In Swing Trades, Time Frames Are Key

It's tough to make money if you don't know where the price swing began, how far it might carry and when it's finally over. Every aspect of your trade, including holding period and reward/risk, depends on the size of the swing. In addition, swings occur in all time frames, so it's equally important that you know which one you're actually trading.

Measuring the current swing starts with a good set of eyeballs, because swings tend toward proportionality. For example, an 18-to-20-day swing in one direction will often be followed by an 18-to-20-day swing in the opposite direction. To complicate matters, these proportions can be subdivided into fractions, with a rally swinging five days against a 10-day selloff, an eight-day selloff swinging against a 16-day rally, and so forth.

Bank of America (BAC) -- Daily eSignal

You can also predict swing size by comparing the trend slope against the slopes of prior swings in either direction. Contrary to common sense, more vertical swings usually persist for shorter time periods than more gradual swings. This goes back to basic physics, in which a star that burns the brightest tends to burn out faster than a star emitting a cooler, dimmer light.

This contrast becomes extremely important in reward-targeting and exit-timing, which align closely with the old adage to "buy in mild times and sell in wild times." Above all else, swing trading works in harmony with the highs and lows that stand out on the charting landscape. Trends tend to seek out these levels, which then become price targets for our positions.