Tharp's Thoughts Weekly Newsletter (View On-Line)

• Article Swing Trading Sandwich by Dr. Ken Long
• Trading Education Learn Five Swing Trading Systems in October
• Trading Tip Buy the Rumor, Sell the News: Apple-Style by D. R. Barton, Jr.
• Matrix Contest New Contest Has Begun

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Article

Swing Trading Sandwich

by Dr. Ken Long

View On-line

Three general time frames govern all my trading: monthly rebalancing, swing, and intraday.  Each of the time frames are determined by how often I have to make decisions to be effective and I treat them as three separate and distinct environments.  Even so, there’s some overlap between them whereby one timeframe can provide actionable information to the adjacent timeframe and can also provide an additional edge.  In this article, I’d like to describe my general approach to swing trading and how it benefits from being sandwiched between my shorter and longer-term time frames.    

I base my long-term, monthly rebalancing strategies on research into relative strength and momentum as it relates to broad asset classes. By studying relative strength, I believe that portfolios can be positioned to take advantage of longer-term momentum.

I think of swing opportunities as trades that I expect to last from approximately 2 to 10 days.  In this time frame, the buying and selling actions of market participants create short term momentum in order to establish a new consensus fair value, when price behavior returns to normal. These opportunities appear at various times in the market and can be defined by price patterns, statistics and trade location.

I think of intraday trading as tactical, statistics-based trading that takes into account trade location, critical states, price confirmation and a realistic assessment of typical reward to risk ratios. This is a style of trading that requires self-discipline, impulse control and a healthy appreciation for the primacy of risk management.

I’ve developed systems and strategies for each of these three time frames individually, but I also believe that each time period has information value that can contribute an edge in the other time periods.  For example, broad index ETFs that are experiencing a healthy relative strength advantage over other indices in the monthly systems can be framed for swing trades in the shorter term when we observe a continuation of the outperformance in that shorter time frame.

Similarly, intraday trades that close well can often earn enough money to support a speculative overnight trade which may develop into a multi-day swing trade if the momentum carries over from day one. We call this swing trading one day at a time, and it gets funded with markets money earned from successful trades in order to protect our seed capital. It’s fair to say then that I think of swing trading first as short-term, opportunistic, statistics-based trading which can be supplemented by information coming from both the longer-term and shorter-term time frames.

It can work in the other direction as well, with some swing trades that continue to outperform the market becoming longer-term holdings because of their continued relative strength and some swing trades that can be added to intraday when they are outperforming the market in the same direction as the primary trade.

This diagram represents this idea visually:

Of course, while the monthly and intraday time frames can help “inform” swing trades, viable trading systems should do a lot of the work. 

Why I Share My Trading Knowledge

To continue to hone my craft of trading and my understanding of the markets, I teach my approach to the markets, trading systems and related subjects.  Invariably, I always come away from my workshops feeling like I have learned more than any of the attendees.  I have actually had some of my greatest trading and market insights while trying to explain my systems or some trading concept to a group of students. 

At all of the workshops, I break the material down into four broad categories of information: systems, strategies, techniques and tips. Briefly, each of these is defined as:

Systems: Well-defined rule-based systems that can be traded mechanically according to an objective set of rules which have been back tested, and forward traded based on evidence.

Strategies: Logically consistent frameworks of beliefs and indicators that support a variety of systems from a common frame of reference and which allow a trader to apply a measured amount of discretion to sound systems. Taken together, systems and strategies are a robust portfolio of ideas.

Techniques: Common actions such as universal entries and exits, position sizing, risk management and market conditions that apply like building blocks two different systems and strategies. Good technique helps us refine and improve our routine trading actions.

Tips: things that we have learned along the way while doing research that act as good rules of thumb and help support our risk management and opportunity finding strategies. An example is that when weekly RSI(14) drops below 30, reverses and crosses higher than 30 you should be especially alert to what may have just been an important intermediate-term market low which can support long-term long side swing trading in the broad market. Do your own due diligence before you take action.

Better Trading Through Better Workshops

In my current career as well as in my trading, understanding and applying the principles of effective adult education is critical for me.  I believe we’ve developed outstanding learning strategies for you that really accelerate knowledge learning and help you integrate that knowledge at a deeper level than simple “teacher talks, students listen” type workshops:

1. Workshop participants come to the workshop prepared with their best questions because they have already reviewed the formal system descriptions and related material at a granular level. We provide all of this content a month ahead of time so your classroom time is maximized on deeper understanding the material through a more conversation style rather than lecture style teaching. 
2. You know how each system is supposed to be traded before we shift into small group and individual hands-on exercises.  Confirmation briefings, rules reviews, and joint test case studies in the large group format ensure that everyone has a common understanding of the system theories before we proceed to small group and individual use of the trade simulator.
3. You discover a deep understanding of each system and strategy in the process of trading it on the simulator.   The simulator is the hands-on practical experiential learning laboratory that allows us to manifest the rule sets through repetition and discussion.
4. You make the information and systems your “own” by adapting them to your personal objectives and skills in the ongoing live learning laboratory of an active chat room after completing the workshop.  After the workshop, we provide one year’s membership to an online collaborative site (live chat as well as archived material).  Here,  workshop graduates continue to develop their understanding and application of the systems in real-time, trading collaboratively with other experienced traders who now have a common frame of reference.
   

Summary

Swing trading is a reasonable approach to market trading in a manageable time frame that allows end of day traders and weekend traders to take advantage of persistent and repeating opportunities which can support longer-term and shorter-term trading objectives. We believe our package of educational strategies and support materials are an effective way to rapidly develop skills in these areas and we would invite you to explore these ideas with us. Thanks for your attention and interest!

About the Author: Dr. Ken Long retired from the Army as a Lieutenant Colonel and teaches at the U.S. Army Staff College. He is a proud father of three, a husband, teacher, student, martial artist and active trader. Ken also instructs dynamic trading workshops for the Van Tharp Institute. Watch this video to hear two testimonials from students of Ken Long.

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Buy the Rumor, Sell the News: Apple-Style

By D. R. Barton, Jr.

Consumers today have an ongoing and rabid love affair with their tech gadgets.  How many meetings or meals have you attended lately where you saw zero cell phones?  If your experience has been anything like mine, the answer is few to none.

Apple didn’t invent the “big splash” product introduction, but they certainly have worked hard to perfect it over the years. Their version is now one of the most anticipated tech events of the year. For all the geeks, nerds and Apple fan-boys out there, Tuesday’s new product unveiling did not disappoint. 

However, the investment world wasn’t quite so impressed.  There are some interesting reasons why this is so — some new and some quite old.

Old-School Lessons from Great Investors

We’ve all heard quotes from famous investors that colorfully tell us to “buy the rumor and sell the news”.

Lord Rothschild said in 1810, “Buy at the sound of the cannons, sell at the sound of the trumpets”

Lord Buffet (of Omaha), “Be fearful when others are greedy and greedy when others are fearful”.

And so it goes with Apple.  With great regularity, their stock’s price tends to follow the well-known Wall Street adage and trend up into the announcement date.  But how do things go on announcement day?  Does the second part of the saying (sell the news) hold true?  Bloomberg gives us the answer in one chart:

Since the original iPhone was announced to much fanfare and a great market reaction in 2007, six of the following seven announcements have given negative price moves on the day of the announcement.  Infamously, the lone smallish up move in 2012 signaled a long-term top for Apple stock that was followed by a seven month slide where the shares lost 45% of their value.

So “buy the rumor, sell the news” seems like a mantra for iPhone events and the old school adage has carried the day.

Newer Developments in Apple Announcements

To be fair, since the huge splash made by the 2007 iPhone announcement, the success of the device has meant that Apple’s legendary ability to keep the content of announcements a secret has waned.  In fact all the big items from this year’s announcement (bigger- screened iPhone 6, the Apple Watch and Apple Pay) were well known before the announcement. 

It’s tough to make a splash when the only surprise is a change in naming protocol.  Apple broke with a 16-year tradition of using the “i” prefix.  So no iWatch or iCash.  An interesting tweet popped up soon after the announcement (from someone I don’t know or follow):

Apple had, of course deviated from what the New York Times calls its iHabit with the MacBook line and more tellingly, with Apple TV.  But enough about naming conventions.

Apple also had an interesting “buy the rumor, sell the news” run during intraday trading.  Again, Bloomberg put together a great chart showing the intraday reaction to each of the announcements.  In classic form, note the drop after the last announcement was made:

Apple continues to be a new products juggernaut.  But the market tells us the news for this year’s announcements loud and clear: this time around, it’s obvious that Apple is just playing catch-up with the market leader.

As always, your thoughts and comments are always welcome - please send them to drbarton “at” vantharp.com.

Great Trading,
D. R.

About the Author: A passion for the systematic approach to the markets and lifelong love of teaching and learning have propelled D.R. Barton, Jr. to the top of the investment and trading arena. He is a regularly featured guest on both Report on Business TV, and WTOP News Radio in Washington, D.C., and has been a guest on Bloomberg Radio. His articles have appeared on SmartMoney.com and Financial Advisor magazine. You may contact D.R. at "drbarton" at "vantharp.com".

Disclaimer

Matrix Contest

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We want to hear about the one most profound insight that you got from reading Van's newest book, Trading Beyond the Matrix, and how it has impacted your life.

We have updated some of the rules since the last contest, so please read them carefully before entering:

• Each essay should be around 1200 words.
• The ideal entries will focus more on a single transformative insight as opposed to “the whole book was transformational”.
• Dr. Tharp and the VTI team will pick the top 5 best entries from the submissions and our newsletter readers will vote to choose the top winner.
• The winner receives one free VTI foundation workshop; (*foundation workshops include the Peak Performance 101 workshop, How to Develop A Winning Trading System That Fits You, and the Blueprint for Trading Success workshop.)  The winner may choose one of these workshops (valued at $2,995) or substitute any single VTI product priced at $795 (or below) of your choice.
• Over the duration of the contest, we will choose our favorite entries and publish them in our weekly newsletter, Tharp’s Thoughts. All entries appearing in the newsletter will receive a $50 coupon (increased from $20) which can be used on any VTI product or service.

If you would like to enter, send an email with your essay to [email protected].

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