by Brady Dahl
Do you only use the one brokerage?
Yes, just one. I’ve thought about opening another, but here’s the problem… I’m an old dog. I shouldn’t admit it, but it’s really hard to teach me new tricks. I’ve used the thinkorswim platform for so long I just love it. I’m comfortable with it. And I know everyone probably giggles when they find out I trade through TD Ameritrade, but I’m a very simple trader. I’m on the board of directors for Traders4ACause, but as the day for the event drew closer and closer last year I literally almost had a nervous breakdown. I’m a simple person, a simple trader, and have simple methods, so I was scared and intimidated about meeting other traders. I knew most of the guys attending were big, complicated traders with fancy accounts, and here’s this little gal from Montana who likes to fly fish, (laughs) Even though I’ve been successful, I didn’t feel adequate. Of course when I went everyone couldn’t have been nicer, and I had a great time, but I do trade differently than most of those guys. I can’t do what Nate does. Some of those things are out of my wheelhouse, so I’ve realized to be
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successful I just really need to focus on what works for me. And the simple account and simple trading style works for me.
Any other tools on the monitors?
I basically use StockCharts.com to store all of my charts. And I use Fmviz.com to look at the percentage gainers or losers list every day.
We’re in a bullish market now, so usually it’s the gainers list. I pull the charts I’m interested in and bring them up on StockCharts com to see if it’s something I want to watch. It’s also easy to go to Finviz to see what certain sectors are doing on the day, the week, or the month. I like to know if money is rotating out of one sector into another.
How do you pick your trades?
I always start with the daily chart. I’m a technical trader, so I’m looking for chart patterns like bull flags or ascending triangles, anything that might be setting up. But I’m also looking for entries that make sense, maybe a pullback to the 200-day moving average would be a good risk/reward area to buy. I’m looking for trading ranges, where something is trading between clear support and resistance areas, so I can trade against them. I’m looking for pullbacks to trendline support to buy. I’m looking at breakouts above resistance to buy. I also look for stocks that are bottoming on the daily chart and have consolidated for awhile to potentially buy for the bounce. So there’s not one set pattern I trade. I’m looking for things that make sense when I see the daily chart. If I find something I like, I pull it up on the 60-min chart with a 50-period exponential moving average and slow stochastics to help fine tune what I’m looking at. Where is the true breakout above resistance? Has it pulled back to trendline support? Is it over sold. Is it a good risk/reward area to initiate a long position? So that’s how I go out it from a swing trade perspective, but I use all that same stuff on intraday trades, just with smaller charts like the 15-min.
I assume Level II quotes mean nothing to you…
Level II looks like Christmas lights. It’s meaningless to me.
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You’re not scalping stocks for 10 seconds at a time…
No, even with my intraday trading I’m trying to find something that’s going to set up and move throughout the entire day or for at least a few hours. I’m not looking for gains of $0.10 or $0.15. I’m looking for $0.50 or $1 or $3 moves intraday.
If your trigger price is met you enter a trade immediately?
If it’s a liquid stock, yeah. I don’t care if the trigger was $36 and now it’s $36.03. I’ll pay the extra three cents because I’m not scalping for $0.10. I’m looking for dollars. If I’m late on an entry because I went upstairs to make a sandwich and now the stock is 20 cents higher than the trigger, I’ll still buy it if I like it. Maybe I’ll start with a partial position and try to add on a pullback, but I won’t trip over dollars trying to save nickels and dimes. I’m not fussy about getting an exact price because my timeframe is longer.
Do you normally scale your entries?
I’m terrible about scaling. For most of my career I’ve always been either all in or all out, although it’s something I’ve been working on for the last couple years. If the trigger price is $36 and I like the setup, I might buy some at $35.90 in anticipation, then more at $36, and even more above $36 if it’s acting really well. But I don’t do that all the time.
And I’m usually all out at the same time on my exits. But it’s something I’m working on.
Do you have a target for your exits based on technicals?
The exits depend on several things. Most of these chart patterns have a potential measured move, whether it’s bull flags, symmetrical triangles, ascending triangles, descending triangles, etc. If that’s the case, I will be looking at the measured target to exit. Doesn’t mean it will certainly get there, but it’s the historic potential of that chart pattern. Plus we don t know what time frame it needs to complete that move. It could be a day or it could be a month.
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What about targets when it's not a specific chart pattern?
If it’s just a stock that has simply broken out of resistance, I will look to wherever the previous resistance was above the breakout price.
Does it make sense to take profits there? And I’ll combine that with an overbought or oversold level. I also add in my trendlines, etc, so I can continue to move my stop up to lock in profit. If it reaches the target or has made gains very quickly, I book the profits. I can always reevaluate as the stock consolidates or sets up again. And that’s something I’ve developed over time. I used to watch something go way up, get greedy and wait for more, and then watch it come all the way back to where it started or worse. So now I book the profits and reassess. I spend a lot of time trying to evaluate the price action of the stock I’m in. Is it acting as expected? If it makes the big move I want, it’s either going to consolidate sideways at that higher level because it needs to rest before continuing higher, or it’s going to pull back. If it pulls back, I want to see it pull back to an area that makes sense, like trendline support or a previous breakout level. The idea is to try to hold a swing trade longer in order to get bigger gains. If it s acting as expected, nothing has changed, so give it more time.
And the pullbacks are expected…
Yes, often when a stock breaks out of a resistance area you’ll get a retest of that area. Before the breakout you'll see the stock continue to test that area of resistance from below as it gets rejected and rejected again. Usually during that time it will be setting higher lows, too. Then when it finally does break through to the upside it usually has a pretty big pop. Intraday traders might take profits on the initial pop, but I’m swing trading it according to the daily chart with a bigger picture view, so I’m fine if it comes back down and retest that area of resistance.
People get disappointed when that happens, but it’s acting exactly as expected. Now what level had been resistance ideally becomes support. If you missed the initial entry, it’s providing you with another chance to get in or even add to your position.
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Can you explain how you use stops?
I place hard stops and I set them by looking at either the trendline moving average, or area of support below my entry. So to me, entries are the most important part of trading. If I get the entry right, the trade should be profitable more quickly and I should feel more relaxed in that trade. If the trade goes in my favor, I can move the stop up along with the price and give it enough room so that I’m not stopped out on intraday volatility but also protecting my profits at levels the stock should support. If the trade doesn’t work, I take my loss at that trendline, moving average, or area of support below my entry.
What’s your favorite trade setup?
A trend change on the 60-min chart with the 50-period exponential moving average and slow stochastics. Often a stock is bullish and trending above that EMA or bearish and tre
nding below it. What I look for is a stock that has been in a downtrend and has started to consolidate sideways with the EMA starting to flatten out. What I want to see is that price going from below the EMA to above it. And it might take several days where it goes above and below several times, but often it starts to move higher. CARA did this recently. My trigger buy was at $11 when the stock got above the 50-period EMA. It made a big jump above it before consolidating for several days. Then the moving average caught up to it from below and CARA made another big move up. And so on. If I could only chose one setup to trade, that’s the one I would choose. I see it happen over and over again on the 60-min time frame and it seems pretty reliable. It works the same for shorts when the trend changes from bullish to bearish and goes below the EMA.
Do you immediately buy when your trigger price is met?
Like with CARA I don’t always buy that exact trend change, because I want the move to confirm first and make sure that’s it’s going to hold.
So I’ll often look to an area of resistance just above the trend change and buy strength if it busts through that. In my early days I would feel
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like I needed to buy the exact bottom, but that’s ridiculous. Over the years I’ve realized the key to swing trading is to get the middle of the move. So I’d rather see confirmation of a trend change and buy into strength at a higher price than try to pick the bottom, get flushed out, and get frustrated. With CARA it had moved above the 50-period EMA and I looked back a couple months on the daily chart to see it had previous resistance at the $11 area. As I always say, I looked to the left to help see the right. So I was looking for the break of $11 and that’s when I entered the trade.
How long-biased are you?
I would say 90 percent of my trades are to the long side right now, but only because the overall market has been in a bullish uptrend for several years. I’m actually naturally bearish as a trader. I always have been. But I’ve learned over time not to fight the trend of the market.
So right now I look for bullish setups. Rather than short a pullback, I’m waiting for that pullback to provide me with another long entry.
Although I do short sometimes.
How much attention do you have to pay to the overall market as a swing trader?
I watch the SPY and the S&P. With thinkorswim I watch the market internals. I don’t stare at them all day long, but I definitely need to be mindful of the market. I need to understand if we are coming into resistance or if the market is overbought and may pause or pull back and how that’s going to affect my swing trades.
If the market is pulling, you might exit a position based on that?
Maybe, but it depends. If the market is just overbought and it’s pulling back to trendline support, I’m not too worried about it because it makes sense. But if market internals get really bad and S&P slices through a trendline I thought should have held, that absolutely gets me to tighten my stops. I can always get back in if conditions improve. I would rather wish I was in a trade than wish was out.
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How many swing positions are you comfortable taking at once?
Eight to 12 at the most, but that’s on the high side. I prefer to have three to six. But if the market starts turning or I feel uncomfortable with what I’m seeing, it can go to zero positions very quickly.
How many day trades do you typically realize?
Not very many. I used to do more, but probably three to five at the most now. I’ve really been focusing on swing trades.
How do you deal with the overnight risk?
You have to size appropriately for your account. You don’t want to be too large overnight. And I don’t ever hold into earnings or any scheduled news event. I also am very careful with biotech stocks, always aware of anything that has impending trial dates or a possible secondary offering. With swing trading you are going to get caught by surprise overnight every once in awhile, but you do your best to steer clear of anything that seems sketchy. It’s been a long time since I was caught in something negative overnight. Just be careful with size and trust the chart. Let it work.
How long do you typically hold swings?
I depends. Probably one night to a couple of weeks. But I will say it’s never long enough. I always look back in hindsight and see the trades continue to produce after I’m out. I wonder why I didn’t just set my stop and go on vacation. But part of the problem is being in front of the computer all day. Other trades start setting up and you’re tempted to close older ones out when they’re no longer a priority. Sometimes paring too much attention can be a detriment to swing trading.
How big are your positions generally?
It depends on how I’m trading at the moment. If I’m trading well and things are moving well, I will go bigger size. But if I’m not trading well
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or the market is not conducive to my style of swing trading, giving me a lot of mixed signals, I’ll go smaller. On average I might use 10
percent of my account size, but there are times I will size up larger, especially if it’s a setup that I have been watching for a long time. If all the factors align, I will take large size, but they are probably shorter trades in duration, maybe for a couple days only.
What size account should someone have to start swing trading?
I don’t ever discourage anyone from starring to trade. I had one member start with only $1,500 in his account. But what I tell people like that is your choices are going to be limited. You’re going to have to take really small size in maybe only two or three positions until your account gets bigger. And you need to be realistic about the amount of time it will take to grow that account, too. The amount you need also depends on whether you’re going to be trading part-time or full-time.
If you’re going to try trading full-time, you’re going to need either another income to rely on while you do it or a year’s income in savings, plus $50K to $100K ideally to trade with.
Do you look at your P&L while trading?
I will check it a couple times a day, but I have a pretty good feel for where I’m at anyway just by doing the rough math. But I don t focus on it. I definitely enjoy looking at a nice, green P&L at the end of the day, but I set my stop and try to let the trade work for me. Although I am continually evaluating the trade while in it. What’s the price action look like? Is it acting as I expected? Is it at trendline support? Is it working off an overbought condition? Is it retesting resistance? The chart changes every minute, every hour, so your evaluation of it needs to be open to change, as well.
Do you have a set amount of profit you’d like to make each day?
When I first starred trading I wanted to make X amount per day, but I found it to be way too much pressure. I even think shooting for a weekly goal is too much pressure. There are going to be times when
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you trade well or trade poorly, so it's too hard to expect a certain number. If you must put a number on it, do it on a monthly basis. Just focus on trading well and the money will continue to follow.
Do you have any advice for letting your winning swings run?
I encourage people to remember why they are swing trading to begin with. You’re looking at the bigger picture and working off daily charts.
You make sure you have good entries on good setups that you understand and then ignore the intraday volatility. Because there will be days where the intraday moves test your willpower. A good example is AFMD, one that I had been watching for awhile. It triggered a long at $8.50 and then collapsed back to just below $8
immediately after my buy. My members were nervous, but it hadn’t hit the $7.49 stop yet, so I said, “I’m just going to let it work.” It didn’t close great that day, but the next day it closed at $11.72. So again, I try to focus on the daily charts and remember there will be days where stocks consolidate or pull back. What’s nice about swing trading is that you can have three to fiv
e positions on and usually something is working. Those help balance out the one’s that aren’t. All your trades will be in different stages, so don’t just stare at 1-min charts. Get four dogs and take them for a walk. Trust your charts and your stops.
Does it have to be four dogs?
Okay, fine. One dog. But like with AFMD, I took off early that next day when it shot up so quickly, but I had my stop on so I wasn’t worried about it. I actually got a message from one of my moderators in chat after hours about how high it had closed. Had I been here when it was ripping up through $9.50, then $10 and $11, I might have been impulsive and booked profits too early. So walking away does have its benefits.
Was that $7.49 stop based on previous resistance?
Yes, and also within my risk tolerance. For people that don’t want that wt e o a stop, you have two options. Either tighten your stop and risk
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getting stopped out before the move, or take smaller sizes on the initial entry. Of course a really clean move that never looks back is ideal, but more often than not the price action will be sloppy. It might take a few wild swings and a few days to really start trending in your direction. I don’t want to get stopped out on that silly movement, so I set a risk that I’m comfortable with.
Do you have a set percentage of your account you’re willing to risk on any given trade?
I know there are rules people follow like that, but I don’t have a set percentage. I just size appropriately and really focus on my entries. If the support level below my entry means I’m risking $1 to make $2 or $3, I’m okay with that.
Is a 3:1 risk to reward ratio typical for you?
Yes, ideally.
What’s your biggest win?
I made about $200K on FNMA when it was going nuts and everybody was making money on it. It only took a couple days, and I was definitely happy about it, but my emotions have been leveled so much over the years, it kind of felt like just another day.
