The Anatomy of a Swing Trade

Increase Profits by Understanding Large Lot vs. Small Lot Price Action

The most common mistake Retail Traders make in choosing stocks to swing trade is to not identify whether the large lots are dominating the buy side or the sell side during the momentum run upward. This is the primary cause of most whipsaw action in a swing trade run.

Many traders want to blame “market makers” for whipsaws or even High Frequency Trading, however, price data and Market Structure refutes both as the real cause. Almost all market making is via a computer, and High Frequency Traders trade mostly in the first few minutes of market open.

The real reason why most traders encounter whipsaw action in their swing trades is not recognizing when the large lot Professional Traders switch from buying a stock to drive price upward, to selling for profits. Professional Traders use carefully orchestrated routing and sell orders, that maintain the upward action even while they are selling to close positions.

Swing Trading Strategies need to incorporate Technical Analysis of the stock’s price and volume patterns to determine whether the Professional Traders, who often swing trade stocks, have shifted from buying to selling mode, and what that will mean for near-term price movement.

A key factor in recognizing the shift to profit taking is the length of wicks and tails in the Candlestick Patterns of the stock chart. Professional Traders strive to hit a precise penny on the spread when routing and executing an order. The Retail Trader’s orders are not carefully routed and order types available are few. Most retail orders are filled by the broker rather than being routed to the exchanges to fill. This means that most Retail Trader orders have some slippage and spread disparity, which Professional Trader orders do not have.

Understanding this stock price execution phenomenon helps a Swing Trader identify areas where momentum action may stop, reverse, or pause. By identifying these key areas before putting on the trade, a technical Swing Trader can ride with the professional momentum action rather than trade against it.

For the first analysis ask yourself, is this a momentum run or a velocity run? The structure of each type of stock price run is totally different in terms of how the price movement behaves.

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Trade Wisely,

Martha Stokes CMT

TechniTrader technical analysis using a StockCharts chart, courtesy of

Chartered Market Technician
Instructor & Developer of TechniTrader Stock & Option Courses

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