The Art of The Trade: $SOXL Review
Hi Folks,
Last week the primary focus for Art of Trading members was $SOXL. From a technical trading perspective this trade had all of the hallmark qualities you would expect from a textbook technical trade. From the setup, price action, entry and exit strategies used this is definitely a trade worth of an Art of Trading trade review and this is exactly what we're going to review today!
As always I like to keep my trading and my technical trading reviews as straight forward and easy to follow as possible so I'll break this review down into sections that you can easily navigate into so you can study what interests you and save some time in the process as well!
This in depth, step-by-step educational will include:
The Setup - What made this technical setup appealing?
Targets - How do I set realistic short term targets?
Position Management - All good plans need an A, B, & C!
Member Feedback - Members share some thoughts!
Top Pick Yearly Progression - A look at where the Top Pick is at!
The Setup - What made this technical setup appealing?
Each weekend, I scan the market usually early Saturday or Sunday mornings, free of distraction and free of bias. Usually I'm looking for straight forward, standard technical setups. None of the extras.
Given how choppy and up and down this market has been the past 4 months concentrating on sectors as a whole instead of individual stocks has been the "easier" trade. As always taking a methodical, relaxed and straight forward approach to a new setup is generally easier then just jumping into anything and everything.
Taking all of this into consideration $SOXL was at the top of my scans last weekend for all of those reasons stated above. Its been slowing carving out a bottoming pattern, consolidating orderly all within the semiconductor sector making it a straight forward pick in terms of capturing the action of the entire sector instead of focusing on an individual name that may or may not perform as the sector gets rotated back into.
Ideally for a setup like this you're looking to get into a gap down open that falls within the price range set within the past 5 - 10 trading days. This way you minimize downside risk and you're not chasing a big gap up that could very well just fade.
Here was the trade plan going into Monday:
"We're going to buy $SOXL today's(Monday's) open.
$SOXL is down about 6% to 7% in pre-market which sets up an awesome entry to begin the week. (Assuming the premarket gap down remains until open).
$SOXL (long setup): Forming an orderly bottoming pattern in recent weeks. Broke out nicely two weeks ago. As with most bottoming patterns, we want to focus on buying dips back into pockets of support rather than chasing strength."
Following this plan an entry was made on the gap down open. and although $SOXL traded down lower on the day price remained well inside of the "pocket of support" and by day end the ETF had traded right back into the mid-zone of that pocket keeping the trade on, alive and well!
*Studying and understanding the price action of a stock before your entry is critical in order to set proper position sizing and stops. Otherwise you'll size too big or too small and your stop may fall within the Average True Range (ATR) of the timeframe you've entered!
Targets - How do I set realistic short term targets?
Targets are always a "tricky" subject, hence "The Art of The Trade". Several key factors often need to be considered while setting targets. My number one consideration for setting short term targets is "where has the market been and where is it likely to go?!". I'm not expecting or anticipating to hit a homerun on every single trade that I put on, in fact that's not my expectation at all. In the spirit of consistency I'm looking to make a base hit over and over again. Consistently landing base hit trades comes a lot more often then that one home run!
Think of it this way if you consistently put on trades that yield 2% - 5% and you're able to consistently see that though, price action within a 2% - 5% channel is much more common than anticipating 15% - 20% on each one of your trades and you know as well as I the homeruns don't come often. So slowly and methodically stacking base hit after base hit adds up over time. The trades tend to be shorter and more consistent.
The target outlined to AoT members was $160 to $170 last week. Which was a modest 6% - 10% move well within $SOXL weekly ATR.
Position Management - All good plans need an A, B, & C!
Taking into consideration the price action from the Monday where $SOXL traded a 10% range from the high into the low and the entry of the trade sitting at that days open ($148 level) any sort of strength moving forward later into the week would be wise to sell into to reduce the volatility exposure on the trade.
These considerations need to be taken into account when you're looking to make a base hit. Otherwise you can become paralyzed within the trade as you watch price move dramatically each day. The feeling of being stuck in a trade generally doesn't lead to good decision making on the position, especially if it continues to reverse against you.
In the trade example from last week ($SOXL) I used Tuesdays strength to book a little profit and reduce the position, just incase the volatility continued later into the week.
Reducing your position size in tiers is good practice. I like to reduce by half in most cases.
Staying nimble and booking small consistent gains in markets filled with volatility is absolutely critical for any sort of consistency. Get in the mindset and habit of doing this. Trading plans on paper can look great but you must adapt and take what the market is willing to give you. Have a plan but an "If/Then" to go along with it!
All good plans need an A, B, & C!
As the trade progressed later into the week the daily trading range within $SOXL began to tighten as volatility began to wane - This is a good thing! Boring trades can become some of your best trades and with the reduction in position size on Tuesday it made it that much easier and "stress free" to sit through.
Very early on into the trading day on Thursday I shared these observations with AoT members. Frankly speaking the tightening of the trading range is often "the calm before the storm" - in this case the storm being a good thing! My confidence with this trade was heightened at this point!
The patience and technical aspect behind the contraction of volatility and price paid off! Mid day Thursday through Fridays open $SOXL rallied $35 from lows to highs.
"From contraction comes expansion!"
Strength was happily sold into Friday premarket and through the Friday open in order to book another strong base hit for the AoT Top Pick of the week! Many members made off nice with this trade last week!
This trade is a textbook example of spotting the setup, methodically taking an entry, modifying the position to reduce risk into strength, patiently waiting and observing price action and selling the final portion into your well thought out and realistic target zones.
Not all trades are going to work out perfectly but consistently stacking the deck in your favor and trading what the market gives you will often result in trades that little by little end up being a lot!
Member Feedback - Members share some thoughts!
I try to keep the Art of Trading an open book through this blog and through encouraging members to share feedback both privately and publicly. Here is some great feedback last week that I'd like to share here:
Thrack is an AoT member who has followed the Top Pick since its inception and has become very skilled at taking advantage of the Top Pick weekly ideas and often turning them into his own. Trading closely to the spirit of the Top Pick strategy but adding his own style, entry and exit tactics to get the most out of it!
AoT has many experienced, long time members but we also have many new members who follow along closely too!
AoT Top Pick Yearly Progression - A look at where the Top Pick is at!
Speaking on this years consistency inside the Top Pick and the focus on the "base hit" strategy. The Top Pick has been making steady progress all year long. Here is a quick overview of that progress:
AOT Top Pick Strategy +78.41% YTD!
Week 39: $SOXL +7.10% (Trade details in link below)
2026 YTD: +78.41%
2025: +10.19%
2024: +37.46%
2023: +131.86%
2022: +115.74% (Bear market year)
As always you can review the weekly Top Pick entry at this link HERE
Ok folks I hope this guide helped shed some light on the way I take trades into consideration, the planning of the trade, altering plans as the market flows and seeing great trades through without losing patience!
Trade along with me and other talented AoT community members today!
Cheers and happy trading!
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