Indexes ran into some trouble this week as they plunged below their 21-day exponential moving averages. It's a reminder how booking some profits when you have them can help weather some of these storm clouds. Clear Secure wasn't broken by any means and isn't far from all-time highs. But exiting when we did avoided getting shaken out of Clear Secure stock at a worse price.
Advantage Of Pullback Over Breakout
Want to improve your sell decisions? One of the best things you can do is improve your buy decisions. In this market environment, we've been favoring pullbacks over breakouts. But we like to wait for the strength to come back in before we make our purchase.
With Clear Secure, our entry on SwingTrader came after the stock retook its 21-day line (1). YOU stock cleared the highs of the previous four days, including the day it dipped below the 21-day. We started with a half position and then as it cleared resistance around 33, we added to the position (2).
How To Smooth Your Equity Curve, Reduce Drawdowns And Make Your Risks Worth It
The entry decision gives you two advantages. First, if the stock went back below the 21-day line and didn't follow through on the strength, you would know quickly the trade wasn't working. The exit would take a smaller hit to the portfolio as you could keep a tight stop and the position size was smaller.
Second, by the time the breakout across resistance occurs, you already have a little cushion. The add is smaller so it doesn't move your average cost up too much and keeps your cushion intact. The larger position in stocks that are working allows you to make a bigger difference in your portfolio when you're right on your buy decision.
Selling Decisions For Clear Secure Stock
When making sell decisions, it's wise to ditch the idea that you will sell at the top. That's rare.
For Clear Secure, we started trimming on a strong gain after the stock had run up 7% from our initial entry (3). With a portion of profit locked in, you can let the stock wiggle a little more and still exit with a positive trade.
With the benefit of hindsight, the trim doesn't look great since Clear Secure jumped again the next day (4). But by making incremental decisions, the market gives you feedback. Was it a bad sell and the stock goes up more? Well, at least you still have some participation. Does it go down after you sell? Well, do more of that selling since the market gave you feedback that it was a good decision. You can also continually move your stop up so that if you do come off the top quickly, you reduce the drawdown.
After showing some stalling action the next day (5), we made our final exit on Clear Secure at a higher price than our initial trim (6). Part of the decision came down the stock being down sharply on a day where the indexes were up and near highs.
Sitting Out While A Stock Consolidates
Pullbacks are great for entries but not as much fun to sit in. Our exit allowed us to watch Clear Secure pull back below the 10-day line without taking the hit to the portfolio (7). Most likely holding it longer would have just created an exit at a worse price and a bigger drawdown. With YOU stock running into resistance at its old high (8), we can watch this one from the sidelines until we see another opportunity.
That's especially attractive to be on the bench as earnings and the election are around the corner in less than a week. Two events that could add extra volatility to stock positions.
More details on past trades are accessible to subscribers and trialists to SwingTrader. Free trials are available. Follow Nielsen on X, formerly known as Twitter, at @IBD_JNielsen.
