The following are several strategies on how to time your trades in swing trading. These strategies are based on technical analysis and chart patterns.
1. use of moving averages
Moving averages are used to determine the direction of a trend. A common strategy is to buy when the short-term moving average (e.g., 20-day moving average) crosses above the long-term moving average (e.g., 50-day moving average) and sell when it crosses below.
2. RSI (Relative Strength Index)
The RSI is an indicator that measures the speed of price fluctuations and the strength of those fluctuations. Normally, when the RSI exceeds 70, it is considered “overbought” and when it falls below 30, it is considered “oversold. Based on this, a strategy is to buy when the RSI is below 30 and sell when it is above 70.
3. support and resistance
Support levels are points at which prices tend to stop when they fall, while resistance levels are points at which prices tend to stop when they rise. This is a method of trading for a rebound at these levels.
4. Bollinger Bands
Bollinger Bands are bands that indicate the range of price fluctuation. There is a strategy to “sell” when the price reaches the upper limit of the Bollinger Band and “buy” when the price reaches the lower limit.
5. Fibonacci retracement
Fibonacci retracements are used to find points of price return or rebound. The strategy is to buy or sell when prices approach the major Fibonacci levels (23.6%, 38.2%, 50%, 61.8%).
6. breakout
The strategy is to enter when the price exceeds a certain range (above or below). Breakouts with high volume are considered particularly reliable.
What can be read from the number of stocks in an uptrend
After analyzing the number of stocks in an uptrend over a short period of one year and comparing it to the results of my swing trades, I have found that there is a certain correlation.
The section depicted in green in the previous chart indicates that the number of stocks in an uptrend is increasing. Conversely, the section depicted in red indicates that the number of stocks in an uptrend is decreasing. The uptrend is determined based on the slope of the orange 10-day moving average, with an uptrend when the 10-day moving average is pointing upward and a downtrend when it is pointing downward.
The following is what we found by analyzing the charts for the past year or so as of August 2024.
- In the green section of the uptrend, there are many stocks that continue to gain upward momentum. (Tends to increase the success rate of new high breakout trades)
- In the red section of the downtrend, many stocks stop rising and fall back. (Tends to increase the probability of losing on a new high breakout trade)
- When the percentage of stocks in an uptrend drops to nearly 10%, the overall market often bottoms out and reverses. (The winning rate of swing trades for rebound tends to increase)
- When the overall market continues to rise and the ratio of stocks in an uptrend exceeds 40%, it often becomes a ceiling and some stocks begin to fall back. (If a trader feels good about their profits and delays their escape, their previous gains will be greatly reduced.)
How to use for swing trading and long-term investment
Based on what we have been able to read from the number of stocks in these four uptrends and their relationship to stock prices, here is how we can use them in our swing trading and long-term investment strategies.
Swing trade wth index ETFs
First, let's consider the method used for swing trading on ETFs of stock indexes.
The four basic steps of the trade are as follows
- Buy when the number of stocks in an uptrend begins to increase.
- If it exceeds 40% and enters the ceiling area, a portion of the gain will be taken.
- Sell the remaining positions when the trend turns down and the number of stocks in an uptrend begins to decline.
- Wait until the number of stocks in an uptrend turns from declining to increasing again.
Specifically, buy when the chart turns green, sell half when it reaches the 30-40% orange horizontal dotted line, and sell the rest when it turns red. The following chart shows the timing for buying (blue arrow) and selling (red arrow).
The actual timing of the trades in the ETF called VTI, which covers the entire U.S. equity universe, showed that in all five trades, we had three wins and two losses, for a 60% win rate.
I think we have been able to execute buys and sells at the right time, which may not be a bad thing, although it is not surprising that it worked out well since the environment was very favorable during the bull market from 2023 to 2024.
The market environment may require some adjustment to determine which level of 30-40% of the first sale is considered overbought.
In the above strategy, we started buying when the trend turned completely up, but in a bull market, we could consider buying when the price begins to rebound with a drop to 10% or less. In a bear market, I think it is safer to start moving out cautiously.
We would like to verify in the future whether this will work in a market that is not rising steadily as it has done in the past year.
Long-term investment with index ETFs
Next, let's take a look at how the index can be used in the case of a long-term investment where the basic policy is to accumulate the index and not sell it.
In long-term investment, funds can be invested most efficiently if you can buy more stocks at the lowest possible price. It is advisable to determine the timing when the number of stocks in an uptrend decreases to an extreme level, and to buy more stocks at the following two specific times.
- After the percentage of the number of stocks in an uptrend falls below 10%, the first purchase will be made at the timing of the first change from a decline to an uptrend.
- The second time to buy more is when the trend has completely changed from down to up, as in swing trading.
The blue arrows on the chart below indicate when to execute a buy increase.
In fact, if you check the actual timing of actual purchases in the S&P 500 index ETF (SPY), you will see that you can buy at times when the index is relatively inexpensive and falling, even though this is not ideal.
The purpose of the first purchase is to avoid taking a case where a sudden decline is followed by a V-shaped recovery and rise.
In a bull market between 2023 and 2024, there seems to be no problem with buying out at the timing of 1, but in a bear market when risk needs to be avoided, it is better to buy more only at the timing of 2.
In a bear market like 2022, you may need to adjust your strategy a bit, such as not executing on the timing of buy in 1 and concentrating only on the timing of buy in 2.
We will be testing this strategy by applying it to various market environments, and we will write another article in a few years on how to utilize it in a bear market.
Finally.
Thank you for reading this far.
In this article, we showed how to swing trade index ETFs and use uptrending stock trends for long-term investment in index ETFs.
The chart recording the trends of the uptrending issues presented in this article will be updated with data on a daily basis, so if you are interested, please click on the link below to check it out.
We plan to continue to actually trade in a variety of market environments, checking the trends of stocks in uptrends.
I will write another article at a later date to see how far the strategies presented here will work in a bear market, and whether there is a way to take advantage of the number of stocks in an uptrend even in a bear market.
We hope that this article will be of some help to you in your trading and investment activities.
English 
Japanese