Stock Swing Trades to keep an eye on, based on strong trending movement and the price finding support after a pullback. Stocks mentioned: $PIR $LITE
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 earnings, different order types, and stop loss and target levels that are based on the stock’s specific movements.
Practice in a demo account until you have proven yourself consistently profitable with the approach. Only then should any real capital be risked.
For further guidance on swing trading, see the Stock Market Swing Trading Video Course. Some of the stocks mentioned are a variation of the strategies discussed in the course, and I will explain how those variations work in the examples below.
Pier 1 Imports (PIR)
I don’t love the retail sector right now as a lot of these stocks are under strong selling pressure (but eventually that creates an investment opportunity, in some of these stocks). Pier One has been making some overall headway, though, mainly in late 2016. It had a very strong rally during that time, which to me signals the trend may have turned up. We also have a higher-high in February 2017 compared to April 2016.
The price has been consolidating since the start of March, earnings have already been released and the price had a false downside breakout but then snapped right back into the consolidation.
Options are to buy within the consolidation, looking for small upside breakouts in the $6.50 to $7 region. Alternatively, can wait for a breakout above the whole consolidation at $7.50.
On the chart I have marked the entry at $7 to $7.15. The price had broken lower, but than quickly snapped back, so once it started climbing back above $7 there is enough evidence there to take a trade (based on short-rally off a false downside breakout, and longer-term potential uptrend underway) and place the stop loss below $6.23 (I put it at $6.01, as this stock is volatile, and if you look at prior price action that stop loss should give enough room in case another false breakout occurs).
Target set at $11. Alter this based on how you interpret the chart. Alternatively, I get asked a lot about stop losses. The ATR Stops indicator can act as a good trailing stop loss. I have mine set to 6 ATR and an ATR multiple of 3 (for daily charts…on most stocks). If the price starts to rise, the indicator line will move below the price. As the price rises, that line can be used as an exit. If the price has a daily close below the indicator line, set a stop loss right below that daily close.
See other trade ideas on TradingView at VPTcory
Lumentum Holdings (LITE)
This one is a bit different, but is inline with the examples I have provided over the last few weeks that involve charts patterns. In this stock, over the last year we have a few examples of the price rallying, and then when it pulls back it forms a double bottom before rallying again. A similar pattern is playing out now. With the price having tested the support area from March, the expectation is that it will rally to a new high.
There is potential for a head and shoulders to form, but the risk/reward is good and we have seen this pattern play out before. The price is still in the buy zone based on the big rally from January to February. Once the price rallies above about $50, the ATR Stop indicator will be under the price. It can then be used as a trailing stop loss. This is beneficial if the head and shoulders (which is usually a reversal pattern, but not always) develops, as the loss will likely be smaller, or a small profit may even be attained. If the price keeps running higher, the target or trailing stop loss exit can be used. With the tailing stop loss, exit on a daily close below the indicator, by placing a stop loss right below that daily low.
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.