Quick 18% Gain In 9 Days
The first touch of the rising 50-day moving average (or 10-week moving average) after a strong breakout is often a low-risk way to establish a position in a strong uptrend. The entry works well for both short and intermediate-term trades. Short term traders can usually sell the first test of the prior high or breakout above the prior high. Longer-term traders can use the entry to add to a position and hold for several weeks or more depending on the strength of the trend.
The trade discussed below was an official buy setup in our nightly newsletter The Wagner Daily. The commentary and first two charts below are taken directly from the July 3, 2019 report.
ROKU ($ROKU) closed with a bullish reversal candle on a pick up in volume near the 50-day MA. This sort of reversal in a strong uptrend is generally a strong buy signal, as it is the first pullback to the 50-day MA in a new uptrend.
The entry is a buy limit order which is placed just above the close to limit our fill price, as we don’t want to chase if there is a gap. The stop is beneath the low of the reversal candle.
The weekly chart below shows the bigger picture, which is a fresh breakout to new all-time highs and the first pullback to the rising 10-week moving average.
(end of commentary and charts taken from the report)
A Few Tips
For short term trading, the pullback to the 50-day MA works best if the price does not break the 50-day MA with an ugly candle before reversing higher. For longer-term holds, it is best to buy the first pullback to the 50-day MA in a new uptrend like $ROKU. This is important.
As with most good trades, $ROKU pretty much worked out right away after only one day of stalling, as it rallied 12% higher in three days before chopping around.
For many shorter term traders the initial surge of 10-12% could have served as the exit. We were willing to stock with the position a little bit longer due to the solid price and volume action from our entry. We also prefer to take profits of 15-20% or more.
After a few days of tight-ranged chop, $ROKU ripped to new highs on a big spike in volume, which allowed us to exit into strength with an 18% gain on a 9 session hold. The reason for selling is that we achieved a quick, near 20% gain in a short period of time with the stock headed into earnings early next month (August 7). We felt it was best to take the money and move on to our next trade.
The $ROKU trade is a quick review of one of many setups we put into play in our nightly report which is based on swing and position trading momentum stocks. If you would like to learn more about our style of trading click on the link below.
Sign up now to receive your real-time trade alerts, hot stock picks, and educational market analysis included with your Wagner Daily subscription.
As always, drop us a comment below to share your thoughts on this article.