Swing trade ideas based on trending stocks, or stocks undergoing a trend reversal, for the week of February 2. Stocks mentioned: $LL $BRS $EAT $KSS $RAD
These articles are published Every Wednesday or Thursday afternoon (EST) and highlight one or two stocks that suit the trending strategy (and/or reversal strategy) covered in the Stock Market Swing Trading Video Course.
These articles aren’t meant to be trading signals. Rather they are meant to show the types of stocks I like the look of when it comes to the implementing the strategies discussed in the course. Do your own analysis and see if you come to the same conclusion. If you come across some other stocks you like, share them in the comments, along with how you found them (screener discussed in the course, screener you developed, etc).
There are usually multiple stocks that suit the strategy each week, so this is just a sampling. That said, finding one or two swing trades a week is ample. If you are trying to trade more, and your success rate is low, you are very likely overtrading and you need to be more stringent on what trades you take.
Based on how I am interpreting the chart, I will provide a risk/reward ratio, a box showing my entry and stop loss, and another box highlighting the price target I chose. Based on this, you can calculate your own entry, stop loss and target and see if you are in the same area (as outlined in the course).
Again, I don’t want these articles to be viewed as trade signals, but rather a learning device. There is a lot more to trading than just buying at price A and selling at price B. There is risk management, position sizing, trading psychology (sticking to a plan, etc), being aware of news, different order types, and stop loss and target levels that are based on the stock’s specific movements. Therefore, I don’t recommend you trade these stocks unless you know what you are doing. If you want to know what to do, check out the Stock Swing Trading Course, and then practice in a demo account until you have proven yourself consistently profitable with the approach. Only then should any real capital be risked.
The filtering criteria for these stock swing trade ideas include:
- more than 500,000 average daily volume
- stocks or ETFs, but no leveraged ETFs
- Priced above $5
Swing Trade Ideas
In the last few editions of Stock Swing Trade Ideas I have looked at trend trades. I cover two strategies in the Stock Swing Trading Course, and the other strategy is Reversals. Today I will talk a bit about reversals. These trades are not as frequent as trend trades. You will want to create a list beside your computer when you see stocks that have a big reversal. Keep that list handy and watch to see if the price action forms the proper pattern for a trading opportunity.
Lumber Liquidators Holdings (LL)
As mentioned above, I pick certain trades for their education value. This stock has a lot going on, but is really ideal for the Reversal strategy since we can find multiple pieces of evidence that tell us we should be looking for a short trade signal following the collapse in October/November. For a reversal we need a more than 50% retracement and consolidation, and we get that in late November (no other trade signals prior). The price has a bit of a spike up before the consolidation, therefore, there was some evidence to wait for a bit bigger pullback. The price drops (potential entry one) but then moves up (could have also gotten in here) before dropping again. The failure to move higher after the price tried to move higher twice (inside the big box) was a good indication the buying was out of steam. Place a target in the crotch of the up move–that target was hit fairly recently.
So why is this a reversal trade? We can see the price was rallying before the October/November drop. But it was also moving in a longer-term range. The price spiked above resistance, but then collapsed (false breakout). That was a good clue that the price could be under pressure over the next few months. The target for this trade is placed in the crotch because we can see that we are moving in a big range on the longer-term chart. While the selloff was big, that selloff happened to stall where the price stalled on a couple other occasions. So while momentum is down, there are some support levels below which could hinder the price reaching a very low target. Therefore, for a trade like this, put the target in the crotch and don’t get greedy. The range adds an extra dynamic. While it helped confirm the short on a reversal off the top of the range (and a reversal of the short-term trend, the range also needs to be respected in defining a target. You could put the target a bit lower, and there is nothing wrong with that, but since the price has shown a recent tendency to bounce off the $14.25 region, better to place the target a bit above that (and the crotch is a good place).
Reward:Risk = right around 2:1 (slightly less or slightly more depending on exact entry)
As for trades to watch for:
Bristow Group (BRS) saw a big rally late in 2016 which has likely reversed the trend to the upside. The price is currently pulling back. It is not in the trade area yet, but will be watching this one for a continued pullback and consolidation…and then a potential long.
Brinker International (EAT) has been crushed over the last few months. Watch for a rebound to the upside (wait for the trade area) for a potential shorting opportunity. Same with Kohls (KSS) and Rite Aid (RAD).
There are always some trades setting up for the strategies each day. But since screeners and filters aren’t perfect, sometimes trades can be missed. That why it is a good idea to write down potential trades as you see them…like in the examples above. Some may not end up fulfilling the strategy criteria, but at least if you write a few stocks down each day, you are more likely to have a steady stream of trade ideas for when you have capital available, and for when they set up.
Losing trades WILL happen. Don’t risk more than 1% of your trading account on a trade (risk = difference between entry price and stop loss price, multiplied by the number of shares). There is always a risk in trading, and you can lose much more than you expect (even when you think you are only risking 1%). Don’t risk real capital unless you know what you are doing, have proven yourself profitable in a demo account, and can financially handle the ups and downs that come with swing trading.
By Cory Mitchell, CMT
Disclosure: This article should not be viewed as investment advice, and is not a recommendation for you to buy or sell. These are trade examples of a specific strategy. Past performance is not necessarily indicative of future performance. Unless expressly stated, I don’t have positions in the stocks mentioned..they are just examples for educational purposes.