Eking Out Profits In A Sideways Market – Investor's Business Daily

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Last week’s column reviewed some swing trading principles for handling a sideways market. This week we’ll focus on some real-time examples from IBD’s SwingTrader.

First, it should be noted that there was limited activity in June because of the sideways action of the market. Only seven positions were on the current trades list throughout June and two of those were profits held from May. Avoid overtrading in a sideways market, otherwise even small losses can damage your portfolio if you have too many of them.

Another key strategy used throughout the month was taking profits quickly and not letting good trades go negative. Align Technology (ALGN) was one of the few stocks that hit a 5% profit goal and in that case half profits were taken June 2. It was on its way to a 10% gain but stopped short and quickly reversed. Rather than hope for a bounce, the remaining shares were removed to keep more than a 5% average gain for the trade.

In order to avoid losses, that might also mean getting rid of stocks due to a lack of progress. Taylor Morrison (TMHC) was ditched when gains were too slow to come. The stock was up 2.6% at one point after being added but was removed with the trade ending basically flat. Getting rid of the stock on June 21 as it closed below the 5-day moving average line avoided a 3% drop the following day.

Employing the quick profit-taking strategy led to only one trade being removed for a loss in June. Shopify (SHOP) was added on June 2 and was up slightly after a few days before getting clipped on the big sell off June 9. The loss was still kept small at just 0.87%.

A recurring theme for the month was that equities couldn’t quite hit the 5% profit goal and had to be sold before all the profits evaporated. Direxion Financial Bull 3x Shares (FAS) was a good example. This exchange traded fund (ETF) comprises banks, insurers and other financial firms. A lot of positive reversals in these stocks appeared on June 26 (1). This ETF provided a method of capitalizing on the sector move. Plus, the three-times leverage gives you more reward that you would get from an individual stock without the same risks associated with a single stock.

The trade was initially put on the watch list while it finished the cup-with-handle pattern but triggered a little early on June 28 as it broke the downtrend in the handle (2). The next day saw profits nearing the 5% profit goal early in the trading session but quickly reversed (3). Profits were booked at 1.3% as the ETF crossed back below the 50 price point for the second time that day. After being removed, FAS ended going below its buy point and could have easily turned into a negative trade.

Taking the profits early and being strict about small losses left June with an 86% win rate for SwingTrader. The average gain was 2.2% and the single loss was only 0.9%. The strategy delivered outperformance despite the sideways market.

More details on Past Trades are accessible to subscribers and trialists to SwingTrader. Free trials are available.


Watching From The Sidelines Is Best In Sideways Markets

Keeping Losses Small Is Critical To Portfolio Progress

Swing Trading Strategies And Lessons