The Master Swing Trader (Alan Farley, 2000)

• Trend-range axis
• Price movement demonstrates both directional trend and nondirectional range. 
• Range motion alternates with trend movement. 
• Trends reflect a state of positive feedback where price movement builds incrementally in a single direction. 
• Ranges reflect a state of negative feedback where price movement pulses between minimum and maximum points but does not build direction. 
• Trends reflect an upward or downward bias. 
• Trends change and reverse at certain complex points of development. 
• Ranges reflect their repeating patterns, bias for continuation or reversal, and the trend intensity expected to follow them. 
• Movement out of ranges continues the existing trend or reverses it. 
• Range volatility peaks at the interface between a trend climax and the inception point of a new congestion pattern. 
• Range volatility ebbs at the apex point just prior to the inception of a new trend. 
• High range volatility = wide range bars, high volume, and low price rate of change. 
• Low range volatility = narrow range bars, low volume, and low price rate of change. 
• Congestion pattern breakouts reflect a shift from negative feedback to positive feedback. 
• High volatility associated with the end of positive feedback induces nondirectional price movement. 
• Low volatility associated with the end of negative feedback induces directional price movement. 
• Negative feedback registers on oscillators as shifts between overbought and oversold states but does not register on momentum gauges. 
• Positive feedback registers on momentum indicators as directional movement but gives false readings on oscillators.
• Each market leaves a fingerprint of its historical volatility as it swings back and forth.
• Holding period and chart correlation
• Scalpers - seconds to minutes - 1-minute 5-minute 15-minute 
• Day traders - minutes to hours - 1-minute 5-minute 60-minute 
• Position traders - hours to days - 60-minute daily weekly 
• Investors - days to weeks - daily weekly monthly 
• Institutions - weeks to years - weekly monthly yearly
• Moving average
• 20-50-200
• Faster: 18-50-150
• Above 200 is bull and below is bear
• Adam and Eve
• Reverse cup and handle
• Successful swing trading tips
• No two patterns behave alike. Triangles and pennants are ideal shapes that rarely occur with perfection in the real world. 
• Three strikes and you’re out. Price should break out of a pattern no later than the third time a key price point is tested, to the upside or downside. Failure of price to reach the third test in either direction favors a breakout in the opposite direction. 
• Use the rule of alternation to predict how a pattern will develop. Corrections should alternate between simple and complex shapes in a series of impulses. 
• Every pattern has an underlying positive or negative appearance that represents the likely outcome. So if it looks bullish or bearish, it probably is. 
• The sharp breakout above an ascending triangle often signals the climax of an entire series of rallies. 
• Rising wedges can lead to very powerful upside breakouts, but they are too undependable to enter until the move is underway. 
• Demand perfection on the inverse head and shoulders reversal. They attract attention only when every rule is fulfilled: the neckline must line up correctly, the two shoulder lows must be at the same price, and the breakout must pierce other known resistance (MAs, gaps, etc.) on high volume. 
• Double triangles that form after strong rallies are very bullish for a new move of equal size to the one that occurred just before the first triangle. 
• The contraction in price range and volatility that follows a new pattern seeks a natural balance point corresponding with the location of the new impulse. Use Bollinger Bands and rate of change indicators to identify this pivot in advance. 
• Every pattern is a solvable puzzle defined by support, resistance, and volatility. Look for highs and lows to point to a natural exit spot in time. Volatility should decrease into this apex and expand out of it. 
• Volume should dry up as each of the three rallies comprising the head and shoulders pattern uses up all the available bull power. The lower the volume on the right shoulder rally, the higher the odds that the neckline will eventually break. 
• Excellent long trades on the head and shoulders can be initiated at the right shoulder neckline when accumulation diverges positively from the bearish pattern. Also watch closely when the neckline breaks but price immediately pops back above it and indicates that few stops were waiting. 
• The deeper the downslope of the head and shoulders neckline, the greater the prospect for a bearish break. Stay away from ascending necklines completely. These patterns easily evolve into sideways motion. 
• Calculate the Fibonacci relationship between the left shoulder peak and the head length of the head and shoulders pattern. If the left shoulder topped at a Fib retracement such as 62%, the right shoulder should go no higher and may be a good short sale entry point.
• Popular indicators
• ADX: bar range 
• Chaikin oscillator: volume 
• Commodity channel index: price deviation 
• Historical volatility: price deviation 
• MACD histogram: price moving average 
• McClellan oscillator: daily breadth 
• MoneyFlow: up closes vs. down closes 
• Rate of change: price 
• RSI: up closes vs. down closes 
• Stochastics: bar close vs. bar range
• Market timing
• First hour
• Opening imbalance
• The gauntlet (closing)
• Midday market
• Last hour
• Seasons and seasonality
• 7-bells characteristics
• Dip trip - price that moves against a strong trend will rebound sharply
• This bell recognizes that buyers wait for pullbacks from strong rallies. It seeks to locate the natural level where a primary trend will reassert itself and force a reversal. Some dip trips head naturally to new highs after they bounce. Others eventually fail and roll over into new declines. The swing trader must execute dip trips defensively and take whatever profit the market offers.  
• Coiled spring - constricted price gives way to directional movement 
• This classic trade recognizes the importance of NR7 narrow range events. It points to potential empty zone interfaces between directionless negative feedback and the eruption of positive feedback momentum. The setup looks for stocks with very high relative strength that favors upward price expansion to new highs. But the best trading results build a bilateral strategy that enters a position in whatever direction that price eventually breaks. Coiled spring expansion often occurs two to three bars after the 7-Bells signal appears.
• Finger finder - candles flag reversals in the next-smaller time frame 
• Hammers, dojis, and haramis represent one-bar predictive candlesticks when they print at certain levels. Finger finders locate these important reversals and advise the swing trader to study the chart under the event. This setup provides early warning for several profitable opportunities that capitalize on subsequent price behavior. In favorable conditions, movement in the next-smaller time frame allows specific strategies to beat the crowd in the door.
• Hole-in-the-wall - gap downs after strong rallies signal a trend change
• Classic gap theory rarely discusses countertrend gaps that occur at the end of dynamic uptrends. Tops should take time to dampen buying pressure and roll over. But the hole-in-the-wall points to a single bar that signals a major trend change. The gap may look like a breakaway gap that appears without a major topping formation. The hole prints suddenly and invites swing traders to look for low-risk short sales while the crowd still believes the uptrend is in progress. 
• Power spike - high-volume events print the future direction of price
• Volume events reveal the will of the crowd. Power spikes uncover several different scenarios where participation peaks and establishes an important market direction. The swing trader must identify which type of spike prints before choosing an appropriate strategy. Some power spikes point to breakouts or breakdowns, while others evolve into pivoting ranges, with price that swings across the level attained during the event.
• Bear hug - weak markets drop quickly after rallying into resistance
• The bear hug combines two specific patterns that flag impending low-risk short sales. The first searches the markets for stocks in major bear markets that rally into resistance and reach overbought levels. The second finds declining stocks with low relative strength and other criteria that favor downward price expansion out of an NR7 congestion. Each pattern requires a different strategy to maintain risk management and capitalize on the breakdown.
• 3rd watch - breakouts through triple tops signal major uptrends
• The markets rarely break out on the first test of a prior high. 3rd Watch recognizes this double top failure and looks for strong stocks that exceed the old highs after another pullback. This classic setup flags major breakouts after well-defined bases as well as cup and handle events. 3rd watch also works through all time frames and identifies intermediate opportunities in smaller congestion patterns or short-term ranges.
• Rules for the trading game
• Forget the news, remember the numbers.
• If you have to look, it isn’t there.
• Price has memory.
• Profit and discomfort stand side by side.
• Stand apart from the crowd at all times
• Buy the second low. Sell the second high.
• Buy the first pullback from a new high. Sell the first pullback from a new low. 
• Buy at support. Sell at resistance.
• Short rallies, not selloffs.
• Trends depend on their time frame. 
• Manage time as efficiently as price.
• Avoid the open. 
• The trend is your friend.
• Expect the market to reverse as soon as you get filled.
• Match tactics to market conditions. 
• Trade with the TICK, not against it. 
• Major convergence signals the best trades.
• Don’t confuse execution with opportunity. 
• The perfect opportunity rarely exists. 
• Know the price that violates the pattern. 
• Control risk before seeking reward.
• Swing for percentage and distance.
• Big losses rarely come without warning.
• Bulls live above the 200-day, bears live below.
• The big move hides just beyond price congestion.
• Big volume kills trends. 
• Current price is the best indicator of future price.
• Perfect patterns carry the greatest risk for failure. 
• Trends rarely turn on a dime. 
• Some gaps never fill.