will hear traders say something like this: "The support level for XYZ stock is $28.76." This is wrong. It's an area - not a specific price.