You wouldn't know from looking at the indexes, but some individual stocks really took it on the chin this week. By selling into strength, we were able to keep trades positive and avoid big losses. DraftKings stock provides a recent swing trading example.
DraftKings Stock Pullback Offered Opportunity
An old Chinese proverb says that crisis is an opportunity that rides the dangerous wind. One might think they had the recent bank failures in mind specifically. The pullback in the market indexes also saw many potential swing trading setups form for individual stocks.
Take DraftKings. After a strong reaction to earnings in February (1), DraftKings stock pulled back with the market through most of March.
Notably, the volume was heavy on and immediately after the earnings report but trickled well below average after that.
Even through the troubles of regional banks, DraftKings' pullback was orderly and on the shallower side with just a 20% correction. The bottom of the base corresponded to support at its 50-day moving average line (2). That made it worth watching for a bounce and potential entry.
Acting On The Follow-through Day
Just a few days later, market indexes had a follow-through day signal suggesting that a confirmed uptrend was underway. On that day, DraftKings stock flew above its 21-day moving average line (3) and broke a downtrend line from its February peak.
We added it to SwingTrader early in the session and already had a 2.4% gain by the close. Volume was still below average but was higher than the previous 12 trading sessions.
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Even better, DraftKings stock didn't give up much ground and continued higher the next couple of days. We took our first third of the position off with a 4% gain (4).
An Early Exit Saved The Profit
Monday saw some mild weakness in stocks but that weakness intensified Tuesday. That's when we exited the remaining position in DraftKings stock (5).
It might seem odd to exit on a support day but keep in mind, that's not how the stock looked at its lows of the day. DraftKings stock fell below its 5-day line and undercut the lows of the prior three days and nearly gave up its entire gain of 6.9%.
Sure, it ended up coming back by the end of the day. But we had no such assurance at the lows. Rather than see our gains disappear, by locking in the remainder we left the trade with an overall gain of 2.4%.
What's more, the decision seemed even better the next day (6) when DraftKings stock knocked off another 5% from our exit price the day before.
We combined a partial sell into strength with a refusal to let the stock go negative on us. That let us squeeze out a gain in a tough environment.
More details on past trades are accessible to subscribers and trialists to SwingTrader. Free trials are available. Follow Nielsen on Twitter at @IBD_JNielsen.
