A weekly contest long treated as one swing procedure

Write the levels before the week begins

The weekly contest required each member to submit a pick with an entry, a target, and a stop before the week began, then reveal those levels after the weekend.

The reviewed case is the winning long from the week ended March 19, 2010, in an interest-rate-sensitive real-estate name whose daily chart had been pressing higher while shorts crowded the support area.

The planned pullback became a gap-fill-entry

A planned pullback entry at 27.57 was abandoned after a Monday opening gap to 28.00. The buy was raised to the prior day's high, the gap filled, price slid to 27.38, then rebounded, and the fill shown on the management chart is 27.72.

Editorial note: that adjustment is the gap-fill-entry. The buy is raised to the prior day's high after an opening gap, then filled on the subsequent pullback rather than chased at the open.

The stop, the target, and the earlier exit

After the fill, the stop sat under the March low at 26.92 and the target sat just under the February high at 29.75.

A 4.9 percent surge on Wednesday, March 17, broke resistance as covering accelerated. The trader then exited at 29.32 on early signs of weakness instead of waiting for the full exit rule of a crossover plus a close in the value-zone, for a 5.77 percent gain.

Value-zone and price-channel as the grade

The commentator graded the long as a high-quality swing because the entry sat near the exponential-moving-average value-zone and the exit sat near the upper channel line that marked the overvalued band.

Editorial note: the moving-average here is a pair of exponential averages that mark a mid-range value-zone used to judge whether an entry is near fair value. The price-channel is a daily envelope whose height and upper line mark an overvalued band used to grade how much of a swing was captured.

The daily channel at entry was described as about $4 tall. The $1.60 captured move was scored as 40 percent of that height, above the 30 percent threshold used to mark an A trade.

One week is not the only horizon

The contest limited holding to one week, while the write-up noted that the same setup often looked stronger on a three-week horizon and that a later chart still showed unused upside after the early exit.

The first quarter of 2010 favored longs, and the open question left for the trader was whether the same process could reverse from buying to shorting if the broader trend turned down.