With so many stocks skyrocketing off bottoms in January, the urge to chase the strength was hard to fight. But if you're patient, you can often get another chance. Here's a swing trading example with Uber stock where our patience paid off.
A Strong Start For 2023
Many of the beaten down tech names had the strongest gains to start the year. Take Uber. From its December low (1), Uber stock surged 57% in just over a month.
But from that bottom, Uber stock was also below both its 50- and 200-day moving average lines. Not exactly instilling confidence in its prospects.
There was an early digestion of gains at the end of January as Uber stock paused and gave its moving average lines a chance to catch up. The action was mostly flat with just one wild day of price movement caused by a glitch on the New York Stock Exchange (2).
As Uber stock came out of the short flat area (3), volume started strong and only got stronger as it surged to its highs in early February (4). The relative strength line confirmed the strength in price and volume.
Another Chance For Uber Stock
During the bear market, pullbacks were in favor over breakouts. We are still gravitating toward pullbacks in our swing trading setups as we wait to see if the market trend has truly changed.
So as Uber stock pulled back from its near-term top in February, we watched closely for another entry. When it came down and nearly touched its 21-day moving average line then bounced, we took our shot (5).
It was an outside day and we added Uber stock to SwingTrader as it turned positive from the previous day's close. It also joined our Leaderboard product the same day.
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Uber stock continued getting stronger after our entry and by the end of our entry day, we already had a 3% gain.
Taking Profits And Protecting Them
While the strong start to the trade offered dreams for bigger gains, we still took off our first third position the next day as we had over a 4% profit (6). Locking in that first third helps protect profits for the overall trade. Even if the stock pulls back dramatically, the early sell can help keep the trade positive.
Though we expected to give Uber stock room to run, when it moved below its 10-day moving average we exited the trade (7). We had a 7% gain from our entry at our peak. With just a 1.5% gain at our exit, we didn't want to wait to see it go below our entry.
By locking in early gains and protecting the gains we had left, the trade had nearly a 2.5% gain in under a week.
More details on past trades are accessible to subscribers and trialists to SwingTrader. Free trials are available. Follow Nielsen on Twitter at @IBD_JNielsen.
