Nvidia Springs Again – A Low-Risk Setup With 17% Upside

Nvidia has presented us with another potential Wyckoff Spring setup. This is particularly interesting because we successfully traded a similar pattern in the stock earlier this year. That previous trade delivered a gain of approximately 22% before Nvidia eventually broke back below its 21-day exponential moving average and entered a short correction.

Chart Above: Nvidia daily price action showing the previous Spring trade and the current setup

The recent weakness has now brought the share price back towards an important support area and given us another opportunity to trade the same underlying setup.

What is the setup?

A Wyckoff Spring occurs when price briefly breaks beneath an established support level before quickly recovering back into the previous trading range.

The move below support can trigger stop-losses, shake out nervous holders and tempt traders into opening short positions. When price then recaptures the broken level, it suggests that the apparent breakdown may have been false. At FoundryStrat, we allow price up to two candles to recover back into the range. In this instance, Nvidia did not need the additional time.

Price undercut the previous low and then immediately bounced back above it. The stock has subsequently pushed higher on the first full day of the trade, providing some early confirmation that buyers are responding around this support zone.

A clearly defined entry and stop

One of the most attractive characteristics of this trade is the relatively small amount of risk required.

The entry is around the reclaimed support area near $196.50, with the initial stop positioned beneath the Spring low at approximately $189.50. That represents risk of roughly 3.6%.

The invalidation point is also logical. Should Nvidia fall back beneath the recent low, the Spring setup would have failed and there would be little reason to remain in the position. We are not simply placing a stop at an arbitrary percentage below our entry. The stop sits at the point where the market proves that our original trading thesis was wrong.

Around 17% back to the previous highs

Nvidia’s previous high sits around $231–$232. A return to that area would provide approximately 17% upside from the entry price, compared with initial risk of only around 3.5%.

This gives the trade a potential reward-to-risk ratio of close to 5:1. The previous high is not necessarily the final target. It is simply the most obvious area of potential resistance and provides a useful reference point when judging whether the initial trade is worthwhile. A strong setup should offer meaningful upside without requiring a wide or uncomfortable stop. Nvidia currently meets that test.

Managing the trade

The priority during the early stages is to avoid interfering with the position before the setup has had an opportunity to develop. However, once price begins to move decisively away from the entry area, we will look to reduce the risk.

Our initial plan is:

1. Allow the trade room to establish itself.

2. Move the stop to break-even once price has made sufficient progress. (Ideally the 21 EMA moves above the entry price and we can start to trail the stop without the price coming back to our break even point)

3. Begin trailing the stop beneath the rising 21-day EMA. (You could move the on the close of each trading day should the price be moving higher).

4. Remain in the position while price continues to respect that trend.

The aim is not necessarily to sell as soon as Nvidia reaches the previous high. We'll probably take some profits on the way up because if you're say 10% up, that's 2.5x your initial risk, and you'd want to be rewarded for the trade.

Should the stock build momentum, the 21-day EMA may allow us to stay with the move for considerably longer. This is how a trade with limited initial risk can potentially develop into a much larger winner.

Why the 21-day EMA matters

The 21-day EMA acted as an effective trend guide during the previous Nvidia trade. Following the earlier Spring, price advanced strongly and remained above the moving average for much of the move. The eventual break back below the 21-day EMA provided a signal that the short-term trend was deteriorating and helped us protect the majority of the gain.

We will apply the same principle here. As the position advances, the moving average should gradually rise beneath the share price. Trailing the stop below it gives Nvidia enough room to experience ordinary daily volatility while still providing a structured exit if momentum breaks down.

The previous Nvidia trade

The earlier Nvidia setup provides a useful example of how this strategy is intended to work.

Price formed a Spring near the April lows, recovered back into the range and then began trending higher. We sold one-third of the position into strength and eventually exited the remainder after price broke back below the 21-day EMA.

The trade captured a gain of approximately 22%.

There is no guarantee that the current setup will produce the same result. Every trade should be judged independently, and even the cleanest Spring pattern can fail.

However, the previous trade demonstrates the potential advantage of combining:

• A false breakdown beneath support

• A quick recovery back into the range

• A tightly defined initial stop

• Partial profit-taking into strength

• A trailing exit beneath the 21-day EMA

Final thoughts

Nvidia’s latest move has the key characteristics we look for in a Spring trade.

Price undercut a clear support level, immediately reclaimed the range and has now pushed higher during the first day of the position.

The risk is limited to approximately 3.5%, while a return to the previous highs offers potential upside of around 17%. That gives us an attractive starting reward-to-risk profile, with the possibility of capturing a larger move should Nvidia establish another sustained uptrend.

For now, the focus is on managing the position rather than predicting exactly how high the stock might go.

Should price continue to move away from our entry, we will look to remove the initial risk before trailing the stop beneath the 21-day EMA. The Spring has given us the entry. It is now up to the market to determine the size of the move.