How We Swing Trade Great Growth Stocks
This weeks lesson is about the importance of keeping top stocks on your watch list and checking each day for the most bullish chart patterns.
Of course, the stock I’m referring to is ROKU. The stock of the year.
When a great entry point emerges, we enter a swing trade on a top growth stock like ROKU with a tight stop and a high win rate. Unfortunately, this is not something you can do reliably ahead of an earnings report. Especially during an earnings recession.
So instead, we look for a great technical pattern after earnings.
A Top Bottoming Pattern on a Good Growth Stock
In this case, we jumped in on ROKU on Monday. The stock formed an explosive bottoming pattern on Friday and reached the technical entry point Monday morning just over $120.
We talked about it Monday in the alert service. After breaking out of an explosive bottoming pattern on Monday it broke out of a second one on Wednesday.
Both technical setups met the requirements in the explosive bottoming pattern course for those checking for this rare but bullish technical pattern. Its almost as good as a high, tight flag chart pattern that meets all the criteria in our video course.
Generally, you do not see a 30% move out of an explosive bottoming pattern in four trading days.
But, hey, its 2019 – when anything is possible when trading the stock of the year.
ROKU soared nearly 40 points from the first technical entry point on Monday. About 30% in 4 trading days. Not bad at all. It even broke out of a cup with handle pattern on Friday.
The catalyst was an overreaction to a weaker outlook than many were hoping for, bullish Disney plus numbers and the announced Black Friday special on Roku devices.
On Roku’s website, you can see how they are riding the Disney plus coat tails. Buy one and you can also purchase other popular streaming services for the adults in the household including Netflix.
So the stock had a new catalyst as well. As an added bonus, the lower rates for longer growth stock crowd was enthused by a 10 year treasury yield starting to pull back after not quite making it to 2%.
This also helped other top growth stocks recently featured to clients including PCTY, PAYC and others.
This Weeks Key Takeaway
So, here is this week’s lesson. Just because a stock has a bad reaction to earnings doesn’t mean it can’t develop a top technical pattern soon after.
Also, a new positive catalyst can emerge at any time. So it pays to check your watch list and news links each day.
The explosive bottoming videos explain exactly how to do this each day to find explosive bottoming patterns ahead of the technical entry point.
The reason we wait until the bullish technical entry point is that our back-testing and trading experience tells us we can trade it with a tight stop-loss and high win rate with big upside potential.
Swing Trading Exit Strategy
Now that ROKU has taken off from multiple bullish technical patterns, a good exit strategy is a stop just below the prior days low. Taking some off there and then the rest on a rebound above the prior swing high if it we get a bullish candlestick pattern off the 9 EMA or 20 EMA.
This strategy worked well after the earnings eruptions and earnings flag trade in August. If it takes off again, we can put a stop a little below the prior days low for the remainder.
Buying Ahead of Earnings Releases
Getting in ahead of the earnings report would have resulted in being down 15% right away. If the news last week would have been bearish instead of bullish, that can quickly turn into a much bigger loss.
Not where we want to be when swing trading.
Earlier in the year we had some incredible swing trades out of multiple high, tight flag breakouts on ROKU.
The stock ran 35% to 50% after the earnings report and after the stock reached our technical entry point the next day. So, no, you do not have to bet the farm on a great earnings report and reaction to it.
After the trade plays out within a few days to a few weeks, we are on to the next trade. When trading, we do not want to sit on dead money for a few weeks and watch our stock go lower.
We like to wait for the great long-term trend, technical pattern, catalyst and the stock to reach an ideal technical entry point. So far, ROKU has not disappointed us this year and we have not had to sit on a 30% loss either hoping for the stock to come back.
Timing is everything when trading. So is patiently waiting for a great technical pattern and entry point.