I want to share with you a swing trade setup that I think you’ll find interesting. Actually, the setup itself is nothing out of the ordinary as far as a swing trade goes, it’s where the setup occurs that makes for something intriguing. Let me explain…

A common swing trade setup is to buy on an upside reversal, often after a stock has pulled back to a moving average or another point of support. What I’d like to point out is if you see an upside reversal in the handle of a cup with handle pattern, you may have an opportunity to ride the stock higher with any momentum generated by a move through the pivot.

The credit for this idea goes to Chris Gessel, who explained the details of the setup on IBDLive.

Dexcom Swing Trade Setup

Notice in the chart for DXCM, shown below, there is an upside reversal, bouncing off the 50-day moving average. What’s important to note is that the reversal is in the handle. If this continues upward through the pivot, we could get an additional boost in momentum.

Highlighted in the green box is the move through the pivot followed by an additional four days up. From the upside reversal, this is a nice move up in eight days, from $385 to $440, close to a 14% gain.

LRCX Swing Trade Setup

Here’s another good example, LRCX, which oddly enough occurred on the same day. After an unusually deep base of 47%, LRCX formed a handle, with the price heading down towards the 21-day moving average.

As with DXCM, once the stock made its move through the pivot, it continued the upward trend for another three weeks. The price went from approximately $304 to $356, close to a 17% gain.

Additional Swing Trading Resources