Taking gains when you have them continues to be a good practice in the current market. Sometimes that means accepting a smaller gain at the first sign of weakness rather than watching a trade turn negative. Here's a recent swing trading example with ABNB stock.
The Return Of Leisure And Travel
Airbnb was a much anticipated initial public offering, but December 2020 still held a level of uncertainty for travel with the pandemic. Though ABNB stock never undercut its IPO price of 68, it fell 63% from its peak of 219.94 in February 2021.
After a number of a false starts at recovery, travel stocks started 2023 strong. ABNB stock was just coming off its lows when the market had its follow-through day (1). It immediately followed up with a cross above its 50-day moving average line (2) and eventually its 200-day moving average line (3). At that point, it was too late for an entry after its 42% run, but it was worth watching.
After a couple of weeks pausing, ABNB had a strong bounce from its 21-day moving average line (4) but we passed on the trade with its earnings report just a few days away.
Swing Trading Setup For ABNB Stock
After a strong reaction to earnings (5), ABNB stock was too extended to consider so we waited for another opportunity. That came just a couple of weeks later when ABNB stock bounced from its 21-day moving average line again (6). It didn't quite have enough strength that day for us to take action. It failed to clear its 5- and 10-day lines and the high of the previous day.
We added ABNB stock to SwingTrader the next day as it cleared the highs of the previous two days (7). By the close, we already had a gain on the trade and Airbnb was above both its short-term moving averages.
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Taking Profits And Protecting Them
Once we had a 3% profit in ABNB stock, we locked some in by taking off a third of the position (8). Once we hit a 5% gain, we often look at protecting our gain by raising our stop loss to our entry price. This ensures that if we exit properly, we still retain a decent gain on the trade.
For ABNB stock, March 9 opened lower and quickly fell below our entry price (9). The first five minute bar bounced from a low at 123.51 and we set an alert at that level to see if the support could continue. Sometimes initial reactions are short-lived and so we will give the stock a chance to recover. A couple hours later, it fell below that level while the market was still holding above its lows of the day.
We took it as a sign of weakness for ABNB stock and didn't wait for things to get worse. We exited at 123.48. Though we gave up 50 cents below our entry price, we still left the trade with a gain. With ABNB trading as low as 115.85 today, that makes it a successful 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.
