It’s important in swing trading to avoid buying stocks extended. However, some of the strongest stocks are the ones moving the quickest. That’s why we went with a half position on DDD stock even before we knew the why behind its move.
Swing Trading Example: DDD Stock
One of those exciting technologies that’s captured investors’ imagination is 3D printing. But it’s been a tumultuous year for stocks in that group, and decade for that matter. Three D Systems (DDD) is one of the leaders in the industry. DDD stock surged more than 500% earlier this year and then suffered a 70% correction.
But after support at its 200-day line (1) and a strong 90% bounce (2), the stock seemed to settle into a more normal 20% corrective phase (3). The calmer downtrend with volume falling is what put it on our watchlist.
When it broke above the downtrend line and passed 30, DDD stock started moving faster (4). At the time we didn’t know the reason, but because it had set up nicely, we wanted to participate in the strength. The stock was already up 10% for the day at the time of our alert to SwingTrader subscribers. We reduced the position size to a half to mitigate the increased risk.
As DDD stock continued higher, we learned it struck a co-development deal with CollPlant Biotechnologies (CLGN). The deal would use 3D printing technology to provide a matrix for supporting breast implants in reconstruction surgery. The promising technology certainly seemed lucrative. Still, after rising 10% from our entry, we took a third off to lock in some profits.
We also decided to let the remaining position run. With a sizable cushion in DDD stock, and some profits locked in, we could afford to give it some room.
Booking The Gains But Still Watching
The next two days saw DDD stock hold its impressive gains (5). It also set the lows of those two days as a reasonable line in the sand should the stock start weakening.
While the next day had a wider spread, DDD stock still managed to close midrange and with a 3% gain (6). Though the next two days (7) were inside that action, there did seem to be resistance around 40.
We finally shed the position on July 2 as DDD stock not only undercut the lows of the last week but also closed below the 10-day line (8).
However, that doesn’t mean you forget a stock forever. After finding support at the 21-day moving average line (9), DDD stock may still be worth watching to see if it can break a downtrend again. Watching what happens could be more important than the why.
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