Volatile stocks can offer powerful returns to your portfolio. But it's important to keep a keen eye on the downside risks they can bring as well. The volatility of IonQ stock worked in our favor but we were quick to take profits while we had them.
Swing Trading Example: IonQ Stock
IonQ brings the idea of quantum computing as a means for tackling big complicated problems. Normally low-priced stocks don't garner much of our attention. That's not where the institutional money gravitates. But IonQ stock had plenty of daily volume that brought a lot of liquidity to the stock, well over $100 million trading in it daily.
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Once it moved above $10, it easily sailed to $20 in just a couple of months (1). While a 100% move in such a short time is impressive, it's important to realize the downside of volatility. IonQ stock fell 40% in just over a couple weeks (2).
After getting above its 50-day moving average line, it tested it one more time (3). Just to emphasize the volatility in the stock, that particular day dropped nearly 10% and doesn't even look unusual compared to the price action preceding it.
When it recovered, IonQ stock crossed above a clear downtrend line and it joined SwingTrader on the day we also saw a follow-through day for the indexes (4). We decided to use the tighter 5-day moving average line as our stop.
Profits Rocket But Market Tailwinds Subside
Since IonQ stock had extra volatility, we held out for a larger gain before we took our first third profit. We didn't have to wait long and trimmed the day after our entry with a 5% gain (5). Knowing that it could easily be taken away, we raised our stop to our entry for the remaining shares. That also happened to be right around the 5-day line.
IonQ saw relatively tight action the next couple days then shot up more than 8% in a single day (6). With more cushion to our position, we decided to let the remaining shares run a bit further. The next day we had a 20% gain from our entry and decided to book another third of the position as profit as it started to reverse from its highs (7). Those highs also coincided with the highs from early August (1), a potential area of resistance.
Notably, the wind started to change for the market indexes as well. The Nasdaq composite and S&P 500 were right at their 50-day lines and the Dow Jones Industrial Average and Russell 2000 were putting more distance below their 50-day lines.
When IonQ stock broke hard below its 5-day line the next day we didn't wait long before exiting (8). At the first 5-minute bar, the stock was already down 10% and when it didn't show much of a recovery, we exited the remaining position.
Because we already took the majority of profits and had a lot of cushion, the downside volatility still left us with plenty of remaining profit. The market also deteriorated, which reduced our appetite for the extra volatility. While IonQ stock bounced strongly the next day, it easily could have gone the other way. Rather than bemoan what could have been, we were pleased with what we had.
More details on past trades are accessible to subscribers and trialists to SwingTrader. Free trials are available. Follow Nielsen on Twitter at @IBD_JNielsen.
