Trading can be intimidating for those who haven't done it before, or don't do it very often. At Wanderer we try to demistify the stock market. We make trading simple and straightforward for our subscribers. Wanderer Financial makes about 8 trades per month, with average hold times of around 11 days. When we issue a trade alert it comes complete with a Buy price, a Target price, and a Stop price. These numbers let you know exactly what to expect. They give our expected reward-to-risk for the trade, and more importantly they allow us to manage the risk for each and every trade. As all longtime traders learn, how you handle your losses, not your gains, will ultimately determine your success or failure in trading. Managing risk is our number one priority, always.
In April 2020 we navigated the Covid-19 markets, initiating 11 trades. It was a fairly typical month, so I'm going to go over a few of our trades here to give you an idea of what we were seeing, and how we managed risk in order to have a successful month.
On April 6 the stock market opened to a big rally. AAPL stock had recently showed signs of bottoming, and on that morning shot up through an important resistance level at both the 20- and 200-Day Moving Averages. We bought quickly as a momentum trade, placing our stop below the previous day's low. You can see the trade in the image below (the shaded area is the actual trade). The momentum did indeed carry the stock straight up from our entry at which point we were able to quickly begin moving our stop levels up. When the stock began to struggle at the 50-DMA, and ultimately drop below the previous two day's lows, our stop was triggered and we booked a 10.8% win.
With oil falling sharply and supply concerns looming, we became interested in this oil container shipping stock. As the stock broke out above its January high it presented an opportunity and we jumped in quickly, setting a stop back below that day's low. After a brief pullback the next day, the stock rocketed. When the CEO was brought on to CNBC to give his glowing review of the company's prospects, the stock shot off even further. As this was going on we were moving our stop price higher. While we were concerned that the news driven rally would quickly falter, we also didn't want to try and predict exactly where the top tick would be. By raising our stop price we were able to ensure we would lock in a large gain when the stock eventually peaked and began to drop.
As expected, the end came swiftly. Uninformed retail traders had piled in based on the company suddenly getting a bunch of airtime on CNBC. Once these new buyers had been exhausted, the stock was crushed. But because we were anticipating this and moving our stop price up constantly, we were able to lock in a 42% gain, selling the stock at $7.59 one week after buying it at $5.35 (blue shaded area of the chart is our trade). Within a week of our selling, the stock had dropped all the way back to $5.35 again. Without actively managing the trade we could easily have missed a 42% gain, and actually ended up with a loss.
Sometimes a trade just doesn't work out the way you thought it might. We bought AMAT on April 29 just as it broke out above the key resistance levels of the 200-Day Moving Average and the April 17 high. With a gap to fill up at $63.63 the reward-to-risk was substantial, however, we knew that if the stock was unable to follow through with its momentum we would want to back out quickly. We set our stop at $52.89, just a bit back below the breakout level. If that level was hit we would be out and could step back to reevaluate.
The very next day, AMAT dropped like a rock. For whatever reason the semiconductor sector was hit very hard that day. Our stop level was triggered and we were out for a 2.9% loss on the trade (trade in blue shaded area of chart). A perfectly acceptable outcome, especially when you consider that by the day's end the stock would close below $50 and $47 the next day. By having a stop level in place before the market fell, the decision to exit for a small loss was already made and done. No need to second-guess our decision, or to go searching for why semiconductor stocks were being hit so hard, just an automatic trigger of a preset stop-loss level that was determined before the trade was ever made.
We offer these April trades as an example of what can be expected from Wanderer Financial. Managing risk is our number one priority, and by doing that effectively every single day, we are able to produce strong results.