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The Anatomy of a Swing Trade

The Anatomy of a Swing Trade
March 15, 2019 Martha Stokes CMT

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.

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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.

The chart example below has had a strong momentum run for Swing Trading. It is obvious immediately that this run was initiated by Professional Traders. A compression of price developed out of the Bottom Formation after Dark Pool Quiet Accumulation had occurred for a couple of months.

The run started when Retail Investors began buying on news with poor Retail Broker fills, slipping price backward to form longer wicks. Then, more Professional Traders moved in just before the stock hit a bottoming resistance level, which are frequently caused by the technical entries of the Professional Traders. The stock then blasted through the bottoming resistance and ran up to a previous High Frequency Trader sell down trigger.

Professional Traders paused but did not start profit taking. A small resting day candle formed, clearly indicating they were continuing to hold but not driving price. Professional Traders were waiting on another round of Retail Investors or Retail Traders to move price. The stock resumed its upward momentum the next day with longer candles and higher volume and that is when the shift started to occur. Professional Traders began taking profits.

This shows up in a slip-slide action of small candles for price, and on volume oscillators that diverge from the price action. Profit taking continues through the final day’s price movement in this chart. Technically the stock has run into strong resistance, and Professional Traders are moving on to the next stock to trade with momentum.


Reading swing trade runs in terms of who controlled price at each juncture of the run is important. This allows Swing Traders to hold the stock during pauses or resting phases, and to sell for profits as Professional Traders close their positions.

Go to the Users Learning Center and access a webinar on Exploit the High Frequency Traders, Momentum Power Trading Explained, and the Trade Management Planner. Tools – TechniTrader custom chart templates, trading style scans, and technical indicator setups for Users.

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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Martha Stokes, CMT is co-founder and CEO of TechniTrader. She is a retired professional Buy-Side Analyst and was awarded the Chartered Market Technician designation for her thesis, "Cycle Evolution Theory." Martha is a passionate teacher of the financial markets and a prolific writer, having created over 40 stock, option, and financial market courses.