One of the first stocks I added to my watch list on April 24, 2013 was IBM. IBM had just reported earnings and it was a terrible miss. As a swing trader, you’re not really looking at the news. However, anything that causes a dramatic drop in a quality stock should be looked at for a possible swing trade.
The stock took a nose dive the following two days sending it into oversold territory according to the stochastics technical indicator. After the second day of selling, the stochastic indicator showed a reading of 4.2. Typically, a stock is oversold when the stochastic reading dips below 20.
On April 23, the stock rebounded nicely and made a possible swing low setup. My first scan began on April 24 so I missed this setup. It was already forming a nice swing low and I added to my watch list. At this point, the stock had moved too far from its lows to justify a position in the stock. My stop would have been too far from the current price. So, this will be a “paper trade”.
Today, the stock moved up with conviction across the 8 day moving average on slightly higher than average volume and closed just right under the 200 day moving average.
For my paper trade of 100 shares, I opened a long paper trade near the close on 4/24 (the scan date) and set my stop at slightly below the low of 4/22. I would have scaled out half of my shares today near the close of the day because of the huge candle today. Gains as of 4/24 would have been $744.
As it rests slightly below the 200 day moving average at the close, I would be cautious of a pullback. I would move my stop to 196.50 which was the high on 4/19. I am hoping that will serve as resistance for now.
Since the price has entered the gap down, I’m looking for it to fill some or most of the gap before a pullback. I’d raise my stop daily on any up days and scale out more of my paper shares on any big candles. Here’s IBM’s chart.
Diary Of A Swing Trader 