With the latest market pullback, we cut losses in trades that weren't working and even looked to limit risk of losing profits on our biggest winners. But how do we find some of those winners in the first place? TTD stock shows how tight action can give early clues you are looking at a swing trading winner.
Tight Is Right For TTD Stock
A hallmark trait of swing trading setups is tight action that resolves itself one way or another. That's what happened with Trade Desk. After breaking out of a cup with handle at 66.35, TTD stock quickly ran up almost 20% in just a few weeks (1). Then it traded tightly for five weeks ending with a test of its 21-day exponential moving average (2).
Joe Fahmy talks all about profiting on tight action in stock charts with this archived podcast episode.
TTD stock offered a powerful combination as we looked for a bounce off the 21-day line with the backdrop of tight action. That bounce came on strong July 11 with price action confirmed by higher volume and a relative strength line at new highs (3). That earned TTD stock a spot on SwingTrader.
Volume was above average and well above the recent trading history of the prior two weeks. And though the relative strength line wasn't at a 52-week high, it was higher than June 30.
News Helps Fuel Gains
Our entry coincided with Needham reiterating a buy recommendation. But the reaction seemed stronger than the news would suggest. We already had a solid profit on our entry day and we took our first third of the position off with a 3% gain (4). Getting that first portion of profit locked in gives us flexibility later to give a stock room and still get out of a trade with a gain.
Just a couple days later came news that TTD stock would be joining the Nasdaq 100 and we took our second third of profit with a 10% gain from our entry (5).
We didn't have any knowledge of the news ahead of time but it's funny how often strong price and volume precedes news announcements.
TTD stock continued higher and the volume also ramped up (6) from our entry. With two-thirds of our position locked in with a profit we decided we could use the 21-day line as a line in the sand to protect our remaining profit.
Locking In Profits
Our position in TTD stock survived a test of the 21-day line (7) and we were hesitant to exit our remaining position. We had reduced exposure and the stock was one of our best performers.
Our patience was rewarded with a return to 52-week highs just a week later (8). But then the overall market indexes saw some weakness and the leading stocks started breaking key levels of support.
That led to our early exit in TTD stock as it punctured the 5-day moving average (9). Why not wait for the 21-day line? Part of it was that we might not have the time to wait for a comeback given that earnings for TTD stock are due out Aug. 9 after the close. At our final exit price we still retained our 10% gain from our entry and our average exit price was a 7.75% gain for the trade.
The tight action identified ahead of time and acted on quickly was an early indicator of a winner.
More details on past trades are accessible to subscribers and trialists to SwingTrader. Free trials are available. Follow Nielsen on Twitter at @IBD_JNielsen.
