Just like when you injure your body, serious damage to a stock might require recovery time. If you're holding a position long term, you might have the luxury of giving a wounded stock the time to heal. But for swing trading, we tend to move on quicker. That was the case with DraftKings after its recent bad break. Rather than wait for the healing to be done, we took action.
Wanna' Make A Bet?
With more states legalizing sports betting, DraftKings has been an obvious beneficiary. When it broke above its 50-day moving average line in January (1), it climbed out of a double-bottom base for nearly a 20% gain in just a few weeks (2).
Even better, when DraftKings pulled back, it hugged the 21-day moving average line for days as it refused to give up much ground (3). When it popped back up (4) near its recent high, it hugged the 21-day line again but this time with even less of a pullback.
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That setup of tighter action made DraftKings well worth considering. When it bounced strongly from the 21-day line on the heaviest volume in two weeks, it joined SwingTrader (5).
Managing The Position In DKNG Stock
After our entry in DraftKings, we had a one day pause and then a strong move higher that also saw the relative strength line get to recent highs along with the price (6). We took the opportunity to sell a third of the position into strength. But that was also a day when an investor could consider starting a position in DKNG stock. In fact, that is when it entered as a position on IBD's Leaderboard product.
As DraftKings moved higher, we had a few things working for us. First, it was making solid progress. Not just in its own price but also versus the S&P 500 as shown by the relative strength line. Second, volume was confirming the price strength showing investor interest. Finally, pullbacks were being contained by the short-term 5-day moving average (7).
But then it had a change of character. With March Madness in full swing, NCAA President Charlie Baker urged states to ban "prop" bets on college athletes. Those are side "proposition" bets on individual athletes rather than the final score of the game. They might include specific points for a teammate, number of rebounds for a basketball player or yards for a football running back.
What To Do With An Injured Player
DraftKings tumbled on the news (8) and we made a swift exit on SwingTrader. But Leaderboard held.
It brings up a contrast between the two services. A bad break like that usually takes time to heal. And swing trading wants to either move on to the next profitable trade or avoid the risk while the healing is underway.
Position trading, like what Leaderboard does, can be more patient. Rather than losing a position and buying it back later, it could look at the support at the 21-day line as a valid reason to hold.
Since the bad break, DraftKings hasn't made progress from our swing trader exit. We had the capital freed up to try other things or tamp down risk ahead of the jobs report on Friday.
Which method is right? Rather than looking at the outcome to make that determination, it's important to think about which process works better for your style of trading.
More details on past trades are accessible to subscribers and trialists to SwingTrader. Free trials are available. Follow Nielsen on X, formerly known as Twitter, at @IBD_JNielsen.
