As seen in the February and September 2004 issues of Technical Analysis of Stocks and Commodities magazine, my PowerSwings visual tool allows traders to gather critical information instantly from any chart.
The swing lines and swing pivots drawn by PowerSwings cut through price action to simplify the process of identifying support and resistance points, trend and congestion areas and classic technical patterns. While the tool can be used for any time frame or symbol, it is highly effective for swing trades that set up on daily stock charts.
PowerSwings EOD (the end-of-day version) is available at no charge to all users of eSignal. Use it to identify pivots and major support and resistance points where price reverses to form swing highs and swing lows:
- Identify trends based on the relationships among successive upswings, downswings and the location of the swing highs and swing lows.
- Identify and differentially diagnose congestion patterns in order to avoid choppy markets.
- Identify and differentially diagnose retracement patterns and tests based on the relative positions of the swing pivots in order to enter and exit in a timely fashion.
This first chart is the daily bar chart of Amazon.com as of August 13, 2004. Most investors would welcome the use of tools to interpret this price chart.
Case Study: AMZN (Amazon.com)
The second chart is the same chart with PowerSwing EOD plotted as an overlay, with upswings connected by the blue lines and downswings connected by the magenta lines. In general, in an uptrend, the upswings are larger in magnitude than the downswings and vice-versa, and with the swing lines, these conditions are easily identified.
There is an option to color price bars or candlesticks. Because Japanese candlestick charts typically require more spacing between them, visualizing chart patterns often becomes more difficult. PowerSwings can be helpful in that the swing lines continue to help identify price patterns while the colors help to visualize price trends.
The next few charts demonstrate the use of swing lines to help identify some classic trade setups.
Test of Bottom: May 2004
Classic Bull Flag: June 2004
Simple Bear Flag: July 2004
PowerSwings can be used in combination with other technical tools. In the subsequent example, we used the upswing from the May 21 swing low to the June 8 swing high to help anchor the Fibonacci retracement tool. Ultimately, the classic bull flag that formed came very close to the 0.618 retracement level.
Then, we used the downswing from the June 30 swing high to the July 9 swing low to help anchor the Fibonacci retracement tool. The simple bear flag hit the 0.382 retracement level.
PowerSwings can also be combined with technical indicators to locate more precise entries and exits. In the last example of this article, we used a combination of fast and slow CCI. A popular method used by traders is to ignore all price bars and candlesticks and draw a line on the 14-period CCI (in black) to set up a countertrend buy as a scalp trade, in case a reversal was coming after the long downtrend.
The method calls for using the small uptick in the fast CCI (in red) that formed around July 26 to buy, a trade that would have produced a loss. With PowerSwings, knowing that AMZN was in a downswing, a trader might have devised a better method to enter or might have avoided the scalp setup altogether.
Teresa Lo, Founder and Market Strategist of PowerSwings.com, has written articles for a number of industry publications and has been featured in books, magazines and other media.
