A Stock Market Timing System Designed for Swing Trading

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Knowing WHEN to buy stocks is just as important as knowing WHAT to buy. Here’s a simple, rule-based marketing timing system to help you maintain proper exposure–regardless of market trend.

Since approximately 80% of stocks move in the same direction as the dominant broad market trend, one of the first and most important aspects of our stock trading strategy is to always trade on the same side of the overall stock market trend.

Even the strongest stocks will rarely move higher when the broad market is being heavily sold. Conversely, most stocks will be towed along to the upside in a raging bull market.

The Problem Traders Face Without Realizing It

A major mistake that many swing traders experience is properly identifying valid patterns of the best stocks to buy, but doing so at the wrong time.

Many traders, for example, have absolutely no idea that they should not be buying stocks AT ALL when the broad market is in distribution mode (institutional selling).

They simply see a bullish chart pattern and assume the stock must be a great buy. But the problem is bullish patterns only work in bull markets!

If you take away the element of a bull market, bullish technical chart patterns such as bull flags, cup and handles, flat bases, and pennants do not work and/or have no edge.

As such, many traders bang their heads against the wall in weak markets because they are buying the best chart patterns, but at the wrong time.

The Simple Solution

The good news is that if you are a new trader, you can dramatically shorten your learning curve by following and learning a systematic, rule-based market timing model, and consistently sticking with that approach in both good times and bad. 

In every issue of our swing trading newsletter, we provide an easy way for subscribers to quickly determine our current overall market bias, based on the objective rules of our system for market timing (press here for an overview of how the timing system works).

Below is an explanation of each of our five different stock market timing modes is used in our newsletter, one of which will always represent our current overall stock market bias:

Confirmed Buy –

  • High odds of the broad market following through to the upside and staging (or remaining in) a meaningful rally
  • Positions sized at full (maximum) risk
  • Long exposure typically anywhere from 100% of model account buying power to 200% (based on margin), depending on strength
  • No short positions

Buy –

  • Market conditions have improved (when coming from prior decline) and are beginning to show signs that stocks are ready to launch a meaningful rally
  • Positions typically sized at 25% – 50% of maximum position sizing
  • Long exposure around 50-60% of cash value of the model account
  • May still have 1-2 short positions in the portfolio if the buy signal is weak and the prior decline was significant

Neutral –

  • Buy signal was recently generated as market was attempting to form a bottom, but the buy signal fails (false buy signal)
  • Rather than immediately switching back to “sell” mode, we adjust the model to “neutral”
  • In this mode, we can be positioned either long or short
  • Position size of all new trade entries will be lighter than usual, in order to reduce risk
  • Portfolio will be primarily (or fully) in cash, with only a few positions in either direction

Sell –

  • Current intermediate-term market rally is over and odds of the market pulling back are very high (when the broad market is extended from a muti-month rally)
  • We immediately get off margin
  • Will be focused on taking winners off the table, tightening stops on long positions, and/or reducing long exposure significantly
  • In some cases, we will sell all positions and quickly move 100% to cash
  • A few short positions initiated

Confirmed Sell –

  • Broad market is breaking down and the odds of a significant decline are high
  • No long exposure, as we do not trade against the market trend
  • Short exposure (including inverse ETFs) is at its highest level, in order to profit from a downtrending market

We begin every issue of our stock picking report by stating which of the five modes above our market timing model is currently engaged in.

This helps to increase the odds of trading profits because it ensures that members are not only receiving our best stock and ETF picks, but are also targeting the right chart patterns at the right time.

Although we provide, in advance, our exact entry, stop, and target prices for each and every stock pick, many newsletter subscribers also prefer to make their own stock picks, but just need guidance on determining when market momentum is shifting.

Determining when it’s time to step on or ease off the gas pedal is precisely what our simple, rule-based stock market timing system is designed to do.

Not yet a member? SUBSCRIBE to The Wagner Daily from less than $1/day.

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8 comments on “A Stock Market Timing System Designed for Swing Trading

  1. I just became a member and would like to learn more about your system, which ebook would be the best one to read first?

    1. Hi Don,

      Welcome to MTG.

      There are a couple of things I would recommend in order to learn our trading system (part of which is reading the books).

      For starters, I recommend checking out this page (which includes a nice summary video) for a general overview of our trading strategy.

      Since you are now an annual subscriber to The Wagner Daily (good choice), you will automatically learn our system just by reading the educational nightly reports. HOWEVER, you can get a dramatic jump on the learning curve by also investing in our Swing Trading Success video course.

      More comprehensive than any of my books, this course goes over all the nooks and crannies of our exact trading strategy. Being in video format, it is also more interactive than the books. I’ll also give you $100 discount on the course, since you are already an annual newsletter subscriber. Just e-mail me (deron at morpheustrading.com) and I will give you a special promo code to use.

      Regarding the books, the best one to start with is called Trading ETFs: Gaining An Edge With Technical Analysis (2nd edition). This details my ETF trading system, but our individual stock trading strategy is slightly different (and covered in the video course).

      Hope this helps. Just let me know if you have any other questions.

  2. Hello,

    I have a question I am in the market of looking for something you have to offer! Im confused a bit about ETF’s what are the advantages of swing trading ETF’s verses regular bluechip stocks?



    1. Hi Den,

      There are 2 main advantages of trading ETFs versus blue chip stocks:

      1.) ETFs are comprised of a basket of individual stocks. Therefore, if one stock has negative news and it drops sharply, the ETF will be much less affected because the stock is only one part of the portfolio.

      2.) ETFs are great in weak markets because of all the different asset classes. For example, you can trade commodity, currency, or international ETFs. Any of those can trend completely independent of the broad stock market.

      This being said, we actually are considering adding blue chip stocks as part of our ETF strategy, so it’s ironic that you inquired about that.

      Let me know if you have any other questions and good trading to you!

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