Hi everyone. Today I want to follow up on the Market Minute I filmed last week, the free one on how I swing trade stocks for income. So many of you loved it, and I think this will help you take that video one step further. This is not financial advice. I am not a CPA and I am not a certified trading advisor. With that, let me jump in.
Last week I showed you that you can swing trade stock for income without ever touching an option. Today I want to answer the very next question: which stock do you actually pick? Because when you sit down to trade something short term, the structure of the chart matters more than almost anything else. Some stocks are built for a clean swing trade right now, and some are not, and I want you to be able to tell the difference at a glance.
Here is the whole idea in one picture. Think of your moving averages as clouds. On my charts the green line is the 50 EMA, the red line is the 100 EMA, and the yellow line is the 200 SMA. When you are in an airplane, you want to be flying above the clouds, because above the clouds there is no turbulence. It is the same with a swing trade. When the stock is holding above all of its moving averages, those averages sit underneath you as support, and your trade has a cushion. When you are flying below the clouds, all of that structure is overhead resistance instead, working against you.
One quick setup note that makes a big difference. When you go into your settings, set the moving average time frame to one day. So even though I am looking at a four hour chart, the indicator is plotting off the higher time frame daily chart. I do this because that is what technicians look at. We read the moving averages off the daily, and that gives you cleaner, more meaningful support and resistance levels.
Let me show you what flying above the clouds looks like
My first example is Nvidia, one of my absolute favorite stocks to swing trade. Why? Because it is holding above all of the moving averages. The 50, the 100, and the 200 are all stacked below the price, so every one of them is potential support. I bought a little bit at the 50 EMA. When we came down to the 100, I bought more. And if we get all the way down to the 200 SMA, I will buy even more.
That is the pyramid, and I teach this all the time in Rapid Fire. Picture a new trader with ten shares to work with, and say we are looking at a name like Marvell instead. Do you want to buy the most up high or the most down low? You want the most down low. So maybe you buy two shares up here, three shares in the middle around the 190 level, and five shares down at the bottom. Two, three, five. Why size it that way? Because when the market bounces back, you still get to win. If you load up too heavy at the top, you have nothing left to work with down low, and now you need a huge rally just to get back to even.
It is not a difficult concept, but it is a skill, and skills take a little time to master. On that same Nvidia chart I also run IADSS, which is the Invest Answers mean reversion tool, and it is one of my absolute favorite indicators. I use mean reversion all day long. On the four hour chart I had a beautiful buy signal down around minus two, and on a five minute chart on the left I had a couple of buy signals that lined up right with those entries. That is the kind of support structure I want to see before I commit to a swing.
Now let me show you a stock flying below the clouds
Here is Broadcom (AVGO). I love Broadcom for the long term, and I am building a position in it right now using a modified synthetic long, which is a longer term option strategy I teach in Rapid Fire and Kilo Club. But would I load the boat on it for a short term swing trade at this exact moment? No. And the clouds tell you why. Right now I am flying underneath the moving averages. All three of them are sitting just above where we are trading, up in that 370 to 380 area. If I start buying here at 353, 343, 330, I am buying right into overhead resistance.
For it to be an ideal short term swing, I want to be able to make money when the stock swings back up to retest the underside of those clouds. So my next level of interest is down around 315 to 325. If I swing trade it there and it runs back to 370, that is roughly a 50 dollar move, about 16 to 17 percent, and I am happy with that. The point is runway. I want room for my trade to win before it runs into the ceiling.
Two more, quickly. Palantir is trading above all of its moving averages, so there is real support underneath it. If mean reversion pulls back down and I get some good buy signals on my five minute chart, that is a swing I would take, because I am flying above the clouds and those three averages are there to support me. Tesla is the opposite. I love it for the long term, but I cannot swing trade it right now because of all the overhead resistance. The 50 is up around 360, the 100 around 370, and the 200 around 390. There is not enough runway. So for me Tesla is a long term trade, not a short term swing for income.
Do not make this harder than it has to be. You do not need complicated charts. Just understand the structure so that when you pull up a stock you can eyeball it in a second and ask one question: am I above the clouds or below them? If you are below all the moving averages and you want a quick short term swing, go find a stronger name where you are flying above them instead. If you want to go deeper on sizing these entries, that is exactly the pyramid work I walk through in MM68 and MM72.
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