Set Ups: The Swing Low

If you've been following my daily Twitter Feed you will have seen me mention on many occasions, a swing low set up. I thought I'd revisit this set up and shed a little light on what I'm looking for.

This is an old example from a couple of years ago, but the set up is still relevant. The stock was HGR. You'll see it had a huge run, followed by a blow off top, and then started to dip. For 3 days it failed to make higher highs on the daily chart, culminating in the low made at Candle A.



Once HGR broke the high of Candle A, a swing low was in play. Depending on my perceived strength of the set up, I like to enter either on the 1st higher high made (ie the break of the high of Candle A), although I may wait until a break of the next resistance level above if I'm not so confident (in the above case the high of the bar preceeding Candle A).

Volume plays an important part in my decision of if and when to enter. The swing low after Candle A was ideal because:

* the volume on the dip preceeding the swing was reducing every day
* the volume on the swing low day increased compared to the previous 2 days

You'll notice HGR threw a similar set up several days later, but the swing low then couldn't go on with it and eventually failed. Notice how much lower the volume was on the bounce day after Candle B, compared to A.

Conventional technical analysis suggests setting a stop loss just below the previous low before the swing set up, for your exit (ie the low of A and B in each case), but being a short term trader mine would usually be tighter, possibly a trailing stop using support from an intraday time frame.

This swing low set up can be used across all time frames, ie it can be just as effective on a 5 minute chart as a daily. As always though, I can't emphasise enough that you must keep your losses small, and exit the trade as soon as the set up fails.

Happy trading.

Alan