A common characteristic of tough markets is that you'll see some stocks maintain their strength and even offer setups. But then it seems that a poor market starts picking off even the best stocks. That was why our venture into Tradeweb started with a smaller position and didn't last long.

Tradeweb Strength In Market Downturn

At the start of the year, Tradeweb Markets (TW) began a shallow cup that was only 14% deep. When it popped above its 50-day moving average line (1) on Feb. 21, it was on a day when indexes were taking a hard hit and started to accelerate in their latest decline.

As indexes continued to pullback, Tradeweb did as well. But it held support at its 50-day line and retained its gains (2). It's actually constructive for a stock to have a final pullback before moving. As it surpassed the Feb. 21 high, we added it to SwingTrader (3).

Our venture came with some caution. The Nasdaq composite had pulled back to its 200-day moving average and the market was looking sick. Financials, like Tradeweb, were holding in better.

Still, it wasn't an environment where we were willing to risk a lot, so we decided to start our stock positions at half size. This gives you a foot in the door and allows you to get feedback from the market. If you make progress, you can add more to your current positions or spread out with more positions. If you can't get anything to work, you go right back to cash and your smaller positions reduce the hit to your portfolio.

Struggling Leaders Give Important Clue

The next day, Tradeweb moved strongly to start and we had a 4% profit from our entry at the peak of the day (4). Normally, we would be trimming a position to lock in some profits. But when we start with smaller positions, trims can make the position too small too quick to make much of a difference in the portfolio.

However, when Tradeweb reversed off its highs, we had reasons to back away. The Nasdaq composite undercut its recent low and fell below its 200-day line. The strongest stocks, like Tradeweb, were showing downside reversals. The stocks that were holding up the best were in defensive areas. Consumer staples like Coca-Cola (KO) were about the only things having a good day. The market gave a clear signal that the appetite for growth was souring.

Here's How Difficult Times In The Market Can Be Easier For Traders

We still had over a 1% profit on Tradeweb and so we locked it. We got the feedback from our probing position and it told us to stay out.

Market Corrections Require Fast Action

If we had waited even one extra day, that profit would have disappeared (5). Even stocks that held up well on March 3 didn't look so hot on March 4.

While Tradeweb is still holding above its 50-day moving average line, there's a graveyard of leading stocks that were doing the same and have been slowly picked off.

The lesson? Poor markets might offer decent looking stocks. But with the odds of success so stacked against you, smaller exposure and quick reactions can keep you from losing capital unnecessarily.

More details on past trades are accessible to subscribers and trialists to SwingTrader. Free trials are available. Follow Nielsen on X, formerly known as Twitter, at @IBD_JNielsen.

YOU MAY ALSO LIKE:

Want To Know Our Swing Trading Strategies? Watch This Weekly Update.

Calculating Position Size For Portfolio Management

How This U.S. Investing Championship Leader Uses Market Calls To Profit

Follow Premarket And After-The-Open Action With IBD Experts