Monday, October 19, 2009

More On Weekly Price Targets and Swing Trading

I use the proprietary daily price targets posted each morning via Twitter to serve as estimates of where the market might travel, given unfolding intraday sentiment and volume. The idea is to use those targets to frame good risk/reward trades, once you have a handle on both directionality and volatility.

The same logic holds true for swing trading, utilizing weekly profit target numbers. (See this important post for details regarding swing trading with weekly pivot and targets). Once we get a sense for strength and weakness within and across days, we can frame good risk/reward trades to hit those weekly targets. I will try to illustrate such a trade this week.

In the interim, here are weekly price targets for SPY:

Pivot = 108.56
R1/R2/R3 = 111.30/111,85/112.58
S1/S2/S3 = 105.82/105.27/104.54

For those trading ES futures, I use a conversion factor of 9.96, so that gives us the following ES targets:

Pivot = 1081.25
R1/R2/R3 = 1108.50/1114.00/1121.25
S1/S2/S3 = 1054.00/1048.50/1041.25

Recall that these targets are volatility adjusted, so that they reflect the same odds of being hit across market conditions. Going back to 2000, we've traded back to the prior week's pivot about 75% of the time; we've touched R1 or S1 about 70% of the time; we've hit R2 or S2 about 50% of the time; and we've reached R3 or S3 about 33% of the time.

Coordinating daily and weekly price levels for risk management purposes is especially effective. I may have more to say about that in a future post.