Stocks with very large capitalization take quite a bit of buying and selling pressure to make big moves and strong trends. The nature of the NYSE specialist’s buying and selling action further restricts sharp movement without a ton of back-filling and pullbacks. We intend to take advantage of this semi-predictable price action by going against the crowd when price hits an extreme.
How Do We Measure ”Oversold”?
I like to use the lower band of a 20-bar Keltner Channel on the daily chart with the SD set to 2. A Keltner Channel is a technical analysis indicator showing a central moving average line plus channel lines at a distance above and below. The indicator is named after Chester W. Keltner (1909-1998) who described it in his 1960 book How To Make Money in Commodities.
Trade Large Cap Stocks
The Dow 30 will do – but you can add 20 or 30 more of the biggest capitalized stocks.
Enter the Trade When Price Makes an Extreme, Sell a Covered Call, and Hold for 7 Days
When price crosses below the lower band I go long and hold for 7 full trading days. I also sell a covered call option because I do not expect price to move too greatly in the trade’s favor and I like to pocket the income from the time decay.
Past Performance is no Guarantee of Future Results
I have personally been trading this oversold swing trade strategy guide successfully for quite some time (many years). I saw some draw downs during the great financial crisis, of course, but overall I have done very well. This does not necessarily indicate that it will work in the future so you must trade this system at your own risk. You may lose all of your money.
Do Not Confuse Brilliance with a Bull Market
When you trade a system such as this – with preset trading rules and little room for original thought, you must realize that dramatic profits in the long term will be unlikely. These types of trading systems can make money in the long term – but are quite subject to broad market conditions for your holding period and how they align to your trades. There will be months and even years where you make extreme market-beating profits trading this system – and likewise periods in which most trades you execute perform quite poorly.
Click here for a summary of the Oversold Large Cap Swing Trade System Rules
Check out our actual Real Time Posted Swing Trades in our group forums.