Swing Trading Rules — Tactical Entry and Exit Framework

"Swing trading is not prediction. It is defined risk on intermediate moves inside the primary trend."

Learning Objectives

After reading this chapter, you will be able to:

• Define swing trading vs intraday and long-term investing on NSE/BSE
• Apply the six-factor entry score (≥ 80 for strict ENTER) with regime-aware E4 bands
• Apply Nifty regime overlay (bull/bear/sideways) via NIFTYBEES proxy
• Apply the eight-rule exit checklist (X1–X8), including active vs advisory exits
• Distinguish strict ENTER (backtest / orders) from SETUP+ (universe research list)
• Size positions using R-multiple ≥ 1.0 and portfolio risk limits
• Interpret gross vs net backtest results (slippage + STT + charges)
• Use Stock Verifier Swing Trading, Positions, and Screener as one CFA workflow

Introduction

Swing trading captures moves over 2–40 trading sessions. CFA discipline requires:

1. Fundamental hygiene first — screener before chart entry.
2. Defined risk — stop and target written before the order.
3. Trend alignment — long swings only when intermediate trend supports upside.
4. Honest backtests — cost-adjusted, out-of-sample, sufficient trade count.

The live engine is in tools/stock-verifier/includes/SwingTradingRules.php (UI: swing-trading.php).

Data source

CFA rule: One OHLCV series for price and indicators. Mixing feeds invalidates the signal.

Core Concepts

Sample portfolio (SwingSamplePortfolio)

Engine parameters — Dynamic EMA Swing (v3.7-cash)

Latest CFA Evidence (v3.7-cash)

Cash-realistic NAV (locks deploy while positions are open) is the primary replay metric. The legacy sequential model (assumes full NAV always deployable) is shown for comparison.

Yearly cash-realistic NAV returns:

CFA interpretation: exposure tracking reveals the prior 30.3% headline assumed unlimited overlapping deploy. With realistic cash locks, CAGR is 23.3% (still positive alpha, PF 2.35). Peak deploy hit 100% with up to 5 concurrent positions — size new entries only when cash is available.

Formula:

Risk (₹)     = Entry − max(hard, structural EMA stop)   (floor 2.75%)
Target (₹)   = Entry + 3 × Risk   (+8% if strong momentum + golden/volume)
Reject ENTER if achieved R < 3.0 after cap

Prior tune — 1:3 R:R Swing (v2.2-3r, reference)

Prior tune — v2.1-cfa (reference)

Nifty regime overlay (SwingMarketRegime)

Proxy: NIFTYBEES daily chart (Nifty 50 ETF).

High vol (ATR% ≥ 2.5): entry score −5. Bear regime: entry score −15.

Verdict tiers (v2)

Universe filter default: SETUP+ (not strict ENTER only).

Six-factor entry score (0–100)

Tiers: Strong Buy ≥ 90 · Buy ≥ 80 · Watchlist ≥ 70 · Reject < 70

CFA proficiency audit (v2.0 → v2.1)

Root cause (CFA): Gross edge was ~symmetric (+3.9% / −3.7%) while fixed CNC charges (~₹47/trade) and X4 scratch exits destroyed net expectancy. Fix: fewer, higher-quality entries (R≥2, net-edge gate, ₹12 cr+ liquidity) and deferred partial exits.

The prior engine used a 7/8 rule count for strict ENTER. v2 keeps the same E1–E8 rules but gates orders on score + mandatory E6/E8 + regime. Backtests without regime data use neutral bands (32–68%).

Entry rules (E1–E8)

Strict ENTER additionally requires: entry score ≥ 80, E6 liquidity, E8 when OHLC bars exist, R ≥ 1.75, and regime not bear-blocked.

Exit rules (X1–X8)

Exit when any active rule triggers.

Formula & Explanation

Position size

Position size (₹) = (Portfolio × Risk%) ÷ Stop-loss%

Example: ₹10,00,000 portfolio, 1% risk, 4% stop → risk ₹10,000 → max exposure ₹2,50,000.

R-multiple

Risk (₹) = Entry − Effective stop
Target (₹) = Entry + (MIN_R × Risk)     MIN_R = 1.75
Target % = clamp(Risk% × 1.75, 4%, 12%)   frozen at entry for X2
Effective stop = max(Entry × (1 − min(5%, 1.2×ATR%)), SMA-50 × 0.99, EMA-21 × 0.99)  — for R sizing only
Active X1 stop = ATR-aware hard OR breakeven (entry + 0.35%) after 50% of target

Strict ENTER requires R ≥ 1.75 after the target band is applied.

Cost-adjusted backtest

Adjusted entry = Entry × (1 + slippage%)
Adjusted exit  = Exit × (1 − slippage%)
Net P&L        = Gross − STT − stamp − exchange − GST − DP

Report net win rate and net compounded return — not gross only.

Visual Guide

CFA workflow

[Screener quality preset] → [Swing SETUP+ scan] → [Symbol strict ENTER] → [Positions tracker]

Entry flow (strict ENTER)

[Funda OK?] ──No──► Do not swing
     │ Yes
     ▼
[E1 trend + E7 EMA stack] ──No──► AVOID / WATCH
     │ Yes
     ▼
[Pullback + MACD + 52w band + liquidity] ──No──► WATCH
     │ Yes
     ▼
[E8 price action + score ≥ 80 + R ≥ 1.75] ──No──► WATCH / SETUP
     │ Yes
     ▼
        STRICT ENTER

Worked Example — Indian Market

Stock: INFY (illustrative)

Real World Example

Large-cap banks (HDFCBANK, ICICIBANK): Liquid, respect SMA-50; suitable for rule practice.

Mid-cap metals: Wider gaps — same 4% stop may be too tight; reduce size or skip.

Case Study

Strict ENTER backtest (10 Nifty large caps, 2Y, cost-adjusted, v2-regime):

• Run php benchmark-swing-rules.php for a quick 10-name replay (NIFTYBEES regime walk-forward).
• Run php verify-swing-cfa.php --symbols TCS,INFY,... or --universe nifty500 --max 50 for CFA verification.
• Do not cite win rate without trade count and net returns.
• CFA standard: ≥ 30 trades per regime before trusting win %.

CFA Exam Tip

Examiners reward process: written stop, R-multiple, sample size, and survivorship-free backtests. A high win rate with small average win and large average loss is negative skew — size down.

Common Mistakes

Enterprise workflow — picking best swing trades

CFA funnel (quality over quantity)

1. Strategies → Hybrid Quality→Swing (Nifty 100)
2. Sort by swing_rank — trade Tier A (score ≥ 70) only
3. Confirm strict ENTER on symbol page
4. R ≥ 1.75 · target ≥ +4% · liquidity ≥ ₹8 cr
5. Track in Swing Positions with frozen stop/target

Swing rank score (0–100) — v2

Tier A (≥70): order candidates · Tier B (50–69): watchlist · Tier C: research only

Portfolio heat (SwingPortfolioRisk)

Heat % = Σ (entry − stop) × shares ÷ portfolio NAV
Block new entries when heat ≥ 4% or open positions ≥ 10
Per-trade risk budget = 1% NAV (suggested shares auto-sized)

Performance (engineering)

• Batch cache: DataCache::getJsonMulti() — one DB round-trip for TA closes on universe scans.
• Parallel Yahoo: prefetchDailyCharts() — curl_multi for cache misses (12-wide batches).
• Single TA pass per symbol via metricsFromBars() (no duplicate fetch).
• Request-scoped chart memo on universe scans.
• Background scan: 25+ symbols auto-queue via SwingScanJob (run-swing-scan-job.php).
• Lazy history: symbol page loads scanHistory only on demand (not every page view).
• Portfolio backtest: SwingTradingBacktest::applyPortfolioGates() — max 10 positions, 4% heat on ₹1.5L NAV.
• Daily session: Walkthrough 98 — Swing Daily Session.

Key Takeaways

1. Eight entry + eight exit rules with price action (E8/X8).
2. Strict ENTER for execution; SETUP+ for discovery; swing_rank for prioritization.
3. 1.75R target from stop (min +4%, max +12%), breakeven after 50% of target.
4. Backtest reports gross and net metrics with slippage.
5. Tools: strategies.php, swing-trading.php, swing-positions.php, verify-swing-cfa.php.

Practice Questions

1. Difference between strict ENTER and SETUP?
2. List all eight entry rules.
3. Which exit rules are advisory only?
4. Entry ₹1,000, stop ₹960, target ₹1,040 — calculate R.
5. Why report net win rate, not gross?

Answer Key

1. ENTER = full quality + PA for orders; SETUP = forming setup for research.
2. E1–E8 as in table above.
3. X3, X5, X7 — advisory; X1, X2, X4, X6, X8 active (with gain gates on X4/X8).
4. Risk ₹40, reward ₹40 → R = 1.0.
5. STT, stamp, DP, and slippage can turn gross wins into net losses on small positions.

FAQ

Does live price on Positions match backtest? Backtest uses closes; Positions uses live quote for P&L but daily TA for rules — expect minor divergence intraday.

How to run CFA verification?

cd tools/stock-verifier
php verify-swing-cfa.php --universe nifty500 --max 50 --range 5y

Related Topics

• Position Sizing
• Risk Management Pro
• Tool: tools/stock-verifier/strategies.php — swing / positional / hybrid filters
• Tool: tools/stock-verifier/swing-trading.php
• Tool: tools/stock-verifier/swing-positions.php
• Tool: tools/stock-verifier/screener.php — fundamental hygiene