Swing trading the T-Line is easier than you might think. If you are in a long trade, stay long until the price action closes below the T-Line. If you are in a short trade, stay short until the price action closes above the T-Line. It’s as simple as that, but of course there are many other factors to take into consideration if you want to be successful. Swing trading the T-Line isn’t black and white. The proper way to trade the T-Line is to combine everything you know about trends, support/resistance, candlestick signals, chart patterns, moving averages, and any other indicators.
Here is a guideline for the elements you must consider when you’re swing trading the T-Line:
Elements to Consider When Swing Trading the T-Line
- Trend: Is the chart in an uptrend or a downtrend? If the chart is in an uptrend, trade long. If the chart is in a downtrend, trade short. The exception to this rule is at the reversal point. In this case, you are trying to catch the top in a short trade or the bottom in a long trade. It is best not to try catching the absolute top or bottom; you must wait for confirmation.
- Support and resistance: You must determine where there is support in a downtrend (or pullback) and resistance in an uptrend. Support and resistance are very important when you combine them with other elements as you’re swing trading the T-Line For example, you may see a dark cloud cover appear in an uptrend, but this signal is pivotal when a dark cloud cover appears at a long-term resistance level.
- Candlestick signals: You must learn the basic candlesticks and their signals. A candlestick by itself means little or nothing, but combine a candlestick signal like the bullish engulfing signal at a major support level with aclose above the T-Line, and now you have many signals working together, providing useful information.
- Chart patterns: There are many different chart patterns: flags, wedges, head and shoulders, double bottoms and tops, etc. I've developed some of my favorite chart patterns; they are known as the rounded bottom breakout, the pinball set up and the trend reboot. Swing trading the T-Line can be very profitable if you can combine these patterns with the other elements listed.
- Moving averages: The T-Line (8-day exponential moving average, 8 EMA) is a moving average, and it is considered a short-term support and resistance line. Other moving averages I use are the 20-day simple moving average (20 SMA), the 34-day exponential moving average (34 EMA), the 50-day simple moving average (50 SMA), and the 200-day simple moving average (200 SMA). I refer to the 20 SMA, the 34 EMA, and the 50 SMA as the “big three.”
- Other indicators: There are many other indicators to consider such as moving average convergence/divergence (MACD), stochastic oscillator, and Bollinger bands, amongst others. These tools can be helpful, but only use the ones with which you are familiar. Don’t have MACD on your charts, for example, if you don’t use it or you don’t know how to use it.
Once all of these factors are considered, swing trading the T-Line should be simple. Here are a few ways the T-Line can be traded:
How to Trade the T-Line
- Simple version: Open a long position on a close above the T-Line, and close the position on a close below the T-Line. Open a short position on a close below the T-Line, and close the position on a close above the T-Line.
- Better version: Open a long position on a close above the T-Line that has confirmed bullish the following day, and close the position on a confirmed close below the T-Line.
- Best version: The best way to trade the T-Line is to open a position when there is a chart pattern in play, volume is increasing at a support or resistance level, and there is a candlestick buy signal. Also, open a long position with strength on a confirmed close above the T-Line.
- Aggressive version: Open a long position on a close below the T-Line following a candlestick reversal signal OR pattern set your stop (based on support and the candlestick pattern). Then allow the pattern to work. When price closes above the T-Line, your new stop will be a close below the T-Line. The opposite is true for a short position.
When I refer to a “confirmed close,” I’m talking about the following: when shares close above the T-Line, you will need the following day of continued trading above the T-Line for confirmation of bullish sentiment. A close below the T-Line isn't necessarily a failed confirmation; there needs to be follow-through the next day to confirm. Confirmation is a very important part of swing trading the T-Lines.
Swing trading the T-Line can be very profitable if it is done correctly. Use the T-Line as a guide, not as the Holy Grail. You must read between the lines and always get confirmation that the trade is turning around before exiting or entering prematurely. Good luck!