Trade long enough and eventually you will have a stock that goes up higher and faster than you expected. That's what happened with AMD stock. Our swing trading strategy? Sell into the strength. It worked well in this case and AMD stock gave us a chance to get back in shortly after.
XSwing Trading Example: AMD Stock
Advanced Micro Devices (AMD) is no stranger to SwingTrader. In 2020, we had five out of six successful swing trading attempts in AMD stock. But for most of 2021, it was in a downtrend with a lagging relative strength line.
AMD stock did form a cup with handle recently and started moving after its last earnings report (1). It initially wavered in the premarket and opening minutes. But once it passed the previous day's high and the first hour high, it joined SwingTrader at 94.61. By the end of the day, we already had over a 4% profit from our entry and we took our first third off into the strength. It was up 7.5% for the day on volume 244% above average. The relative strength line shifted from its downtrend to a move into recent highs (2). Apparently the global chip shortage wasn't causing concern here.
AMD stock didn't stop there. The next day it was up another 5%, and then another 3% the following day (3). With over a 10% gain in just a few days, we took another third profit. Meanwhile, the volume continued to track heavy, either doubling or tripling its average. This wasn't a thinly traded stock to begin with so it amounted to over $10 billion in dollar volume in a number of days.
Getting Out While The Getting Is Good
As much fun as it can be to watch a stock skyrocket, moves that go straight up aren't sustainable for long. In just over a week's time we were up over 27% from our initial purchase with the majority of the profit booked. It was time to think about locking in the remainder. At its peak level of 122.49, AMD stock was more than 10% above its 5-day moving average line (4). So even using that as a line in the sand would give up a lot of profits.
Is Nvidia stock setting up another buying opportunity ahead of earnings?
So we removed the final third at 120.78. No need to be greedy. We mentioned in our alert that it could be kept for a position trade. Given the cushion on AMD stock from the entry, a position trade could give it the room to pull back quite a bit before it looked abnormal.
Another Chance for AMD Stock?
AMD stock fell quickly from its peak. Waiting for a close below the 5-day moving average line (5) meant giving up 8.8% from our final exit.
Often with that much cushion, we give stocks more room and use the 10-day line. But when a stock jumps that fast, the 10-day doesn't have time to catch up. In this case, that would have led to an 11.8% fall in AMD stock (6).
So our exit on AMD stock was timely. Even better, the drop from the top was pretty orderly. Volume eased and the stock still retained the bulk of its fast move up. We continued watching it and entered it again on Friday at 108.56. We aren't expecting the same kind of fast move but even a return to its highs could provide a decent swing trading profit.
More details on past trades are accessible to subscribers and trialists to SwingTrader. Free trials are available. Follow Nielsen on Twitter at @IBD_JNielsen.
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