By Alan Farley, founder and publisher of Hard Right Edge*
Posted: Oct 16, 2009

Modern markets support a variety of time-based strategies. At one end of the spectrum, day traders throw money at trends that come and go in minutes. At the other end, old-timers toss stock certificates into boxes and forget about them for decades. Most of us feel comfortable playing in the middle ground between these two extremes. In other words, we don't jump on every wiggle but respect the many virtues of market timing.

Longer-term charts work well with this trading style because they let us access the market and still have time for family, friends and career. Apply this strategy by looking for opportunities on the weekly charts instead of the daily charts. Then, review positions and add new orders during the weekend, leaving the weekdays for the rest of your life.

Weekly charts filter out noise and get right to the major trend. However, you can't throw money at a long-term chart without picking your spots because there's too much space between highs and lows. One effective weekly strategy combines investor and trader techniques, applying the best of both worlds. You use this strategy by entering the position over time, using dollar cost averaging but aligning the trade with major support.

Let's assume the DJ Transportation Average is a stock you've been stalking for a weekly trade. It breaks out in October, rallies into 4300 and drops into a trading range, with support near 4050. You decide that 4150 represents a good average cost for the trade because it's situated in the lower half of the weekly range. To fit this number, you enter three reduced-size positions, at 4200, 4150 and 4100, over the course of a few weeks. You can now protect the trade by placing a stop loss just under the range, near 4030.

Using an alternate entry strategy, place a single limit order at the edge of support, or around 4070 in this example, and then sit on your hands until that price gets hit. Refine the strategy even further by breaking the order into two pieces, with one on either side of range support. The markets often "overshoot" a big support level before reversing sharply. This splitting technique will let you catch that final dip, in many cases.

Both entry techniques will get you into good trades at relatively low-risk prices. Let me emphasize how important it is to be patient and stalk your set-up until the price trigger gets hit. I say this because it's easy for weekly traders to feel left out of the action and to start chasing the market, looking for a quick buck. That will undermine the strategy, which relies on absolute detachment until the pre-calculated price comes into play.

Choose your positions wisely. Avoid the hottest rockets of the day and limit your portfolio to highly liquid issues that are less likely to exhibit volatile price movement in a typical week. Also, it's a good idea to add exposure in more lethargic market groups, such as utilities, food companies or conglomerates. Opportunity cost is also a major issue because you're tying up working capital for weeks or months at a time. With this in mind, use cash productively by avoiding stocks caught in chaotic patterns that show no developing trends, higher or lower.

Exchange-traded funds also work well with weekly charts because they let you take measured exposure to entire market groups. This has major benefits and a few disadvantages. On the plus side, you can avoid company news that sends individual issues through the roof, or over a cliff. On the negative side, you have to watch out for sentiment changes that might affect investor perceptions of the entire group.

Bollinger Bands will help the weekly trader identify when a trend gets too "stretched" and is likely to spring back in the other direction, like a rubber band. Set a weekly Bollinger Band to "20-week" and 2 standard deviations, which will contain approximately 90 percent of the bars within its boundaries. Then, enter the trade when price cuts through the bottom band in an up trend, after it also hits a major support level, such as a weekly moving average.

In this example, the SP-100 index rallies from 560 to 670 and then sells off. The decline cuts through the center band, pushes through the bottom band near 630 and then hits support at the 50-week moving average. The convergence of the pieced band and moving average trigger a weekly buy signal, for a recovery that eventually carries over 700.

Keep in mind that you don't have to be a gunslinger to make money with a weekly strategy. Take smaller positions, limit your use of margin to a level that lets you sleep at night and then get out of the way. If you've done your homework and picked your spots carefully, you can let price jump around without shaking yourself out of great trades. Even a hundred well placed shares can produce solid returns when they're held for weeks or months.

*Reprinted (and modified) with permission from Alan Farley, founder and publisher of Hard Right Edge