A strong market environment improves swing trading success. More volatile and whippy markets make things much harder. Not a big surprise. These trades in Dollar General stock demonstrate the difference.
Follow-through Day Gives Window Of Opportunity
The recent follow-through day on Oct. 21 ushered in a number of winning trades on SwingTrader. The problem was that it quickly succumbed to sector rotation and extra volatility. If you didn't take profits quickly, you might not have had any profits to take.
Take Dollar General. On the follow-through day it showed a promising reversal (1). It was enough to get our attention but we went with three other trades which were the topics of the last three columns:
Strong price action in DG stock the next day looked much better, but volume was lackluster (2). Finally, we saw better volume and another strong price move as Dollar General stock cleared its Oct. 4 highs (3). It joined SwingTrader that day to help boost exposure as we took profits in our first three trades.
Locking In Profits On Dollar General Stock
Dollar General stock tends to be less volatile and so we took our first third off with a mild 2.5% profit (4). Our intention was to take another third off with a 5% gain. We got within a nickel at the end of the day the next day.
But then DG stock fell sharply (5) reversing the strong gains of the prior day. Rather than ditching the position, we held. It remained an inside day, but you would prefer to see tight inside action as opposed to a retracement of a strong day of gains.
The next day, Dollar General stock closed below its 5-day moving average line but made up a lot of ground with a finish near the top of its range (6). We marked the day's low as an area to consider an exit. That would still get us out with a gain from our entry and we didn't want to see a nearly 5% gain turn negative.
After the Fed announcement and the subsequent volatility, we removed the remaining position in Dollar General stock (7). We had a slight gain at our exit coupled with the profits already booked to make the trade successful.
Volatility Ruins The Day
We gave Dollar General stock another try just a few days later. It rejoined SwingTrader after it looked like it found support at its 21-day line and volume rose above average (8). Unfortunately by the end of the day it had reversed lower to close for a loss.
The losses piled on the next day as it fell below both its 21- and 50-day lines (9). Then it zoomed right back up the next day. It's this wide and loose action of a normally tame stock that can ruin swing trades. Sure, the volatility is great on the upside and even useful for day trading. But holding overnight becomes more perilous when you see these types of moves become commonplace. And that's the type of market we are in right now, which is why our exposure has remained lighter.
More details on past trades are accessible to subscribers and trialists to SwingTrader. Free trials are available. Follow Nielsen on Twitter at @IBD_JNielsen.
