Best of the BattlePlan: Swing Trading the Palm
Stocks are off the worst levels of the morning, though they remain in the red following Turnaround Tuesday’s strong reversal.
It’s been a volatile week in the TradingMarkets BattlePlan. In large part this has been due to the presence of a number of energy stocks that we picked up in the first week of September. Recall that the first week of September was a particularly rough time for energy stocks. The XLE
(
XLE |
Quote |
Chart |
News |
PowerRating), the Select Energy Sector SPDRS, for example, were down for eight consecutive days between August 28th and September 9th, creating a large number of candidates for trades to the upside.
Some of the trades worked out better than others. But one of the more interesting trades we took in that period was not an energy stock, at all, but was instead a technology stock: Palm Inc.
(
PALM |
Quote |
Chart |
News |
PowerRating). Ironically, Palm Inc. was picked just as the correction in energy stocks (per the XLE) was ending.
PALM appeared on our radar on September 9th. The stock had a Short Term PowerRating of 9 and a 2-period RSI of 4.44. At the time, PALM had been down for five out of the past six days and, though still trading above its 200-day moving average, the stock had closed below its 5-day moving average for five days in a row leading into September 9th.
Out of all the potential trade candidates for that day, Palm Inc. stood out as the most attractive. We set our standard suggested entry range of between 2-6% below the stock’s last close, providing a range from between $6.71 and $7.00.
While most of our traders tend to take positions at the higher end of the range, we like to remind traders that the biggest trading rewards often come to those traders who take positions at the lower end of the range. This relies on deeper pullbacks – and tends to result in fewer overall trades. But the gain per trade tends to be greater, significantly greater.
In the case of PALM, traders who placed limit orders below the stock’s previous close on September 9th were for the most part filled, as PALM slid as low as $9.88 on September 10th.
On September 11th, PALM closed up sharply higher at $7.27. Yet because this close was not yet above the 5-day moving average, traders were encouraged to remain with the position. Two days later, on September 15th, traders long PALM got the close above the 5-day moving average we were waiting for and exited the trade on the following open at a price of about $7.34.
Traders who took positions at the top of the suggested entry range made a little under 5% on that trade. Traders who took positions lower in the suggested entry range did even better – though PALM did not pull back all the way to the bottom of the range at $6.71.
Not every trade in the TradingMarkets Battle Plan will produce a near-5% winner in less than five days. But the types of trades we take in the Battle Plan are all the sort of high win-rate, low drawdown trades that we have been teaching and sharing with traders for years. These trades embody our core trading philosophy of buying pullbacks rather than breakouts, of looking to buy strong stocks that the market has put on sale instead of the average stock that is already showing a lot of buying interest.
If you are interested in learning more about our unique approach to swing trading, then try a free trial to the TradingMarkets Battle Plan today. Every morning before the open, the TradingMarkets Battle Plan give you an overview of the coming market day, as well as insightful analysis and the sort of stock and exchange-traded fund trading opportunities that short term traders can profit greatly from.
Don’t wait another moment! Click here to start your free one-week subscription to the TradingMarkets Battle Plan today!
David Penn is Editor in Chief at TradingMarkets.com.