Swing Trading QQQ

SWING TRADING PATTERNS

There are two main patterns which I use to set my swing trades: 1) Channels and 2) Traps.

CHANNELS

Channels are very common. A price channel occurs when a security’s price oscillates between two parallel lines, whether they be horizontal, ascending, or descending. Price channels are quite useful in identifying breakouts, which is when a security’s price breaches either the upper or lower channel trendline.

Here are several examples of the Channels from the recent NQ price movement:

Example 1

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Example 2

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Example 3

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Example 4

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TRAPS

One of the major observations that I’ve made over the years is that the Nasdaq futures tend to produce a lot of fake break outs and break downs (these fake moves are not always visible on the standard NDX charts). Very often these fake moves are the beginnings of the counter-trends and serve as good entries for the new swing trades.

Below are examples of these reversals.

Example 1

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Example 2

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Example 3

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Example 4

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Example 5

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Example 6

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Example 7

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ENTRIES AND EXITS USING TECHNICAL INDICATORS

To time my entries and exits, I use the 4h Nasdaq’s futures Heikin-Ashi chart along with the TTM Squeeze indicator. To go long, I want to see the candles to be green and TTM Squeeze moving above zero. When I go long, I scale in as long as the signal is bullish. Once the candles turn red, I usually exit the long swing position.

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SCALING INTO A TRADE

I use the following methodology to execute swing trades:

  1. I never go all in at once — I always scale in
  2. I control risk on every entry as much as I can
  3. If the trade works out well, it should render at least 1:5 risk reward ratio
  4. I use Google sheets to calculate buy / sell levels and stops for both bullish and bearish potential developments

Let me explain my approach using the current QQQ chart

Since my MT Model is currently LONG and the trend is still UP, let me use the bull case to showcase the approach to trade execution.

The chart below shows 3 things:

  • 3 entry levels
  • 3 stop loss levels
  • Ideal target

QQQ, 1h

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The execution works like this:

  • Once the first buy level is hit at $292.5, I go long the first 100 shares of QQQ (I will use the increments of 100 shares just for demonstration purposes). Initial investment is $29250
  • I immediately set my stop loss at $291, which is -0.5% below the entry. If my stop loss is hit, my maximum risk is -$150
  • If that happens, I re-set my buy alert slightly above the prior short-term intraday top.
  • If my first trade works out and QQQ reaches the second buy level at $298, I go long the second 100 shares of QQQ
  • I cancel the first stop loss and set the second stop loss at $296.5 for both of my lots. If QQQ reverses and my second stop loss is hit, 200 shares are sold and my total gain is $250 (which is a combination of -$150 loss on the second trade and +$400 gain on the first trade)
  • If my first two trades work out and QQQ reaches the third buy level at $303.2, I buy the third lot of 100 shares.
  • I cancel the second stop loss and set the third stop loss at $301.7 for all three lots. If QQQ reverses and my third stop loss is hit, 300 shares are sold and my total gain is $1140.
  • Ideal case, of course, if QQQ breaks out to the new all time highs and reaches $315. If I were to sell my 300 shares at that level, my total gain would be $5130 with the total maximum risk of -$150. Why only -$150? Because the risk of the second and / or third trade will be absorbed by the gains reached on the first trade. Hence, my effective controlled risk is always -$150. With such a small risk, potentially making $5130 means that my risk:reward ratio is 1 to 34 (more on risk in the end of this article)

Below are the calculations for all 4 potential scenarios:

Scenario 1. I go long 100 shares, set my stop loss at -0.5%, QQQ drops and my stop loss is hit

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Scenario 2. I buy the second lot of 100 shares, re-set my stop loss, QQQ drops and my second stop loss is hit

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Scenario 3. I buy the third lot of 100 shares, re-set my stop loss, QQQ drops and my third stop loss is hit

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Scenario 4. All 3 lots are profitable and QQQ reaches $315

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Please note that the table above shows 2 types of risk: Controlled and Uncontrolled Risk. The former deals with the risk of QQQ hitting the stop loss during the regular hours, while the latter deals with unexpected overnight risk. In roughly 4% of cases (based on the last 10 years of data), the market might gap down -3% overnight on a strong negative unexpected catalyst. Unfortunately, there is no way to control this type of risk. You can do that much better with the futures, however, markets sometimes gap down on Mondays too (imagine how stressful it might be for the futures long holders to see NQ / ES gap down -3% on Monday without any ability to sell).

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