Hi Folks,
Last week (04-04-2024) Art of Trading members closed out a recent trade that we made that returned a very strong 19.83%! In fact this was the strongest YTD trade we have made in 2024 and I think its worthy of a full review!
The stock we traded was $DELL and I want to walk you through the trade management, rationale, and execution of this trade here today!
I shared this same trade on my Traderstewie public X feed so if you took that trade idea from there this review will help with that too!
Recently $DELL put in a Power Earnings Gap (PEG) that faded lower for nearly 12 straight trading days. Usually in this circumstance this isn't what you want to see a PEG stock do but $DELL was different. It didn't fill the Power Earning Gap down, instead the 12 day pullback was more in a controlled manner and most importantly it pulled back and held into a key moving average!
$DELL pulled back and held the 20 day MA for five days all while building a strong falling wedge pattern that became tighter and tighter against the 20 day MA. This also aligns with the "Holy Grail Setup" trading strategy that we've covered in depth on my blog in the past!
"From contraction comes expansion!"
Now that we have gathered the technical characteristics that make up the technical setup:
Contraction of daily price range
Armed with this technical data we had a high probability, low risk, high reward trade on our hands. Art of Trading private members went long on March 20th @$109.20.
Here was the live alert for the trade:
The stop loss placement on this trade was quite straight forward. We simply pick a spot below the tightly contracted range that the stock traded against the 20 day MA with. In this case the low of that range was $104.66 so it was appropriate to place the stop slightly below that at $104.00. That placement would also coincide with the stocks failure to hold the 20 day MA if it were to trade back down into that range.
Its important to note that stop loss placement is an art within itself. You never want to place a stop within an expected trading range in relation to your timeframe. In this case the time frame used was the daily timeframe chart so we must respect the range of the contracted price range within the daily timeframe! Its very important to give your swing trades enough room to "breathe" otherwise you'll find that you may be getting consistently stopped out of perfectly sound trades because your stop is simply too tight.
The very next day $DELL followed through, rallying higher out of the contracted price range! Solidifying the potential reversal higher and adding confidence to the trade!
As the trade continued to developed through the first follow through day a new trading range was created between $111 - $115. A strong technical characteristic showing that the market was willing to sustain the price and create yet another contracted range for a potential continuation move higher!
A this point with our strong entry solidly in place there is no need to micromanage the trade. Many traders get excited when a stock starts acting strong and they often have the urge to "book big profits" before seeing the trade through for what it is. In this example raising your stop loss into $107 to reduce risk may make sense!
On April 2nd $DELL continued to show technical strength creating a tight and high inside day. Inside days are neither bullish nor bearish but in the case of $DELL while the market lost its previous day trading range to the downside $DELL was able to hold with in its previous day range and close strong! A relative strength characteristic!
A breakout to the upside from here would get the trade close to our original target. As the market started to become rocky planning an exit strategy into strength starts to make sense at this point!
On April 3rd I sent a live a alert to Art of Trading members. We booked half of our trade @$126.00 . Normally I would book half around 6% - 8% gains but the technical strength of this stock was outstanding so we remained patient with the trend!
Booking half of the trade in a choppy, listless market made sense. If the market picked up strength we would still be in half of the trade, keeping us in the trend, but if it were to follow through to the downside our risk was reduced by half!
On April 4th $DELL made it through our top end target allowing us to book the second half into strength while the market remained week! We booked the second half at $135.70! Nearly the top tick of the day!
Here was the live alert for the second and final exit:
From our $109.20 entry into our average two part exit of $130.85 this trade was good for 19.83% making it Art of Trading's biggest 2024 YTD trade.
The Art of Trading model portfolio is $100k in size with $25k positioning. We average about 2 concurrent trades on at a time. In this $DELL trade the PnL gain worked out to $4956.50!
Thanks for reading this step by step educational post! Try to apply some of the concepts from this trade into your very own!
