Two traders take the same idea on the same stock in the same week. One buys the breakout at $52 and puts the stop at $48. The other waits for the pullback and buys at $49 with the stop at $47.
The first risks $4 a share, which is 7.7% of the entry price. The second risks $2 a share, or 4.1%. For the same dollar risk on the account, the second trader holds twice the position.
If the stock reaches $58, the first trader makes $6 a share on half the size, for 1.5 times risk. The second makes $9 a share on double it, for 4.5 times risk. Three times the result, from the same idea.
The prices above are invented and no real company is described. The arithmetic is what matters. Your entry price sets your risk per share, your risk per share sets your position size, and those two decide what the same move is worth to you.
Entry strategies
Four entries cover most swing setups. Each one has a setup you can check and a trigger you can define in advance.
Entry 1: pullback to a moving average
What the setup needs:
- The stock is in an established uptrend.
- Price has moved clearly away from the 20-period moving average.
- It pulls back to the average on falling volume.
- It holds at the average, or dips slightly through it and recovers.
The trigger: the first up day that closes above the previous day's high, or a break above the highest of the last three days. Pick one and use the same one every time.
Why this entry works arithmetically: the stop sits just below the moving average, which is close to your entry, so risk per share is small relative to the move you are trading.
Entry 2: breakout above resistance
What the setup needs:
- A resistance price you can draw, horizontal or on a trendline.
- More than one test of it, so the level has a history.
- Rising volume as price approaches the level.
- A broad market that is not falling.
The trigger: a close above resistance on volume above its average, or a break of the previous day's high after the level has gone.
Three rules that decide whether this entry pays:
- Wait for the close. The first intraday break through a level fails often enough that a same-day entry is a different trade with different odds.
- Set your volume multiple in advance. Above 1.5 times the average is a common choice. It is a parameter, not a fact.
- Skip an extended breakout. If price has already run well past the level, your stop still belongs below the level, and the further away it is the smaller your position and the worse the ratio.
Entry 3: bounce from support
What the setup needs:
- Horizontal support with several touches.
- The stock in an uptrend or a defined range, not a downtrend.
- Price approaching support on falling volume.
- RSI low, or diverging from price.
The trigger: a reversal candle at support, or a break above that candle's high the following day. The second is later and costs you some of the move. It also filters out the days when support does not hold.
Entry 4: trading a gap in the trend direction
What the setup needs:
- A stock already trending.
- A gap in the trend's direction, usually on news or an earnings result.
- A gap size inside a band you decided in advance.
- Volume well above average.
Set the gap band yourself. Too small and it is ordinary noise. Too large and the level you would place your stop under is a long way below the open, which shrinks the position until the trade is not worth taking.
The trigger: the first pullback that holds above the gap, or a break of the first 15-minute high.
Exit strategies
Exit 1: a fixed exit price
Set an exit price when you enter and use it.
Where the price comes from: a previous high or low, a Fibonacci extension such as 127.2% or 161.8%, the measured move of the pattern, or a chosen multiple of your risk.
This exit removes the decision from the moment you are least able to make it. The cost is the trades that keep going after you leave.
Exit 2: a trailing stop
A trailing stop keeps you in a trend and gives back part of the move at the end. Three ways to run one:
Fixed percentage trail. Enter at $50 with the stop at $47, which is 6% below. Price reaches $55, so the stop moves to $51.70, still 6% below.
Moving average trail. Exit when price closes below the 10-day moving average, or when the 10-day crosses below the 20-day.
ATR trail. Keep the stop two ATR below the highest close. With an ATR of $2 and a highest close of $58, that puts the stop at $54.
The multiple is yours. A tighter trail takes you out during ordinary pullbacks. A wider one keeps you in and returns more of the gain at the exit.
Exit 3: scaling out
Exiting in parts gives one position more than one exit.
Hypothetical position: 300 shares at $50, stop at $45
Risk per share: $5
Exit 100 at $55, which is 1R
Exit 100 at $60, which is 2R
Exit the last 100 on the trailing stop
The first two exits are fixed arithmetic against the $5 risk. The third has no price attached, so a third of the position runs for as long as the trend does.
Exit 4: a time-based exit
Time ends a trade in three situations. The position has made no progress after a number of days you set. A scheduled event is approaching that the chart cannot price. Or an expiry is due that changes how the stock trades.
Scheduled events include earnings, a central bank decision, and index rebalances. Decide before entry whether you hold through them.
A complete trade plan
Hypothetical trade plan
Setup: pullback into the 20-day moving average in an uptrend
Trigger: first up day closing above the previous day's high
Entry: $890
Stop: $860, below the swing low
Risk per share: $30
Exit 1: one third at $930
Exit 2: one third at $950
Exit 3: trail the last third below the 10-day moving average
Account: $50,000
Risk cap: 1% of the account, which is $500
Position: $500 divided by $30 is 16 shares
Two things to read off that plan.
$930 is 1.3 times risk and $950 is 2 times risk. Because each exit is only a third of the position, the first two together return about 1.1 times risk on the whole trade. One exit at 1.3R does not cover a full loss on its own.
And 16 shares at $890 is $14,240, which is 28% of a $50,000 account held in one position, even though the loss is capped at 1%. Position value and risk are different numbers. A high priced stock pulls them a long way apart, and a margin or concentration limit can stop the trade before the risk cap does.
The figures are invented and no real company is described.
Entry timing refinements
Dropping to a lower timeframe
Once the daily chart has given you a setup, move to the 4-hour chart for the trigger. The entry sits closer to the level, so the stop is closer to the entry, so the reward-to-risk ratio improves and the position gets larger for the same account risk.
The cost is the setups that never give you the lower timeframe trigger and leave without you.
Volume confirmation
- Breakout entries need volume above the recent average on the breakout bar.
- Pullback entries need volume falling through the pullback and rising on the turn.
- Reversal entries need a volume spike on the reversal candle itself.
Volume is confirmation, not a trigger. It tells you how many participants agreed with the move, and a breakout on light volume is a level that fewer people defended.
Exit timing refinements
Signs the move is finishing
- A volume spike with no continuation the next session.
- Price makes a new high, RSI does not.
- Price breaks above resistance and closes back below it.
- Repeated down days on volume above average.
- Price closes below the moving average you have been trading against.
Reasons that are not signals
- Ordinary volatility. Measure the stock's average true range and compare the move against it before treating it as a warning.
- One red day. A single session inside the normal range is not a change in structure.
- Intraday movement. If your setup came off daily closes, judge it on daily closes.
- Discomfort. Being uncomfortable is a fact about you, not about the position. A broken level is about the position.
Measure your entries and exits
Swingfolio measures execution rather than describing it.
The exit timing analysis re-runs every closed trade as if you had exited 1, 2, 3, 5, 7, 10 or 14 trading days later. It holds the exchange rate constant, so a currency move cannot pass itself off as better timing. Each trade is compared against itself, so the answer is not skewed by which trades happen to have price data at a given offset.
Exit capture reports how much of the peak your winners reached that you kept, and what the difference is worth in money.
The risk and reward corridor plots how far each trade moved against you before it worked, which is the check on whether your stops are too tight or your entries too late.
Start the 30-day trial and measure your entries and exits against the trades you have already taken.