My Swing Trading Entry Rules: The 5 Checks I Make Before Buying
The pre-entry checklist Marc Chow runs before every US stock swing trade: the 20/50/200-day trend filter, institutional money flow, relative strength, sector rotation, and Bollinger Band exits.
Every swing entry I take passes the same five checks: the trend on the 20-day and 50-day averages, the 200-day average as an avoidance filter, money flow read as an institutional footprint, relative strength against SPY, and the sector I am trading inside. The exit is not a separate decision — it comes off the Bollinger Bands. If a check fails, I skip the name. The checklist exists to separate the trades I want to take from the trades the setup actually supports, and on a fast market day, memory is not a process. It also never triggers a trade by itself: what I read in the news and how the sentiment sits around a name is part of the decision, and no indicator does that part for me.
Key Takeaways
- A failed check ends the name. There is no averaging a good read against a bad one.
- The 200-day SMA is an avoidance filter, not an entry signal — and the sector trend comes before it.
- MFI reads the institutional footprint: I buy their accumulation near the lower band and sell into their strength at 1.5 to 2 sigma.
- The Bollinger Bands set the exit. I do not trade to a fixed reward multiple, and I do not carry a per-trade stop.
- The checklist filters; news and sentiment decide. It never triggers a trade on its own.
Check 1 — Trend direction
I define the short-term trend, the one that covers a few months, with the 20-day and 50-day simple moving averages. Price above both, and the 20 sitting above the 50, is an uptrend. That is the setup I trade.
The 200-day SMA does a different job. It is not an entry signal for me; it is how I find the names I want nothing to do with. A ticker trading under a falling 200-day is a down-trending entity, and I stay out of it.
I did try to trade those names. Buying a downtrend “because it is cheap” is the reasoning, and I used it — I bought puts on 200-day-down entities because a name that has already fallen a long way looks cheap by definition. It does not work the way it looks on paper. The speed of a decline is very hard to project correctly, and even when the put travels where I expected, the gain either arrives too slowly to be worth the capital tied up, or the premium left behind is too small to matter. I have stopped doing it. Now I only bet money on up-trending tickers, and I take their week-long-to-month swings. That experience is a large part of why the checklist exists at all.
Check 2 — Money flow, read as an institutional footprint
Retail traders do not move MFI. Institutional participation does, and institutions control the turning point without asking my consent. So I read a high MFI as a footprint: price is being pushed up and accumulated into.
That inverts the entry rule most checklists are built on. I am not waiting for MFI rising and above 50 to click buy. I buy into the accumulation near the lower Bollinger Band, where my cost is usually the last band, at minus 1.5 to minus 2 sigma. I sell to the institutions in stages when price reaches the upper bands at 1.5 to 2 sigma.
On that structure, my selling price has often landed within the top 70 to 90 per cent of the next price tip, and with the cost usually at the last band, the gain has often come out above 10 per cent. Those are typical results from my own trading, not a forecast for anyone else’s account. The same reading shows up in MFI divergence: when price makes a new high and MFI does not confirm it, the money behind the move is thinner than the chart claims, and I stop treating the name as an accumulation.
Check 3 — Relative strength vs SPY
Over 20 trading days, the stock must be outperforming SPY. This is the check that filters the most names: on any given day, half the green charts in the market are green only because the market itself is green. That is not strength — that is the tide.
Check 4 — No stop-loss: capital lock and the sector filter
This is where I differ from most of the classic trading books and from the gurus who write for them. I do not set a stop price on a trade. If I bet on the wrong direction, I let the money sit locked for a few more months. That is the accepted cost of this method, and I would rather name it than pretend it is not there.
What protects the capital is not the stop — it is the entry filter. Because I only bet on entities with an up-trending 200-day SMA, price does come back. A trade that goes wrong often goes wrong slowly, and a name that was already above a rising 200-day has a history of returning to it.
Over the past two months that difference has been tested more than a handful of times, and it has held. I came out of several put traps — positions where I expected the decline to keep going, and where the premium went against me before the move I wanted arrived. A few of my holdings dropped more than 10 per cent inside a few days, and the classic answer is immediate and simple: exit, book the loss, and move on. I did not exit. The holdings stood still, and the price was back where it had been inside two weeks.
I read those drops as waves of sector rotation, not as information about the individual name, and that is where the classic rule does not fit what I see happening in the market. We are in an algorithmic and quant trading era now, and capital moves across sectors and from one entity to another inside a few days. A name that gives back 10 per cent in three sessions is usually carrying that flow rather than news about itself. A fixed stop reads the flow as a verdict and gets out of the way. I have no per-trade stop, and holding through it is how the position was there when the flow came back.
None of this is a claim that stops are foolish, or that nothing in this market can be read. A gain target and a stop-out is a sensible method, and for a style that does not read the move as rotation it is very likely the better one. This is my style and it has worked for me; it is not a case for everyone. I am not for someone who cannot sit through a deeper drawdown without acting, and the honest cost of my way is that a position that is genuinely wrong stays wrong for longer — more capital locked, and a longer wait before I am free to be right somewhere else. I do not expect every drop to reverse. The 200-day and the sector trend are what tell me when the wait has gone on long enough.
There have been cases where the 200-day average turned downward after I bought. Then I sell, and I call it what it is: a loss, with the capital locked in for longer than I wanted. That is the honest failure mode of this approach. The damage is not a clean fixed number — it is time, and sometimes it is time and loss together.
The improvement I found is to read the sector trend before the individual name. You will struggle to find an entity with a rising 200-day inside a sector that is trending down, and in a down-trending sector the key players are inevitably down with it. So I skip the sector entirely and move on to the next one. Sector rotation is the word for it, and reading sector trends across the market is what quantorb does much more easily for me. That is the real risk control in this method — not a stop, but refusing to trade inside a sector that is going the other way.
Check 5 — The exit, read off the Bollinger Bands
I do not take profits at a fixed reward multiple either. The textbooks and the gurus tell you to set one, and I have found that I gain more by not setting it. I count on the Bollinger Bands to find the peaks and the bottoms of pricing. The bands tell me how far a move has travelled, which is the one thing a fixed multiple cannot know in advance.
So the exit is the upper band, sold in stages at 1.5 to 2 sigma, on names bought near the lower band. Part of the position goes earlier, part goes later, and I am not trying to catch the exact top.
The reason the band levels are written down before I enter is the same reason any written exit is worth having: everyone decides exits better in cold blood than in a position. Once you are holding, the market will hand you a reason to wait — the news is good, the sector is only pausing, that band does not really count. The levels are a decision I make while I am not in the trade, and they hold better than any number I could invent while the position is arguing with me.
Questions about my entry rules
Do all five checks need to pass?
No — the five checks do not add up to a green light. They work as a filter: each one can end a name, and a name that fails any of them gets skipped rather than traded on the strength of the others. What actually makes the trade is my read of the news and the sentiment around the name, and that judgement runs alongside the checklist, never as one of the checks and never as something a screen can do for me. That is also why intraday trading has never fitted me: this is a listening and thinking process, and it does not fit inside a session.
How long does the checklist take?
Minutes per name once the watchlist is built — most of the work is saying no, and saying no is fast.
Does the checklist work in a bear market?
It works by keeping you out: in a market where most names fail the trend and relative-strength checks, the correct number of trades is near zero. In a sector that is trending down I skip the whole sector before I look at any name inside it. The checklist does not need to find trades. It needs to find the few that pass.
Educational notes on my own process, not investment advice. Trading involves risk of loss.
