Netting PnL in Volatile Markets! ($WDC)

Hi folks!

We're back with another step by step AoT educational blog post. When I write these posts I try to align them with the current trades I've taken and focus on the current market environment at hand. This way they align with what's going on with the market now and not after the fact.

So this week I thought it would be a great time to step back into the topic of market volatility and how I try to navigate that consistently.

Naturally volatile markets tend to trade faster in terms of price action and this attribute alone can lead to traders overtrading. Price is moving fast and so is your PnL. Often a trader will get a few good trades out of a market like this but their tendency to overtrade will eventually catch up reversing that progress and often leading to drawdowns far outside the mean of what that trader is use to. This is where things can spiral out of control. So lets take some time today to step back and mitigate this phenomenon to hopefully make these markets a little more manageable and more consistent from a trading perspective.

"One great mistake the man makes who watches the ticker all the time is that he trades too often" - William D. Gann

I shared some experienced knowledge on this subject earlier this week which aligns with adaptation to pivoting markets and character change as markets consolidate and rotate. Playing it safe, playing on the defense side is sometimes required when you start seeing red flags. When it comes to stocks, you'll never go broke playing it cautious when you see red flags.

This is exactly what I meant when I sent out this tweet a couple of days ago:

So how does all of this work into my strategy and how have I deployed it into the real world?

As you know one of the Art of Trading's core strategies is the Top Pick of the Week. The Top Pick of the Week is usually a fantastic barometer for how the market is trending and pivoting. Naturally the strategy catches long trends in the market but also sees early signs of pivots if it gets back to back to back weeks of losses or underperformance.

The strategy can be tightened up with limit orders for the initial entries and early half sized or full sized exits into quick runs of strength and that's exactly how I've managed it so far this year.

Studying the trade so far this year basically highlights where the market has been extraordinary strong and on the flip side, choppy at best. To date the AoT Top Pick sits at +53.39% for 2026!

This past month from June 20th or so and forward highlights the up and down of the market both on an index chart but also within the top pick performance.

This is where "There are times when traders have to adopt a less offensive strategy and adopt a more defensive approach..." comes into play! The $WDC Top Pick from this past week is a fantastic example of that!

This is how we managed that trade:

Tuesday's action in WDC was the first red flag I saw in the setup. It gapped up +6% on Tuesday morning when we smartly (with benefit of hindsight) closed half the position. (As many AoT members know I always like to close a portion of my trade(s) on a gap up open). 

Locking in about +6% gain, holding the remaining half until Friday's close. 

Here's the first sell alert for $WDC:

The initial plan was to hold remaining half position until Friday's close however due to the suspiciously weakish action on Tuesday, I was willing and ready to sell remaining half on Wednesday's open had there been no upside follow-through! 

I woke up early on Wednesday morning to watch the $WDC and peer group action in pre-market. I noticed $MU $WDC, $SNDK, $STX were all gapping up in pre-market. 

$SNDK and $MU which are considered to be the leaders in this A.I. space. $MU and $SNDK both were green in pre-market, as we started to approach the opening bell, $MU and $SNDK turned red and actually started dropping fast. In the meantime, $WDC was green in pre-market but it also started fading and losing steam but still green, unlike $SNDK and $MU. 

The speed at which $MU and $SNDK turned red, I saw this as a major red flag, not only for $WDC but for the entire Semiconductor sector and A.I. ecosystem stocks as a whole. 

$WDC opened flat, went green briefly and immediately turned back red and started sliding. The initial red flag on Tuesday's close, turned into two red flags on Wednesday pre-market. After first 5 minutes of Wednesday's open, it was clearly time to abort the mission and play defense as all setups were clearly failing! 

Here's the sell alert for AOT members on Remaining HALF position in $WDC: 

Looking back on that crucial decision to sell the remaining half position in $WDC;

As you can see, that decision to trust your analysis and take the cautious path as many peers in the same sector were failing, ended up making this trade profitable. Where as if it were held and those red flags weren't taken seriously this is a green trade that would have went well into the red!

$WDC went on to drop about 20% from where we sold it very early on Wednesday morning! 

"Playing it safe, playing defense is sometimes required when you start seeing red flags. When it comes to stocks, you'll never go broke playing it cautious when you see red flags."

I hope this quick educational post was helpful! 

Happy trading