Even a swing trade can produce a powerful gain. Especially when a winner comes with a larger position size. But how do you know when to go bigger? Tesla stock gives an example of how the decision can play out.
Move Above 200-Day Line Puts Tesla Stock In Play
After skirting around its 200-day line for a few months, Tesla finally seemed to lift strongly (1). There were a couple of final tests at the 200-day and 50-day line (2) and some attempts to get a foothold we took small losses. But we didn't give up looking for an entry.
After holding tight for a few days, that opportunity came with a strong move above resistance. Just drawing a line around 355 or 357 shows how Tesla kept hitting its head around that area. When it finally broke through, we added it to SwingTrader again (3). The relative strength line was a strong confirmation as it went to recent new highs after languishing for most of the year.
Our method in the recent environment has been to start positions in stocks as half positions. But Tesla moved so strongly after our entry we added to the position and made it full on the same day. Even better, our entry at an earlier resistance area gave us some flexibility with the position. Once Tesla crossed its traditional entry, we already had a cushion of more than 2.5%.
That cushion also afforded us the chance to go even larger. The next day, we added another half position, putting us at over 15% in Tesla (4). Again the extra cushion lets you go larger on a position as long as your decisions are validated by the market. If proven wrong on our last buy decision, we can always start scaling back incrementally. Just like we got in.
Taking Profits While You Have Them
With the market starting to get extended and the possibility of a December 1980 Nasdaq precedent suggesting potential weakness, we started looking at opportunities to scale back on exposure. One place to start is on decisions that aren't working, in other words, losses.
But you can also start taking profits on stocks that have shown strong moves that might need time to digest. That's why we started scaling back on our last add on a day of weakness (5). We actually did enough selling to bring the model SwingTrader portfolio from fully invested to under 40% invested by the close that day.
Even though Tesla jumped higher the next day, we peeled off another half position (6). It was more a function of a market that was pulling back that made us want to continue lightening up Tesla.
We made our final exit the next day as Tesla saw another mild day of weakness and the market continued to pull back (7). Again, the 1980 market precedent was weighing on our minds.
Granted, the precedent ended up getting thrown out as the market deviated from the 1980 Nasdaq action. Tesla ended up scoring new highs a few days later but then reversed sharply (8). Just over a week from our exits and Tesla is at lower prices. Meanwhile, our oversized position delivered us the bulk of the move in just over a week's time.
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.
