Snap Stock Goes For Green In Tough Market – Investor's Business Daily

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The recent change in market direction made everything more difficult to navigate for swing trading. Less trading certainly helps avoid destroying gains from earlier in the year. Sometimes it is best to just step aside for a while. You can also stick to the rule of taking partial profits quickly. That kept a trade in Snap stock green, even when it turned against us.


Swing Trading Example: Snap Stock

After spending a while below its 50-day moving average line, Snap (SNAP) looked poised to break back above the line (1). The Nasdaq composite, meanwhile, was falling below its 50-day line. It was a tough argument to buy there. Not only was the market weak, but it was also an inside day. An inside day is where the highs and lows are within the highs and lows of the prior day. The problem is that inside days don’t give much sense of direction.

The next day (2) the stock cleared a previous area of resistance and started a quick run of around 7% to the near term peak (3). This was a tough market environment that saw many leaders breaking down. The strength in Snap stock in the face of those headwinds might not be acted upon, but it caught our attention.

An Upside Reversal Entry

As the Nasdaq composite made a near-term low and reversed on Sept. 21, Snap stock staged an upside reversal (4). It wasn’t an easy buy that day. Snap moved early in the session when the market was still trying to find its footing. The market came on strongly at the end of the trading session and finished strongly. Meanwhile, Snap stock drifted lower. It fell back below its 10-day line by the end of the day.

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However, it moved higher the next day and we added Snap stock to our SwingTrader product as it followed up on the previous day’s reversal (5). It’s always a tough call in rough market conditions. Wait too long, and you risk getting left behind. Get in too deep and too early, and you risk losing capital quickly.

Early Profit Taking Kept Trade Green

Taking an early profit in Snap stock helped keep the trade slightly positive. When the stock gapped up at the open on Sept. 23, we quickly grabbed our 4% profit (6). It’s tougher than it sounds. Rather than selling, that’s when most people pat themselves on the back for a job well done expecting the gains to continue rolling in. And often they will. That’s why it’s a good idea to just take a partial profit early. You are locking in some gains but you still participate should the stock continue higher.

That wasn’t the case for Snap stock, however. After we took our profit, it reversed and closed for a loss. The next day, it fell below our entry as the gains evaporated (7). Without the earlier profit taking, it would have ended up a losing trade.

More details on past trades are accessible to subscribers and trialists to SwingTrader. Free trials are available. Follow Nielsen on Twitter at @IBD_JNielsen.


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