Qualcomm stock offered multiple swing trading opportunities this year. The latest trade shows the value of taking profits on the way up. While our final exit was below our entry price, we still closed the trade with a profit.
XSwing Trading Example: Qualcomm Stock
Qualcomm (QCOM) has earned a place on SwingTrader five times this year. All but one were profitable. The latest try for Qualcomm stock easily could have gone into the loss column. But taking profits on the way up saved the trade.
The setup started after a nearly 13% gap-up on its last earnings report (1). That isn't an appealing play for swing trading, but when a stock consolidates after such a big gap-up, it gets our attention.
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On Dec. 1, QCOM stock started to clear the resistance levels touched through most of November and it joined SwingTrader again (2). After a two-day pause, it jumped 5% and we removed a third of our position into the strength (3).
A few days later we took off another third with a 7.4% gain from our entry (4). With such strong gains, it might seem odd to reduce the position when it looked like the action of a strong leader. But with swing trading, taking the gains into strength actually helps reduce drawdowns. We also faced market indexes that looked a little extended. With such strong gains in just over a week's time, the profit-taking helps hold for a potentially bigger gain without the increased risk of a heavier weight during a drawdown.
A Decline Begins
The benefit of taking profits on the way up was quickly reinforced. The exit on our second third of the position was less than one point away from the top on what ended up being a downside reversal on an outside day (4). You would expect weakness to follow that type of action.
However, our earlier profit taking afforded Qualcomm stock some room. While it closed below its 5-day moving average the next day, it got support at its 10-day moving average and closed high in its range (5). That is positive action.
It didn't last, however. A nasty gap-down dropped Qualcomm stock below our entry by the time we made our final exit (6). But instead of a loss, we left with a 3% gain. The early gains saved the trade.
While it would be easy to hope for a rebound in Qualcomm stock, we tend to view gap-downs of that nature seriously. It usually requires time to work through the negative action. Since swing trading relies on short stints, time is not something we give stocks much of.
Qualcomm stock went on to attempt a rebound but faltered. The 10-day line that had provided support now acted as resistance (7). It made the final exit that much better in hindsight.
More details on past trades are accessible to subscribers and trialists to SwingTrader. Free trials are available. Follow Nielsen on Twitter at @IBD_JNielsen.
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