Time is a critical element of swing trading. A big reason for our exit in ADM stock was that time kept passing and the stock wasn't moving. Rather than waiting for something to happen on the upside, we tend to take the opportunity to avoid risks to the downside. One might say impatience can be a swing trading virtue.
Swing Trading Example: ADM Stock
Archer Daniels Midland had a strong start to the year, but it's been basing for a while. When ADM stock bounced from its 200-day moving average line (1), it was carving out the handle of a six-month cup-with-handle pattern. But like many stocks this year, maintaining traction hasn't been easy.
A solid move above its 50-day line was followed immediately by a big outside day reversal (2). Still, ADM stock recovered and put in a solid rally through mid-October (3).
When ADM stock digested the gains of the rally, it found support around its 21-day moving average (4). It was a mild pullback given the strength of the prior rally. That can be an ideal setup when strength returns to reverse a short-term downtrend.
The next week, ADM stock started strong with a break above its short-term downtrend (5). Volume came in at its highest level of the past three weeks (5). It joined SwingTrader that day. ADM finished well off its highs as the market pulled back in the afternoon. But the stock still closed with a more than 1% gain and in the upper half of its trading range.
'All Stocks Are Bad, Unless They Go Up In Price'
We are still taking profits quickly and were hoping for at least a 2.5% gain on ADM stock before we sold some into strength. It never happened.
At its best, ADM stock got 40 cents shy of that profit target (6). Even then, it only held that level for a moment near the open before falling the rest of the trading session.
Though it wasn't doing anything wrong, ADM stock wasn't showing any follow-up to our entry. Just ahead of comments by Fed Chair Jerome Powell, ADM stock dipped and we exited the position (7). We had over a week of holding ADM stock, didn't have enough strength to take any profits and were looking at a loss of about 1% ahead of Powell's comments. If a stock can't provide a reward, there's very little reason to take the risk of holding it.
After Powell's comments the stock market rallied strongly and ADM stock went up with it. But even then it never met the low bar of a 2.5% profit.
Even worse, when news came out that the Biden administration might revamp the Renewable Fuel Standard, ADM stock took a quick plunge (8). Our impatience in holding a stock that wasn't moving saved us from a much larger loss. As IBD Founder Bill O'Neil often quipped: "All stocks are bad, unless they go up in price."
More details on past trades are accessible to subscribers and trialists to SwingTrader. Free trials are available. Follow Nielsen on Twitter at @IBD_JNielsen.
