As a potential stock market correction takes hold, how does that affect a swing trading strategy? We certainly get less aggressive and reduce exposure. Better to sit on our hands than overtrade in an unfavorable environment. But one thing doesn’t change. Taking profits into strength when you can. That consistent strategy kept a trade in PLTR stock positive.
Swing Trading Example: PLTR Stock
Palantir Technologies (PLTR) burst onto the scene last year as a high-octane initial public offering. With more than a sixfold move in under four months, PLTR stock needed a lot of time to digest its gains.
We gave PLTR stock a shot on SwingTrader Aug. 18 after an earnings gap led to a pullback and rebound from its 50-day line (1). Trading volume was the highest by far with the exception of the earnings gap. The low of the entry day seemed like a logical stop but gave us a larger risk percentage. As a result, we only did a half position for PLTR stock.
We took an early exit (2) and it eventually undercut our stop loss but did hold near that area. More importantly it continued to tighten up in its trading behavior.
Another Try For Palantir
The tightening continued for Palantir stock and on Sept. 15 it rejoined SwingTrader as a full position (3). Sure it was a point above our previous add. But we didn’t let the past trade influence what looked to be a positive setup for a current trade. Volume came in strong for PLTR stock and just kept getting stronger over the next few days (4). Also, the relative strength line was at its highest level in three months (5).
And why the full position? This time using the low of the entry day as our stop gave us a much smaller risk percentage at roughly 3.5%. No adjustment to position size was necessary.
We took off our first third of PLTR stock after hitting a 4% gain from our entry (6). Another third came off when it hit 8% profit (7) and as noted the volume kept getting stronger. As good as PLTR stock looked, the action of Sept. 20 shows the benefit of profit-taking into strength (8).
A gap down in market indexes hit growth stocks even harder. PLTR stock nearly wiped away all of its significant gains in a moment. We exited the final third of PLTR stock while we still had a 1% gain from our entry. Because of our earlier profit taking, our average exit price for PLTR stock showed nearly a 4% gain.
Not This Time
Palantir stock ended up getting support at its 21-day line but we didn’t try it again. Though it jumped right back to the highs of the prior week (9), it’s harder to get excited about a bounce from a one-day sharp pullback. Especially since the volume came in weaker.
The bounce was short-lived. Say you did attempt a trade off the bounce. It certainly would benefit from another round of early profit taking. Just a few days later PLTR not only lost support at its 21-day line but also its 50-day moving average (10).
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